U.K. Hometrack House Prices Jump as London Values Surge: Economy

U.K. house prices rose for a third month in May on gains in London, according to Hometrack Ltd., which said the euro-area debt crisis will weigh on the market and limit further gains.

Values increased 0.2 percent from April as the supply of properties grew at the slowest pace since January, the London- based property research company said today. Prices in the U.K. capital jumped 0.6 percent. In Italy, the impact of the debt turmoil continues to undermine business confidence, which fell to the lowest level in almost three years.
The recovery in U.K. property may falter as euro-area officials’ struggles to contain the debt turmoil and ensure Greece stays in the currency bloc undermine consumer confidence in Britain and the 17-nation common currency region. The additional yield investors demand to hold Spanish 10-year bonds instead of benchmark German bunds rose to the most since the euro was introduced in 1999 today.

“Increased mortgage rates and mounting concerns over the impact of the euro zone on the U.K.’s economic growth and employment are likely to keep demand and prices in check as we move into summer,” Richard Donnell, director of research at Hometrack, said in the report.

From a year earlier, prices fell 0.6 percent in May, Hometrack said. The number of new properties listed with real- estate agents rose 2.2 percent in May from the previous month, when they increased 4.8 percent. The number of potential buyers registering with agents to browse listings increased 0.4 percent, the least since January.
Inflation Eases

Out of the 10 regions assessed by Hometrack, three showed price increases from April, three had no change and four showed declines. The average time on the market held at 9.3 weeks, with the average for London the lowest, at 5.1 weeks.

Ernst & Young’s ITEM Club said slowing inflation and the government’s increase in the personal tax allowance will ease pressure on consumers this year. It sees price growth slowing to match wage increases and said that Britons will have an extra 482 pounds ($757) for spending this year and 624 pounds in 2013.

The Bank of England, which stopped expanding stimulus this month, forecasts a “gradual” recovery starting later this year as slowing inflation helps ease pressure on households. The central bank held its bond-purchase target at 325 billion pounds on May 10.

“After the tightest squeeze on consumer incomes in a generation, the worst is now behind us,” said Andrew Goodwin, senior economic adviser to the ITEM Club. “Most people should start to feel a bit better off by the end of the year.”
Credit Conditions

A separate report by manufacturers’ lobby EEF said credit conditions for U.K. companies improved in the second quarter. A survey of 246 companies showed a net balance of 4.3 percent reported improved access to new credit over the past two months. Still, a measure of the cost of credit worsened.

“A greater improvement in the availability of credit after tentative signs of improvement at the start of the year is welcome,” EEF Chief Economist Lee Hopley said in a statement. “‘Increasing costs however remain a frustration, particularly the proportion of companies reporting higher fees.’’

Meanwhile, a deepening fiscal crisis in the euro area is affecting confidence, after Greece’s inconclusive elections on May 6 fueled concerns about a breakup of the 17-member area. The euro, which fell to lowest against the dollar since July 2010 last week, strengthened today as pre-election polls showed Greece’s pro-bailout parties gaining ground.
Italian Confidence

Italian business confidence fell more than economists forecast this month as the country’s fourth recession since 2001 deepened. The manufacturing-sentiment index dropped to 86.2, the lowest since August 2009, from a revised 89.1 in April, Rome- based national statistics institute Istat said. Economists had predicted a reading of 88.6, according to the median of 16 estimates in a Bloomberg News survey.

Swiss National Bank President Thomas Jordan said controls on capital inflows are among measures being considered by a government-led panel to stop the franc from strengthening if the euro-area debt crisis escalates.

In Asia, Bank of Japan (8301) board members said they need to counter the mistaken perception that central bank asset purchases will automatically increase, the minutes of a meeting last month show.

‘‘Members made note of some misunderstanding that the bank would continue to increase the size of its program in an automatic manner” until the BOJ’s 1 percent price goal is met, according to the record of an April 27 meeting. “They agreed that the bank needed to fully explain” that it made decisions “after carefully assessing the economic and price situation.”

Elsewhere, a report yesterday showed that profits fell at China’s industrial companies in April from a year earlier. Thailand reported today that industrial output in April rose for the first time in eight months.

There are no economic reports scheduled for today in the U.S., where markets are closed for the Memorial Day holiday.