London, April 3 (Bloomberg) -- U.K. house prices rose for the sixth month in seven in March,Britain's fourth-largest mortgage lender said, reinforcing doubt over whether the Bank ofEngland will cut interest rates this week. The average price of a home rose 1.4 percent to 85,077 pounds ($120,809) following a 0.8percent decline in February. The annual rate of increase slowed to 7.2 percent from 8.1percent, the latest monthly survey from Nationwide Building Society shows. Except for February, home prices have risen in every month since August, suggesting a revivalin the housing market following a lull in mid-2000. The figures may increase pressure on theU.K. central bank not to cut its benchmark 5.75 percent on Thursday. ``Clearly, given the strength of domestic demand, there are limits to what the Bank of England'sMonetary Policy Committee will feel comfortably doing in terms of cutting interest rates,'' saidMichael Taylor, a U.K. economist at Merrill Lynch in London. Rising house prices make home owners feel better off, encouraging them to borrow and spend.The central bank, which is charged with keeping inflation within one percentage point eitherway of 2.5 percent, monitors the housing market, a key source of wealth in the U.K.
Cut Coming?
Economists expect the Bank of England to cut its 5.75 percent benchmark interest rate aquarter point to 5.5 percent following a two-day meeting that starts tomorrow, though nine of 24polled by Bloomberg News last week expected rates to stay on hold. The central bank cut rates a quarter point from 6 percent in February, the first reduction in 20months, and mortgage lenders followed suit. Encouraged by expectations the bank will cutrates further to offset the slowing world economy, consumers snapped up property, drivingprices higher. Competition has also fueled the housing market, as leading mortgage lenderssuch as Nationwide and Halifax Plc unilaterally cut rates to increase market share. House prices soared 2.3 percent in March 2000, so the annual rate of increase in March 2001stood at its lowest since July 1999. Nationwide renewed its forecast that house prices will rise7 percent this year, following a 9.3 percent increase last year. In the first quarter, prices rose 3 percent following a gain of 2 percent in the fourth quarter. The annual increase through the first quarter slowed to 8.1 percent from 9.4 percent.
Lackadaisical London
Almost all U.K. regions saw ``healthy'' growth in house prices in the first quarter, boosted byfalling mortgage rates and rising employment, Nationwide said. The main exception wasLondon, where prices barely budged. That reduced the annual rate of increase to 5.6 percent,the smallest annual gain of any U.K. region, from 13.1 percent in the fourth quarter. Nationwide said plummeting share prices -- Britain's benchmark FT-SE 100 index droppedalmost 9 percent in March on concern about the outlook for corporate earnings and the U.S.economy-- made workers in London's financial-services industry less confident about buyinghomes. In recent years, bonuses paid to bankers and brokers have helped to drive London priceshigher. The collapse in share prices is unlikely to have much impact outside of London,however, unless it signals a downturn in exports to the U.S. and other slowing economies,which could affect the industrial regions of Scotland, northern and middle England, Nationwidesaid. Rural home buyers put house hunting on hold last month, as an outbreak of foot-and-mouthdisease among U.K. livestock put swathes of the countryside out of bounds. Even if theshutdown persists, U.K. house prices as a whole will still rise as much as 6.5 percent thisyear, Nationwide forecast.