House prices higher than a year ago

Mortgage lender Nationwide said house prices rose 0.4 percent in October, leaving them 2.0 percent higher than a year ago in their first annual rise since March 2008.

Separately, pollsters GfK NOP said their consumer confidence index rose to -13, its highest since January 2008, reflecting an improvement in Britons' perception of economic conditions over the last year and of their personal finances going forward.

But analysts questioned how long the trend would last, given the bleak outlook for jobs and wages. While surveys have pointed to an upturn for several months, Britain was stuck in recession in the third quarter, marking its longest downturn on record.

"Like most other commentators, we remain cautious about the outlook for house prices, as much of the recent increase is likely to reflect reduced supply," said Colin Ellis, economist at Daiwa Securities.

Record low interest rates have prevented a flood of distressed sales, squeezing off housing supply and buoying prices. But prices could fall next year as rising unemployment puts more household budgets under pressure, economists say.

The Bank of England has held rates at 0.5 percent since March and pumped 175 billion pounds into the economy by buying assets with newly-created money to try to kick-start growth.

Policymakers will decide next week whether to expand the asset purchase programme. The central bank is not expected to raise rates until the middle of 2010 at the earliest.

Still, the government said Friday's data reinforced its expectation Britain would emerge from recession before year-end.

FALSE DAWN?

House prices have risen 4.6 percent this year, according to the Nationwide index, after falling almost 16 percent in 2008. That left the average house price at 162,038 pounds, 13.1 percent below its peak in October 2007.

But October's 0.4 percent rise was well below the average 1.2 percent monthly gain of the last five months.

"A moderation in the rate of house price inflation was to be expected, as the very strong monthly increases seen over the summer months were unlikely to be sustainable," said Nationwide chief economist Martin Gahbauer.

Still, the strength of the housing market appears to have helped bolster consumer's appetite to spend, with department store chain John Lewis -- a retail bellwether -- announcing a sixth consecutive rise in weekly sales on Friday.

And the GfK survey said Britons' propensity to splash out on a major purchase was its highest since November 2007.

John Lewis said sales in the last week were 9.1 percent up compared with a year ago, helped by strong demand for home wares.

But the figures were flattered by weak results a year ago and analysts warned the latest sentiment and house price improvements may not mean higher spending going forward.

Moreover, a temporary cut in value-added tax to 15 percent from 17.5 percent may be boosting demand.

"Even though low mortgage payments, reduced utility bills and easing inflation are boosting the purchasing power of a good many people, the fact is that consumers continue to face serious obstacles that are likely to limit spending for some time to come and, hence, the upside for growth," said Howard Archer, economist at IHS Global Insight.

"These notably include high and rising unemployment, low earnings growth and heightened debt levels."

(Additional reporting by David Milliken; Editing by Victoria Main)