House prices jump, confidence rises

The Nationwide building society said house prices rose by 1.2 percent this month, more than twice the 0.5 percent gain seen in December and the biggest advance since August. Analysts had forecast a 0.3 percent rise on the month.

That took annual house price inflation to 8.6 percent from 5.9 percent last month, the highest since October 2007 and following double-digit declines in many months last year.

And GfK NOP's consumer confidence index rose 2 points to -17 this month to stand 20 points higher than the same month last year, with 3 out of 5 components higher than December.

That may provide some comfort to Prime Minister Gordon Brown whose Labour government is hoping for an economic recovery in time for an election expected in less than 100 days.

But so far opinion polls point to victory for the opposition Conservatives after 13 years of Labour rule. Figures released earlier this week, showing Britain only just scraped out of recession at the end of 2009, have cast doubt on the prospects of a significant turnaround before an expected May 6 election.

Still, the country's housing market, whose fortunes have often been closely tied with consumer confidence given a very high level of home ownership, appears to be returning to health after the ravages of the credit crunch.

"Unless there is a fall in property values in February, annual house price inflation is likely to move into double-digit territory next month for the first time since May 2007," said Martin Gahbauer, Nationwide's chief economist.

Analysts are concerned that the housing market could yet suffer a setback given the fragile state of the economy.

"The key question now is what will happen during the rest of 2010," said Colin Ellis, economist at Daiwa Securities. "But if prices just hold steady, or even decline gently, that will still imply a smaller adjustment than many think is necessary."