The Brexit squeeze is starting to be felt as house prices dropped amid rising inflation. While an annual increase is still expected, it’s the first time since mid-2012 that back-to-back monthly falls have been reported.British house prices have fallen for a second consecutive month, data from mortgage lender Nationwide showed on Friday.
Nationwide said prices declined by a monthly 0.4 percent following a fall of 0.3 percent in March, which had been the first drop since mid-2015. The last time two successive months of falling house prices was reported was in mid-2012, suggesting Britons are starting to feel the impact of Brexit.
Nationwide economist Robert Gardner suggests that while monthly figures can be erratic and that a modest annual increase is still expected, the figures suggest British households are beginning to feel the pinch.
“While monthly figures can be volatile, the recent softening in price growth may be a further indication that households are starting to react to the emerging squeeze on real incomes or to affordability pressures in key parts of the country,” Robert said.
He added: “We continue to believe that a small increase in house prices of around 2 percent is likely over the course of 2017.”
A typical home in the UK now costs 6.1 times average earnings, close to an all-time high of 6.4 times in 2007, before the financial crisis.
Overall growth slows
The news comes as official data showed Britain’s economic growth slowing in the first quarter of 2017 to the weakest pace in a year. These figures come only days after British Prime Minister Theresa May announced a snap general election, to be held on June 8.
GDP expanded by 0.3 percent in the three months to the end of March, compared with output of 0.7 percent in the final quarter of 2016, the Office for National Statistics said in a statement.
“2017 looks set to be a year of slower growth, as higher inflation puts the squeeze on consumers’ real incomes ahead of June’s general election and the start of Brexit negotiations,” said Ben Brettell, economist at stockbroker Hargreaves Lansdown.
“The economy has surprised on the upside since last summer’s referendum, powered by a resilient consumer, but it looks like households are now starting to feel the pinch from the current bout of inflation.”
Suren Thiru, head of economics at the British Chambers of Commerce (BCC), agrees and believes Britain is entering a “sustained period of more sluggish growth”.
“Inflation is expected to continue to rise, increasing the squeeze on consumer spending power and firm’s profit margins, pushing growth lower,” Thiru warned.
“The BCC’s own Quarterly Economic Survey confirms that inflation is a key risk to the UK’s growth prospects, with businesses under increasing pressure to raise prices. Uncertainty over the impact of Brexit and the distraction of a General Election are also likely to weigh on economic activity over the near term.”