Falling real estate prices trigger fears of slowing British economy

 LONDON (AP):

Falling house prices and slowing retail spending are stoking fears that Britain's recovery from a deep recession is losing momentum, although the bad news was tempered by an improvement in the country's trade deficit.

Many analysts are concerned that massive public-sector spending cuts planned by Britain's Conservative-led coalition government, which it argues are necessary to get the huge budget deficit under control, are undermining consumer confidence.

A report from the Royal Institution of Chartered Surveyors released yesterday showed its first negative reading on house prices in a year, despite a rise in the number of properties for sale as buyers became more wary of the market.

The group's house price balance the percentage of members reporting a fall, compared to those reporting a rise, fell to minus eight per cent in the three months to July, from a positive eight per cent in the three months to June. It was the first time since July 2009 that the survey has found an overall decline.

Customers weary

A separate report from the British Retail Consortium showed that retail sales grew just 0.5 per cent in July, compared to a year earlier, down from a 1.2 per cent hike in June, and the smallest rise since April.

The group said non-food items such as homewares and furniture were the worst affected as wary consumers focused on essential purchases.

"Talk of public spending cuts is unsettling customers and they are concentrating on essentials," said the consortium's director-general, Stephen Robertson. "It's clear the recovery continues to need support."

Ian Perry, a spokesman for the Royal Institution of Chartered Surveyors, said the recent housing data "suggest that this softer trend will continue through the second half of the year."

Britain's economy grew by 0.3 per cent in the first quarter of the year, extending a shaky recovery for the second three months, but the outlook is uncertain.

The Bank of England is expected to downgrade forecasts for gross domestic product for 2011 and 2012, when it unveils its latest growth and inflation forecasts today.

The Conservatives won power in May at the head of a coalition government on a platform that included slashing Britain's heavy budget deficit, which is running at close to 12 per cent of gross domestic product, and debt levels. But headlines in recent weeks suggesting widespread public-sector job losses have caused alarm.

Analysts suggest that as bank lending remains constricted, despite Britain's major banks reporting a return to profits in the second half of the year, there is doubt that the private sector could step into the breach.

Countering some of the negativity, the Office for National Statistics revealed that Britain's trade deficit with the rest of the world narrowed to a four-month low in June after a rise in exports, providing encouragement that trade can make a strong contribution to the domestic recovery.

The total trade deficit narrowed to £3.3 billion in June, from a 22-month high of £3.8 billion in May, as exports of goods and services rose by 2.6 percent, outstripping import growth of 0.9 per cent.