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House price inflation falls to 2.7% in February

The annual rate of house price inflation dropped from 4.2 per cent to 2.7 per cent in February, Nationwide has revealed.

It says that the price of a typical house fell by 0.5 per cent during February. This is the fourth consecutive monthly fall in house prices and brings the annual rate of house price inflation to its lowest since November 2005.

Nationwide chief economist Fionnuala Earley says that although the trend in prices is clearly weakening, the size of the drop in the annual rate between January and February overstates the rate of cooling. She says it partly reflects the particularly strong increase in prices in February last year.

Earley says: “The 3-month on 3-month rate of price growth rate fell to -1 per cent in February, down from -0.4 per cent the previous month. The average price of a typical property now stands at £179,358, an increase of £4,653, or £12.75 per day, over the last 12 months.”

Nationwide says that energy and food price inflation are threatening the MPC’s 2 per cent CPI inflation target and seem likely to lead to another formal letter to the Chancellor later this year.

Earley adds: “The tone of the Governor’s remarks seemed to rule out the likelihood of aggressive rate cuts, at least for now, especially as the MPC is concerned about consumers’ inflation expectations. This is a particularly difficult time for the Committee as very little is known about how inflation expectations are formed.

“Consumers may trust the MPC’s ability to keep inflation in check and so moderate wage demands, but on the other hand, their future inflation expectations could be more sensitive to their own recent experience, which makes the outlook more fragile. The MPC will be watching developments in this area very closely.”

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