House prices grew at the slowest rate since 2013 in January, according to official figures that signalled the UK was heading later this year for the first fall in property values since the financial crash.
Average house prices in the UK increased by 1.7% in the year to January 2019, down from 2.2% in December 2018 and 5.1% in October 2017, the Office for National Statistics said.
If the trajectory of sliding prices over the past two years continues, the UK is expected to suffer its first fall in prices since the post-crash property slump of 2011 before the end of this year.
Most of the slide in prices has affected London as buyers have taken flight while Brexit uncertainty has deepened. London prices fell by 1.6% over the year to January – a bigger slump than the 0.7% seen in December 2018. This was followed by the east of England, where prices fell 0.2% over the year.
The Treasury’s official forecaster, the Office for Budget Responsibility, has predicted a fall in prices later this year based on a range of industry and official figures.
Figures from the ONS showed inflation was stronger than expected last month, with the consumer prices index rising to 1.9%, up from 1.8%. It said increases in food as well as alcohol and tobacco prices were offset by clothing and footwear prices rising by less than they did a year ago.
John McDonnell, Labour’s shadow chancellor, said the rise in prices in the midst of Brexit-related uncertainty “makes life even harder for people whose real wages are still below pre-crisis levels”.
He said: “A no-deal Brexit will increase food prices further – and yet the government has still failed to rule this out once and for all.”
Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, said food inflation was likely to increase further over the coming months, in response to increasing import prices, which rose 5.5% in January.
In addition, he said the energy regulator, Ofgem, will lift its energy price cap by 10% in April, boosting the headline rate of inflation by about 0.3 percentage points.
However, the headline rate of the CPI was expected to stay near the Bank of England target of 2%, although Tombs expects Bank officials on the monetary policy committee (MPC) to come under pressure to increase its main lending rate later in the year, assuming parliament accepts Theresa May’s deal.
“Inflation likely will remain close to the 2% target throughout 2019 as the cross-currents from falling goods inflation and rising services inflation cancel each other out.
“The rise in services inflation, however, will prompt the MPC to get ahead of the curve and raise bank rate from its still-stimulatory level before the end of this year to prevent inflation from overshooting the 2% target further ahead.”
Suren Thiru, the head of economics at the British Chambers of Commerce (BCC), said businesses had reported consistent increases in import prices, putting pressures on prices in the shops.
Unlike Tombs, however, he expects recent increases to fade as the year progresses.
“Overall, the UK’s weakening economic outlook is likely to ensure that any increase in consumer prices would be largely transitory and inflation is expected to remain close to the Bank of England’s 2% target for some time to come,” he said.
“With the current trajectory for inflation largely benign, there remains sufficient scope to keep interest rates on hold through this year, particularly against a backdrop of increasing anxiety over Brexit and slowing economic growth.
“The overriding priority must be for parliament to avoid a messy and disorderly departure from the EU, which would likely drive a marked drop in sterling and could significantly increase inflation and the cost pressure on businesses and consumers.”