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British house prices rose at their slowest annual rate in five years this month and look set to remain subdued due to modest economic growth and squeezed household budgets, mortgage lender Nationwide said on Wednesday.

House prices across the United Kingdom were on average 2.0 percent higher this month than a year ago, slowing from 2.4 percent growth in May. This was the weakest in five years, though less of a slowdown than the drop to 1.7 percent forecast in a Reuters poll.

In June alone, prices rose 0.5 percent compared with a forecast rise of 0.3 percent.

 “There are few signs of an imminent change. Surveyors continue to report subdued levels of new buyer enquiries, while the supply of properties on the market remains more of a trickle than a torrent,” Nationwide economist Robert Gardner said.

Nationwide expects house price growth for 2018 as a whole to slow to around 1 percent – a view broadly shared by Pantheon Macroeconomics economist Samuel Tombs.

“Tight supply, a healthy labour market and a continued lengthening of mortgage terms … will help to prevent prices from falling outright. But it is inevitable that house prices will grow at a slower rate than households’ incomes during a period of rising mortgage rates,” he said.

Most economists polled by Reuters expect the Bank of England to raise interest rates by a quarter of a percentage point to 0.75 percent in August, only the second increase since the global financial crisis.

 The pace of increase after that is expected to be gradual, as the BoE assesses the effect of Britain’s departure from the European Union in March 2019.

London’s housing market was hardest hit by the June 2016 Brexit vote, due to reduced demand from foreign investors and fears for the city’s financial services industry.

Tuesday’s data showed London was the only region of the United Kingdom to record an annual price fall in the second quarter, with average prices 1.9 percent lower than a year earlier, compared with increases of 4 percent or more in Wales and central England.

But London property prices still remained 50 percent above their level before the financial crisis, while in much of northern England there had been no overall increase over the past decade, Nationwide said.

Source: UK Reuters

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