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UK data signals worst of downturn may be over


LONDON — British house prices rose for the second time in three months in May, the consumer mood steadied and a top retailer enjoyed its best week this year – further signs the economy may have begun the long road to recovery.

The government said its scheme to help the ailing car industry was already starting to bear fruit, having boosted sales by 35,000 since its introduction following the April Budget.

But analysts warned against getting too carried away, arguing that the Bank of England still has its work cut out to get a weak economy growing again before the end of the year.

The Nationwide building society said the average house price rose 1.2 per cent during May, the second rise since March when house prices turned higher for first time since October 2007.

The annual rate of decline slowed from 15 per cent to a nine-month low of 11.3 per cent.

“Today's reading, while stronger than expected, is broadly consistent with the improving mood music in the housing market,” said Colin Ellis, European economist at Daiwa Securities.

“However, in the last housing collapse there were several months where prices rose, so we should not get our hopes up too high. Any recovery is likely to be gradual and protracted, rather than swift and sharp.”

There were mixed, but encouraging, signs from a consumer confidence survey which showed the consumer mood holding steady in May, as an improvement in Britons' expectations for their own finances offset rising gloom over the economy.

The GfK/NOP index, which is conducted on behalf of the European Commission, was unchanged at -27 this month, ending three months of consecutive gains and coming in just below the consensus forecast of -25.

“This is still very low historically but is at least standing firm in the face of continuing depressed markets,” said GfK's Rachael Joy.

The Bank of England has slashed interest rates to a record low of 0.5 per cent this year and embarked on an unprecedented 125 billion pound ($200-billion) asset-buying plan to galvanise the economy, which shrank 1.9 per cent in the first quarter, growing again.

There have been some tentative signs that conditions are starting to improve, but the BoE has warned that a sustainable recovery will be difficult without an increase in bank lending.

Prime Minister Gordon Brown's Labour government is banking on an economic turnaround by the end of the year to help revive its political fortunes, but these latest signs of stabilisation in the economy are unlikely to outweigh the impact of rising unemployment in the remainder of the year.

Most experts reckon the economy will shrink by at least 3.5 per cent this year and a return to growth is likely to be some time coming, especially as unemployment is expected to keep climbing.

Consumer surveys have been difficult to interpret this year as more upbeat official sales figures have often contrasted with other more depressed measures.

British retail bellwether John Lewis, which sells everything from food to furnishings, said sales in its department stores rose 2 per cent in the week to May 23 compared with a year ago – it's best performance this year.

Food sales rose 6 per cent, giving a total sales increase of 4.5 per cent.

“We face a sterner challenge in this and future weeks, but this is still a very satisfying result,” the company said in a statement.

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