Retail sales rise but house market suffers

|PIC1|Retail sales rose at their fastest pace in four months in May as sunny weather encouraged consumers to splash out, but a housing market survey revealed some of the worst conditions for three decades.

The Royal Institution of Chartered Surveyors survey showed house prices continued to fall at close to their fastest rate in at least 30 years, although sentiment in the housing market improved marginally in May,.

Industrial production data due out later on Tuesday was being watched closely for signs of a broader-based economic slowdown after figures published last month for March showed manufacturing output fell at its sharpest rate for six months.

RICS said its house price balance was -92.9 in the three months to May, against a record low of -94.7 in April. Analysts had expected further signs of deterioration in house prices.

In the high street, things were looking brighter, with the British Retail Consortium saying the value of retail sales rose a like-for-like 1.9 percent in May from a year earlier, after a 1.5 percent decline in April.

That was the strongest reading since January this year and one of the few pieces of data not to paint a gloomy picture of the economy in recent weeks.

The BRC said the improved retail performance was a result of the sunny weather in May and that underlying trading remained tough as people feel the pinch from rising household bills.

"After several mostly miserable months, warm sunny weather finally arrived early in May and helped lift customers' gloom," said Stephen Robertson, BRC director general.

The RICS housing data, which will be followed later on Tuesday by the government's own house price figures for April, gave no indication that homeowners are being forced into selling, but with more properties left unsold, falling prices will remain a concern for the Bank of England as it assesses inflationary pressure against slowing growth.

The ratio of completed sales to the stock of unsold property - regarded by some economists as a more reliable gauge of the health of the housing market - fell to 19.3 percent in the three months to May from 21.4 percent in April, as the market hit its worst conditions since December 1995.

Market watchers have been worried about the possible emergence of distressed sellers if mortgage arrears rise and employment drops, but Tuesday's data showed there was still no sign of the wave that battered prices in the 1990s.

Confidence in the outlook for sales, however, recovered slightly in May, with the net balance of surveyors expecting a drop over the next three months improving to -15 from -16.

There was also improved confidence on prices, though RICS pointed to a "widespread perception" that prices will fall further in the near term.

The retail sales data also showed that sectors associated with the housing market have been doing less well than other types of goods. Clothing stores did well because of the weather, as did sales of barbecue items and other summer foods.

Total sales, which include new floorspace, were up 4.6 percent on the year, also the strongest reading since January, after a 1 percent increase in the month before.