Britain's housing market is turning down fast and retail sales are falling, surveys showed on Tuesday, in another sign that interest rates will need to fall further this year to shore up the economy.
The weak figures add to mounting pressure on Prime Minister Gordon Brown, whose first year in power has been tarnished by the failure of a high street bank and a raft of other bad economic news as a global credit crunch hits households.
Inflation numbers showing no acceleration in price growth in March gave some relief, although there is a real risk that the let-up will prove temporary as oil and food prices soar.
"The housing market is the key weak point of the UK economy and is likely to lead to wider weakness in the consumer, putting further pressure on the Bank of England to cut rates," said Dominic Bryant, BNP Paribas economist. "We would not rule out a May move." House prices are falling across Britain at their steepest rate in three decades, a survey from the Royal Institute of Chartered Surveyors indicated on Tuesday.
That added to figures last week from Britain's largest mortgage lender Halifax showing house prices fell in March at their sharpest since the early 1990s recession. The BoE cut rates last week to 5 percent, but the credit crunch has made banks reluctant to lend to each other and forced lenders to toughen up mortgage deals - meaning falls in official rates are not passed on to would-be house buyers.
The government is meeting banks and mortgage lenders to encourage them to pass on lower borrowing costs as there is now plenty of evidence that market turmoil is hurting consumers.
Like-for-like sales in British shops fell for the first time in two years and at the quickest rate in almost three years last month, according to the British Retail Consortium. "The survey strongly suggests that consumer spending is now starting to falter markedly in the face of mounting headwinds," said Howard Archer, an economist at Global Insight.
But some retailers are faring better than others. The world's biggest foodseller Tesco reported record profits on Tuesday and said there were opportunities to exploit as consumers become more cautious in their spending.
Brown said a US-style downturn must be prevented. "(We must) make sure that we can give people the confidence that mortgages will be safe and that we are in a position to steer the economy through difficult circumstances," he told Sky television.
But as the credit crisis drags on, the outlook is getting bleaker. Total job losses in London's financial district may hit 40,000, J.P. Morgan said, doubling its previous forecasts. That would equate to 5 percent of City jobs, compared with losses of 7 percent after the dotcom bubble burst in 2000-1 when there were fewer jobs.
Brown, whose popularity is at its lowest since he took over from Tony Blair in mid-2007, said he was working with the Bank of England on more measures to help. The BoE offered banks 15 billion pounds on Tuesday as part of joint action by central banks to ease the credit crunch. Economists also expect the BoE to cut rates twice more this year, but policymakers are concerned about inflation.
Official data on Monday showed manufacturers hiking prices at the fastest rate in nearly 17 years and cost inflation at a record high last month, although there are now signs retailers are having a hard time passing higher prices on to customers. Consumer price inflation held steady at 2.5 percent in March, data showed on Tuesday, weaker than expected and driving sterling down to a record low against the euro as investors raised their bets on the chances of further rate cuts this year.
The data will undoubtedly provide some relief to inflation hawks, but experts say the price scare is far from over.
"We expect CPI inflation to stay above the 2 percent target throughout the rest of this year and 2009," said Michael Saunders, an economist at Citigroup. "As a result, even with weakness in housing and retail sales - and soon, the overall economy - we continue to expect that the pace of Monetary Policy Committee easing will remain gradual.