Britain’s housing prices are down again but still up for the full year, according to one of UK’s leading credit society.

Nationwide has announced that housing price have fallen in March by 0.6 per cent, it is the fifth consecutive loss and extends the loss of 0.5 per cent recorded in February.

Property prices are still up for the full year by 1.1 per cent the lowest growth in 12 years.

“However, prices are still 11 per cent higher than two years ago and 47 per cent higher than five years ago,” said Nationwide’s chief economist Fionnuala Earley.

The major concern about these figures is that housing prices are continuing to deteriorate at a stronger pace.

While it is not as dramatic as the double digit falls seen in the US, the US example shows that a reduction in house prices can have a dramatic effect on the wider economy.

Housing price is one economic indicator that many analysts look at when gauging Britain’s long-term economy health.

It is an important indicator because for many people their homes are their biggest investment and deterioration in price is a reduction in household wealth.

If housing prices do not recover then Britain, like the US, may face a more severe slowdown in economic growth that affects more homeowners in the UK.

Everyone is feeling the bite of a slowing economy; even banks are finding it tough as funds start to dry up.

According to the Council of Mortgage Lenders (CML) gross lending declined in February to £24 billion from £25.6 billion in January.

This has led many lenders to reduce their product ranges, increase their mortgage prices and, in some cases, to reduce their lending capacity,” CML direct general Michael Coogan said.

Banks are facing higher interest rates to fund their own loan book.

This cost is passed on to the customer.  This begs the question, what influence does the Treasury have against the raging tide of the free market?

The answer is not much.

A bank is like any other business, it must pass costs to its customers to maintain profitability. A bank that doesn’t will suffer in the current economic climate of low consumer confidence and high borrowing costs.

We are seeing the effect of high borrowing costs in other countries. In the US the Reserve Bank is lowering the interest rate but banks cannot follow suit and offer customers the same savings because of the cost of borrowing.

To combat this problem the Reserve Bank is offering cash to US banks to help sure-up their balance sheets.

Central banks are being marginalized by the power of the free market.

So this raises another question. Will higher base rates from the Bank of England help curb the inflation rate? Only time will tell…

A peak business group has looked into its crystal ball about economic growth and it has found some numbers.

While some analysts are laying low until more substantial data about the direction of the economy is revealed , CBI has claimed that the Treasury’s forecast of Britain’s economic growth in 2008 of between 2.25 and 2.75 per cent was optimistic and growth was more likely to be around 1.8 per cent.

CBI went further in its analysis stating that inflation was likely to top 3.2 per cent before being reeled in, sparking a reduction in interest rates in the second and fourth quarters of this year reaching a base rate of 4.5 per cent.

The group also stated that low economic growth is likely to remain throughout 2009.

Do you think this forecast is specific enough? It is amazing what can be stated when the forecasters are not held accountable.

The Treasury would be held accountable on its forecasts.

The CBI forecast is just one of the many forecasts available on economic conditions in Britain, there are many business and financial groups gazing into the crystal ball at the moment and there is very little consensus.

Some are claiming the worst is over, while others are still talking doom and gloom.

No wonder the average investor is becoming confused.

It isn’t helped by the mixed signals coming from market data.

Employment is strong, but business investment and confidence is down, also the economy is contracting but inflation pressure is up.

When will it end?

The latest inflation figure released by the Office of National Statistics suggests Britain’s homeowners might not receive any interest rate cuts in the near future.

The latest figures showed inflation at 2.5 per cent.  Well above the Bank of England’s comfort zone of 2 per cent.

This is the second rise in as many months with the figure rising from 2.1 to 2.2 per cent in February.

Inflation is notoriously hard to manage with the trends difficult to reverse and although there is a new method of calculating inflation by the Office of National Statistics it is clear that inflation is on an upward move.

If the Bank of England starts rising interest rates to stem inflation there is a real possibility interest rates will be increased several times before inflation is back under control, particularly within an environment of rising energy costs.

In economic conditions like these it is important for homeowners to recalculate their home loans and determine what they can comfortably afford if rates increase.

This is a pattern that is forming across most of the industrialized countries at the moment.

As rates rise more and more homeowners are suffering from mortgage stress.

Buyers should calculate their repayments at 3 to 4 per cent above current interest rate levels to ensure they will be able to maintain repayments when the official rate inevitably rises.

Britain’s road users have been given a reprieve from a taxation of filling the car at the petrol station.

Chancellor of the Exchequer Alistair Darling announced in his first budget, a six-month delay in implementing the two pence a litre fuel duty.

The fuel duty was scheduled to begin in April, but with crude oil prices near record highs the HM Treasury is trying to alleviate more upward pressure on pump prices.

The delay isn’t the slow death of the duty. In fact the treasury used the budget announcement yesterday to reaffirm its commitment to the proposed duty.

“The planned fuel duty increase of 2 pence per litre in April 2008 will be delayed until 1 October 2008. Main road fuel duty rates will rise by 1.84 pence per litre on 1 April 2009, and will increase by 0.5 pence per litre above inflation on 1 April 2010,” the statement said.

So, how does this affect the consumer?

Fuel and energy costs are a major chunk of a personal budget and it is also the most volatile expense.

The daily price changes can have an adverse impact on a personal budget and can be the difference in how much we save each week.

Increases in fuel prices also have a negative impact on inflation, not only does it increasing the price at the pump but it also raising the cost of food, clothing and other essentials.

Rising inflation also has a negative impact on the money that people can save.

A inflation calculator shows how our day-to-day budgets are affected by inflation and how rising costs can erodes our wealth.

After reaching record highs earlier this week of US$108 a barrel, analysts are wondering how high the oil price can go.

This uncertainty is compounded by the fact that OPEC has stated that it will not increase output because speculation is pressuring prices and the fundamentals haven’t changed.

Less than a decade ago the organisation was spouting that it would maintain oil around US$30 a barrel after coming off the lows in the early 90’s

We have seen the price triple that target over the past decade, and still they will not budge to increase output.

Could it be that the OPEC countries cannot increase output and they are already sailing hard into the wind?

Some analysts in the US have grave concerns about these figures, and even the International Energy Agency (IEA) has suggested higher prices were here to stay because of demand for oil from China and India.

Despite warnings from the IEA the OPEC president stated that output would not increase any time soon because the current record prices were artificially inflated.

Consumer confidence in Britain is on the wane according to a study by one of the county’s leading retail organisations.

The British Retail Consortium reported that retail sales were slowing. 

According to the report, sales roses by 1.5 per cent last month, this compares to a rise of 3.3 per cent in February 2006.

People were still shopping, but price was an increasingly important factor for most consumers.

“Shoppers are still very price-conscious and reluctant to splash out on major purchases, so discounting was still needed to tempt customers to buy,” the consortium reported.

Even with strong food sales the slowdown in consumer confidence should put downward pressure on inflation.

The Bank of England’s Monetary Policy Committee (MPC) has played a conservative hand lately.

It has maintaining interest rates to see how the fallout from the US affects the domestic economy.

But with consumer spending down and confidence falling, it should be enough for the MPC to consider dropping rates.

There is increasing instability however with increasing wage pressures and high energy prices rising costs.

For the homeowner it might be time to lock in an interest rate, or ensure that you have enough income to cover any interest rate increases.

Taxation reform is always a complicated issue for anyone trying to calculate the impact on their personal finances.

It is made even more difficult when the chancellor of HM Treasury decides to make a flood of changes in one day with the chance of more changes to follow.

Already there are 30 or so changes to Britain’s taxation system to be introduced next month, and this year’s Treasury budget is still to be delivered which could give taxpayers more surprises.

The chancellor has already come under fire from the financial sector about the changes to Capital Gains Tax (CGT).

So to minimize the impact the chancellor has decided to a “amend” the CGT reform to reduce the tax burden on entrepreneurs.

Now people have an allowance of £1 million, which is taxed at 10 per cent rather than the proposed flat tax rate of 18 per cent.

Isn’t the goal of most tax reform to simplify tax? I expect the chancellor will have a hard time selling any further reforms that may be dilivered in tomorrow’s budget.