Government figures contradict claims of house price boom

The government's snapshot of the property market yesterday contradicted reports of booming house prices when it showed the slowest rate of inflation in the sector for almost two and a half years.

Sending out a conflicting message to that given by mortgage lenders the Halifax and Nationwide, the Office of the Deputy Prime Minister said prices in March increased by only 7.8% on a year earlier.

The Halifax and Nationwide recently reported property inflation nudging 20%, a factor in the Bank of England's decision to raise interest rates last week.

City analysts were puzzled by the widening gap between the ODPM's data and the mortgage lenders, noting that one explanation could be that the two lenders use a more sophisticated method that averages house prices across the country. "This gives greater weight than in the ODPM to the cheapest houses in the lowest priced regions which is the sector of the market that is increasing the most," said Geoffrey Dicks, economist at the Royal Bank of Scotland.

Further evidence that the Bank of England's recent rate rises may be starting to affect consumer behaviour came from the latest survey from the British Retail Consortium showing a slowing of demand last month.

The BRC said cooler weather this April, compared with last year, dissuaded shoppers from buying clothes and garden furniture. Like-for-like sales growth for the three months ending April slowed to 1.7%.

Cost pressures on industry have started to feed through into higher factory gate prices, the Office for National Statistics said yesterday. Input prices for manufactured goods were 3.4% higher in April compared with a year earlier, up from 0.9% in March and the strongest increase since May 2001.

Most of this rise was driven by the oil price and increased duties from March's Budget. Factory gate prices were up 1.8% in April on the year, compared with 1.4% last month.

Jonathan Loynes, an economist at Capital Economics, expects increases in input price inflation in coming months "if only because of the post-Iraq war falls in oil prices last spring". Competitive pressures in the high street would prevent factory gate inflation feeding through to consumers.