Higher UK house prices lift sterling

Bucking what was fast becoming a rather discouraging trend, Nationwide this morning has reported a narrow rise in UK house prices in September.

Their housing price index revealed a rise of 0.1%, going against expectations of a 0.3% fall and marking the first improvement in five months. After a sombre few days, the data has given sterling a much needed boost to bring it away from four month lows hit recently against the euro. It has also helped the pound push higher against the broadly weaker US dollar.

Duncan Higgins, analyst at Caxton FX says, "the data does provide a glimmer of hope for the ailing housing market. There are clearly still buyers out there despite the state of the economy but there are rising concerns that willing buyers could dry up as the credit squeeze bites heading into year end."

Looking ahead, you wouldn't be straying too far from the accepted line in suggesting that Nationwide's survey may just be a blip in what is a developing downward trend for house prices.

Higgins adds, "Ahead of the onset of quite stringent austerity measures, people can be forgiven for delaying their next house purchase. This, combined with the continued difficulty of obtaining a mortgage, could accelerate the downward pressure on prices in the medium term."

However, the data has helped give sterling a nudge higher. "Amid a dearth of encouraging news from the UK economy, the market has taken this morning's figure as an opportunity to book profits on the pound's decline. In the short term though, aside from the underperforming US dollar, the risks for sterling remain to the downside," Higgins continues.

Mid-morning sterling is trading around half a cent higher against the euro, back above 1.16, and over a cent higher high against the US dollar at $1.59 and a fresh seven-week high.