UK house prices pick up sharply in July - Nationwide

British house prices jumped sharply in July, lifting the annual rate of increase to its highest in a year, a survey said on yesterday, suggesting the property market remains robust.

The Nationwide building society said the cost of an average home rose 0.8 per cent last month after a 0.3 per cent gain in June.

That took prices 5.9 per cent higher than a year earlier compared with a 5.0 per cent annual increase in June, and the highest since April 2005 when the market was slowing after double-digit rates of growth in previous years.

But an interest rate cut one year ago helped revive sentiment and there has been growing evidence that the housing market is enjoying a new lease of life, boosting the case for a rise in borrowing costs in the months ahead.

Most economists expect the Bank of England to leave interest rates at 4.5 per cent tomorrow, but the chance of a hike appears greater than at any time in the last year.

"Obviously this backs the case for higher rates this week at the margin," said Michael Every, senior economist and fixed income strategist at RBC Capital Markets.

"Nonetheless, the current acceleration in prices does not seem to be a national phenomenon, but a regional one to a large extent... We continue to see the Monetary Policy Committee on hold this week."

Most surveys of property prices have showed a large divide between London, where much of the price rises have taken place in recent months, and the rest of the UK. The Nationwide's report did not comment on regional trends.

Latest figures from the BoE showed mortgage approvals at their highest since the start of the year in June, suggesting continued increases in property prices.

British gilt and short sterling futures dipped in early trade. Dealers said any strong data ahead of tomorrow's rate decision would put pressure on prices.

Nationwide also cautioned that the annual rate was being flattered by a particularly weak market a year ago.

"The three-monthly rate of growth has picked up slightly compared with last month, but remains on a fairly benign trend," said Fionnuala Earley, Nationwide's group economist.

The average home cost £167,733 in July, nearly £10,000 more than a year ago, the lender said.