Slowdown in UK house sales will hit spending, says bank

The Bank of England will today stoke fears that life for retailers will get tougher, after concluding that a slump in the number of house sales is having a knock-on effect on consumer spending.

Households are up to three times more likely to invest in a new washing machine or hi-fi if they move home, according to the Bank. They are also more likely to spend substantially more on home improvements than those staying put.

Last year the Bank tried to calm fears of a housing-driven recession, saying the link between housing and consumer spending had broken down since 2000. But today's analysis, in the Bank's quarterly bulletin, suggests that the relationship is alive and well.

"A change in housing transactions of 100,000 could reduce annual spending on household and audio visual goods by 0.9 per cent," it said. The number of homes sold in England and Wales fell by more than a third over the past year.

The Bank characterised the impact on consumer spending as "moderate" because any change in the number of homes being bought or sold was actually quite small in proportion to the total number of households in Britain.

It also pointed out that because people spend from their "lifetime resources", which are not increased simply by moving home, "then housing transactions can only provide a short-term stimulus to spending".

It added: "This suggests that any pronounced change in the number of housing transactions could alterthe short-term profile for spending, but not its profile in the medium term."

Retailers from B&Q, which is owned by Kingfisher, to House of Fraser have seen underlying sales of home improvement products and homewares plunge in recent months as the effect of five interest rate rises has taken its toll.

Sales of so-called "big ticket" items, such as furniture and carpets, have fared worst, prompting the British Retail Consortium and the CBI to link the slowdown to the drop in the number of housing transactions.

- INDEPENDENT