U.K. Consumer Confidence Falls to Lowest Since 2004 (Update6)

April 9 (Bloomberg) -- U.K. consumer confidence fell to the lowest in almost four years in March as the housing-market downturn worsened, and former Chancellor of the Exchequer Nigel Lawson said the economy is heading for a recession.
Nationwide Building Society's index of sentiment declined 1 point to 77, the least since records started in May 2004. The result is based on a survey of 1,204 people conducted by Taylor Nelson Sofres between Feb. 18 and March 20, Britain's fourth- biggest mortgage lender said in an e-mailed statement today.
``The recession that's coming may not be particularly deep, but it's going to last much longer than the government here has been maintaining,'' Lawson, Margaret Thatcher's finance minister from 1983 to 1989, said in an interview on Bloomberg Television.
U.K. house prices dropped the most since 1992 last month as the seizure in worldwide credit markets made mortgages harder to obtain, a report by HBOS Plc showed. While manufacturing unexpectedly rose in February to the highest since 2001, the Confederation of British Industry says the Bank of England needs to reduce the benchmark interest rate tomorrow.
``The Monetary Policy Committee is still odds-on to cut,'' said Paul Dales, an economist at Capital Economics Ltd. in London. ``The better news on the U.K.'s industrial sector does little to offset the dire news on the housing market seen in recent days.''
The pound weakened to 80 pence per euro for the first time earlier today after the consumer confidence report. It traded at 79.90 pence at 2:19 p.m. in London.
IMF Forecast
The International Monetary Fund today slashed its growth forecasts for the U.K. and now predicts expansion of 1.6 percent this year and next, the weakest since the last recession in the early 1990s. The IMF said in its semi-annual World Economic Outlook that the Bank of England has room to cut interest rates as the slowdown eases inflation pressures.
Falling property prices threaten to puncture Prime Minister Gordon Brown's reputation after he helped extend the economy's longest period of uninterrupted growth for two centuries in his decade as finance minister. Brown's Labour Party came to power in 1997 promising no reprise of the ``boom and bust'' that afflicted the economy in the 1980s and early 1990s.
``We haven't had a credit crunch like this for a long time,'' said Stewart Robertson, a London-based economist at Morley Fund Management, which manages around $327 billion in assets. ``This is not a return to boom and bust, but it is a cyclical downturn and a significant one.''
Lawson Boom
During his term in office, Lawson helped engineer an economic revival by slashing taxes. When inflation accelerated, he was forced to slam on the brakes and raise interest rates as high as 15 percent. Within a year of his resignation in October 1989, the economy was in a slump that lasted until 1992.
``We are probably facing a recession of some sort in the western world,'' Lawson said. ``Not a severe recession, but in the U.S. and U.K. one that might be quite prolonged.''
Fifty-one of 61 analysts surveyed by Bloomberg News predict the Bank of England will cut the benchmark interest rate by a quarter-point to 5 percent tomorrow.
HBOS, the nation's biggest mortgage provider, said yesterday the average cost of a home in Britain fell 2.5 percent last month to 191,566 pounds ($379,000) from February.
Banks have become reluctant to lend to each other following more than $230 billion pounds of writedowns and credit losses worldwide that the IMF said yesterday may swell to almost $1 trillion. That's making it harder for the Bank of England to steer lending rates in the mortgage market.
Mortgage Offers
Nationwide, HSBC Holdings Plc and Royal Bank of Scotland Group Plc are among banks that have raised rates or cut back on home-loan offers this year. Abbey, a unit of Spain's Banco Santander SA, yesterday became the last U.K. lender to withdraw offers for mortgages with no down payment.
``The credit crunch is pushing interbank and mortgage lending rates up, which is constraining economic activity and demand,'' Richard Lambert, director general of the CBI and a former policy maker, said in a statement today. ``The bank should make a quarter-point cut now, rather than later, to help hard-pressed businesses and consumers.''
A measure of Britons' attitudes toward their economic and employment situation in six months was unchanged at 79, Nationwide said today. An index of sentiment on the present situation fell 2 points to 74.
Manufacturing Strength
The U.K. economy is nevertheless showing some signs of resilience. Manufacturing unexpectedly climbed for a second month in February, a sign the pound's weakness against the euro is raising demand for exports.
The pound has fallen 11 percent in the past year on a trade-weighted index compiled by the central bank. U.K. exporters sell about half their goods to the euro region, where growth is likely to hold up better than in the U.S.
Economic growth in the U.S. will stall in the first six months of 2008 as consumer spending cools, a Bloomberg News survey of economists showed.
U.K. Chancellor of the Exchequer Alistair Darling said in an interview with BBC Radio 4's Today program that ``the underlying economy is extremely strong.'' He's sticking to his forecast for the economy to expand around 2 percent this year.
Consumers predict house prices will rise about 0.4 percent in the next six months, a rebound from a February forecast for a decline of 1.1 percent, today's Nationwide report shows. An index of willingness to make a major purchase, such as a house or a car, rose 3 points to 67.
The labor market improved last month, accountancy firm KPMG and the Recruitment and Employment Confederation said today. An index measuring placements of permanent staff resurged in March after showing a contraction in hiring for the first time in almost five years in February.
``The modest rebound in permanent placements suggests that the labor market appears to be holding up,'' Helen Reynolds, acting chief executive at REC, said in the report. ``Currently the worst effects on the jobs market are being felt in the City, as banks retrench.''