(RTTNews) - UK house prices posted first annual increase in nineteen months in October, while rising for the sixth time on a monthly basis, the Nationwide Building Society said Friday.

In October, annual house price inflation turned positive for first time since March 2008, with an increase of 2% following zero growth in September. Economists had expected a 1.8% increase. Average asking price for a typical UK property stood at GBP 162,038 in the month, up from GBP 161,816 in the previous month.

The house price index climbed 0.4% month-on-month after an increase of 0.9% in September, while economists had forecast 0.6% growth. House prices have been rising since May on a monthly basis.

“A moderation in the rate of house price inflation was to be expected, as the very strong monthly increases seen over the summer months were unlikely to be sustainable over the long run,” Nationwide’s Chief Economist Martin Gahbauer said. The 3-month-on-3-month rate of change - generally a smoother indicator of the near term trend - dropped back slightly from 3.8% to 3.4%.

The Nationwide said surprisingly poor economic performance in the third quarter had mixed implications for the housing market. On the one hand, a deeper and longer recession implies higher levels of unemployment and a longer period of subdued wages, both of which will act as constraints on the housing market’s recovery.

Interest rates are likely to remain at or near their current record lows for well into next year, the building society said. As a result, mortgage affordability will remain relatively favorable for both new and existing borrowers. This should limit the number of distressed sales and cushion the negative impact of labor market weakness on housing demand.

Preliminary data released by the Office for National Statistics showed that the British economy unexpectedly contracted 0.4% sequentially in the third quarter, after shrinking 0.6% in the second quarter. The decline in the third quarter was the fifth consecutive quarter of steep contraction, following a small fall in the second quarter of 2008. Moreover, Nationwide said, in recent months, house prices rose more than consumer expectations, signaling a period of moderation in house price inflation ahead.

Earlier in the day, a survey conducted by GfK NOP, on behalf of the European Commission, revealed that British consumer confidence rose to the highest level in nearly two years in October. The GfK NOP consumer confidence index rose three points to minus 13, the highest score since January 2008.

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