House prices defy Brexit uncertainty — but only because there are too few homes for sale

House price growth accelerated in August, despite the slowdown in demand amid Brexit and property tax rises, as a weaker supply of homes coming onto the market underpinned values.

Nationwide said in its UK house price index for August that the average price rose 5.6% over the year, reaching £206,145. Month-on-month the increase was 0.6%. These are faster than July's growth rates of 5.2% and 0.5% respectively.

"The pick up in price growth is somewhat at odds with signs that housing market activity has slowed in recent months," said Robert Gardner, Nationwide's chief economist.

"New buyer enquiries have softened as a result of the introduction of additional stamp duty on second homes in April and the uncertainty surrounding the EU referendum. The number of mortgages approved for house purchase fell to an 18-month low in July.

"However, the decline in demand appears to have been matched by weakness on the supply side of the market. Surveyors report that instructions to sell have also declined and the stock of properties on the market remains close to 30-year lows. This helps to explain why the pace of house price growth has remained broadly stable."

There are mixed signs from the economy after the vote for Brexit on 23 June. Consumer confidence dropped at its quickest pace in 26 years in July, according to a survey by the pollster GfK, though it recovered in August. Manufacturers report rising exports and output, but pessimism is rife in the service sector, which accounts for around three quarters of the economy.

To support the economy, the Bank of England slashed its base rate in half to 0.25%, a new all-time low, and boosted its stimulus by £170bn to support lending to consumers and firms. Nationwide's Gardner said the Bank of England's actions "will provide an immediate benefit to many mortgage borrowers, though for most the boost will be fairly modest."

A Treasury analysis of Brexit released prior to the referendum predicted that house prices could fall by as much as 18% in the event of a severe economic shock.

House prices will fall by 1% in 2017 as the vote for Brexit pulls the market down, according to a forecast by Countrywide, the UK's largest estate agent group. But they will recover to 2% growth in 2018.