House prices staged a tentative recovery in May as the cost of the average British home unexpectedly rose by 1.2 per cent, in its strongest monthly gain for 19 months, according to figures from the Nationwide Building Society.

This month’s house price increase compares with consensus analyst forecasts of a fall of 1 per cent on the month and more than offsets the 0.3 per cent decline seen in April.

However, figures from Nationwide showed that despite the jump, which took the average British house price to £154,016 in May, prices remained 11.3 per cent lower than they were a year ago.

Nationwide said that it was too early to call the bottom of the housing market, as unemployment continues to rise and credit remains scarce. “Nonetheless, the improvement in house price trends is consistent with signs of stabilisation in several other economic indicators and suggests that any further price declines may occur at a less rapid pace than in 2008,” Martin Gahbauer, Nationwide’s chief economist, said.

Mr Gahbauer said that he thought that May’s house price rise resulted in part from an increase in demand for properties as a result of the slump in prices from their mid-2007 peak and falling mortgage rates.

“If this buyer interest translates into actual sales and outweighs any potential increases in supply, then the recent moderation in price falls may continue,” he said.

“For the moment, however, it is unclear how the balance between supply and demand will ultimately work through in the coming months.”

Suren Thiru, a housing economist for Halifax, the mortgage lender, said: "We have certainly seen price stabilisation in recent months, but the outlook remains challenging for the rest of the year because unemployment is rising, consumer confidence is low and credit remains scarce."

Halifax is expected to publish its house price figures for May next week. It reported a 1.7 per cent drop in April, compared with the 0.3 per cent decline recorded by Nationwide.

Howard Archer, chief economist for IHS Global Insight, noted that today's figures from Nationwide "will obviously fuel speculation that the housing market may be turning".

"However, we remain highly sceptical that house prices have bottomed out," Mr Archer added. "It should also be noted that the Nationwide house price data has recently contrasted somewhat with that of the Halifax."

Money Central: the 10 most expensive repossessions

Explore Economics

• Pre-Budget Report 2008

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive