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Monday July 27 2009
London: The UK's house-price slump will persist until 2012 and hurt consumer spending, the National Institute of Economic and Social Research (Niesr) said.
Home values will resume their decline because recent gains were driven by a lack of available homes and the number of mortgages remains 65 per cent lower than before the financial crisis, the London-based institute said Friday.
It also predicts gross domestic product will keep falling until the final quarter of this year.
"There has been talk of stabilisation and some recovery in the housing market, but we don't think this is the case," Simon Kirby, an economist at Niesr, told reporters. "We only see growth in the housing market returning in 2012."
The Bank of England said last week that mortgage lending may strengthen in coming months, while Nationwide Building Society says that house prices increased in June. The economy has yet to emerge from recession after contracting the most since 1958 in the first quarter.
"The temporary rise in prices is probably the result of limited supply," the report said. The institute's clients include the Treasury and the Bank of England.
Falling house prices will hurt consumer spending growth in the next two years, Niesr said. Together with rising unemployment, this will encourage an increase in the household savings ratio to the highest level since 1997 next year, the institute predicted.
Government borrowing will peak at 12 per cent of GDP in the fiscal year ending March 2010, or £165.7 billion (Dh1 trillion), before shrinking to 7.5 per cent of GDP, or £121.6 billion, in 2013-14, Niesr said.
That's still £25 billion more than Chancellor of the Exchequer Alistair Darling forecast in April, suggesting tax increases, spending cuts and longer working lives may be needed to repair the public finances as social security and debt-interest costs rise, the institute said.
GDP slumped 2.4 per cent in the first quarter. Niesr estimates that it fell 0.4 per cent in the second quarter.
The median forecast of 32 economists in a Bloomberg News survey is for a 0.3 per cent drop.
Bank of England policy makers voted unanimously to maintain their £125 billion asset-purchase programme in July, saying there was no clear evidence to support an increase as the risks to the economy had probably diminished, minutes of the decision showed Friday.
"The surveys suggest that the momentum going into the second half of the year was greater than the committee had expected in May and the near-term inflation outlook may be a little higher," the minutes said.
The economy will grow again in the fourth quarter, by 0.5 per cent, Niesr said.
"The recovery will be weak," Kirby said. "We see continued contraction in consumer spending and business investment."
Source: Gulf News
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