The 'big' house price slump may be upon us
By Angela Monaghan
Last Updated: 10:42am GMT 28/01/2008
Roger Bootle, economic adviser to Deloitte and a Telegraph columnist has warned that the "big one", referring to a sharp fall in house prices, may be upon us and that there is a risk the economy will slip into a full-blown recession.
The UK is facing its bleakest period of growth since the recession of the early 1990s. Mr Bootle, who is also managing director of Capital Economics, said that a "prolonged" economic downturn of more than a year may force employers to "wield the axe more sharply than in briefer downturns."
The decade-long housing boom (AtW's comment: not boom, but speculative bubble full of hot air) that has helped sustain consumer spending has finished and economists are divided on whether the market will experience significant falls or a gentle slowdown. Figures from research group Hometrack published today showed that prices fell 0.3pc this month, the fourth straight monthly drop.
For Deloitte, a fall in employment, or even slower employment growth, could further undermine the housing market and significantly reduce the ability of household spending to propel the economy forward.
While much has been made of the UK's strong export market to Europe and the rapidly growing economies of China and India, the report said that it would not be enough to offset the impact of the slowdown in the US.
Deloitte is predicting that GDP growth will slow sharply from 3.2pc last year to 2pc this year, and just 1.7pc in 2009, which would be the weakest two-year performance of the UK economy since 1991 and 1992 when recession hit.
It expects the US economy to grow by just 1.3pc this year and 2pc in 2009.
Mr Bootle and Deloitte were clear in the message that a series of interest rate cuts were needed to give the UK a better chance of preventing a full-blown recession.
"Despite lingering concerns over the inflation outlook (AtW's comment: prices on common items are going up pretty sharply, very noticeable - bloody nuts effectively doubled in price recently!), the Monetary Policy Committee should be free to cut interest rates sharply. We see rates eventually falling to just 4pc in 2009, which should push the pound lower," the report said.
By Angela Monaghan
Last Updated: 10:42am GMT 28/01/2008
Roger Bootle, economic adviser to Deloitte and a Telegraph columnist has warned that the "big one", referring to a sharp fall in house prices, may be upon us and that there is a risk the economy will slip into a full-blown recession.
The UK is facing its bleakest period of growth since the recession of the early 1990s. Mr Bootle, who is also managing director of Capital Economics, said that a "prolonged" economic downturn of more than a year may force employers to "wield the axe more sharply than in briefer downturns."
The decade-long housing boom (AtW's comment: not boom, but speculative bubble full of hot air) that has helped sustain consumer spending has finished and economists are divided on whether the market will experience significant falls or a gentle slowdown. Figures from research group Hometrack published today showed that prices fell 0.3pc this month, the fourth straight monthly drop.
For Deloitte, a fall in employment, or even slower employment growth, could further undermine the housing market and significantly reduce the ability of household spending to propel the economy forward.
While much has been made of the UK's strong export market to Europe and the rapidly growing economies of China and India, the report said that it would not be enough to offset the impact of the slowdown in the US.
Deloitte is predicting that GDP growth will slow sharply from 3.2pc last year to 2pc this year, and just 1.7pc in 2009, which would be the weakest two-year performance of the UK economy since 1991 and 1992 when recession hit.
It expects the US economy to grow by just 1.3pc this year and 2pc in 2009.
Mr Bootle and Deloitte were clear in the message that a series of interest rate cuts were needed to give the UK a better chance of preventing a full-blown recession.
"Despite lingering concerns over the inflation outlook (AtW's comment: prices on common items are going up pretty sharply, very noticeable - bloody nuts effectively doubled in price recently!), the Monetary Policy Committee should be free to cut interest rates sharply. We see rates eventually falling to just 4pc in 2009, which should push the pound lower," the report said.
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