Economists are predicting a significant downturn in the UK property market, with a 10% drop in house prices anticipated by the end of this year. The EY ITEM Club’s Spring Forecast has suggested that the average price of a UK home could fall from £290,000 to £261,000, as the influence of the property market on consumer spending shifts. However, despite the slump in house prices, experts do not believe it will have a substantial negative impact on the economy.
The think tank has revised its January assessment, changing its forecast for a -0.7% decline of the economy to 0.2% growth. This suggests that the UK is turning a corner and should avoid a recession. The group also anticipates that inflation will drop below 3% by the end of the year, a significant decline from the current rate of 10.4%.
Nevertheless, the report does not indicate a fall in prices, but rather, a slower rate of growth. In light of the changing economic climate, Hywel Ball, chairman of EY UK, commented that the fall in inflation may encourage the Bank of England to cut interest rates towards the end of the year. The ITEM Club expects that this move could stimulate investment incentives and cheaper energy prices, ultimately leading to a 1.9% growth in the UK economy by 2024.
While the report suggests that the economy will flatline in the first half of 2023, the outlook is expected to improve from the summer onwards. Ball emphasised that the resilience of the UK’s economic performance despite challenges in the latter half of 2022, should not be overblown. The challenges posed by double-digit inflation and historically high energy prices remain, and the balance of risks has become somewhat more favourable since the last forecast. Despite the subdued growth projected for this year, falling energy prices and inflation, a halt to rising borrowing costs, and growing confidence are grounds for optimism, as the UK economy has the potential to shed some of the gloom that has recently accumulated.