House prices to surge in 2014 if Bank of England intervenes

HOUSE prices are set to rise by only 2.2 per cent next year as they are squeezed by falling disposable income and higher unemployment as a result of public sector cuts introduced by last month’s comprehensive spending review, a report will say today.

The latest forecast from leading economic consultancy the Centre for Economics and Business Research (CEBR) suggests house price growth in the next twelve months will drop from 6.9 per cent year-on-year to just 2.2 per cent.

But it adds house prices could rise by as much as 16 per cent by 2014 if the Bank of England (BoE) goes ahead with a second round of asset purchases. It also suggests housing supply constraints will work to offset the impact of weak disposable incomes..

Owen James, economist at the CEBR, predicts 2011 will be a tough year but believes the BoE’s Monetary Policy Committee is “highly likely” to follow the Federal Reserve’s policy move of introducing more quantitative easing leading to a reduction in the cost of borrowing and an increase in bank mortgage lending. He also predicts mortgage approvals will increase by almost half.