House prices have fallen for the fourth month in a row in January say research group Hometrack.

The latest issue of the Deloitte Economic Review, published on 28 January, gives further evidence that the UK economy is about to enter its weakest period of growth since the Exchange Rate Mechanism crisis of 15 years ago.

Roger Bootle, Deloitte’s Economic Advisor, suggests that the vulnerability of the housing market is at the heart of the downturn – the latest figures from research group Hometrack showing that house prices fell for the fourth month in a row in January with average values falling by 0.3%.

The decade-long housing boom that has helped sustain consumer spending has finished and economists are divided on whether the market will experience significant falls or a gentle slowdown.
Deloitte is predicting that GDP growth will slow sharply from 3.2% last year to 2% this year, and just 1.7% in 2009, which would be the weakest two-year performance of the UK economy since 1991 and 1992 when recession hit.

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.

The report stated that not only is the interest rate environment far less favourable, but the global financial crisis and the associated credit crunch have brought an end to the period of easy credit that in recent years has been the bedrock of the rapid rises in house prices. Without this support, house prices may fall sharply, perhaps by around 5% this year and by something like 8% in 2009. 
Mr Bootle and Deloitte stated 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, the Monetary Policy Committee should be free to cut interest rates sharply. We see rates eventually falling to just 4% in 2009, which should push the pound lower,” the report said.

For more information, visit: www.hometrack.co.uk and www.deloitte.com.