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by administrator @, Tuesday, July 12, 2011, 16:31

Average UK real house prices are unlikely to recover to their previous peak levels until around 2020, according to analysis by PwC in its latest UK Economic Outlook report.

The analysis points to only a 12% chance that real house prices will have risen back above their 2007 peak by 2015, with the median projection being for a 12% real decline over this period. Even by 2020, there is only just over a 50% chance of a real house price rise relative to 2007.

John Hawksworth, chief economist at PwC, said: "We expect average UK house prices to drift down further over the next year and then enjoy only a modest recovery over the next few years. This reflects the dampening impact of declining real income levels and continued tight credit conditions for first time buyers in particular.

"Later in the decade, however, we do expect stronger house price growth as supply shortages reassert themselves and credit availability gradually returns to more normal levels. But it will be a long slow road to recovery."

From the most probable scenarios it is possible to give an indication of which groups may gain or lose from recent and future UK house price performance, as shown in the table below.

The report projects modest UK GDP growth of 1.3% in 2011 with consumer spending falling by 0.3% in real terms and the main driver of growth being net exports. Growth will pick up gradually to 2.2% in 2012, as business investment next year is assumed to pick up from the very low levels seen during the recession. But consumer spending growth will remain subdued due to the continued squeeze on real disposable incomes and weak house prices.

London and the South East are projected to lead the recovery while regions more exposed to the public spending cuts such as Northern Ireland, Scotland, Wales and the North East tend to lag behind.

John Hawksworth, chief economist at PwC, said: "The UK as a whole faces a slow climb to recovery given the continued squeeze on consumer and government spending. In the short term, risks remain weighted to the downside and it would therefore be prudent for the Bank of England to keep interest rates at current low levels for some months to come, although rates may need to rise gradually during 2012 to keep inflation under control in the medium term.

"We see a distinct regional pattern to growth with the public spending cuts acting as a drag on recovery in Northern Ireland, Scotland, Wales and the North East in particular. London and the South East will not be immune to the cuts, but growth there is less dependent on the public sector and more on the international financial and business services sector, in which growth is likely to remain relatively strong."

house prices

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