- 50,000 more households could fall into negative equity, NIESR suggests
- UK heading towards ‘decade of stagnation’, think tank warned
- This week’s Halifax house price data indicated an increase in property prices
House prices will fall by 6.5 per cent between now and the second quarter of 2025, and 50,000 more households will fall into negative equity, a new report warns.
The National Institute for Economic and Social Research (NIESR) think tank predicts that UK economic growth is on track to remain “anemic”, and that prolonged higher interest rates will further dampen consumer demand and companies.
As a result, it argues, the living standards of low- and middle-income Britons will remain stagnant for the next seven years.
The NIESR suggests UK inflation will remain above the Government’s target of 2 per cent until the end of 2025, and that price levels will remain “highly inflated”.
Standards: Living standards for low- and middle-income Britons will remain stagnant for next seven years, think tank says
The think tank says UK interest rates have peaked but will gradually approach between 3 and 3.5 per cent, much higher than what Britons experienced in the decade to 2022.
Gross domestic product will remain “sluggish” in 2024 and will fall slightly from levels seen this year, he said.
Ahead of this month’s Autumn Statement and a general election due next year, the NIESR believes “renewed public investment”, rather than tax cuts, could help boost the economy.
It said: “In its absence, the UK will be mired in a decade of stagnation with little prospect for regional regeneration.”
According to NIESR research, real incomes for the lowest-income working families will be about 5 percent lower in 2023-24 compared to 2019-20, and will not return to pre-pandemic levels before the end of 2026.
This is despite the expectation that average nominal incomes will increase by 7.2 percent and 7.1 percent in 2023 and 2024 respectively, the think tank added.
The think tank believes inflation will be around 5 percent by the end of the year and will fall to around 4 percent by the end of 2024.
It said: “This implies that the fiscal space provided by inflation will decrease, but not disappear, and therefore the government will have some scope for a more expansionary fiscal stance in the run-up to the elections, as nominal debt erodes. and fiscal resistance supports income growth.’
The NIESR believes that at 5.25 per cent, UK interest rates have peaked and will slowly reduce to between 3 and 3.5 per cent.
Under pressure: the Bank of England led by Andrew Bailey kept interest rates at 5.25%
Data: Quarterly household consumption and income over time, according to data
The NIESR says UK house prices look set to fall by 6.5 per cent by the end of 2025, pushing 50,000 more households into negative equity. In total, the number of negative equity households by the end of 2025 is expected to be approximately 166,000.
The think tank said: “The greatest concentration of these households will be in the West Midlands and Wales.”
House price data in Halifax this week suggested property prices rose 1.1 per cent in October, ending a streak of six consecutive monthly falls.
Professor Stephen Millard, deputy director of macroeconomic modeling and forecasting at NIESR, said: “While the good news is that the Monetary Policy Committee has done enough to reduce inflation to target, the bad news is that the UK’s slow growth keep going”.
“It is up to the Government to increase public investment and encourage private investment so that UK productivity growth can return and living standards improve.”
Professor Adrian Pabst, deputy director of public policy at NIESR, said: “Only a rethinking of economic and social policy can avoid another period of prolonged stagnation in which the UK falls further behind other advanced economies and regional disparities. keep expanding.”