The Bank of England warned yesterday that house price growth may slow more quickly than it had expected with price rises coming to a halt over the next year or so. It also said that the housing outlook was still very uncertain.

Mervyn King deputy governor of the Bank, speaking at a press conference said:

“House price inflation has continued to slow. Real disposable income will be hit by the fall in the exchange rate and the impact of higher National Insurance contributions and Council Tax.”

“So the prospect is for much weaker consumption growth over the next year than for more than five years.”

The report issued by the Bank notes: "The Committee judges that the prospective deceleration in house prices is likely to be rather sharper than assumed in February, with annual house price inflation slowing to a halt over the next year or so."

The Bank warned that the annual rate of increase - currently 23 per cent - could decrease to zero much earlier than expected.

Low interest rates, low unemployment and high demand have energised the property market over the past few years, taking the price of the average house to over £150,000. These factors are still in place notes the Bank. However, experts say prices have now outpaced growth in earnings - particularly for first-time buyers.

The Bank said the outlook for business had been complicated by the outbreak of the war in Iraq, but said recent surveys suggested a modest recovery was under way.

There is still much uncertainty in the Bank’s predictions but it said the risks to its growth and inflation forecasts were "broadly balanced".

The risks included the uncertainty of how strongly the global economy will recover and the prospects for exports. The Bank stressed the possibility for variance from the predictions but in his introduction Mervyn King was more upbeat saying, “The world economy has grown only slowly in recent months, and, prior to the war in Iraq, business and consumer confidence fell markedly. But we have now seen a sharp fall in oil prices, a rise in equity prices, and some recovery in confidence, especially in the United States.”