Leading economists have dismissed the possibility of a UK recession this year…

A panel of leading economists at the annual Wriglesworth Housing Debate in Whitehall last week delivered the following confidence boosting verdict: despite the immediate uncertainty in the financial markets there will not be a recession in the UK this year or next.

Evan Davis, BBC Economics Editor said “unlike in the early 90’s there is no need for a (UK) recession due to inflation. The short term inflation spike we are experiencing due to commodity prices will soon be over…the real challenge is whether we can manage the coming slowdown, but I believe we will continue to see growth”.

David Miles, Chief Economist at Morgan Stanley broadly agreed, adding that the Bank of England had scope to cut interest rates which would ease money supply and fuel economic growth if necessary.

Time to drop the ‘doom and gloom’?

When presenting the latest BoE inflation report, Mervyn King agreed with the Wriglesworth expert panel and said “the “Doom and Gloom” headlines touted by the press recently about the UK economy and the property market are not reflected in the latest data.

He said the “lurid headlines are not correct” and urged the London based media to get away from the financial markets and test the more positive “mood music” outside of the City. In fact, as the BoE report highlighted, latest figures from The Office of national Statistics (ONS), show jobless claimants at their lowest level for over 30 years.

Discussing property market trends for 2008 at the Wriglesworth conference, Richard Donnell, Director of Research at Hometrack forecast “low property transaction levels and +1% growth in house prices in 2008, +2% house price growth in 2009”.

Fionnuala Earley, Chief Economist at Nationwide said “short term trends are very difficult to predict due to mortgage market uncertainties but our projection is for flat growth by end of 2008, possibly a small fall”.

Michael Coogan, Director General, Council of Mortgage Lenders predicted “stable growth of around +1% this year with mortgage activity focused on the re-mortgage side rather than for new loans with lenders having to better manage risks”. Despite the recent negative media headlines, there was a clear consensus that the UK housing market would remain broadly stable over 2008 amongst the economic experts.

UK prices to remain ‘stable’

King, Governor of the BoE, discussed the positive aspects of the current credit slowdown with the media this week (in de-leveraging the financial system from recent unsustainable levels) and his forecast that tighter lending conditions will continue for the foreseeable future. “Creditworthy borrowers will have access to funds but riskier borrowers are finding it harder (to get mortgages)” said King when talking about the housing market. He went on to calm fears of a property crash and predicted “a long period of house price stability”.

Longer term, the supply shortage is only worsened by the current credit squeeze which will inevitably drive up prices. Hometrack statistics, as Richard Donnell reported “show new housing development starts are down as much as 40% from comparative 2007 levels currently, which will exacerbate the already significant demand versus supply shortfall”. Michael Coogan wholeheartedly agreed that “there was no chance of the government housing targets being met in the next decade and the UK housing shortage will only get worse”.

Speaking after the Wriglesworth conference, Nick Hopkinson of Incito Property Investment  commented: “all the expert economists agree we have a chronic shortage of housing which is only getting worse, with building starts declining due to credit worries despite long term demand.

“This means UK property prices are forecast to remain stable overall by the end of 2008. Longer term prices are more likely than ever to perform strongly over the next decade if you buy in the right locations, at the right price”.