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E&Y Item Club: Housing market not a bubble and powers UK upgrade
by James Phillipps on Oct 14, 2013 at 08:05
The housing market is not approaching bubble territory and its strength will power the next leg of the UK’s economic recovery, according to the Ernst & Young Item Club.
The influential thinktank praised the government’s Help to Buy scheme, saying it is supportive of rising house prices, which will kickstart both construction and consumer spending.
This prompted the Item Club to upgrade its 2013 UK GDP forecast from 1.1% to 1.4% in its autumn outlook, published today. This comes less than a week after the International Monetary Fund raised its outlook for UK growth from 0.9% to 1.4% in a massive U-turn as it reversed its criticism of chancellor Osborne’s austerity drive.
The Item Club was critical that business investment and exports were not bigger drivers of economic growth, but is upbeat about the outlook for the UK housing market. Peter Spencer, the chief economic adviser to the Item Club, said that despite recent criticism of the Help to Buy scheme, ‘the chances of seeing another housing market bubble are extremely slim’, pointing to improving household finances. This view contrasts sharply with that of Lombard Odier chief investment officer and Wealth Manager columnist Paul Marson, who last warned the UK housing market is teetering on the brink and being driven by the 'greater fool theory'.
‘The UK’s short-term growth will continue to be fuelled by the consumer. The recovery of the housing market, combined with falling unemployment, rising real incomes and improving confidence levels, will help to keep the tills ringing on the high street,’ the Item Club's report said.
The Item Club predicts that UK house prices will rise by 3.5% this year, by 6.6% in 2014 and 6.75% in 2015. As well as upgrading its 2013 UK GDP growth, it has also raised its prediction for 2014 from 2.2% to 2.4% with growth reaching 2.6% in 2016.
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