Bad News for Homeowners and Economy

Homeowners received two pieces of bad news.

1. Demand for housing has evaporated
2. The MPC hint they may actually increase interest rates to deal with the growing problem of inflation.

The % of estate agents reporting house price falls has decline from 97% to 92%. But, there has been a sharp fall in the volume of houses being put onto the market. This decline in business could threaten upto 10,000 jobs in the estate agent industry in the coming months.

The fall in house prices threatens to damage prospects for the UK economy. This is because

• Falling prices reduce confidence of homeowners to borrow and spend
• An increasing number of homeowners are being left with negative equity. Spending from equity withdrawal has dried up as house prices plummet.
• Job losses in the construction sector
• job losses amongst estate agents.

These factors will cause a slowdown in economic growth, rising unemployment and possibly recession. Furthermore the inflationary threat is being exacerbated by:

• Rising oil and energy prices reducing disposable income
• MPC threatening to raise interest rates to deal with the growing inflation problem

Analysis.

I don’t agree with the MPC’s threat to increase interest rates. I think that would be a damaging move for the economy. True, inflation has crept above the target but, I think the slowdown in consumer spending will bring inflation down in due course. Increased interest rates now could make a housing decline more serious than it needs to be.

Predictions for Mortgage Interest Rates in UK