Britain risks long inflation nightmare as property prices grind to a halt

The Bank of England’s chief economist has warned that Britain is at risk of a prolonged bout of inflation amid fears the country’s property boom is about to come to a halt.

Huw Pill said he does not expect interest rate rises to crash the housing market, but that there would be “moderating effects” on prices and Threadneedle Street is on alert about the danger of a jump in households’ mortgage costs.

He said: “This is an issue we will need to monitor very carefully.”

Speaking a day after Bank forecasts suggested the UK is on the cusp of a recession, Mr Pill said he expects the economy to stagnate during the second quarter and begin shrinking at the end of the year.

His comments came as Halifax warned runaway growth in house prices has started to slow.

Repossessions are expected to arise as borrowers struggle to afford higher mortgage payments, experts have warned, with almost 4,000 people at risk of losing their homes by the end of July according to the CEBR think tank.

House prices continued to rise sharply last month but April could be the final one of high growth, Halifax said.

The average home cost £286,079 in March, rising 10.8pc over the last year. This was the tenth consecutive monthly rise, the longest run since 2016.

However, Halifax expects this breakneck speed of growth to slow as the cost of living crisis and a tightening of affordability requirements are expected to dampen the market.

Russell Galley, Halifax’s managing director, said: “The headwinds facing the wider economy cannot be ignored. The house price to income ratio is already at its highest ever level, and with interest rates on the rise and inflation further squeezing household budgets, it remains likely that the rate of house price growth will slow by the end of this year.”

The Bank warned on Thursday that inflation will surge to more than 10pc this year, its highest level since 1982, and that growth will be stagnant for the next two years. Millions of people have already suffered huge jumps in their food and energy prices, while analysts have predicted the biggest drop in consumer incomes on record.

Leave a Comment