CEBR: House prices will rise 16 per cent

Following a week in which official data revealed consumer spending fell 0.6% between the last quarter of 2010 and the first quarter of 2011, the CEBR predicted sluggish consumer spending for the rest of the year, with a 0.8% fall in 2011 and growth at an average rate of 2% from 2012 to 2015.

Douglas McWilliams, chief executive at CEBR, said: “We still believe house prices will fall this year, although there are signs that prices will stabilise over the second half of the year. We think the market is currently close to the bottom for the UK as a whole.

“The main factor driving house prices up is the shortage of available housing which has already pushed up rents. Housing completions fell to only 130,000 in 2010, well below the level required to keep pace with demographic change.

“International demand will also remain a factor particularly in London and with the pound forecast to remain low and London likely to remain internationally attractive, this is likely to continue to boost house prices in the capital which are forecasted to rise about 2% a year faster than for the UK as a whole.

“But the factors that will ultimately drive house prices up again are the loose monetary policy that will accompany the government’s deficit reduction and the ability of banks to lend again on consumer friendly terms as their own underlying financial position improves.

“This should not be confused with boom and bust. We are forecasting a gradual four year recovery at an annual rate of about 4%.”