UK 'dependent' on property market
The Ernst & Young Item Club's spring forecast warns that the UK will have to wait until 2015 before exports start contributing positively to growth.%VIRTUAL-SkimlinksPromo%
It expects GDP to expand by just 0.6% this year and that, with the rebalancing of the economy on hold, the UK will again have to rely on the consumer.
This year's forecast 7.5% rise in housing transactions comes as mortgage costs start to fall due to the Government and Bank of England's Funding for Lending scheme. And in last month's budget, Chancellor George Osborne announced plans to underwrite £130 billion of mortgages from next year.
Item's chief economic adviser Peter Spencer pointed out that real incomes were starting to recover, with mortgages becoming more readily available and homes more affordable as the prices to earnings ratio continues to fall.
He said: "Although it's not a long term strategy, stimulating the housing market and the high street will keep GDP growth positive. Unbalanced growth is better than no growth."
The Chancellor's increase in personal income tax allowances is also expected to add 0.4% to disposable incomes over the next two years, Item said.
Mr Spencer added: "We should start to feel slightly better off this year, which will help to loosen the purse strings. Consumer spending added 0.7 percentage points to GDP in 2012 and the Chancellor's Budget will help ensure the tills continue to ring for some time yet."
House prices should rise 2.1% in 2014 and by 5% the following year, but Mr Spencer said he did not think the initiatives will create another housing market bubble.
Mr Spencer said the Chancellor's Help to Buy scheme had the potential to get people moving again, easing the problem of long mortgage chains.