The research house cut its forecasts for economic growth and expects the economy to contract by 0.5% in 2012.
Ed Stansfield, chief property economist at Capital Economics, said: “Although we think that inflation may now have peaked, the boost to household finances as it begins to fall back will be at least partially offset by further falls in employment.
“With the chance of a new recession in the UK mounting by the day, we do not expect activity levels to improve significantly next year. With that in mind, the significant downside risks to house prices remain.”
Stansfield said 3-month LIBOR has been creeping up since the summer and breached the 1% mark in November for the first time since August 2009.
And he added: “If sustained, the tensions in financial markets are likely to reduce the supply and boost the cost of mortgage funding.”
Capital Economics said buyer enquiries rose in October but London is the only region where the month’s unsold stock on the market is below its long-run average.
