The lender’s forecast predicted that inflation will drop from the current rate of 9.7 per cent to zero per cent by November 2008. With house price growth expected to ‘pause for breath’ in 2008, the lender believed a slower economy, stretched affordability, tighter credit conditions and lower buy-to-let demand would all take a bite out of house price inflation.
Nationwide also predicted that cuts in interest rates and tighter supply would provide support to price growth, but these factors were unlikely to prevent a slowdown. Fionnuala Earley, Nationwide’s chief economist, said: “W
e expect economic growth to fall below 2 per cent next year, from over 3 per cent in 2007. Such a slowdown would be comparable to the UK experience of 2005, but would still be a far cry from conditions seen in the early 1990s.
“For affordability to come back to long-term norms, either earnings growth needs to outpace house price inflation or rates need to come down. Zero per cent inflation is the most likely outcome, but there are risks in both directions. No growth in house prices may be a disappointment to many, but must be put in context.”
Matt Grayson, PR manager at BM Solutions, said: “We expect to see three Base Rate drops and a move back to an equilibrium point for a long period.”
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