George Osborne's Housing Boost 'Will Stave Off Triple-Dip' Recession

George Osborne's controversial efforts to rekindle the housing market will help to prevent Britain's economy from flatlining this year, according to a forecast.

In its quarterly health check of the economy, the Ernst & Young Item Club said a million homes would change hands in 2013, 5% more than in 2012 and the highest number since 2007.

"We expect a million households to move this year, helping growing families and labour mobility," said Peter Spencer, author of the report, which is the only independent forecast to use the Treasury's model of the economy. "Sales of household appliances and other expenditures involved in moving home will also be buoyant."

The Treasury has announced a series of measures to underpin the housing market, including a "funding for lending" scheme, which offers cheap loans to banks and aims to bring down mortgage costs. In last month's budget, the chancellor also promised to introduce a taxpayer-backed mortgage guarantee scheme from 2014. The policies have been criticised by some analysts, who warned that because many households were still sitting on heavy mortgage debts from the boom years, reinflating house prices would be dangerous.

With the new scheme set to be available on properties worth up to £600,000, Osborne has also been accused of giving help to wealthy buyers.

However, Spencer insisted that the "rebalancing" that Osborne had hoped for – away from debt-fuelled growth and towards exports – would be impossible while the eurozone economy, Britain's biggest export market, remained so weak. "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," he said.

He added that household debts in the UK had fallen since the start of the financial crisis, from an average of 174% of annual income to 146%. Even with a housing market revival, Item expects the economy to eke out growth of just 0.6% this year and 1.9% in 2014, which is still a more optimistic projection than other forecasters. City consultancy Fathom, for example, has pencilled in growth of just 0.2%.

A Treasury spokeswoman said: "The government is committed to building a stronger economy and this report highlights the real and positive impacts of government policies to support hard-working families and those who aspire to own their own homes."

Richard Donnell, director of research at housing research company Hometrack, said: "I definitely think the air of optimism will continue to grow, but I don't think we're suddenly going to see strong house price growth."

He pointed out that while prices in London and towns such as Oxford and Reading had already regained the dizzy heights set at the height of the market in 2007, in Liverpool and Glasgow they remained 20% below their peak.

The government is watching anxiously to see if the latest GDP figures, to be published on 24 April, will reveal that the economy slipped into an unprecedented triple-dip recession at the start of the year. The latest jobs figures, to be published on Wednesday, could also show that unemployment has begun to increase, after declining through much of last year.

Howard Archer, of information analysts Global Insight, said: "We expect the labour market data to show further signs of fraying strength in reaction to the economy's persistent softness."

As well as encouraging British families to head to the estate agents, the government is also hoping that the arrival of the new Bank of England governor, Mark Carney, this summer will mark a shift to a more aggressive policy in Threadneedle Street – by promising to keep interest rates at their current rock-bottom levels for an extended period, for example.

However, Spencer suggested that monetary policy was unlikely to provide much extra support to growth. "Although monetary policy is good at cushioning a recession, it is bad at stimulating a recovery," the report said.

Powered by article was written by Heather Stewart, for The Observer on Sunday 14th April 2013 00.06 Europe/London © Guardian News and Media Limited 2010


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