Financial Market

Upon news that the UK housing market will stagnate in the next twelve months and the prediction that house will not rise for the first time in ten years, it seems that the increasing pressure on first time buyers may be relieved, even if only temporarily.

In addition to this news Halifax last month released figures detailing falling house prices for the third consecutive month.

However first time buyers wont be as happy to know that house prices will fail to drop to the levels seen in the recession of the 1990’s due to ‘high employment levels and sound economic fundamentals’, and is widely predicted the volume of property transactions would carry the brunt of the slowdown, expected to fall by 15 percent.

Claims of a slowing economy were further backed up with a survey claiming high street sales are growing at their slowest rate for almost a year, and restaurants and pubs are suffering, as indebted consumers stop to think. As Britain now accounts for more than two-thirds of the EU’s entire credit card debt, spending trends are even more reliant on Bank of England changes.

In response to a slowing economy and subsequent cooling off in the housing market, the Bank of England recently cut interest rates to 5.5 percent.

With this cut in interest rates it seems consumers are more willing to spend in the high street, with this pattern trickling through to the housing sector in due course, reducing the expected impact on dropping buying levels.

But with this cut dubbed the first of a series of interest rate cuts a new threat emerges, and the battle for the monetary policy committee now is trading off the threat of inflation to the threat of a slowing economy.

It is true inflation is becoming an increased worry for many experts and with goods leaving factories reaching there highest prices in 16 years, last months output price annual inflation hit 4.5 percent, up from 3.8 percent in October.

A slowing economy eases inflation, and the five interest rate rises of 2007 were intended to curb it, but inflation is still up. In the event of more interest rate cuts we will only see a boost to consumer spending to sustain a slowing economy temporarily, resulting in even greater pressures on inflation.