Housing market slump won’t last

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by Kay Murchie

The UK housing market slump won’t last long. Furthermore, it is unlikely that interest rates will fall quickly.

This is the view of Stephen Nickell, former Bank of England policy maker and who now advises the government on the residential property market. He added that the actual size of the downturn is very small.

In an interview in London earlier this week, Mr Nickell said while economists are forecasting that the Bank of England will cut interest rates today, there is little room to cut as much as the US Federal Reserve, which eased policy at the fastest rate since 1990 last month, added Mr Nickell. He continued that a slowdown in the British economy won’t be that slow.

Mr Nickell’s opinion on the scope of rate cuts mirrors that of Richard Lambert, another former policy maker who is now the country’s chief business lobbyist as director general of the Confederation of British Industry (CBI). Last month, he said the Bank of England should avoid ‘steep’ cuts.

Last month, the US Federal Reserve lowered interest rates by 1.25 percentage points to 3% to fend off a recession in the world’s largest economy. Stephen Nickell said US slowdowns are short and dramatic. Recently, UK slowdowns have been gentle and fair.’

Mr Nickell said that a rate cut to 5.25% is today is ‘quite likely’. When questioned if UK interest rates should fall, he said, ‘yes, absolutely’.

Mr Nickell aged 63, served on the rate-setting Monetary Policy Committee from 2000 to 2006. He is now a professor at Oxford University and chairman of the National Housing and Planning Advice Unit, a group set up to counsel government ministers on how to protect the interests of people priced out of the property market.

Neil Woodford, head of investment house, Invesco Perpetual, recently said property prices will fall by 10% during 2008.

Mr Woodford, one of Britain’s most powerful fund managers said house prices are too high and the average home will fall by £18,500 by the end of the year - the equivalent of £50 a day.