Economy looks shaky after Osborne tirade

The economy appears to be struggling

Tuesday, 15, Apr 2008 12:00

The housing market, retail sector and inflation figures provided little comfort for the government one day after George Osborne attacked Gordon Brown's economic policy.

Consumer price index (CPI) inflation remained unchanged at 2.5 per cent, with energy bills on the rise but offset by retail price discounting. Mr Brown will appeal for calm in energy markets in a speech to business leaders this evening.

According to the Royal Institution of Chartered Surveyors (Rics), the housing market remains tightly stretched with confidence at its lowest level for three decades.

The Department for Communities and Local Government's (DLCG) own figures reflect this, showing a 1.6 per cent fall during February. Annual growth has slowed to just 6.7 per cent as a result.

These may apply downward pressures to inflation but Global Insight analyst Howard Archer says the Bank of England's monetary policy committee (MPC) is "not out of the inflationary woods yet".

He says there is a "real danger" the UK economy will suffer weak growth "or even recession", with devastating impact on unemployment and – as a result - the housing market.

"This would be liable to lead to a marked increase in the number of people having to sell houses for distressed reasons, particularly given the extent to which many households have had to stretch themselves to the limit to buy a house," he commented.

"Furthermore, the sharp rise in mortgage payments that many householders face as the fixed deals they took out a couple of years ago expire could mean that a significant number are forced into selling their homes."

Prime minister Gordon Brown will be meeting with the Council of Mortgage Lenders and senior mortgage lenders to discuss the situation next week, his official spokesperson said yesterday.