CEBR predicts slower housing market for 2003

A fall in mortgage equity withdrawal will mean the consumer boom runs out of steam in 2003, predicts the Centre for Economic and Business Research.

The CEBR forecasts consumer spending growth down to 1.1%, in contrast to 4.1% in 2001 and 3.4% in 2002.

Mortgage equity withdrawal rose from 3.8% of consumer spending in 2001 to 5.9% in 2002. For 2003, mortgage equity withdrawal is forecast to fall back to 5.4% of consumer spending.

The centre says the UK housing market is also likely to lose its momentum in 2003 with prices falling during 2004.

Looking to the global picture, the CEBR says the risk of recession and a weakening economic outlook could see the UK drop down the league table for world economic growth.

It predicts that the UK will fall to the relegation zone of the global economic league by 2004, after growing faster than any other major economy in 2001.

The forecast for UK GDP growth for 2003 has been revised down from 1.5% to 1.3%. The more pessimistic outlook reflects lower consumer spending and business investment.

The forecast compares with Chancellor Brown&#39s more optimistic forecast of 2% to 3% growth for 2003 in his Pre-Budget Report.

But the CEBR says unemployment will rise by 298,000 by 2005, which reflects the weaker economic growth forecast. Employment is forecast to fall by 320,000 in the next three years. The sharpest phase of the decline is likely to be in the next 12 months, as employers realise that economic conditions are not likely to improve and that they have excess capacity in their workforces.

Weaker employment levels, higher taxes and lower real earnings growth mean households will see the worst year for real disposable income since 1998. Real disposable incomes are forecast to rise by just 1% in 2003 and 0.9% in 2004, in contrast to 6.6% in 2001.

The CEBR ends on a positive note, in the form of lower interest rates. Base rates are predicted to edge down in 2003 and 2004 reaching a low point of 2.9% in 2004, bringing some joy to mortgage payers, but less joy to savers.