House prices forecast to slump amid 15% fall in GDP

The UK economy could suffer an unprecedented 15% coronavirus-related dip in GDP later this year as output collapses in the wake of the country’s mandatory shutdown.

In a covid-19 update, the Centre for Economics and Business Research (CEBR) warned that the UK economy was about to enter the deepest recession since the financial crisis of 2008, including the steepest quarter-on-quarter decline in economic activity since comparable records began.

House prices are predicted to fall by 13% in the next 12 months, the CEBR said, while it expected the UK economy to have shrunk by 0.5% in the first quarter of the year, compared with the same period last year.

But the coronavirus is set to pile on further woe, with 2020’s second quarter seeing a much steeper contraction of 15% in GDP, as business closures took a toll.

The CEBR said according to current records – which only go back as far as 1997 – the previous largest quarterly decline in GDP was the 2.2% fall in the fourth quarter of 2008, when the full impact of the financial crisis began to be felt.

Others have predicted similar falls, with Japan’s Nomura bank expecting a decline of around 13.5%.

The CEBR said it expected the government to take strong action to resurrect the economy once the coronavirus pandemic had eased, including perhaps a temporary cut in VAT.

And measures to encourage business investment, likely to be down 13% this year, would be essential. The CEBR warned that without government action investment would hit its previous peak until after 2030.

With thousands of people losing their jobs as firms cut full-time and temporary staff, despite government support measures, the CEBR warned the rate of unemployment could nearly double to 7% in the third quarter.

Interest rates, languishing at a record low of 0.5%, were likely to increase in 2021 in response to rising inflation, with the CEBR predicting base rates would reach 3% by 2022.