Latest warning on house price correction

A member of the Bank of England’s Monetary Policy Committee has warned that the downturn in UK property prices appears to be gathering pace.

Kate Barker has spoken of a “marked” weakening in the property market and warned that further declines in house prices “cannot be ruled out”.

At the same time she has expressed concerns that a major economic slump could be triggered by a shortage of banking credit, stating: “The risk I believe to be of most concern is around the interplay between the property market and the financial sector resulting from the credit turmoil.”

Some analysts are interpreting Ms Barker’s comments as the latest attempt by the Bank of England to prepare the British public for a much heralded correction in house prices.

Earlier this month, Mervyn King, Governor of the Bank of England, conceded that house prices could stagnate for several years and could experience outright falls.

Ms Barker has little comfort to offer hard-pressed homeowners on interest rates; while she is content to see rates fall to 5%, she is not pressing for immediate change, explaining: “My chief concern is the significant possibility of a large downside risk to growth, and therefore to inflation, as the impact of the credit tightening works through the economy.”

Adding “While this might suggest an immediate case for lowering interest rates further, it is not compelling.”

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