House prices are expected to plunge by another five per cent but then start to recover again in 2012, analysts predicted, Clear Property Investment has learned.

Ernst and Young economists also predict the UK will go through a ‘soft patch' rather than plunge in to a gloomy double-dip scenario.

The?group, known as The Item Group, specialises in forecasting?economic trends.

A spokesperson for the group said: "Unemployment has already started to increase and is likely to rise further given the impending public sector job cuts and weak private sector employment outlook.'

"We expect (house) prices to continue to fall for the rest of this year and into 2011, with prices falling by 5% from recent peaks. Thereafter, recovery will be slow, as the economy begins to strengthen and credit conditions gradually thaw."

Surveys on price fluctuations have been contradictory recently with property portal Rightmove reporting a 3.1 per cent increase while Halifax talked off a 3.6 per cent drop.

Peter Spencer, chief economic advisor to the Ernst & Young?Item Club, said, 'The economy is likely to slow over the winter following a surprisingly positive first half of the year, but I think this will be a soft-patch, not a double-dip.'

Meanwhile the Scots economy grew by 1.3 per cent quarter-on-quarter in the months April, May and June.

Experts were split over whether the spending review would support economic recovery in the UK.

David Blanchflowers, former Bank of England monetary policy committee member, said the cuts could send the UK back into a recession.

"This is like trying to train an Olympic athlete to run faster and you say ‘I've got a great solution' and you cut both his legs off - it's as absurd as that."

KPMG Chief Economist Andrew Smith said: "While spending cuts and higher taxes have their part to play, the resumption of robust growth is crucial to the deficit reduction arithmetic.

"But the chancellor is making some rather heroic assumptions. Households may continue to save and pay down debt rather than spend, businesses may remain reluctant to invest and export performance could suffer from a lacklustre global recovery."

Simon Hayes, economist at Barclays Capital was more optimistic. He pointed to the absence of an adverse market reaction and added: "this suggests the Government's expectations management has been sound and could even provide the basis for a more general recovery in confidence."

For further economic and property investment advice please contact Clear Property Investment.

 

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