The Governor of the Bank of England has warned against predictions of another housing boom. He has said that although house prices have risen more than the bank had predicted, the current high levels of house prices relative to average earnings would be limited. His assessment of the UK economy as a whole was generally positive, saying ‘although consumer spending eased in the first quarter of 2006, following a slowdown in the first half of last year, business spending has recovered markedly. House prices and equities continued to rise despite the increase in long-term interest rates from January’.
Our view
House prices and the economy are, in our opinion, quite flat. When earnings catch up with the last house 'boom' in around 2-3 years, that is when you will see yet another upward property cycle.