Homeowners face further falls in prices

By SAM FLEMING FOR MAILONLINE
Updated:

House prices in Britain have nowhere near bottomed out even after a 20 per cent dive, the Organisation for Economic Cooperation and Development warned yesterday.

Property values are still 140 per cent of their historic averages, suggesting further declines are unavoidable, the Paris forecaster warned.

Economist Petar Vujanovic of the OECD said: 'Affordability is still nowhere near back at what it has been historically. So we think it has got a way to go. House prices have fallen by only 20 per cent.'

The prediction came in a dark outlook that predicted Britain's economy will suffer a peak-to-trough slump totalling 5.3 per cent - more than double the loss of output recorded in the recession of the 1990s.

Unemployment will soar to 9.5 per cent next year, or nearly 3m, from an average 5.7 per cent in 2008, the OECD said.

Separate research by management consultancy Hay Group suggested firms in Britain are planning up to £271billion of spending cuts during the coming financial year, including 620,000 of job losses.

The worst is yet to come: House prices are tipped to fall further

The worst is yet to come: House prices are tipped to fall further

If there was anything approaching a silver lining in the OECD report, it was the forecast that gross domestic product declines in other countries will be even more dramatic.

While Britain's output is expected to slide by 3.7 per cent this year, American GDP will slump by 4.3 per cent. The eurozone will see a 4.1 per cent fall and Japan will shrink by an extraordinary 6.6 per cent.

The reason for the smaller contraction in Britain is our recession started earlier than in many other European countries, and we are also benefiting from the devaluation of the pound.

But no country will be immune from the extraordinary collapse in global output, the OECD said.

It warned trade is plummeting at an annualised rate of 20 per cent, a rate of decline unseen in four decades of data.

And in an embarrassment for Gordon Brown ahead of tomorrow's G20 summit, the OECD warned there is 'limited room' for further fiscal stimulus.

It called for a 'robust fiscal consolidation' and said the Treasury needs to set forth new budget deficit rules after scrapping its previous set.

The OECD predicts the UK government's budget deficit will skyrocket to almost 11 per cent of gross domestic product by next year, over twice the level recorded for 2008.

Vujanovic said: 'If things turn out even worse than our forecast, then there is probably some justification for a further fiscal stimulus, but that needs to come along with a credible plan for re-consolidation.'

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