PwC’s latest UK Economic Outlook showed housing transactions, which tend to be more volatile than prices, are where the uncertainty caused by Brexit has manifested itself most strongly. Year-on-year the number of transactions has been down for 12 consecutive months.
Price inflation in London in the first four months of 2017 was around 4% against 13% for the same period in 2016. PwC projects the capital’s housing market will continue to slow, with only 2.8% and 3.8% growth on average in 2017 and 2018 respectively.
Elsewhere in the UK, the east and southern regions of England will continue to grow above the UK average, but Northern Ireland and the North East will lag behind. While the average house price across the UK has grown by 17% since mid-2007, over a quarter of all local authorities are still below the 2007 peak.
Richard Snook, senior economist at PwC, said: “There is a huge disparity in how sub-regional housing markets have performed since the recession. The local authorities that have experienced the greatest falls in house prices since 2007 are all based in Northern Ireland, while London dominates biggest risers with all boroughs experiencing price growth of over 50%.”
PwC’s analysis has also found London’s housing market has seen a structural shift recently, as house price growth has moved outward from the capital.
Snook said: “The affordability crisis within London has seen first-time buyers in particular struggling to buy in the capital. In 2016, house prices in London were 13 times median earnings, while the 15 commuter belt towns offer a lower – albeit still high – ratio of nine times earnings.
“Essex appears to be a key commuter hotspot, with lower historical house prices than commuter towns west of London,” he added.
The accountancy firm added that affordability pressures will bite as consumer price inflation is likely to rise above 3% later this year, but could gradually decline later next year.
“The Bank of England faces a dilemma on interest rates due to a combination of slowing growth and rising inflation. We do not expect an immediate rate rise, but a gradual increase is likely to begin at some point over the next 12-18 months in our main scenario.”
PwC said although economic growth held up far better than expected after the Brexit vote, it has slowed in the first half of 2017 alongside a sharp inflation rise. Business investment held up relatively well in the first quarter, but uncertainty surrounding Brexit may weigh on this going forward.
Sky News reported earlier this week that after Brexit, Citigroup plans to base its sales and trading hub in Frankfurt which is likely to move ‘a couple of hundred’ jobs away from London.
John Hawksworth, chief economist at PwC, said: “Brexit-related uncertainty may hold back business investment, but this should be partly offset by planned rises in public investment. Fiscal policy could also be further relaxed in the 2017 Autumn Budget to offset the ongoing real squeeze on household spending power.
“There are still downside risks relating to Brexit, but there are also upside possibilities if negotiations go smoothly and the recent Eurozone economic recovery continues. We expect the UK to suffer a moderate slowdown, not a recession, but businesses should be monitoring this and making contingency plans.”