A steady weakening in the housing market will prompt a sharp slowdown in consumer spending next year, dragging growth to a three-year low, the Treasury forecast yesterday.
The Pre-Budget Report blamed turmoil in the financial markets and higher-than-expected interest rates as it slashed its projections for consumer demand.
Details in the report revealed that the Treasury expects demand to slow to between 2 per cent and 2.5 per cent next year, sharply down from the peppy 3 per cent pace it forecast for 2007.
The prediction means that GDP growth next year will be half a percentage point lower than Gordon Brown forecast in March.
Gloom surrounding the future of the housing market was reflected by the report, which pointed to evidence that house price increases have fallen back since May: “House price inflation is expected to continue to ease over the coming year.”
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