IMF: Over-valued House Prices Threaten UK’s Economic Recovery

October 05, 2010 / Russell Legato, Residential Property Analyst

The International Monetary Fund or IMF said last night that United Kingdom’s economic recovery is at risk because of its over-priced housing market, and this could affect consumer’s outlook in terms of recovery projection. The “persistently high” unemployment rate is also a factor in UK’s “double dip” in the real estate market.

IMF: Over-valued House Prices Threaten UK’s Economic Recovery

“What remains worrisome, however, is that house prices are still high based on traditional valuation yardsticks, and policy support may not be enough to prevent further correction.

“If employment creation remains low, risks of a double dip in housing naturally increase,” the World Economic Outlook reported.

The “real-estate quagmire” might hold-back improvements in the economy, especially in Ireland and Spain, the report added.

In contrast to the statement, IMF’s chief economist Olivier Blanchard said that Chancellor George Osborne is possibly moving too swift on cutting the funds.

Mr Blanchard said: ‘I don’t think it threatens growth’, but if the increase is lower than what is expected, the government needs to look at the facts again.

The IMF also reported a generally downbeat evaluation of United Kingdom’s economic growth next year by 2 percent from 2.1 percent previous projection last April.

“Fiscal adjustment needs to start in earnest in 2011,” the report urges. “Plans to cut future budget deficits are urgently needed to create room for fiscal policy maneuver. If global growth threatens to slow more than expected, countries with fiscal room could delay some planned consolidation.”

The world economy will increase by 4.8 percent this quarter and 4.2 percent next year. According to the Fund, Canada would be the leading nation among industrialized countries in terms of economic growth.

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