Potential housing market crash forecast

24 April 2003
The Organisation for Economic Co-operation and Development has warned that the Bank of England's cut in interest rates in March could cause an early-1990s-style crash in the housing market.

The organisation said that signs of the housing market slowing were probably largely down to the consumer confidence slump caused by the Iraq crisis.

Assessing the interest rate cut, the OECD stated, 'The recent easing of monetary policy, while justified by signs of weakening domestic and international demand, may fuel the housing market and does nothing to reduce the risk of a sudden fall in house-price inflation or even possibly an abrupt fall in the level of house prices.'

The Paris based OECD also explained that problems with public finances and increasing public deficit could plague the Chancellor in coming years, forcing him to cut spending or raise taxes.

The OECD forecasts the economy will expand by 2.1 per cent this year and 2.6 per cent in 2004, falling short of the Chancellor's budget forecasts.

The economic fall-out from the SARS virus could also prove 'significant', the organisation said, particularly if the outbreak continue to spiral.