Photographer: Chris Ratcliffe/Bloomberg

U.K. Housing Market Will Cool This Year, PwC Says

  • House-price inflation set to slow to 3.7% from 7% last year
  • Inflation, Brexit will weigh on consumer spending, investment

The U.K. housing market will cool this year as uncertainty around Brexit hits the economy, according to PricewaterhouseCoopers LLP.

Home-price inflation will slow to 3.7 percent from 7 percent in 2016, and London will be the most severely impacted, PwC said in a report published Tuesday. The changes reflect the wider economic picture as inflation and Brexit take their toll on consumer spending and investment.

Economic growth overall is likely to moderate to 1.5 percent this year and 1.4 percent in 2018, PwC said. Nevertheless, the boost to exports from stronger global growth and the pound’s fall since the European Union referendum should help mitigate the slowdown, it said.

Britain started its second round of negotiations with EU leaders on Monday, and Prime Minister Theresa May has until March 2019 to clinch a deal. Without an agreement, Britain would revert to WTO tariffs unless it can secure a transitional period. In the meantime, household budgets are being squeezed as pay growth falls further behind the rate of inflation.

“We expect the U.K. to suffer a moderate slowdown, not a recession, but businesses should be monitoring this and making contingency plans,” said John Hawksworth, chief economist at PWC. “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.”

While inflation is set to climb above 3 percent, the Bank of England will probably keep interest rates on hold in the short term, according to PwC. It said the case for a rate hike could strengthen later this year or next if growth and inflation evolve as projected.

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