Britons now have even more money to spend on housing
The fortunes of property markets tend to follow those of the economy. Britain's house prices have risen for more than a decade because of massive wealth generation. Fifteen years of unbroken economic expansion has meant that a record 29.4million people are employed, interest rates are at historically low levels and peoples' earnings are growing steadily each year, so Britons have had plenty to spend on housing.
The nation's economy has grown for 62 quarters, the longest period of expansion ever recorded in a developed nation. The government and most analysts say economic expansion will slow down next year because of a global downturn, but there won't be a recession.
Liam Bailey, head of residential research at estate agency Knight Frank, forecast a lower economic growth of 1.8 per cent this year, because Britain was still feeling the knock-on effects of the subprime mortgage crisis in the United States. 'We will have two years of weak growth ahead of us. I don't think the US economy has seen the worst of the credit crunch yet,' he said.
The Bank of England wanted to cut interest rates to support GDP growth, but was constrained from doing so by strong inflationary pressures, so this would slow the economy down further, he said.
Rising prices for raw materials and sources of energy were feeding through to the rest of the economy, so a decade of low inflation supported by cheap Chinese manufacturing had come to an end, Mr Bailey said.
Economists at the Royal Institution of Chartered Surveyors (RICS) are more bullish. They said Britain's GDP growth, while down, remained close to its long-term trend rate of 2.5 to 2.75 per cent.
Unemployment, once the scourge of the British economy in the 1970s and 1980s, shows little sign of returning to the high levels that RICS forecast. The number of people out of work and claiming unemployment benefits continues to fall - now only 2.5 per cent of the workforce, the lowest since 1975, government figures show.