House prices and economy get a boost as inflation eases

VICTORY in the fight against inflation will boost economic growth and house prices this year, according to the EY Item Club, leaving families feeling better off.

UK GDP will grow by 0.9pc in 2024, the economic forecaster predicted, faster than the 0.7pc growth it had previously anticipated.

The housing market should stay roughly stable across the year, the EY Item Club said, which represents an upgrade from its previous prediction that prices would drop 4pc this year.

The City forecaster upgraded its outlook after recent falls in inflation. Though the headline rate rose for the first time in 10 months in December, EY Item Club said inflation is still set to drop to the Bank of England’s 2pc target by May. This will allow officials to cut interest rates from their current level of 5.25pc to 4pc by the end of the year.

Lower borrowing costs will boost the economy and inject more life into the housing market. It means the period of stagnation that followed the pandemic and the cost of living crisis should soon be at an end, said Martin Beck, chief economic adviser to the Item Club.

Economic recovery this year will be driven by “real wage growth, interest rates coming down, the boost that will deliver to confidence and sentiment, energy bills dropping 15pc in April, and tax cuts – the ones we have already had and probably more at the Budget in March”, he said. Consumer spending should rise 0.9pc across the year, more than the 0.7pc previously predicted.

Mr Beck added: “The fall in energy bills in April is looking even bigger than people thought … that will filter through the wider economy.”

However, business investment is set to drop 1pc this year before recovering in 2025. A recent survey by the Federation of Small Businesses showed companies’ confidence fell back in the final months of 2023.