Nationwide sees house price rises halving in 2002

House prices in 2002 will rise at just half the rate seen this year although the market will avoid a crash, Nationwide building society said yesterday.

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House prices in 2002 will rise at just half the rate seen this year although the market will avoid a crash, Nationwide building society said yesterday.

The price of the average home will rise 6 per cent in 2002, half the 12 per cent enjoyed this year but still more than twice the expected rate of inflation. Nationwide said it expected to see prices rise in every region despite the ongoing economic slowdown.

Its forecast, which contrasts with gloomy predictions of falling prices, came as separate figures showed demand for mortgages in November had been buoyed up by the latest cuts in interest rates.

Alex Bannister, Nationwide group economist, said: "Our expectation is that house prices continue to show reasonable increases in the next few months, before the market enters stagnation which could last until autumn." Next year is likely to see a reversal of the north-south divide with prices in the North of England, Wales and the Midlands outperforming London and the South-east, which will be hit by redundancies and cuts to bonuses in the financial sector, he said.

This was echoed by Savills, the upmarket London estate agent, which said asking prices in the capital had fallen by between 10 and 15 per cent.

Nationwide said it believed the UK would avoid recession, although it said if there were a sharp economic slowdown then house prices could rise as little as 3 per cent.

Fears of recession retreated yesterday after new revisions showed the economy was growing faster than previously thought ahead of the terrorist attacks. The annual rate of growth for the three months to September was revised up to 2.2 from 2.1 per cent although the quarterly growth rate was unchanged at 0.5 per cent.

The upward revisions went right back to the start of 2000 with GDP estimates revised by as much as 0.3 percentage points and to as high as 3.4 per cent. This year saw growth in the first quarter revised to 3.0 per cent from 2.7 per cent while second-quarter GDP was revised up sharply, to 2.7 from 2.3 per cent.

"These upward revisions leave the UK head and shoulders above the other major economies," said Simon Rubinsohn, chief economist at City stockbroker Gerrard.

National Statistics, the government's data office, said output in the distribution, transport, financial and business sectors was stronger than thought while government spending also came in stronger. The detailed figures for the third quarter showed a continuing divide between consumer and government spending and a weak business sector.

The amount of disposable income that households are saving fell back to the record lows of 2000 as consumers continued to spend in the face of falling dividend receipts from their shares. This is likely to alarm the Bank of England which made it clear this week it is worried the fall in interest rates to a 37-year low of 4.0 per cent will encourage households to take on "excessive levels" of debt.

But while retail sales surged, company profits outside the City of London have fallen by 2.6 per cent over the past 12 months. Meanwhile investment in machinery and equipment has plunged by 3.6 per cent over the past year, the biggest decline for eight years.