Warning as City expects Bank to end easing policy

THE end of the Bank of England's quantitative easing (QE) could "destabilise" the UK's commercial property market, an economic think tank warns today.

Economists expect the Bank's monetary policy committee to end its QE scheme when it announces its interest rate decision on Thursday.

Despite commercial property prices rising by 3 per cent in December – their biggest monthly jump in 23 years – the chances of a sustained recovery in 2010 and beyond are "unlikely", according to a report from the Item Club, which is run by the accountancy giant Ernst & Young.

The study said the recovery could easily become destabilised because there is little sign of market fundamentals picking up, citing further rises in vacancy rates and downward shifts in rents throughout the past year, with the trend expected to continue.

The Item Club said the upturn had been primarily driven by market sentiment, where investors had decided the bottom of the market had been reached.

Andrew Goodwin, Item Club's senior economic advisor, said: "QE has been a significant boost for the sector, with the Bank of England using this new base money to buy assets from the private sector, thus releasing liquidity and allowing these sellers to buy other commercial property assets.

"However, QE is likely to end this week, and the Bank of England will no longer be buying assets from the private sector, with the likely result that investors hold a greater proportion of their assets in gilts.

"Ultimately, this could result in the strong inflows into commercial property fading."