AVERAGE house prices are not expected to return to 2007 levels until 2024, warns an economic report that also predicts zero growth this year.
In strict cash terms, house prices should climb back to the peak levels of 2007 within the next five years. However, when the effect of inflation is taken into account, house prices will not reach 2007 levels for another 12 years.
The depressed state of the housing market was further reflected in the economic weather forecast produced by PwC. It found that single people without financial assistance cannot expect to be able to buy a first property until they are in their late-30s.
Pressure exerted by the eurozone crisis will result in the UK economy stagnating, with flat economic growth for the remainder of this year.
Across the UK, a slight recovery will be experienced next year with growth increasing to 1.7 per cent. Scotland’s recovery, however, will lag behind and will record 1.4 per cent growth next year.
When averaged over the two years (2012 and 2013), the UK will record growth of 0.8 per cent, compared to a Scottish figure of 0.7 per cent. Any increase in growth is expected to come to fruition in London and the South East before benefiting the Scottish economy.
But amid the economic gloom, there were some encouraging signs for Scotland with the employment rate north of the Border marginally outperforming the UK as a whole and surpassing many other parts of Britain. In Scotland, the employment rate for 2012/13 is predicted to be 71.1 per cent compared with 70.6 for the UK.
The PwC report estimated that the number of Scottish jobs would increase by around 20,000 next year, although many of the new positions will be made up of self-employed individuals or part-time positions.
Growth levels in Scotland, although one percentage point behind the UK as whole, will exceed those recorded in Wales and Northern Ireland, who will both be stuck at around 0.5 per cent for 2012/13.
The eurozone crisis is expected to constrain growth and depress confidence, with consumers experiencing subdued earnings growth, higher household debt, static property values and further public sector job cuts. On the property market, the PwC report said: “The UK market is likely to remain relatively flat in the short term whilst economic uncertainty persists, particularly in relation to the crisis in the eurozone. But house prices should rise again later in the decade as supply shortages reassert themselves.
“Average UK house prices are unlikely to return to 2007 levels in cash terms until the middle of this decade at the earliest, and, in real terms, not until after 2020.”
The PwC report reveals that consumer spending growth of around 0.1 per cent in 2012 and 1.3 per cent in 2013 is expected as inflation falls back, easing the squeeze on real disposable incomes.
According to PwC, inflation, calculated under the Consumer Price Index measure, which is based on the cost of goods and services, will be 2.9 per cent for 2012, falling to 2.2 per cent in 2013.
Major shifts towards online spending will continue to pose significant challenges for traditional high street retailers, who are currently struggling as a result of the bad weather.
John Hawksworth, chief economist at PwC, said the financial woes gripping Europe were to blame for much of the economic problems facing Britain: “Recovery in the UK has stalled over the past year as the eurozone crisis has taken its toll.
“However, a positive development has been lower inflation, which we expect to fall back towards its 2 per cent target rate over the next year unless there is a significant resurgence in global commodity prices. This will boost real consumer spending power, which was severely squeezed in 2011 as prices rose much faster than earnings.”
The Scottish Government called on the UK government to provide more economic stimulus to encourage growth.
A spokeswoman said: “This economic outlook report shows that Scotland is forecast to outperform most regions of the UK in terms of growth in output and headline employment rates this year and next.
“However, given the modest forecasts overall and continuing impacts being felt from the eurozone, the report reinforces the need for the UK government to admit that its austerity programme is failing and that it’s time to take action to increase the focus on growth.”
Lindsay Gardiner, regional leader for PwC in Scotland, said: “While the summer season has its challenges, particularly for those retailers whose sales figures are being impacted as a result of the incessant rain and flooding, we need to build our business confidence and develop a more positive outlook as we look ahead to 2013. After all, Scotland has a great deal of potential to support the UK economy as it continues the long path out of recession.”
She added: “As we highlighted recently, risks from further storms in the eurozone should not be taken lightly.
“Scottish firms can shield themselves, but they need to act now before the next big shock comes along. It’s crucial they understand and prepare for all of the potential scenarios across all areas of their business.”