Barclays says house prices will jump 10%

HOUSE prices are set to climb by 10 per cent this year, three times the expected rate of general inflation, according to Barclays Bank, writes Peter Torday.

Its quarterly economic review, published today, says the housing market is supporting consumer spending. Although this year's tax increases will squeeze real incomes, a pronounced slowdown is unlikely, it says.

Strong March consumer credit growth, with a steep rise in retail store credit, is also expected to be reported today by the Finance and Leasing Association.

Nevertheless Barclays insists this is not a housing market boom but a correction of prices that had fallen to levels too low to balance supply and demand.

Barclays' survey of inflation expectations shows a modest increase in inflation fears. The average one-year inflation forecast has risen to 3.5 per cent from a previous 3.2 per cent, and the average two-year prediction to 4.4 per cent from 4.2 per cent.

Fears of rising inflation come ahead of tomorrow's Bank of England Inflation Report, which is expected to signal an end to further base rate cuts.

Incomes Data Services says a growing proportion of pay agreements have been struck at between 3 and 3.5 per cent, with 2 per cent emerging as a 'floor'. A rival research group, Industrial Relations Services, says pay deals levelled out in March at 2.5 per cent for the third successive month.