A fall in property prices of about 10% by the end of 2009 will slow Britain’s growth rate significantly and make the economy more vulnerable than most to the global credit crisis, the Organisation for Economic Co-operation and Development said yesterday.

It expects the economy to grow by 1.8% in 2008 and 1.4% in 2009, projections that are in line with the Bank of England’s latest central forecasts, but considerably more pessimistic than the Treasury.

The OECD is supportive of the Bank’s general strategy of allowing the economy to suffer a protracted slowdown to squeeze inflation out of the system.

It advises the Bank to keep interest rates on hold for the rest of 2008.

But it disagrees strongly with the Bank over the effect of house prices on the economic outlook, believing the UK is the one economy apart from the US where a large fall in house prices would severely curtail economic growth.

Financial Times