IMF issues UK house prices warning

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Estimates suggest that a number of advanced economies' housing markets outside the US could be vulnerable to a correction, the IMF said in its latest World Economic Outlook report.

It warned: "There remains the concern that the US experience might presage steep housing downturns in other countries that have also experienced a rapid rise in house prices, with associated risks for output growth."

House prices in the US have decelerated sharply since mid-2005, it says.

Large increases in house prices relative to incomes have been experienced by France, Ireland, the Netherlands, Spain and Britain.

It asks: "Could a housing correction in western Europe be as deep as in the United States?"

But it offers some hope by noting that housing markets in western Europe have generally avoided the "sub-prime" mortgage market which has collapsed in the US, while such factors as strong immigration and lack of supply are likely to continue to support prices.

The report predicts that global growth will be 4.8% in 2008, 0.4 percentage point lower than previously expected.

The largest downward revisions to growth are in the US, in countries where spillovers from the US are likely to be largest, and countries where the impact of continuing financial market turmoil is likely to be more acute, following the crisis in the US sub-prime market.

The current projection for UK growth is 2.3%, down 0.4% from an earlier forecast.