Double-digit house price growth is expected to slow to single digits by the end of the year as mortgage rates rise, the cost of living crisis continues, and supply increases, according to analysis by Knight Frank on what the Bank of England’s (BoE) latest economic predictions mean for the UK housing market.

However, Knight Frank suggests its central case for house prices remains that a recession “will not get thrown into the mix”.

The analysis follows the BoE’s decision to increase the base rate a further 25 basis points to 1%, marking the fourth rise since December 2021.

The Monetary Policy Committee (MPC) projects inflation to rise to 9% in April this year before “averaging slightly over 10% at its peak in Q4 2022”, driven mainly by energy price increases.

However, MPC member Michael Saunders has said that, in his opinion, inflation may exceed the 10% peak forecast.

Alongside this, the BoE governor Andrew Bailey talked of “hardship” and a “very sharp slowdown”.

While some buyers and sellers have become more hesitant since the warning, Knight Frank says “it doesn’t feel like a black cloud has suddenly descended over the market”.

“Some economists have been left scratching their heads after the BoE’s latest assessment, which was an abrupt slowdown in Q4 this year and a smaller contraction in Q3 2023 rather than a technical recession of two consecutive quarters of decline.”

“Capital Economics said the bank’s ‘dramatic cuts’ to GDP will ‘prove to be too downbeat’, questioning its assumptions on energy costs, the absence of government support and the mitigating role of household savings. While other economists agree with the BoE, the EY Item Club issued its own forecast last week, pointing to GDP growth this year and next.”

Although the conflicting opinions are not helping buyers and sellers, the analysis explained that “the assumption of a marked slowdown clearly comes with more caveats than some of the recent headlines would suggest”.

Knight Frank explains lifting the base rate to 1% means there are practical rather than theoretical concerns in the mortgage market, with lenders withdrawing their best products on a daily basis.

Knight Frank head of finance Simon Gammon says: “Proactive borrowers are booking in rates now. Some offers are locked in for nine months and it makes sense to act sooner rather than later when every day between one and three lenders are pulling their cheapest products, with rises of between 10 and 30 basis points.”

“The situation is being exacerbated because lenders do not want to be ‘top of the leader board’ for the most attractive rates on the market.”

“Too much lending can lead to issues around maintaining service standards and bottlenecks. The other reason is that in an environment where rates are rising, the concern of lenders will be focussed on managing their loan book rather than growing it,” Gammon adds.