Economic summary

News

The economic picture has been mixed since the last post. GDP grew just 0.1% in Q4 2025, capping a full-year figure of 1.3% (positive), but below the OBR’s 1.5% forecast. The labour market has softened noticeably: unemployment climbed to 5.2% in the three months to December, its highest since early 2021, with youth unemployment particularly stark at 16%. CPI inflation, however, offered some relief, falling to 3.0% in January from 3.4% in December, and the Bank of England expects it to return to around the 2% target by mid-year. The MPC held Bank Rate at 3.75% in February, but only just… a narrow 5–4 vote that was more dovish than markets expected, and a March cut is now widely anticipated. Looking ahead, forward-looking indicators have been surprisingly upbeat: the flash composite PMI hit 53.9 in February (a 22-month high), retail sales posted their fastest annual growth in nearly four years in January, and the government recorded a record budget surplus ahead of the Chancellor’s Spring Statement on 3 March.

Indicators

• Average house prices decreased very slightly to £270k on the previous month
• Mortgage rates for 75 % LTV and 95 % LTV continues to decrease

Current growth rates

Momentum remains concentrated in the north and the devolved nations. Northern Ireland leads the regional table at +7.5% over the past 12 months, followed by Wales (+5.0%), Scotland (+4.9%), the North East (+4.6%) and the North West (+4.5%). The midlands and Yorkshire sit in the mid-single digits, while the southern regions lag well behind — London is in outright decline at −1.0%, the South East is flat (−0.0%) and the South West barely positive at +0.3%. On a five-year annualised view the picture is broadly similar: Northern Ireland (+7.0% p.a.) and the North West (+5.2% p.a.) top the table, while the South East (+2.2% p.a.) and East of England (+2.4% p.a.) bring up the rear.

The affordability chart helps explain this divergence. The national home-affordability factor has drifted back down close to its long-run average after the sharp spike in 2021–22, but the regional spread remains wide. London, despite its price correction, is still far less affordable than anywhere else, sitting around 14× weekly earnings — down from nearly 18× at its peak but still well above the national average of roughly 9×. By contrast, the North East, Scotland and Northern Ireland remain among the most affordable regions, leaving considerably more headroom for price growth before affordability becomes a binding constraint.

At the local level, current 12-month growth (to 2025-12-01) is sharply polarised. The strongest performers are Newry, Mourne & Down (+12.4%), Northumberland (+10.8%), South Lanarkshire (+10.3%), Stafford (+9.9%) and East Cambridgeshire (+9.8%) – A mix of Northern Irish, Scottish and English authorities spread across several regions, suggesting the gains aren’t confined to a single market. The weakest are dominated by London boroughs: Camden (−11.1%), Tower Hamlets (−10.9%) and Hammersmith & Fulham (−9.5%) all posted double-digit declines, alongside the City of Aberdeen (−7.4%) and Cotswold (−6.8%). The gap between the best and worst is now over 23 percentage points.

Predictions

Overall

The forecast assumes a gentle recovery from about £270k (Dec-25) to ~£268k (1yr), ~£280k (2yr) and ~£295k (5yr), roughly +9% over five years (~2% p.a.), which is a fairly subdued growth path. Notably, the model expects a slight dip before prices regain momentum, and the widening confidence interval beyond 2028 highlights the increasing uncertainty at longer horizons.

Regional

Short term (1 year): Most regions are forecast to grow around 2–6% over the next year, with the North East (6.3%), Northern Ireland (5.8%) and the North West (4.9%) leading the way. London is the clear outlier, with the model predicting a further 1.5% decline overall and sharper falls for flats (−4.8%) and detached homes (−8.4%).

Medium term (2–3 years): By two years, the majority of regions cluster around 3–6% cumulative growth, and by three years most sit in the 5–10% range — a broad-based but unspectacular recovery. London remains the laggard, still forecast to be down at the two-year mark (−4.6% overall) and only clawing back to roughly flat by year three, with detached properties particularly weak.

Long term (4–5 years): At the five-year horizon most regions converge toward 10–20% cumulative growth, led by the North East (19%), Yorkshire (13%) and Northern Ireland (17%). London eventually turns positive but trails significantly at around 15% overall, while Scotland (10%) and Wales (7%) also sit at the lower end — and across all regions, flats consistently underperform houses, suggesting the post-pandemic space premium persists.

Local

12-month prediction (to 2026-12-01)

The strongest 1-year gains are concentrated in Northern Ireland and the North East — Newry, Mourne & Down leads at +9%, followed by East Cambridgeshire (East of England, +8.5%), Northumberland (North East, +7.4%), Causeway Coast & Glens (Northern Ireland, +7%) and East Ayrshire (Scotland, +7%). The weakest areas are overwhelmingly London boroughs: Tower Hamlets (−4.2%), Hammersmith & Fulham (−3.8%) and Camden (−2.6%), with Worthing (South East, −1.8%) the only non-London entry in the bottom five. The model is calling a sharp near-term split, with affordable northern and devolved-nation markets pulling further ahead while parts of London continue to correct.

24-month prediction (to 2027-12-01)

At two years, the top five are dominated by Northern Ireland — Newry, Mourne & Down (+10%), Causeway Coast & Glens (+7.9%) and Mid & East Antrim (+7.6%) all feature, alongside East Cambridgeshire (East of England, +9.5%) and Northumberland (North East, +7.9%). The bottom five are now exclusively London: Tower Hamlets (−4.1%), Hammersmith & Fulham (−4%), Camden (−2.7%), Brent (−2.3%) and Newham (−1.6%). The model expects persistent underperformance in specific London boroughs even over two years, while Northern Irish authorities continue to dominate the leaderboard.

60-month prediction (to 2030-12-01)

By five years the leaders rotate slightly — Newry, Mourne & Down (Northern Ireland, +18.9%), East Cambridgeshire (East of England, +18.6%) and Northumberland (North East, +18.4%) hold their positions, but Vale of White Horse (South East, +17.1%) enters the top five, suggesting some long-run resilience in parts of the South East. The laggards are now all positive but trail significantly: Tower Hamlets (London, +2.2%), Hammersmith & Fulham (London, +3.1%), Pembrokeshire (Wales, +4.3%), Camden (London, +4.4%) and City of Aberdeen (Scotland, +5.1%). Across all three horizons, Newry, Mourne & Down and East Cambridgeshire appear consistently at the top, while Tower Hamlets and Hammersmith & Fulham repeatedly anchor the bottom — a remarkably stable pattern.

The overall picture is one of moderate, broad-based recovery, not a boom, with average UK prices forecast to edge up roughly 2% a year over the next five years. The dominant theme remains a north–south and affordability-driven split: cheaper, more affordable regions like Northern Ireland, the North East and parts of Scotland continue to outperform, while London, particularly its flat-heavy boroughs faces a prolonged period of underperformance before eventually returning to modest positive growth. Rate cuts, when they come, should provide a tailwind, but with unemployment rising and household incomes under pressure, the model sees no catalyst for a sharp acceleration. As always, these are model outputs, not certainties. The widening confidence intervals at longer horizons are a useful reminder that the further out you look, the less anyone really knows.