Peter Jackson column

Oct 27 2005 By Peter Jackson, The Journal

Last week, I wrote about the economic and fiscal problems which are gathering around Gordon Brown, threatening his legacy as Chancellor.

I did point out that, ominous as much of it seems, Mr Brown has a record of dumbfounding his critics and his own forecasts usually turn out more accurate than theirs.

And there was one piece of news which might already coax a smile back to those grim features.

Last week, a poll of chartered surveyors revealed that house prices look set to rise for the first time in 18 months.

Earlier this month, Halifax said the cost of property had risen by 1.8pc in the past three months, helped by August's rate cut.

To help matters further, the Royal Institution of Chartered Surveyors reported that the amount of new property coming on to the market last month had fallen for the first time in 18 months.

And falling supply can only help prices to rise.

So could it be that that traditional driver of the UK economy - the rising house price - is going to ride to the Chancellor's rescue? The scenario is familiar enough: rising house prices bolster consumer confidence, people happily run up credit-card debt on the strength of soaring property prices and, hey presto, we have a booming high street.

And goodness knows we need it. Last August, spending on credit cards fell for the second month this year, with borrowing down £146m.

In the first months of 2005, borrowing on credit cards grew by just £0.8bn, compared with £3.8bn during the same period last year.

On the whole I think it unlikely that this is going to prove the Chancellor's escape route.

At this point, it is confidence in the economy which will drive the property market and not the other way around.

And it would be downright dangerous were this not to be the case.

A recovery based on paper gains in the value of homes, set against very real threats of rising fuel prices, international political uncertainty and economic stagnation in Europe would not be healthy.

Gordon Brown might well end up having the last laugh, but it won't be a bounce back in the housing market that provides the punch line.