The UK economy is heading for a soft landing with inflation gradually moving up to 2% in 2005 and GDP growing to 3.4% this year, before slowing to 3% in 2005.
That is the prediction of Bank of Ireland's Group Chief Economist Dan McLaughlin. He made his comments in today's Bank of Ireland Global Markets UK Economic Review.
He says that although mortgage lending and approvals have eased, there will not be a rapid deceleration in lending growth with knock-on effects to the UK economy.
'There is some evidence supporting the view that the housing market has peaked,' says Dr McLaughlin. He says that mortgage lending slowed in July and August. House prices also suffered with marginal monthly falls recorded by Hometrack and the RICS survey.
He says the issue now is whether the housing market slows gradually - a soft landing - or whether prices fall sharply. This would precipitate a rapid deceleration in lending growth with knock-on effects on economic activity.
'Our view, given the resilience of the broader economy, and the tightness of the labour market, is for a soft landing,' the economist says.
He says that UK consumer spending in particular remains firm, and a broad array of indicators point to a combination of above trend growth in the coming quarters.
He says that UK interest rates are not yet at the peak of the cycle and predicts a rate of 5.25% by February 2005.
