Economist expects UK boom to end soon

London: A stark warning about an inevitable housing bust following a decade of booming prices has been issued by one of the City's most senior economists.

David Miles, chief UK economist at American investment bank Morgan Stanley, said that a fall in values or a long period of flat prices was highly likely over the next few years.

Miles, a former adviser to Chancellor Gordon Brown, said the current unsustainable upsurge in prices was being fuelled by expectations that the market would continue to rise. This had encouraged people to scramble on to the housing ladder because of fears they might otherwise lose out.

However, he cautioned that as the rate of increase slowed, house buyers would quickly become more cautious, no longer expecting to make quick profits. At that point the number of sellers will start to outweigh buyers and the housing market would turn downwards.

Predicting exactly when this would happen and the severity of the downturn was like trying to forecast the weather in three years time, he said. But Miles said it was likely to take place in the next few years.

A sharp fall in real house prices is likely at some point in the relatively near future, though it could yet be one to two years away, his report said.

Miles is the first heavyweight economist to predict a downturn since the latest property mini-boom began last year.

In the UK as a whole, prices have more than doubled in real terms over the past decade but most commentators are forecasting above inflation increases - particularly in London and the South-East - next year and beyond.

The last economist to grab headlines by forecasting a housing market slump, Roger Bootle of Capital Economics, eventually had to admit that his prediction of a 20 per cent crash was wrong.