Can the UK inflate fast enough to support house prices?
Devaluing the pound earlier this year was a good start but the UK is going to have to seriously inflate general price levels if the economy is going to avoid the agony of falling house prices with their impact on consumer spending, bank balance sheets and the illusion of wealth. This is broadly speaking what happened in the 1970s. House prices fell after the Oil Shock of 1973 and then came the inflation of 1975-80. This brought nominal house prices back up to pre-crisis levels by the end of the decade but by then general price levels had doubled. 50% real fall in house prices In real terms house prices fell by half from their peak in the early part of the 70s but the impact was disguised in nominal terms by inflation. That also helped to get the national economy back on its feet, although it was a bumpy ride in the late 70s and few businesses did well. Only a stern dose of deflation from Mrs Thatcher’s government post-1979 and a very nasty long recession and high unemployment brought a
