Bootle Says U.K. Faces 1930s-Style Collapse as Home Prices Drop

By Brian Swint and Svenja O’Donnell

April 27 (Bloomberg) -- The U.K.’s recession will last through the end of next year as house prices drop in an economic slump increasingly resembling that of the 1930s, former Treasury adviser Roger Bootle said.

Gross domestic product will drop 1 percent in 2010 after shrinking 4 percent this year, Bootle, an economic adviser at Deloitte & Touche LLP, predicted today. U.K. house prices dropped for a 19th month in April, Hometrack Ltd. said in a separate report.

“It’s looking more and more like the 1930s all over again,” Bootle said in an interview on Bloomberg Television. When asked if the U.K. will sink into a depression, he said, “it’s in danger of being that, yes.”

Prime Minister Gordon Brown’s government last week raised taxes on the rich and predicted record budget deficits after the economy shrank by the most in three decades in the first quarter. The Bank of England has lowered the benchmark interest rate to 0.5 percent and started printing money to battle the recession and stave off the threat of deflation.

Bootle was on former Chancellor of the Exchequer Kenneth Clarke’s panel of economic forecasters, known as the “Wise Men,” under the previous Conservative government until 1997. He wrote a book called “The Death of Inflation” in the 1990s.

Bootle’s prediction for next year is more than twice the International Monetary Fund’s forecast for a 0.4 percent contraction. Chancellor of the Exchequer Alistair Darling said last week that the economy will rebound in 2010 with growth of 1.25 percent.

Housing Slump

House prices will fall 19.8 percent this year after a 14.8 percent decline in 2008, Bootle’s forecasts show. Property values will drop a further 2.3 percent in 2010, according to the forecasts published by Deloitte.

The average cost of a home in England and Wales slid 0.3 percent from March and 10.1 percent from a year earlier to 155,600 pounds ($227,355), Hometrack said today. While the monthly drop was the lowest in a year, buyers are unlikely to return to the market for long, the London-based researcher said.

A lack of first-time buyers “suggests to us that the recent pickup in demand is largely seasonal and unlikely to be sustained over the rest of the year,” Richard Donnell, Hometrack’s director of research, said in a statement.

The worsening recession may see Britain’s economy shrink by the most since 1931 this year, the London-based Centre for Economics and Business Research said April 24, forecasting a 4.5 percent annual contraction.

Gross domestic product dropped 1.9 percent in the first quarter. The economy has contracted by 4.2 percent since the recession began last year, almost as much as it lost in the slump in the early 1980s.

To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net; Svenja O’Donnell in London at sodonnell@bloomberg.net.