Economic growth likely to be slower and inflation higher than previously expected, according to the Nationwide report
House price growth picked up in March, but the conflict in the Middle East has clouded the economic outlook and could lead to housing market activity softening, according to a report. Annual UK house price growth increased to 2.2% in March, up from 1.0% in February, Nationwide Building Society said, reports BritPanorama.
Property values rose by 0.9% month-on-month, bringing the average house price to £277,186 in March. Robert Gardner, chief economist of the lender, noted that the increase indicated a revival of market momentum after a slowdown at the beginning of the year.
However, Gardner highlighted that the surge in global energy prices, driven by developments in the Middle East, presents a significant shock to the global economy, which complicates the economic outlook. “In the near term, UK economic growth is likely to be slower and inflation higher than previously expected, although ultimately the impact will depend on the duration of the shock as well as the policy response,” he stated.
He added that the uncertainty surrounding interest rates hinges on whether demand or supply aspects of the economy are more heavily impacted. Market expectations for the future path of the Bank of England’s base rate have shifted markedly, with three interest rate increases now anticipated over the next 12 months, in stark contrast to two cuts predicted before the recent geopolitical tensions.
This recalibration has led to a notable increase in longer-term interest rates, which are pivotal for fixed-rate mortgage pricing. If this trend persists, it could undermine improvements in housing affordability seen in recent years. Gardner cautioned that consumer sentiment could be adversely affected, suggesting that anticipated rising energy costs may result in diminished housing market activity.
In recent weeks, mortgage rates have spiked, with Moneyfacts reporting that numerous deals have been withdrawn, although some products are re-entering the market at elevated rates. Tom Bill, head of UK residential research at Knight Frank, remarked that the full effects of the Middle East conflict on the housing market have yet to be realised, with higher borrowing costs expected to exert downward pressure on prices and transaction volumes.
Furthermore, Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, warned that March’s price growth could represent “the calm before the storm,” should borrowing costs continue to rise in response to ongoing geopolitical tensions. She remarked, “Escalating tensions in the Middle East have upended inflation and interest rate expectations, something that could dampen demand if buyers find it harder to secure the mortgages they need.”
The average house prices reported by Nationwide Building Society for the first quarter of 2026, along with their annual changes, are as follows:
Northern Ireland: £225,269, 9.5%
North West: £229,173, 3.3%
Scotland: £191,747, 3.0%
Wales: £215,411, 2.7%
North East: £170,378, 2.6%
London: £538,181, 1.7%
Yorkshire and the Humber: £214,866, 1.6%
Outer Metropolitan: £430,260, 1.0%
East Midlands: £236,016, 0.3%
South West: £305,701, 0.1%
West Midlands: £249,722, 0.0%
East Anglia: £273,237, -0.4%
Outer South East: £336,036, -0.7%
As the UK grapples with the implications of international conflicts, the housing market remains under pressure from shifting economic dynamics. Rising inflation alongside fluctuating interest rates presents challenges for both buyers and sellers, indicating a period of recalibration in the sector.
