And harsh austerity measures by the coalition government will depress demand further next year.

Lenders, however, are adamant that only modest falls will happen in 2011 and beyond. Nationwide is convinced that low interest rates mean the 18 per cent decline of 2008-09 will not be repeated.

They would say that, of course. Anybody trying to sell a property at the moment will wonder what to believe.

At the other end of the spectrum, first-time buyers are unable to get on the ladder. The lack of any coherent policy to tackle chronic real housing shortages in the UK means there just isn’t enough housing.

The house prices to earnings ratio is also way above average. Economists offer varying estimates of between 10 and 20-plus per cent for price falls to come.

The Organisation for Economic Co-operation and Development (OECD) suggests property is 40 per cent overvalued in its economic outlook report, although the thinktank said a big readjustment was not on the horizon soon.

This is not Ireland. But prices in the UK boomed hugely up until 2007-08. They fell in the recession, before staging a ‘mini-boom’ which has now ground to a halt.

The question is, if prices have a long way to fall, when and how sharply will that happen? Interest rates are likely to stay low for another year, but a surge in living costs could reach a tipping point. Inflation is above target, could be accelerated by more quantitative easing and might be tackled with an unpopular rates rise.

And just how good is the UK’s mortgage debt and how will it be managed if more defaults and foreclosures start to look likely? Easy money flows in a property bubble, and it might have only partially burst in Britain. Let’s hope householders are protected from ruin if it all ends in tears.

Standard & Poor’s revised Britain’s outlook from ‘negative’ to ‘stable’ today on news of a 0.8 per cent GDP growth, beating the 0.4 per cent widely expected.

It was the second successive quarter when GDP beat forecasts. The figure included a 4 per cent surge in construction – which jumped 8.6 per cent in the last quarter.

But the chancellor might be wise to approach the figures with caution before seizing on them as justification for his swingeing deficit reduction measures.

Housebuilding is on the brink of grinding to a halt as funding for building social homes is slashed by 50 per cent. The surge in construction in Q2 was largely down to public sector contracts, such as Building Schools for the Future, being legally secured before they could be scrapped.

The latest figures – and GDP estimates are often downgraded anyway – are likely to reflect this again as deep spending cuts were expected.

The cuts are still to take effect, so lets not uncork the champagne just yet.

Superficial as today’s figures might be, however, there is a danger they will mask the effects of the deepest spending cuts since the 1920s.

A series of reports has shown the measures will hit the vulnerable in society hardest.

At the same time, the National Institue for Economic and Social Research suggest some of the cuts will be reversed and fail to cut the deficit as desired.

Either way, there is a danger short-terms gains will act as an endorsement for budget measures which could be ideologically and economically dubious.

And an endorsement from the same credit rating agencies which failed to spot the sub-prime crisis coming should be seen as just that.

He’s giving councils new freedoms. But could this leave them under pressure to borrow money against their assetts or future regeneration projects, adding a further layer of public sector debt when the coalition has stressed the need for fiscal austerity? It could be interpreted as ideological:

“In the Spending Review last Wednesday I secured a fair deal for councils which will mean they can protect the interests of hard working families and the most vulnerable in society. Given the legacy of debt we have to tackle, tough choices have been inevitable.  But the deal we’ve struck has been to protect frontline services by cutting out bureaucracy and central Government. We’re giving councils unprecedented freedoms and control over their money; so that they can decide for themselves how best to meet local needs.

“To help them do that, we’ve set aside £650 million to fully fund a council tax freeze for householders next year. If your council decides not to put up your rates, we’ll provide them with an increase in funding so services don’t have to suffer and you aren’t hit in your pocket. We’ve cut the red tape which comes attached to public money: putting councils in charge of more than £7 billion to meet the needs of local communities. Billions more will go to councils to support social care and vulnerable elderly people. We’re giving councils new powers to borrow money to invest in infrastructure and providing incentives for those who build more homes. And we’re scrapping the culture of targets which wastes millions of pounds each year and stops councils from concentrating on what people actually want.

“It’s only right, then, that people will be counting on councils to use all this to protect frontline services. In order to do that, there’ll have to be big changes in the way that councils work: asking themselves fundamental questions about what they do – or whether others like the voluntary and community sector, are better placed to deliver. This is a big ask of councils, but I have every confidence that they will be able to rise to this challenge.”

Chancellor George Osborne hacked £81bn from public spending when he delivered his long-awaited spending review on Wednesday.

He said 490,000 public sector jobs would be lost as a result of the measures. But he is predicting a surge in private sector hiring to create jobs and grow the  economy.

Britain was on the verge of bankruptcy, he told MPs, and there was no going back: the cuts would bring down the national debt, prevent borrowing costs from rising and keep markets and ratings agencies happy.

It’s worrying for people on benefits. Welfare payments will already decline year-on-year after being linked to the lower CPI index of inflation. A further £7bn was slashed from the benefits bill. Add to that a VAT hike to 20 per cent next year and it paints a bleak picture.

Anyone on social housing waiting lists might also worry. Funding for new build was slashed by more than half. New tenants could face higher rents to pay for 150,000 new properties – not nearly enough to plug the chronic shortage.

Much of the cuts were pre-announed to soften the blow. And there were differing accounts of the severity of the measures, which were the deepest cuts since the 1920s. Or World War II. Or the 1970s, depending on who you believe.

Shadow chancellor Alan Johnson also gave mixed signals. After Osborne’s speech, he attacked cheering Tory MPs, saying that’s what they were in politics for. But he later told the BBC he did not think Osborne was cutting spending for ideological reasons.

But if one thing is certain, it is that uncertainty still reigns. Anybody who waited for the spending review to decide whether to buy that house might still be undecided as public bodies figure out their futures and the detail of Osborne’s plan unravels in the coming weeks.

And now Alan Johnson receives Labour’s top economic portfolio after shadow cabinet positions were selected by Ed Miliband today.

In appointing former home secretary Johnson as shadow chancellor, Miliband overlooked two economists – Ed Balls and Yvette Cooper.

Both had argued strongly against the current programme of spending cuts by the coalition government.

And both, Balls more strongly, were at odds with former chancellor Alistair Darling’s belief that the fiscal deficit should be halved in five years.

Balls said a longer-term approach was needed: cuts too early and too deep would harm the economic recovery. And his plan was seen as a credible alternative.

But Johnson backed swifter deficit reduction, saying the public wanted a government rolling its sleeves up, cleaning up the mess (the mess left by Labour that is).

So Miliband’s two choices were these: convince voters of the economic reasons against cutting spending during a rocky recovery, or sidestep attacking much of the cuts programme to avoid being unclear on economic policy.

The Conservatives won the argument by convincing people the invisible, intangible national debt would creep into their homes at night and steal their children.

But Miliband still chose the latter.

Ed Miliband was elected after reports of in-fighting and backstabbing dominated the Blair/Brown era, and pledged to move away from the soap opera.

But has he taken a decision which threatens cohesion in the party if fighting the Conservatives on their own turf leaves nobody smelling of roses?

He is expectd to  say markets are often irrational and rigged, attacking investors who speculate to make a killing, destroying good companies and stifling competition.

The speech will launch a major consultation over takeovers and executive pay in a bid to ensure Britain has a properly regulated free market.

The CBI quickly went on the defensive this, saying it will be interesting to hear Cable’s alternative to the capitalist system.

Well it will be. But others might find it more interesting to hear his reasoning for huge austerity measures they feel are being dictated by the system he is expected to attack.

His speech will come after Moody’s, an influential international ratings agency, gave the thumbs up to swingeing budget cuts by maintaining Britain’s AAA rating.

It was seized on as justification for the budget measures by the coalition, who insist fiscal tightening is essential to keep interest payments down and the markets happy.

But Moody’s was among economic analysts which failed to spot the credit crunch coming, rating sub-prime mortgage investments as AAA.

And a series of economic reports has cast doubt on the ability of Britain’s economy the withstand the cuts, despite Moody’s assessment.

Cable’s expected assault on capitalism left to its own devices will not worry the Conservatives – it’s just stating the obvious.

And a review of the practices many people blame for causing the economic crisis is likely to be welcomed.

But Cable must address the wider economic reasoning for the biggest austerity programme in memory -  itself attacked as short-termism by opponents to the coalition – or risk his words ringing hollow today.

Ratings agencies backed the plan, even urging bolder measures, as George Osborne’s emergency budget was delivered.

And the Organisation for Economic Cooperation and Development (OECD) was among authorities which stressed the urgency of fiscal consolidation, hailing the emergency budget as ‘courageous’.

But the same think-tank has now warned that the pace of recovery means Osborne should consider delaying budget cuts. An OECD report said the measures should wait until the economic recovery was stronger.

Standard and Poor’s, an influential credit ratings agency, has also warned of a wave of house repossessions caused by the budget measures. The property market is overvalued, many borrowers are in severe arrears and the austerity package could leave many struggling to keep up with payments, the S&P report said.

Osborne and the coalition seized the backing of such bodies for their austerity plan earlier this year. They warned of fiscal ruin, a ratings downgrade and huge interest payments leaving future generations saddled with debt.

Economic reports have since cast doubt on the ability of the private sector to create new jobs and grow the economy.

The coalition could rethink the plans but will fear the political implications of any U-turn. Or they could hold their nerve. Deputy prime minister Nick Clegg defended welfare cuts this week and admitted the reforms would leave some people worse off.

Either way it could be hard to argue that the economic circumstances have altered in recent months to force a change in the plan. Economists have warned throughout of the dangers of rising unemployment, some even predicting a double-dip  recession.

In the meantime, for those who might be worst-hit by the spending cuts, this is turning into a tasteless suspense drama over how far Osborne will go.

That was the message from deputy prime minister Nick Clegg this week as he spoke to calm fears over austerity measures.

He was speaking as research showed a clear North-South divide in the effects of the cuts, with areas still recovering from the recessions of the 1980s and 1990s set to be hit hardest.

Latest figures also show service sector activity has slowed to its lowest pace for 16 months as growth forecasts are cut ahead of a VAT hike next year.

But Clegg insisted future generations would suffer if action was not taken on the UK’s fiscal deficit.

And he is attempting to use an argument over ‘political short-termism’ to justify the cuts.

He told the Institute for Government: “Our political culture and our society generally has become too focused on immediate needs and demands and not enough on looking to the future.”

He suggests the argument for slower deficit reduction – voiced by economists who say the cuts are too deep, too early for the fragile economy – means leaving the problem for somebody else to sort out.

But could this turn out to be the pot calling the kettle black?

The cuts programme hinges around rebalancing the economy away from the public sector.

George Osborne has predicted private sector employers will create new jobs as the public sector sheds hundreds of thousands of staff.

This will reduce the deficit and keep markets and ratings agencies happy as confidence grows in the economy.

But a series of economic reports have cast doubt on this since Osborne’s emergency budget.

The coalition is keen to convince voters their agenda is vital to rescue future generations from drowning in debt.

But if their measures cause even more economic problems, it is they who will stand accused of jumping the gun.

There are clearly problems with both. Cuts to the welfare bill, linking benefits to the lower CPI measure of inflation, housing benefit reform and a VAT hike to 20 per cent could undermine the fairness claim.

And when it comes to growth, a series of economic reports has cast doubt on Osborne’s prediction that, while the public sector is reigned in heavily, private sector employers will create two million new jobs to rebalance the economy.

But the chancellor argued that it would have been more of a gamble to do nothing about the deficit, as he addressed fears that the coalition was being defined by cuts and nothing else.

He attacked ‘deficit deniers’ who would set the country on the road to fiscal ruin, leaving future generations saddled with debt and damaging the UK’s reputation with international investors.

Higher interests payments and the wrath of the bond markets mean action is needed now. And ratings agencies have issued their own warnings of a possible downgrade if austerity is not adhered to.

Opponents to the budget measures say the cuts have come too deep, too early, and risk derailing the fragile economic recovery.

The opposing arguments do beg the question: just how dependant are we on pleasing the markets and ratings agencies for economic survival?

Are the dark hounds of the market ready to maul the UK if deep spending cuts and social change don’t go ahead?

Or are we embracing austerity for its own sake, to shrink the state and devolve power to the private sector?

The fact the argument exists means one thing is certain – this is a gamble.

And whichever is true, it will be tough convincing those hit hardest by the cuts that the pain will pay off.

The Bank said it expected inflation to remain higher for longer and predicted growth would be under three per cent next year, down from its previous forecast of almost 3.5 per cent.

It was the latest in a series of worrying economic data, raising fears over a return to recession or a period of economic depression.

And there was an even more gloomy outlook from credit ratings agency Standard and Poor’s (S&P), which forecast 1.8 per cent growth in the same period.

The agency said it was keeping Britain’s AAA credit rating ‘under review’ as more information emerges over the extent of George Osborne’s budget measures.

The markets are also said to be needing tough deficit-reduction measures from the chancellor to maintain confidence in the UK economy.

The coveted AAA rating affects interest payments and the price of borrowing, so Osborne understandably wants to protect it. He fears fiscal ruin if faith in Britain’s ability to service its debts were to collapse.

But the tough public spending cuts are also blamed for harming growth as hundreds of thousands of job losses are expected.

Private sector employers were expected to create new jobs and boost the economy, but this is increasingly in doubt.

S&P warned Osborne that the budget cuts might not be enough to maintain the AAA rating when the budget was delivered.

But what will the ratings agencies have the chancellor do if the measures lead to a slump in the economy, rising unemployment and falling tax revenues?

The agencies don’t always get it right, as their part in the sub-prime mortgage crisis in America proved.

Their influence, however, remains crucial as governments are compelled to embrace fiscal austerity to protect confidence.