By Rob Wood of the Bank's Structural Economic Analysis Division.
It is often suggested that house price movements in the South East lead, or even cause, movements in the rest of the United Kingdom. If this were the case then house price inflation in the South East would be useful when forecasting national house price inflation. There are plausible channels through which such a 'ripple effect' could operate. But tests for patterns of regional price changes consistent with the effect give mixed results. There is evidence that regional price changes were consistent with the South East playing a leading role in the late 1980s/early 1990s, but not during other periods. So it is important to understand the nature of the shock to the housing market before concluding that a given house price change in London and the South East has implications for house prices in other regions.
The information content of regional house prices: can they be used to improve national house price forecasts?