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Greenspan foresees housing crash

17/09/2007

The former head of America's central bank, Alan Greenspan, has issued a grim warning over the future of the UK housing market.

According to the ex-Federal Reserve chief, a decade-long period of growth in British house prices has been rendered "unsustainable" by turmoil in global markets.

"There are going to be some difficulties," he told the Daily Telegraph. "Can [the boom] last? No."

Mr Greenspan's comments in an interview with the Telegraph come days after the country's fifth-largest mortgage lender Northern Rock was bailed out by the Bank of England following the credit crunch.

Northern Rock customers are thought to have withdrawn more than £2 billion worth of savings since Friday.

And world-renowned economist Mr Greenspan predicts that this trend will continue amid rising interest rates and inflationary pressures.

He says that inflation in Britain could double before the end of the decade, with the Bank of England similarly doubling interest rates.

But the 81-year-old added that the inherent strength of the City would lend the UK economy a greater resilience than other western countries.

"[Britons] haven't even had a taint of a recession for an extremely long period of time – and a goodly part of that is the flexibility that came out of the crush between [Arthur] Scargill and [Margaret] Thatcher," he explained.

"That was the defining moment, and to their credit [Tony] Blair and [Gordon] Brown did not endeavour to unwind it. They recognised that there was something fundamentally good for British labour in having a flexible economy.

"It's like tough love, as we call it. It's unhappy-making, but in the end it works."

Meanwhile, Mr Greenspan has caused controversy elsewhere after his memoirs, due to be published today, made a direct link between president George Bush's war in Iraq and America's thirst for oil, a claim rejected by the Pentagon.