LONDON, June 8 Reuters House prices in Britain are likely to fall 10 over the next two years and a more severe downturn in the housing market could trigger a lengthy recession, credit ratings agency Moody39;s said on Thursday.

Persistently high inflation and the recent spike in lending rates will trigger a correction in the UK Aa3 negative housing market, Moody39;s Investor Service said in a report.

Unexpectedly strong British inflation data last month sparked a big jump in market interest rates as investors scrambled to price in more increases in borrowing costs from the Bank of England in coming months.

Interest rates offered by mortgage lenders have soared in response and are now far above 5 for twoyear deals, compared with rates of less than 3 only a year ago.

Moody39;s said a bigger decline in house prices of around 21 would have much wider implications for the economy.

The UK sovereign would enter a recession in the second half of 2023, lasting for six quarters. Unemployment would reach 6 by end 2024, still below its peak in the global financial crisis, the report said.

The housing market recovered somewhat early this year after weakening at the end of 2022 following a jump in mortgage rates triggered by the economic agenda of former prime minister Liz Truss.

However, many economists expect a fall in house prices this year as the BoE39;s increases in borrowing costs filter through into higher mortgage costs.

Both house price indexes published this month…