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U.k. Housing-Market Drop Shows Volatility Rather Than Slump, Sentance Says

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Bank of England policy maker Andrew Sentance said the record drop shown in the Halifax house-price gauge last month may show “volatility” instead of heralding a renewed property-market slump.

“For the time being I would regard that move in house prices you saw in the Halifax index, which wasn’t replicated in the Nationwide house-price index, as an indicator of volatility in the market rather than the start of a pronounced downward trend,” Sentance said in response to questions after a speech in London late yesterday.

The 3.6 percent price drop in September shown by Halifax, a division of Lloyds Banking Group Plc, contrasted with a 0.1 percent increase reported by Nationwide Building Society. While Sentance has argued since June that the economy is strong enough to withstand higher interest rates, his colleague Adam Posen said last month that it requires more stimulus.

“We’re bound to go through periods where there are periods of uncertainty,” Sentance said.

In his speech, Sentance reiterated his call for higher interest rates, saying that the longer the Bank of England keeps it benchmark rate at a record low, the more it puts its credibility at risk.

“It is important” that “confidence is not eroded by a perception that the Monetary Policy Committee has taken its eye off the ball and is becoming more tolerant of higher inflation,” Sentance said. “Unfortunately, the risk of such a loss of confidence and credibility appears to be increasing.”

3% Limit

Inflation held at 3.1 percent in September, exceeding the government’s 3 percent limit for a seventh month and above the central bank’s 2 percent goal.

“The current period of above-target inflation risks being prolonged by monetary policy which is too lax -- creating a climate in which higher inflation is not just the product of one-off shocks but becomes more deeply ingrained,” Sentance said.

The policy maker said that while the government’s planned spending cuts to reduce the budget deficit will have an impact on domestic demand, he sees “grounds for encouragement” in the pace of the recover so far.

The central bank this month kept its benchmark interest rate at a record low of 0.5 percent and held its emergency bond purchase at 200 billion pounds ($317 billion) ahead of the budget squeeze. Minutes of that decision will be published on Oct. 20.

‘Substantial’ Stimulus

“The improvement we have seen in the economy over the last year and the above-target inflation we have experienced point to the need to begin the process of withdrawing the very substantial level of monetary stimulus,” Sentance said. “Such a policy should not be a threat to the recovery. In my view it is the key to sustaining the recovery.”

He said that the impact on inflation from higher commodity prices has been “amplified” by the pound’s weakness. The U.K. currency has fallen about 20 percent on a trade-weighted basis since the start of 2007.

“I believe we are likely to see continued upward pressure on inflation from global price pressures as the recovery in the world economy continues,” Sentance said.

Recent data has signaled U.K. economic growth slowed in the third quarter and policy maker David Miles said this week that officials must not tighten policy too soon and hurt an “immature” recovery. He also said asset purchases remain a “powerful tool” that “we may come to use.”

Edited by Pent Up
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Nice to hear something sensible from a BOE policy maker for a change. The Halifax figures are almost certainly a product of very low sales volume distorting the index. Would a similar rise surprise anyone next month?

House prices are going down though; ultimately employment and income will provide a floor for steady decreases. I doubt we will see large annual falls unless unemployment rises significantly.

Any objective person can see interest rates need to slowly rise. Posen would have to be mad if he voted for more QE when inflation had been 50% over target for 7 months straight. The BOE inflation reports seem to be propaganda to prevent them taking any action. Waiting to see on the 20th..

The idea we are anything like Japan circa 1991/2 is ludicrous. The scale of this bust is beyond our comprehension. Our HPI graph looks like a mole hill in comparison.


House prices dropped 99% in some parts of Tokyo. Prices were $1 Million a Sq Meter at the top. Compared to about $20-30k in central london now.


Japanese culture is completely different from ours. There was / is no way of fixing the deflationary problems of Japan with monetary policy. The problem is psychological, rather than economic and eventually ( a generation or two ) the Japanese will recover.

We are nothing like Japan, savings culture?, huge trade suplus?, Strong stable currency? Give us money and we will spend it, and keep spending until the credit runs out. Academic economists need to pull their heads out of there arses. Economics is not just numbers on a spreadsheet.

The remit of the BOE is to keep inflation at 2% to prevent the economy being destabilised by high inflation. They clearly need to be reminded of this .Osbourne should be reading King the riot act.

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Nice to hear something sensible from a BOE policy maker for a change. The Halifax figures are almost certainly a product of very low sales volume distorting the index. Would a similar rise surprise anyone next month?

I can't see this being due to low volumes. Transactions are up 11% YoY according to the land registry. So we saw much lower transactions I'm 08 yet no volatility, just consistent falling indices.

Of course I am assuming that the halifaxs Market share hasn't dwindled to below 08 levels.

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needs stimulus?....what we need then, if thats correct, is another 10,000 mugs borrowing more than they can afford...that should prop it up another month.

COurse, the Ultimate stimulus in any market selling things...is...a...price drop.

but banksters, whom this guy represents, would see that as a market and opportunity drop too.

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