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Imf Warns Osborne Over Housing Bubble Risk

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http://www.bbc.co.uk/news/business-27731567

The International Monetary Fund (IMF) has warned George Osborne that accelerating house prices and low productivity pose the greatest threat to the UK's economic recovery.

It said rising property values could leave households more vulnerable to income and interest rate shocks.

It also called on the Bank of England to inact policy measures "early and gradually" to avoid a housing bubble.

In April, the IMF said the UK economy would grow by 2.9% in 2014.

The Fund's annual health check of the UK economy found it has "rebounded strongly and growth is becoming more balanced" adding economic growth would "remain strong this year."

It is a significant turnaround from last year when the IMF's chief economist Oliver Blanchard appeared to have a public falling out with the chancellor after he criticised the government's austerity policies.

This year IMF managing director Christine Lagarde said admitted the Fund "got it wrong" in its assessment adding that while the UK's economic recovery began with consumer spending, it was now rebalancing towards an "investment-led recovery".

The chancellor said the IMF was "right to warn the government that risks still remain" to the UK's economic recovery.

Ms Lagarde called on financial regulators to consider imposing limits on the number of low-deposit mortgages a bank or building society can advance to borrowers, highlighting fears that some people may be at risk of overstretching their finances.

The IMF said: "Macroprudential policies should be the first line of defence against financial risks from the housing market."

It added that raising mortgage lenders' capital requirements "would build additional buffers against increased exposures to the housing sector".

Help to Buy

The Bank of England's Financial Policy Committee (FPC) is due to meet later in June and could announce measures to control mortgage lending.

In May, 25% taxpayer-backed Lloyds Banking Group said it would limit its mortgage lending to four times a borrower's income on loans above £500,000.

On Tuesday, Royal Bank of Scotland - which remains 80% taxpayer-owned - said it would also restrict the amount it advanced to mortgage borrowers.

The IMF added the government should consider modifying or even pulling the plug on its flagship mortgage guarantee scheme - known as Help to Buy 2 - if house prices showed signs of overheating.

Recent figures from the Treasury showed 7,000 homes were bought through the Help to Buy scheme between its launch in October and March.

That amounted to just over £1bn of mortgages since the scheme's launch, involving just £153m of government guarantees.

Howard Archer, chief UK and European economist at IHS Global Insight, has previously warned the risk of a house price bubble developing across the UK is "very real".

Earlier the chancellor told BBC Radio 4's Today programme: "We need to be alert to the build-up of debt in the housing market, we need to be alert when we see house prices rising."

"We have created - this government, me as chancellor - the mechanism to deal with that,

"We have given the Bank of England the tools to do the job and they should not hesitate to use those tools if they see these developments turning into a risk for the British economy."

Interest rates

While the IMF praised the Bank of England's policy of forward guidance, it warned that if economic growth expanded more than current forecasts suggest, interest rates might have to rise more quickly in order to control inflation.

Bank governor Mark Carney has previously stated that he envisages interest rates rising from their historic low of 0.5% incrementally and not before the middle of 2015.

The IMF also echoed the Bank of England's own concerns about productivity levels, saying that despite evidence of the UK economic recovery strengthening, productivity growth remained low.

It added "Accelerating productivity growth would spur investment and output, while allowing real wage increases without triggering inflation. If productivity continues to be flat, however, growth will eventually stall."

Productivity reflects the amount and value of the goods and services produced by an employee of a company. But productivity depends partly on business investment.

In February, the Bank of England said there was still a significant amount of "slack" in the economy, meaning that it was not growing to its full potential because of underinvestment.

It estimated the amount of slack in the economy was equivalent to about 1% to 1.5% of gross domestic product (GDP).

Earlier, the Office of National Statistics showed the UK's trade deficit with the rest of the world - the different between the value of the goods and services the country exports and imports - widened in April to £2.5bn.

The UK's goods deficit widened in April to £9.6bn from £8.3bn in March and £8.5bn a year earlier, denting the chancellor's hopes of boosting exports in an effort to rebalance the economy.

So we're not in a bubble already?

OK everythings fine.

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Never fear both Carney and Gidot are on the case and any sign of a bubble and they'll act.

They're both buggered as the housing market is the UK economy.

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Never fear both Carney and Gidot are on the case and any sign of a bubble and they'll act.

They'll act by doing what they've probably done already - got the champagne out.

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The 'recovery' is a short term result of blowing the existing bubble up even further.

More blame games. "Look we started a recovery and that pesky bank of england didn't act quickly enough to calm the bubble, I mean boom in housing"

I think they think this thing is about to blow.

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Ed Conway on Sky News has just said that Christine Lagarde doesn`t think house prices are in bubble territory "quite yet".

I think when Osborne made the statement that the BOE would monitor house prices and act accordingly, he never thought that it may come to pass this side of the election. How much longer can he deny this bubble with the world and its dog screaming at him.

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When the FPC was formed they said their tools could limit 10% of transactions in a housing bubble.

Note it was "in" not prevent a bubble and all they intend to do is block the very riskiest lending. This to help banks avoid losses, though now of course Help to Buy does that by making taxpayers responsible for the first part of any losses.

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Think I just heard someone from the IMF on the radio saying that high house prices reflect an imbalance between supply and demand, and that the only solution in the UK is to resolve issues with the supply side.

Nothing to do with monetary policy at all, apparently.

Also it seems the UK is now experiencing 'strong and steady' growth, rather than simply another round of runaway asset price inflation. From where I'm sitting the link between money and the productivity and real wealth in an economy appears to have been abandoned. Apparently a resulting increase in GDP justifies all of the Bank of England's loose policy, and the IMF were 'wrong' to believe otherwise.

Surely it's self-evident that if you increase the money supply the figures go up? By this logic we can all quit our jobs, sit in our billion-pound houses, and sell each other tulip bulbs over the internet. That should push GDP pretty high - no need to actually ship the tulip bulbs anywhere or even actually bother to store them, we can just keep track of the owner of each 'bulb' on some database somewhere. Plus I'm sure some enterprising souls will set up a high frequency trading system to buy and sell tulip bulbs faster than humans can perceive. That's the economy sorted.

I think the previous report where they told us we were 'playing with fire' was more accurate. I wonder if someone has had a word somewhere?

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Think I just heard someone from the IMF on the radio saying that high house prices reflect an imbalance between supply and demand, and that the only solution in the UK is to resolve issues with the supply side.

Nothing to do with monetary policy at all, apparently.

Don't you remember in 2008-2010 when all those extra houses sprung out of nowhere increasing supply and therefore dropping the average price? Me neither, but we must be wrong.

Give out piles of cash to the masses in the form of mortgages they can't afford to repay, and what does that do to house prices? Why nothing of course! Supply is where its at !

Pesky supply.

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Ed Conway on Sky News has just said that Christine Lagarde doesn`t think house prices are in bubble territory "quite yet".

I think when Osborne made the statement that the BOE would monitor house prices and act accordingly, he never thought that it may come to pass this side of the election. How much longer can he deny this bubble with the world and its dog screaming at him.

What even lower rates to come!!!........the right hand doesn't know what the left hand is doing. ;)

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Don't you remember in 2008-2010 when all those extra houses sprung out of nowhere increasing supply and therefore dropping the average price? Me neither, but we must be wrong.

Give out piles of cash to the masses in the form of mortgages they can't afford to repay, and what does that do to house prices? Why nothing of course! Supply is where its at !

Pesky supply.

Yes, it's all about supply. The supply of credit driving up demand.

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What even lower rates to come!!!........the right hand doesn't know what the left hand is doing. ;)

The right hand doesnt know what the right hand is doing with our ruling class, unless it come to lining their pockets.

For them to be bombed at one of their conferences would put a smile on my face.

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Don't you remember in 2008-2010 when all those extra houses sprung out of nowhere increasing supply and therefore dropping the average price? Me neither, but we must be wrong.

Give out piles of cash to the masses in the form of mortgages they can't afford to repay, and what does that do to house prices? Why nothing of course! Supply is where its at !

Pesky supply.

Word.

Have a penguin.

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All co-ordinated by TPTB. The current meme is we need to build more. There is nothing to address the real problem - over-priced houses. (Too many people.)

All the schemes and props will still be in place, the developers will continue to bung the parties money. The banks will go through the motion of making sure people can pay. Interested rates will be held low. If they were serious they would build; if there was a functioning market houses would be built to meet demand at a price people could afford to pay. imagine the housing that could have been built with a fraction of the QE money.

Don't think for one minute the rhetoric is about helping people or them having better lives with more control of their own money.

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Word. The must build more meme has absolutely nothing to do with prices except to cash in on the bubble. The intention is not to lower prices, but to drip feed supply in sync with demand in an attempt to sustain current prices, and thus stave off a crash which they foolishly beleive to be evitable.

If lower prices were the objective, there are quicker and easier ways.

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they should be warning Ed Milliband and Balls, not Osborne

To revert back to the playground "well they started it"

If only a certain G Brown esq. had stuck to his promise 'to keep house prices under control" etc. etc.

All that money now going to service payments on high house prices could have been driving a proper economy.

Osbourne and the Tories are idiots for continuing this idiocy.

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To revert back to the playground "well they started it"

If only a certain G Brown esq. had stuck to his promise 'to keep house prices under control" etc. etc.

All that money now going to service payments on high house prices could have been driving a proper economy.

Osbourne and the Tories are idiots for continuing this idiocy.

The difference with Brown/Blair is theh just turned the other way when the first boom went on, the 2 pieces of lying turd namely Gidiot and Cameron have came out with several policies to recreate it.

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If only a certain G Brown esq. had stuck to his promise 'to keep house prices under control" etc. etc.

All that money now going to service payments on high house prices could have been driving a proper economy.

Osbourne and the Tories are idiots for continuing this idiocy.

In a few years the media will be full of Government spammers blaming "Banksters" - how many people remember Alan Greenspan?

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In a few years the media will be full of Government spammers blaming "Banksters" - how many people remember Alan Greenspan?

Quite, and how many remember his unhealthy alliances with politicians on both sides of the Atlantic from bilderburg. The current failures have their roots in the previous century now and we are long overdue the purge.

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Quite, and how many remember his unhealthy alliances with politicians on both sides of the Atlantic from bilderburg. The current failures have their roots in the previous century now and we are long overdue the purge.

Careful what you say about bankers and purges, it has certain connotations.. Comments like that are not politically correct allowed.

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In April, the IMF said the UK economy UK's fiddled figures would grow by 2.9% in 2014.

The Fund's annual health check of the UK economy UK's fiddled figures found it has they had "rebounded strongly

Corrected for accuracy.

Edited by billybong

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This year IMF managing director Christine Lagarde said admitted the Fund "got it wrong" in its assessment adding that while the UK's economic recovery began with debt, fiddled figures and consumer spending, it was now rebalancing towards an "investment-led a "debt and fiddled figures led recovery".

Another suggested correction for accuracy.

Edited by billybong

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Earlier the chancellor told BBC Radio 4's Today programme: "We need to be alert to the build-up of debt in the housing market, we need to be alert when we see house prices rising."

"We have created - this government, me as chancellor - the mechanism to deal with that,

"We have given the Bank of England the tools to do the job and they should not hesitate to use those tools if they see these developments turning into a risk for the British economy."

Oh no they haven't.

Even the Governor of the BoE himself denies the BoE has any powers to do anything about the London mega bubble.

Read the newspapers - even the newspapers reported that.

Don't dissemble.

Dissemble
dis·sem·ble [dih-sem-buhthinsp.pngthinsp.pngl]
verb (used with object), dis·sem·bled, dis·sem·bling.
1.
to give a false or misleading appearance to; conceal the truth or real nature of: to dissemble one's incompetence in business.
2.
to put on the appearance of; feign: to dissemble innocence.
3.
Obsolete . to let pass unnoticed; ignore.
verb (used without object), dis·sem·bled, dis·sem·bling.
4.
to conceal one's true motives, thoughts, etc., by some pretense; speak or act hypocritically.
Edited by billybong

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