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Pity Central Bankers: Keep The Economy Growing Or Hold Back A New Property Boom?

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Pity central bankers: keep the economy growing or hold back a new property boom?

Ashley Seager, economics correspondent

Monday February 20, 2006

The Guardian

While the Bank of England's quarterly inflation report press conferences are usually dominated by the comments of the governor, Mervyn King, there was, on last week's occasion, a particularly noteworthy statement from the Bank's executive director, Paul Tucker.

The recent big rises in the prices of assets such as houses and shares, he said, did not "provide a comfortable backdrop to monetary policy". This one remark at a stroke helps explain the monetary policy committee's dilemma as it seeks to set the correct short-term interest rate for the British economy.

But Mr King made it clear that things were not as simple as that (they never are). He was concerned that share prices have risen by 10% just in the past three months and doubled in the past three years. He was also worried that house prices, which the MPC had succeeded brilliantly in taming, have started to move up again. That could well be related to the extremely low long-term interest rates prevailing in much of the world and especially in Britain.

Unlike the short-term repo rate, which is set by the Bank, longer-term rates are set by money markets, and the markets have driven rates down as investors have clamoured to buy government bonds for several reasons, which has the effect of pushing yields down. This may sound esoteric but it feeds through into fixed-rate mortgage rates, which have fallen sharply, thus helping support the housing market.

IR futures up slightly after the Rightmove report.

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LONDON, Feb 20 (Reuters) - Sterling held steady on Monday, supported by news of a strong rise in British house prices and on upbeat comments on the economy from Bank of England Monetary Policy Committee member Kate Barker.

Barker said the Bank of England expected economic growth to pick up and had been encouraged by recent activity in the consumer sector, in remarks quoted in Friday's edition of the regional newspaper Evening Gazette, based in north-east England.

"She is usually perceived as a dove and bearing that in mind I think her remarks come across as quite upbeat and I think that's why sterling is finding a little bit of relief," said Geraldine Concagh, economist at AIB Group Treasury Dublin.

The BoE cut rates to 4.50 percent in August and speculation has centred on the likelihood of a second move in coming months. Any upbeat news or comments on growth are seen as reducing the chances of a cut.

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IR futures up slightly after the Rightmove report.

bang on, forget IR cuts now!!

The only way for the BOE to tackle this problem is to demand that the FSA tightens on lending practices

Ie. 5-6 X multiples and 125% mortgages etc....

otherwise debts and repossessions will rise significantly

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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