Monday, February 17, 2014

David Miles said “I see no bubbles”

UK housing not overheating, rates not at lows forever - BoE's Miles

Britain's housing market is not overheating but interest rates will not remain at record lows indefinitely, Bank of England policymaker David Miles said in an interview on Monday. Miles, a member of the Bank's Monetary Policy Committee, told Bloomberg Television the amount of slack in Britain's economy means there is no case for tightening monetary policy right now and that "overheating" was not a good word to describe the concerns about the rapid rise of the housing market prompted the Bank to announce in November that it would scrap the part of its Funding-for-Lending Scheme that supports mortgage lending. But the market is still underpinned by low interest rates and the government's Help-to-Buy mortgage guarantee program. He said the amount of slack is around 1.5% of GDP.

Posted by khards @ 09:05 PM (5206 views)
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18 thoughts on “David Miles said “I see no bubbles”

  • Them being contrarian indicators, I smell negative interest rates around the corner. Led not by the UK economy, but by currency wars driven by European deflation and capital flows into Sterling.

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  • mark wadsworth says:

    OK, Milesy, here’s a bubble for you:

    Normally and historically, houses in London cost a bit more than the rest of the UK, about a third or half more. That’s the long run trend.

    I accept that if you keep one eye shut and assume that interest rates will stay low/negative for ever, the house price bubble in the rest of the UK has more or less tailed off.

    But houses in London cost on average three times as much as houses elsewhere.

    That’s a bubble.

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  • @mark, it is not possible to say that there is a bubble until it pops, because up until that point all you can say is that prices have risen. It is possible, but unlikely that prices would never fall and therefore is not a bubble.
    You could go on to say that the possiblility of it being a bubble is 95%.

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  • Khards, fair point.

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  • At this rate, pun intended, if interest rates are held at 0.5% there is no crisis, so there is no bubble. But if interest rates go to 1%, then that’s the end of the world; never mind just a bubble. They will have to start thinking about raising interest rates by 0.01%.

    Anyway all this assumes they are at liberty to set whatever rates they desire. Anyone want to propose scenarios where they don’t have this choice?

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  • So much of this statement is painful to read:

    “Miles underlined that view on Monday, citing the large degree of spare capacity in the economy that may be greater than the Bank assumed in its latest set of economic forecasts.

    He said the amount of slack was “towards the upper end” of the 1.0-1.5 percent of gross domestic product estimated by the Bank in its latest forecasts.

    ‘It’s possible that there is more than that,” he said, and added that there was a range of views among policymakers on the size of the output gap.

    “One shouldn’t get the impression that everyone on the committee is absolutely convinced it must be in that interval. That was just the central estimate, if you will, of the committee,” he said.’

    By his own logic, then, just as many committee members thought there was less than 1% spare capacity than thought there was more than 1.5%. He just happened to be in the latter camp and has either been asked or taken it upon himself to make a statement implying that the official line understated the true figure.

    ‘Even though Britain’s economy grew at its fastest pace since the financial crisis in 2013, the Bank has said it is in no hurry to raise interest rates as it tries to make sure the recovery is entrenched before removing stimulus. […]

    It was “important that there is a clear recognition by borrowers and lenders that interest rates will not remain at this level for many years to come,” Miles said.

    Economists polled by Reuters expect the first interest rate hike to come next year, with a majority pointing to either the second or third quarters.

    Miles said investor expectations for a rate hike next year and for the base rate to reach 2 percent by 2016 are “not unreasonable,” Bloomberg reported.’

    i.e. Investors should rest assured that we’re not going to raise rates any time soon, but we will be raising them in the medium term, and we this time we’re serious. Honestly. In any case, this diverges from our previous statements over the last 6 years only inasmuch as we are now talking about rises in 18 months, rather than 24.

    …but not any time soon.

    As long as the spectre of rates going up looms large, not enough investors will take the sort of entrepreneurial risks that might actually bring meaningful growth to the economy. As long as rates are low, investors will take safe speculative bets and blackmail policymakers into keeping rates low.

    Nothing has changed, except the economy has shown enough improvement that they’re beginning to run out of excuses.

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  • I am begininng to change my view on the housing market. Traditionally the rich foriegn investors were buying in central London, the middle and outskirts were effected someonewhat, but it term of pure investment money or buying homes that sat empty, it was central London where they were. The rich Chinese are now buying right out to the outskirts and beyond in areas that would have once been considered pure working class. I just had coffee today with a firm of solicitors who are handling several new blocks of flats on theoutskirts of London and they are saying its all chinese money that is snapping the properties up for cash. The average London british born mortage holder isnt better off than there were in 2008. In fact the low interest rates has just offset the cost of living elsewhere. So there is some traction to the argument that if interest rates go up, that the traditional british londoner with a mortage is going to be in a real mess and that this will damage the economy. The only solution, as suggested many times, would be to put a tax on overseas investment, but that wont happen any time soon as the government needs fake GD for PR purposes.

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  • @6 You cannot have a housing recovery with no FTBs. Unless, of course, you somehow find a ton of cash buyers.

    The FTBs are going mental in London, so the govt. doesn’t need the foreign “investors” to keep the market afloat anymore.

    Some disincentives have already been announced (CGT changes) and it looks like many more will be discussed and possibly even implemented before the election. Miliband just announced some of his.

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  • Chinese a bit late to the party?….I mean….they are In their own bubbles which is
    Likely to burst

    Perhaps they see a bubble and frantically want to buy into it!

    Having worked in the industry…when things pop you won’t sell to a cash buyer
    At anything less than a bargain

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  • I’m beginning to believe that houses, particularly around London, will ONLY be owned by cash buyers and that inheritence will keep those properties within wealthy familes, rarely returning to the market.

    We’re heading back to the worst of Victorian times.

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  • British Blue, if interest rates go up, Chinese investment in Britain will rise, because they will be chasing the carry trade to an appreciating currency. Right now, Britain is seen as a safe haven relative to the Eurozone. Britain has had a currency union for a few hundred years, and people are now realising that the Eurozone is a baby with serious teething problems.

    The only thing that will pop the bubble is if Scottish Independence causes structural problems to Sterling, which is why the BOE are making big noises right now. They know full well that the state of the Union is crucial to global CONFIDENCE in Sterling, and Britain now represents a relatively low tax, high skilled environment relative to France and in some ways Germany, with the added benefit of much of the low cost labour influx flowing into Britain as a result of the English language and our relative adherence to free market principles.

    The Scottish National Socialists are attempting to destroy this, I feel that England will use subtle power to reel them in. If not, as with Northern Ireland, MI5 will agitate latent sectarian tension to justify military occupation. Trust me, Sterling is their power, they will not let it go.

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  • @libertas – does it really matter what tokens they exchange goods and services in? It only matters if you plant to perpetually spend more than you earn.

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  • @BritishBlue, sounds right. The Chinese need to protect themselves from the looming China pop. I expect they’ll buy whatever they can, with comparatively insignificant potential loss.

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  • There doesn’t need to be an event for a bubble to burst..it just does….the Chinese won’t be buying property in London
    When it does because all the headlines will be about how far they can fall

    Some property in Tokyo fell 99%

    Property in London could fall 50% plus

    Anyone who has never been in a bear market should read up about it!

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  • BB: “there is some traction to the argument that if interest rates go up, that the traditional british londoner with a mortage is going to be in a real mess and that this will damage the economy.”

    If interest rates rose to 6% or something, then yes, this would be pretty unpleasant for a lot a people… because that 6% is being calculated on an inflated base. If they wrote off a third of mortgage debt, people would be fine, because payments on £100 @ 4% (current) is the same as £66 @ 6%. So everybody’s happy.

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  • “the Chinese won’t be buying property in London” — they already have been, and continue to, and will do more as China’s situation comes to light. They fear nothing in London.

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  • did anyone see robert peston in china last night, looks worrying

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  • The idea that Chinese will.keep buying overpriced property in London when their own bubble goes bust
    Seem.crazy to me

    When prices start to plunge there is a distinct lack.of buyers foreign or otherwise

    If the Chinese were clever they would be looking around the.uk at cheaper areas

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