Twitter icon Email alerts icon Latest News RSS icon Magazine icon Stay connected:

View the article online at

Housing could force bank hand on rate rises says deputy governor

by David Campbell on May 21, 2014 at 08:01

Housing could force bank hand on rate rises says deputy governor

Increasing the base cost of lending could prove to be the only effective method of cooling runaway house price inflation, deputy governor of the Bank of England Charlie Bean has warned.

Bean delivered the warning in a speech to the London School of Economics, ahead of his departure from the bank after 14 years next month.

‘Monetary policy may be a blunt tool for addressing financial stability risks, but it does have the virtue that it gets in all of the cracks,’ he said. ‘So, there may well be times when monetary policy is the only game in town to guard against incipient financial stability risks.’

He added that it was inevitable that the economy would encounter come ‘potholes’ on the way to policy normalisation, however.  

‘Implied volatilities in many financial markets have been at historically low levels for some time now. Together with low safe interest rates in the advanced economies, that has underpinned a renewed search for yield and encouraged carry trades.

‘Taken in isolation, this is eerily reminiscent of what happened in the run-up to the crisis. Episodes like the ‘taper tantrum’, which produced a short-lived bout of volatility but no major disruption may also be contributing to a sense of complacency and an underestimation of market risk by investors.

‘It is inevitable that at some stage market perceptions of uncertainty will revert to more normal levels… The bottom line is that we may yet encounter a few potholes on the way to the exit.’

He added that the banking system was now much better capitalised than during the last credit cycle and leverage lower across the economy.

‘Those emerging economies that have financed large external deficits through the accumulation of foreign currency debt may be more vulnerable, however.’

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

Sponsored Video: Bringing it all back home

As the UK coalition government strives to rebalance the national economy, so called 'reshoring' looks set to play an increasingly important role in economic recovery.

Today's top headlines

Investing for income in a changing environment

With talk on interest rates on the horizon, our latest roundtable debate covers income investing against a changing backdrop

More about this:

What others are saying


On the road

Click here to find out more from the Audience Development team.

Sorry, this link is not
quite ready yet