Britain tackles rising house prices with new powers for Bank of England
June 14, 2014, 12:01 am TWN
LONDON--Britain's finance minister George Osborne has unveiled measures aimed at curbing London's surging house price inflation, as the Bank of England stands ready to finally raise interest rates.
It comes as Fitch on Friday affirmed its AA+ credit rating for Britain and gave it a “stable” outlook, citing the country's accelerating economic recovery.
In a keynote speech to business leaders delivered in the capital late on Thursday, Chancellor of the Exchequer Osborne announced plans for up to 200,000 new homes and said he would strengthen the Bank of England's ability to impose restrictions on how much home buyers could borrow.
Osborne appeared to heed the advice of the International Monetary Fund (IMF), which recently warned that a lack of supply was fuelling Britain's price boom that is most pronounced in London.
Speaking alongside Osborne at the so-called Mansion House gathering, Bank of England governor Mark Carney said the BOE could raise its main interest rate from a record-low level of 0.50 percent sooner than expected.
Such a move would also help to dampen Britain's housing market, according to analysts. The BOE's main rate has stood at 0.50 percent since March 2009.
Carney said the need for “vigilance and activism” was most acute in the housing market which was “showing the potential to overheat.”
Osborne meanwhile promised an “urban planning revolution,” in which the government could force local councils to build housing developments.
“We saw from the last (financial) crisis the dangerous temptations for politicians to leave the punch bowl where it is and keep the party going on for too long,” said Osborne, a member of Prime Minister David Cameron's Conservative party that heads Britain's coalition government with the Liberal Democrats.
“I want to make sure that the Bank of England has all the weapons it needs to guard against risks in the housing market,” Osborne said.
“I want to protect those who own homes, protect those who aspire to own a home, and protect the millions who suffer when boom turns to bust.”
Osborne accepted however that his planning proposals would have to clear a lot of hurdles before becoming law, pointing out that previous reforms had been “hard-fought and controversial.”
On Friday meanwhile, Fitch noted that “favorable macroeconomic trends, including strong GDP growth, falling unemployment and inflation close to the (Bank of England's) 2.0 percent target, have continued in the UK economy” since the agency's last review in December.
“Fitch expects the recovery in major advanced economies, including the eurozone, the UK's largest trading partner, to strengthen gradually in 2014-15, while emerging markets growth will be broadly stable, avoiding the risk of sharp slowdown,” it added in a statement.