Thrifty Loans

Kate Barker, a member of the Bank of England’s Monetary Policy Committee (MPC), feels that the turmoil in financial markets is unlikely to bring about a property price crash. It may not even stop the upward trend, she said when speaking in Southampton on Tuesday.

Ms Barker is one of the members of the MPC who sit in the first week of each month to determine the Bank’s base rate. She said it was obvious why recent panic and recovery in the money markets would cause future house price growth to change significantly from previous expectations.

She added that a major weakening in the housing market was not likely to affect consumer spending in a big way as it would not be linked to higher unemployment or a reduction in the future incomes of households.

These views were taken by currency dealers as a sign that there is unlikely to be a rate cut in November, and the pound surged upward by over a cent after Ms Barker’s comments. She did say that there was a chance of a small fall in output growth from a slight reduction in residential investment, but not everything that had happened since the start of the financial upheaval at the beginning of August meant inflation would come down.

A fall in sterling (on which her comments had the reverse effect) and a rise in oil prices would push up inflation. She said that she doubted whether the five interest rate rises in the last 14 months had been enough to reduce inflationary pressures on their own, but the credit crisis had changed the economic balance.

Ms Barker said that so far households seemed to be shrugging off the credit crunch, and she appeared to be suggesting a ‘wait and see’ approach. She said: “There was little deterioration in consumer confidence in September. Retail sales volumes have remained strong throughout the third quarter, although discounting meant that retail values grew only weakly.” She added: “The evidence from business surveys and housing market indicators will be an important part of my judgement over the next few months about how far the downside risks to the outlook have increased.”