House prices set to rise further

F&C chief economist says boom presents dilemma for Bank of England

House prices set to rise further

House prices are set to rise across the UK, confronting the Bank of England with a dilemma.

This is the view expressed by Steven Bell, chief economist at F&C Investments and Co-manager F&C Global Bond Fund in a recent article, in which he commented: “House prices are likely to surge over the next few months across the UK. This will confront the Bank of England with a dilemma, whether to raise base rates early, introduce further ‘macro prudential’ measures or risk yet another house price boom.”

Bell argues that the UK housing market is supported by a string of fundamental factors: “Real incomes are rising as inflation hits zero and wages continue to rise, albeit modestly. Employment is also rising, further boosting household incomes and giving people the confidence to stretch their finances. Mortgage rates have hit record lows. These factors support housing demand but they also boost mortgage supply.”

He also cites the latest RICS surveys as indicating that buyers in the housing market are outnumbering sellers, which has traditionally been a reliable leading indicator of higher prices in the future.

Surging house prices would present the Bank of England’s Monetary Policy Committee with a dilemma as he points out: “They know that the new Conservative majority government is planning a tough Budget in July. They would prefer to wait at least until the end of the year to assess the impact of this on the outlook for inflation. But a strong housing market is both an indicator that financial conditions are too loose and a mechanism by which those loose conditions feed through into the rest of the economy. The choice this autumn may well lie between raising base rates, imposing tougher macro prudential measures or taking a risk that inflationary pressures mount. The MPC under Mark Carney has been highly unpredictable and we hesitate to predict which way they will jump. One thing does seem clear: uncertainty is set to increase.”

Learn more

For those interested in understanding the underlying dynamics that are driving the housing market, an exclusive interview with Professor Steve Keen on housing bubbles is worth watching.




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Categories: News, Property

About Author

Christopher Menon

Every Investor Editor Chris Menon is a financial journalist who has written regularly for national newspapers, magazines and websites about personal finance, with particular emphasis on investing.