Bank chief warns on home loans
HOMEBUYERS were given a stark warning last night that mortgage rates will continue to climb. After two rises in the cost of borrowing in rapid succession, Bank of England Governor Mervyn King made clear there are more to come.
King created uproar earlier this week by warning the property market could collapse if house price inflation continues to soar.
Last night, he used a speech at the Lord Mayor's Banquet to launch a fresh attempt to dampen the market. He said there is not much 'spare capacity' in the UK economy, which means inflationary pressures are building.
'Cost pressures are increasing and pay growth has picked up,' he added.
King went on to warn that rate rises will continue until the Bank is satisfied those inflationary pressures have been nailed.
'How far interest rates will need to rise in order to keep inflation on track to meet our two% target for Consumer Prices Index inflation in the medium term is impossible to say with any degree of confidence,' King said.
'But the (Bank's) monetary policy committee will continue to remain focused on meeting the inflation target in order to deliver stability.'
His words were seen as another attempt to talk down the housing market without risking a full-blown collapse.
King also gave Gordon Brown a lecture on prudence, warning the Chancellor his lavish public spending risks upsetting the public finances.
The Governor pulled no punches as he addressed his Mansion House audience with the Chancellor sitting just a few feet away.
He signalled that he thought Brown is spending too much and openly doubted that tax revenues will be able to match expenditure.
King referred to the scales in the Treasury which balance spending on one hand, revenue on the other.
'Recently they have tilted more and more towards the spending side, although the projected rise in tax revenues over the next three years will, I am assured, allow the scales to swing back to a sustainable fiscal position,' he said.
In his own speech the Chancellor was more upbeat, hailing 'a new era of economic success for a global Britain'.
'I believe that if we have the strength to take the right decisions for the long term, Great Britain stands better placed than almost any comparable industrial country to be one of the great success stories of this new global age,' said Brown.
