Home > Bank of England, Inflation > No Boom Please, We’re British

No Boom Please, We’re British

The Bank’s forecasts for real GDP growth over the next two years.  2014: 2.8%, 2015: 2.3%.  WHAT A BOOM.  What an explosion of growth!  In the Inflation Report press conference today, the press first asked lots of sensible questions about forward guidance and monetary policy – you know, the things the MPC are actually responsible for.  But there was an elephant in the room, something was weighing on the minds of assembled hacks… see if you can spot it.

Richard Barley, Wall Street Journal: … Because I guess the concern is that so far we’ve seen perhaps some worrying signs of returning to the old normal and greater lending, reliance on house prices.

Guy Faulconbridge, Reuters: Just a follow on on the housing, I see you have a section on property. Do you see any signs of a bubble in any regions of the British housing market, because overall it’s fine to say that perhaps prices are still below the 2007 peak, but in London dinner parties the prices that you pay for prime real estate in London is kind of the main topic of discussion.

Tim Wallace, City AM: Governor, another one on housing.

Maybe hold the press conference up North somewhere next time?

Categories: Bank of England, Inflation
  1. Rajat
    November 14, 2013 at 00:02

    Ditto in Australia. While average capital city house prices have just exceeded their previous 2010 peak, Sydney prices – where the RBA and most financial journalists are based – are about 10% higher than the previous peak, hence the hang-wringing. Meanwhile, NGDP and wages growth are at decade-plus lows and inflation ex taxes is at the bottom of the RBA’s target range. I guess Aussies are mainly former Brits so it makes sense we worry about similar things.

    • November 14, 2013 at 15:27

      So Steve Keen is still wrong then? Good to know :)

      What is the supply-side like in the Oz housing market, I guess land use regulation is not as bad as the UK?

      • Rajat
        November 14, 2013 at 23:41

        Even Keen is now saying his renewed prediction will be wrong:

        I also expect that this new bubble will ensure that, when the hot air finally leaves the Australian Housing Balloon, its deflation will be too slow to result in a 40 per cent fall below the June 2010 level by June 2025—which is the Statute of Limitations on my original call. So I expect to lose the bet, on my own terms.

        Land use regulations are quite tight in Oz. I don’t know how to compare with England, but there is often a huge boost to values when urban/rural fringe areas are rezoned to allow development. While there seem to be plenty of apartments being built (at least here in Melbourne), most Australian families still want a house on their own land when they have children. Family apartment living is only just emerging.

        Fortunately, to date, the RBA has dismissed the latest housing bubble commentary and maintains an easing bias.

  2. SK
    November 14, 2013 at 09:18

    Depends where in the North you will try to have this conference.
    Suspect that some places there are also booming.

    And if they are not, this does not have to do so much with the economy or base rates but it has to do with inability of the state to improve economy and provide jobs there. Surely this is something that the fiscal side of the government is responsible for?

    Unless ofcourse, different BoE base rates can be applied. Think that would make sense but seems that there is no will to do this.

    It would be nice to start approaching the base rate scenario in such a fashion as well as understanding the impact of technology on unemployment and promoting basic income for all but suspect this is not something that they guys up there do want to consider

    • November 14, 2013 at 15:31

      Or we could just ignore London house prices when setting UK macro policy, no?

  3. Bill le Breton
    November 14, 2013 at 15:01

    Growth 2014: 2.8%, 2015: 2.3%.

    Which is why Robert Peston’s blog yesterday afternoon was titled “Is the UK’s recovery too robust?” and included this carefree rounding up of the decimal points “is there a danger that the growth – at 3% or so for the next three years – is too robust”.

    The 10.00 o’clock news on BBC1 last night contained a 3 second quote from Mark Carney himself (fact) and 5 minutes on the interpretation given to events by a journalist (comment) whose qualifications on the subject were ???

    A shame there was no time left for a clip of Dr Carney saying: “This is the point where we learn how much slack is in the economy.”

    And then, “The big call we have to make is the judgement on the degree of slack in the economy to achieve our inflation target.”

    Or even Charlie Bean adding that the message of forward guidance is that policy is not related to growth rates but to slack [in the economy].

    Radio Five’s 6 o’clock news this morning reported that Paul Fisher had told the station that interest rates would rise in 2014 (he hadn’t, of course).

    The BBC is infected with the 1937 death wish.

    Careless journalism costs life chances!

    • November 14, 2013 at 15:42

      Bill – that Peston blog post is awful. “Too robust”… what can you say? I was surprised the BBC made him econ editor, Flanders was always thoughtful and balanced.

  4. W. Peden
    November 15, 2013 at 13:13

    “Do you see any signs of a bubble in any regions of the British housing market, because overall it’s fine to say that perhaps prices are still below the 2007 peak, but in London dinner parties the prices that you pay for prime real estate in London is kind of the main topic of discussion.”

    Guy Faulconbridge may have just given Scottish nationalists the best single argument for independence. There is no city in the UK that is as parochial as London. As if LONDON DINNERPARTIES were important datapoints for UK macroeconomic discussion! If I was to bring up the latest house prices in the Durham Advertiser or what people are discussing in a pub in a Highland town to the Governor, I’m sure that Guy Faulconbridge would think that I was quite insane.

    The idea that the prices of one particular asset market should be part of the Bank’s focus is ridiculous. The idea that the provincial details of London housing prices should have any particular concern for them would be astonishing, if one had any reason to expect better from the London-press.

    So much of bad UK policy (e.g. the very existence of housing benefit) could be resolved on the following principle: if you find it expensive to live in London, then maybe you shouldn’t live there.

    • November 15, 2013 at 14:56

      It would be shocking if not for the fact that “housing booms cause recessions” is accepted wisdom in macroeconomics today.

  5. W. Peden
    November 15, 2013 at 16:01

    But this is even worse than that: REGIONAL house booms cause recessions!

    Presumably, the oil boom in Grangemouth and Aberdeen was a major cause of the 1980-1981 recession, and the low house prices in Capel Celyn was a major factor in the 1960s boom.

  6. james in london
    November 15, 2013 at 17:11

    W Peden:
    A bit like setting Eurozone monetary policy in Frankfurt. Oh, hang on …

  7. W. Peden
    November 15, 2013 at 19:34

    James in London,

    An institution like the Eurozone was perhaps inherently predisposed to this kind of “central provincialism”.

    And it’s not some weird moral failure on the part of Londoners. Put the UK capital in Glasgow and you’d get the same phenomenon.

  8. W. Peden
    November 15, 2013 at 19:35

    (Although it must be harder when you’re in any city that you literally cannot walk outside, from the centre, within a day.)

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