'Raise interest rates or face economic disaster'
By SAM FLEMING and BECKY BARROW
Booming housing prices need to be restrained, says leading economist Martin Weale
Interest rates need to go above eight per cent to control booming house prices, a leading economist has warned.
Martin Weale said that unless the property market is restrained it will suffer a crash, devastating those who look upon their home as their pension.
He spoke out as official figures revealed that average prices are rising by more than £4,100 a month. If they kept up this pace, they would leap by almost £50,000 this year, more than double the average worker's salary.
Five ways to beat rate rises
Try our rate rise calculator (AtW's comment: in bold are mid-article advertisement in the newspaper that published the article - it just symptomatic how the bubble is being build right now)
Mr Weale is director of the long-established National Institute of Economic and Social Research, which advises both the Treasury and the Bank of England. He believes the property market is a "bubble" which is turning into an economic "disaster".
He is concerned that homebuyers are pouring money into property but failing to save anything in a pension or other investment to pay for their retirement, and feels government policy needs to address this urgently with interest rates.
The Bank of England base rate has jumped three times since August to 5.25 per cent, its highest for six years. Further substantial increases would be crippling for the 11.6million homeowners who have a mortgage, with many already struggling to make their repayments.
But they are essential, according to Mr Weale. "Ten per cent might bring the boom under control, or possibly eight per cent would be enough to do it," he said. "But a quarter-point here or there is not going to do it."
Increasing base rate from 5.25 to 8 per cent could mean the cost of a typical £150,000 repayment mortgage rising from £900 to more than £1,100 a month.
For two years, Mr Weale was one of the Treasury's "wise men" responsible for setting interest rates before the Monetary Policy Committee was created in 1997.
In an exclusive interview with the Daily Mail, he said: "The UK property market, in terms of its implications for the economy as a whole, is something of a disaster.
"It would be nice if the Government thought about this, instead of regarding it as an issue to be left to the Bank of England.
"I think it's a bubble and I think it could carry on for quite a long time. People don't bother to save because they rely on rising house prices to give them wealth without lifting a finger. That means when they get to old age they won't have enough to live on, or they will have to withdraw equity from their houses to keep going."
The outspoken attack from one of Britain's most respected and oldest economic institutions is a blow to the Chancellor in the run-up to what is likely to be his final Budget.
It comes days after the International Monetary Fund warned that British property prices are "overvalued" and could face an "abrupt" slide.
The drastic move of increasing interest rates to eight per cent is highly unlikely because it would have a devastating impact on the economy. But it took interest rates to be hiked to 15 per cent in 1991 to calm the last housing boom.
The Monetary Policy Committee is in charge of controlling inflation, not the property market. Its aim is to keep the consumer price index measure of inflation close to the Government's two per cent target, a measure which excludes housing costs.
As a result, Mr Weale fears the Government is effectively asleep at the wheel as the housing explosion continues. He claims Mr Brown is too focused on making sure there are "lots of happy homeowners who have votes and feel better off".
He said: "If you look at the Budget there is nothing about the Chancellor's view of whether people are saving enough. That's surprising because it's one of the things he should be worrying about most."
The Treasury responded to his warning by claiming that the decline in savings is a result of economic stability. (
) A spokesman said: "The UK's macroeconomic performance, in the words of the IMF, remains impressive. And with a strong and stable economy, the UK is well placed to benefit from the opportunities of globalisation and absorb shocks.
"Household finances remain strong, having benefited from robust growth, rising employment and low and stable interest rates.
"The Government seeks to support saving and asset ownership for all, with more help for those who need it."
-----
BoE won't raise rates to level necessary as good half of them are Brown's cronies as who else would he appoint there?
By SAM FLEMING and BECKY BARROW
Booming housing prices need to be restrained, says leading economist Martin Weale
Interest rates need to go above eight per cent to control booming house prices, a leading economist has warned.
Martin Weale said that unless the property market is restrained it will suffer a crash, devastating those who look upon their home as their pension.
He spoke out as official figures revealed that average prices are rising by more than £4,100 a month. If they kept up this pace, they would leap by almost £50,000 this year, more than double the average worker's salary.
Five ways to beat rate rises
Try our rate rise calculator (AtW's comment: in bold are mid-article advertisement in the newspaper that published the article - it just symptomatic how the bubble is being build right now)
Mr Weale is director of the long-established National Institute of Economic and Social Research, which advises both the Treasury and the Bank of England. He believes the property market is a "bubble" which is turning into an economic "disaster".
He is concerned that homebuyers are pouring money into property but failing to save anything in a pension or other investment to pay for their retirement, and feels government policy needs to address this urgently with interest rates.
The Bank of England base rate has jumped three times since August to 5.25 per cent, its highest for six years. Further substantial increases would be crippling for the 11.6million homeowners who have a mortgage, with many already struggling to make their repayments.
But they are essential, according to Mr Weale. "Ten per cent might bring the boom under control, or possibly eight per cent would be enough to do it," he said. "But a quarter-point here or there is not going to do it."
Increasing base rate from 5.25 to 8 per cent could mean the cost of a typical £150,000 repayment mortgage rising from £900 to more than £1,100 a month.
For two years, Mr Weale was one of the Treasury's "wise men" responsible for setting interest rates before the Monetary Policy Committee was created in 1997.
In an exclusive interview with the Daily Mail, he said: "The UK property market, in terms of its implications for the economy as a whole, is something of a disaster.
"It would be nice if the Government thought about this, instead of regarding it as an issue to be left to the Bank of England.
"I think it's a bubble and I think it could carry on for quite a long time. People don't bother to save because they rely on rising house prices to give them wealth without lifting a finger. That means when they get to old age they won't have enough to live on, or they will have to withdraw equity from their houses to keep going."
The outspoken attack from one of Britain's most respected and oldest economic institutions is a blow to the Chancellor in the run-up to what is likely to be his final Budget.
It comes days after the International Monetary Fund warned that British property prices are "overvalued" and could face an "abrupt" slide.
The drastic move of increasing interest rates to eight per cent is highly unlikely because it would have a devastating impact on the economy. But it took interest rates to be hiked to 15 per cent in 1991 to calm the last housing boom.
The Monetary Policy Committee is in charge of controlling inflation, not the property market. Its aim is to keep the consumer price index measure of inflation close to the Government's two per cent target, a measure which excludes housing costs.
As a result, Mr Weale fears the Government is effectively asleep at the wheel as the housing explosion continues. He claims Mr Brown is too focused on making sure there are "lots of happy homeowners who have votes and feel better off".
He said: "If you look at the Budget there is nothing about the Chancellor's view of whether people are saving enough. That's surprising because it's one of the things he should be worrying about most."
The Treasury responded to his warning by claiming that the decline in savings is a result of economic stability. (
) A spokesman said: "The UK's macroeconomic performance, in the words of the IMF, remains impressive. And with a strong and stable economy, the UK is well placed to benefit from the opportunities of globalisation and absorb shocks."Household finances remain strong, having benefited from robust growth, rising employment and low and stable interest rates.
"The Government seeks to support saving and asset ownership for all, with more help for those who need it."
-----
BoE won't raise rates to level necessary as good half of them are Brown's cronies as who else would he appoint there?
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