http://www.telegraph.co.uk/finance/e...-governor.html
In what will be seen as a major about-turn by Britain's central bank, Charlie Bean pledged to do more to prevent major credit bubbles developing in the economy. He also acknowledged tacitly that central banks around the world did too little to prevent the housing boom from emerging in previous years.
His comments, made at a conference in Istanbul, are likely to have serious implications for the path of Britain's housing market in future years. Property prices have lurched from boom to bust at regular intervals for the past century, but Mr Bean's comments indicate that the Bank and its Monetary Policy Committee could move to arrest this cycle in the future.
The Bank and its Governor Mervyn King have been criticised for leaving interest rates low while house prices were increasing at a rate of more than 20pc a year.
Mr Bean said: "Given the potential costs of a bust, it would therefore appear to be wise to use monetary policy to try to prevent the build-up of the imbalances in the first place. Note that this is not going so far as to advocate targeting asset prices. But it does at least justify 'leaning against the wind' during the upswing phase of a credit/asset price boom in order to moderate the boom and thus also the prospective fallout from any subsequent bust."
The comments are the most explicit sign yet that the Bank intends to focus more explicitly on preventing housing bubbles emerging in the future. Significantly, Mr Bean indicated that this would not require any change to the Bank's increasingly criticised remit, to keep the consumer price index close to 2pc. He said that in the future the Bank could justify leaving inflation below target for longer if it meant avoiding an undershoot – or indeed potential deflation – in the following years.
In the future, the Bank would "need to decide whether an asset price increase is warranted or whether it is based on misplaced expectations and poses a threat to future macroeconomic stability". The risk, however, was that raising interest rates could "trigger exactly the bust one is worried about".
He denied that the UK could have unilaterally prevented the housing boom and bust, saying it would have needed co-operation from its fellow central banks overseas as well. He said: "It is simply not credible to believe that the UK house-price boom that is now unwinding would never have happened if only the Bank's Monetary Policy Committee had set official interest rates just a little bit higher."
He joined the growing band of experts calling for the UK to adopt a Spanish-style system of financial regulation, whereby banks set aside larger amounts of capital in boom years to prepare them for future shocks. He said: "Had such a regime been in force over the past decade, I believe that it could have significantly eased our present troubles."
In what will be seen as a major about-turn by Britain's central bank, Charlie Bean pledged to do more to prevent major credit bubbles developing in the economy. He also acknowledged tacitly that central banks around the world did too little to prevent the housing boom from emerging in previous years.
His comments, made at a conference in Istanbul, are likely to have serious implications for the path of Britain's housing market in future years. Property prices have lurched from boom to bust at regular intervals for the past century, but Mr Bean's comments indicate that the Bank and its Monetary Policy Committee could move to arrest this cycle in the future.
The Bank and its Governor Mervyn King have been criticised for leaving interest rates low while house prices were increasing at a rate of more than 20pc a year.
Mr Bean said: "Given the potential costs of a bust, it would therefore appear to be wise to use monetary policy to try to prevent the build-up of the imbalances in the first place. Note that this is not going so far as to advocate targeting asset prices. But it does at least justify 'leaning against the wind' during the upswing phase of a credit/asset price boom in order to moderate the boom and thus also the prospective fallout from any subsequent bust."
The comments are the most explicit sign yet that the Bank intends to focus more explicitly on preventing housing bubbles emerging in the future. Significantly, Mr Bean indicated that this would not require any change to the Bank's increasingly criticised remit, to keep the consumer price index close to 2pc. He said that in the future the Bank could justify leaving inflation below target for longer if it meant avoiding an undershoot – or indeed potential deflation – in the following years.
In the future, the Bank would "need to decide whether an asset price increase is warranted or whether it is based on misplaced expectations and poses a threat to future macroeconomic stability". The risk, however, was that raising interest rates could "trigger exactly the bust one is worried about".
He denied that the UK could have unilaterally prevented the housing boom and bust, saying it would have needed co-operation from its fellow central banks overseas as well. He said: "It is simply not credible to believe that the UK house-price boom that is now unwinding would never have happened if only the Bank's Monetary Policy Committee had set official interest rates just a little bit higher."
He joined the growing band of experts calling for the UK to adopt a Spanish-style system of financial regulation, whereby banks set aside larger amounts of capital in boom years to prepare them for future shocks. He said: "Had such a regime been in force over the past decade, I believe that it could have significantly eased our present troubles."
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