BBC BLOGS - Stephanomics
IN ASSOCIATION WITH
« Previous | Main | Next »

Swan song for a hawk

Post categories:

Stephanie Flanders | 15:36 UK time, Tuesday, 26 April 2011

Andrew Sentance has been voting for higher UK interest rates for nearly a year. Today, in what reads like his final speech as a member of the Monetary Policy Committee, he offers a cogent defence of his position.

As Sentance says himself, this is not a question of tactics. The fact that he has been in the minority for so long on the committee reflects a substantial difference of view about the prospects for inflation and growth in the UK and - crucially - the role of UK monetary policy. Even the doves on the MPC would have to admit that his arguments have strengthened in the past year, if not in the past few weeks.

He thinks the doves are wrong on four big issues.

First, he thinks it is both wrong and inconsistent with past MPC policy to assume away "global price shocks" such as higher commodity prices when setting interest rates. I have looked at this issue, at length, in a previous post (see "A Case of Asymmetry?") Suffice to say that Sentance thinks the upward pressure on prices from this source is likely to carry on for a while, and ought to command a response from the Bank.

Second, and more controversially, he thinks the Bank should not have been so relaxed about the fall in the pound, which has added to inflationary pressures at a very inconvenient time and, by squeezing disposable incomes, actually "offset the boost to growth we might be seeing from improved trade performance."

His remarks here chime with recent gloomy comments about the loss of Britain's manufacturing base, with big firms complaining that they have no domestic component suppliers to turn to, to take advantage of the weaker pound. This is something the Bank recently investigated for itself, with depressing results. Here's Sentance again:

"..it is not clear that the export-based manufacturing activities which could benefit from a large depreciation have the capability to respond quickly by scaling up output - particularly when their demand is already being boosted by a recovery in global demand."

Put bluntly, he thinks the bank has allowed the pound to fall further than is "necessary or desirable to support the growth of manufacturing and exports." He says that allowing sterling to rise by about 10% from its current level against the euro (£1 = 1.13 euros) would still leave it at a relatively competitive level by historical standards.

You may disagree with him. I suspect Mervyn King does. But you'd be silly to dismiss out of hand the views of a man who has spent much of his professional life as an economist considering the strengths and weaknesses of UK industry.

The third big area of disagreement is more familiar: the amount of spare capacity in the economy, which he thinks the doves are over-estimating. Here he has one weak argument and one strong. The weak argument is that OECD estimates of the output gap since the mid-1990s have been consistently revised down - in other words, that the economy has consistently turned out to have less room to grow than we thought.

While factually accurate, I don't think it tells us about the underlying capacity of the UK economy so much as it tells us that forecasters have often mistaken the cycle for the trend and even more often turned out to be wrong on the question of how fast the economy could grow. That's why discussion of the output gap is usually so fruitless. Even years after the fact, you simply never know how much of the economy's growth was "structural" and how much due to short-term policies. Indeed, the closer you look at the distinction between the two, the more slippery it seems.

In the late 1990s we had less capacity than we thought - because domestic inflationary pressures were being offset by falling world prices. But arguably, we made the same mistake, in reverse, coming out of the recession in the early 1980s. And Adam Posen would argue that Japan's big mistake, coming out of its financial crisis, was to underestimate its potential.

The much stronger argument for any hawk - which I have banged on about in the past - is the simple fact that producers have been able to pass on all these price rises, and then some, without suffering much of a hit to sales (or at least, not until recently).

As Sentance points out, this is particularly evident in the service sector, which should have been less affected by global price pressures:

"If we look at the services component of the consumer prices index, this 3-4% level rate of inflation has been a fairly consistent feature in the decade prior to the recession. There is not much evidence here of spare capacity and weak demand pushing down on services inflation. And whereas relatively high services inflation in the late 1990s and early 2000s was offset by flat or falling goods prices, this is no longer the case. So if services prices continue to rise at a 3-4% rate, and goods prices continue to be pushed up by external factors and the weakness of the pound, it is very difficult to see how the MPC will be able to return inflation to the 2% target, even over a number of years."

You'll remember the counter-argument to all this - which is that the low level of pay growth will ultimately put a lid on price rises. We may have seen some of that at the retail level in recent months. But no-one can be sure, yet, that shrinking pay checks will ultimately do what the MPC has chosen not to do.

As I've said before, it's a matter of judgment whether you think inflation will adjust to pay - or the other way round. But even Mervyn King would have to admit that the jury is still very much out.

Which leads us to Sentance's final point, which is about the MPC's credibility. As he admits, inflation expectations may only be "flashing amber" right now. There's not much sign that the Bank's reputation for curbing inflation has been permanently hit. But underneath, he worries that the Bank's credibility has been eroded by the MPC's reluctance to take action, and that this will make things harder for the committee - not to mention the rest of us - when the Bank does finally raise rates.

Once again, you don't have to agree with Andrew Sentance. Most of his MPC colleagues have disagreed with him for many months. But all should admit that he makes an important case, which should still get a hearing at the MPC, even after the person who first had the courage to make it has left.

Comments

  • Comment number 1.

    This is a guy who affirms rates need to go up to curb inflation because he thinks - I stress THINKS - wages are in danger of rising causing an inflationary spiral. There is not evidence to back this claim, in fact most companies are struggling to meet their present wage costs let alone increase them.

    He also states we shouldn't read anything into a lousy [forecast] 0.5% first quarter growth because "First estimates are always low". Well forgive me for being contradictory but NO net growth over the last six months is nothing to shout about if your using this mythical growth as a measure of recovery. Typical case in point is, the media aanounce with unbridled joy that retail growth was 0.7% higher on month [February] the month after a 0.9% decline.

    I'm clearly missing something here, once again I walked around a deserted Midland City Centre today at lunchtime, things look pretty grim to me.

  • Comment number 2.

    Stephanie, of course the MPC's credibility has been hit, it is now none existent. One of it's core reasons for existence is to control inflation, instead it deliberately and knowingly stoked inflation by dramatically deflating sterling. The only outcome of reducing your currencies value can be massive inflation. For months and years now they have consistently got the inflation expectation wrong and inflation has burst forward. Mervyn King should hang his head in shame and resign, the Bank is supposed to be independent not the governments lap dog. Inflation is far worse than tax rises, it hits everyone (the poorest worst of all), it leaves a permanent scar on anyone who tries to save and reduces all of our standard of living. That is why the Germans fight so hard to eradicate it, the MPC should do the same.

  • Comment number 3.

    Such a shame that Andrew Sentance is leaving the MPC just at the moment when his influence is most needed. Now the MPC will be left with the same old myopic toadies such as Charles Bean who dont understand how the real world works form the position in their ivory towers.

  • Comment number 4.

    Sentence is really saying that the MPC has become a farce - the King has no clothes. The Bank has no reputation for curbing inflation - it is designer neglect. All stems from politicians outsourcing their responsibility for managing the economy - Labour was no better and tended to shuffle in fear and worship of the City.

    Will wages catch up inflation and hence build it in - yes once workers feel things are on the up turn.

    The fact that the question in relation to manufactured exports of "do we have a viable motor industry" can be asked is an overwhelming indictment of economic management over the last 30 years. In addition to the issue of the paucity of UK component supply there is also the inevitable coming cry from manufacturing that there is a shortage of skilled and well trained workers added to which is the 'famine' of finance and working capital whilst bankers gorge themselves on their bonuses.

  • Comment number 5.

    ECONOMICS VS GAMBLING!

    Barclays faces protests over role in global food crisis
    http://www.guardian.co.uk/business/2011/apr/25/barclays-faces-commodity-protests

    'Barclays will be targeted during its annual meeting on Wednesday by anti-poverty campaigners accusing it of playing a leading role in driving up food prices on global commodities markets.
    Along with Goldman Sachs and Morgan Stanley, BarCap has pioneered new kinds of financial products that have enabled pension funds and other investors traditionally barred from commodities exchanges to bet on food prices.'

  • Comment number 6.

    It would make no difference if interest rates were 5% . The price of food and fuel both linked are being manipulated by the commodity brokers to max out profits for the fat boys. As for wage increases outside any government institution it’s in negative territory, has been for the last couple of years.
    The only people to suffer would be the hard pressed mortgage payers and people with bank overdrafts
    Like small and medium business types. This guy cannot possible understand someone who works for a living.
    Bob.

  • Comment number 7.

    Bob (6), interest rates at 5% sounds about right. Savers would have more money to spend thus reviving the high street and borrowers would be forced to face the reality of debt, a lesson long overdue. In terms of inflation the pound would rapidly strengthen reducing the cost of all imported goods, including oil and petrol.

    All a 0.5% rate has done is prolong the agony of the credit crunch, hit pensioners with a double whammy (savings and high inflation) and let mortgage payers pay down their debt.

    The reality for all of us workers is that we compete on a world stage, we need to make more and do it more productively. For years the Germans have resisted both inflation and wage increases by boosting productivity, we need the same medicine.

  • Comment number 8.

    "There's not much sign that the Bank's reputation for curbing inflation has been permanently hit"

    Yes there is.....

  • Comment number 9.

    Oh come off it. It is absolutely absurd to blame the food and oil price rises on speculators. These prices have been rising continuously since irresponsible governments started printing boatloads of money. It is hardly rocket science. What else could possibly happen?

  • Comment number 10.

    While it may surprise the Bank of England and, more generally, those in the City and government that UK companies have not responded to the fall in sterling by producing goods in the UK to displace imports it will not surprise anyone with any experience of British commercial life over the past fifty years. Most of our manufacturing companies were sold out - largely by city institutions (insurance companies, pension funds etc - the usual suspects) - to overseas buyers who promptly closed down the UK manufacturing base and relocated production abroad. This has happened across the board - think of Nestle/Rowntree Mackintosh; British Aluminium/Alcoa; Blue Circle Cement/Lafarge; Glynwed/Wavin...the list goes on and on. Unpatriotic investing institutions, uncaring governments run by economic illiterates and a fast buck culture have left this country as virtually an empty shell economically, with a suicidal dependence upon the housing market, financial services and public sector employment - all of which have come to the end of the road in terms of growth.

  • Comment number 11.

    Well, I'm glad Mr. Sentence has explained it all. As a saver who is hitting an age where 5 year bond style investments are no longer an appropriate option, I'm now on the side of the hawks. Those types who 'want it all and want it now' have been pandered to long enough, it's time to get tough with the multiple credit card users and all those who think more credit is the answer to everything. Those fool's paradise notions have been untenable even before the crash.
    Somebody posted that savers who see their savings 'earn' are more likely to consistently spend than those who are technically bankrupt and they are right. Time to set the right course and that is up.

  • Comment number 12.

    1. At 16:46pm 26th Apr 2011, NorthSeaHalibut wrote:
    "This is a guy who affirms rates need to go up to curb inflation because he thinks - I stress THINKS - wages are in danger of rising causing an inflationary spiral. There is not evidence to back this claim, in fact most companies are struggling to meet their present wage costs let alone increase them."

    Does he think that? Reading Ms Flander`s comments the opposite seems to be the case.Low interest rates cause a weak pound,import prices rise and this reduces domestic purchasing power.I see no evidence Mr.Sentance thinks that rising wages will cause a wage-price spiral.Real wages are falling.

    This is what Ms.Flander`s wrote:-

    "Second, and more controversially, he thinks the Bank should not have been so relaxed about the fall in the pound, which has added to inflationary pressures at a very inconvenient time and, by squeezing disposable incomes, actually "offset the boost to growth we might be seeing from improved trade performance."






  • Comment number 13.

    Andrew Sentence may be in agreement with me on interest rates but... what I find most troubling is the whole idea that the MPC/FPC is in some way independent.

    Let us face the facts: Interest rates should have been far higher for all of the noughties and then there quite probably the country would not have been saddled with crippling levels of debt which are crushing the public and the banks.

    The rot in the interest rates argument set in over a decade ago and the rot at the heart is Mervyn King and Past and present permanent secretaries of HM Treasury and the 200 shoddy BoE economists who find that they can ignore asset price inflation.

    Asset price inflation hangs around for decades whereas revenue inflation can be extinguished far more rapidly so asset price inflation is far more damaging than revenue inflation - yet the BoE ignore it!

    I can make (and have previously made) a convincing argue then asset price inflation is ignored becasue the Treasury ignores assets in the national accounting. So the other wise sane BoE is in fact in no way independent as there are controlled via the need to manage the cpi which itself deliberately and negligently ignores asset prices - all due to the blindness of national accounting.

    Indeed turning the argument round: because the BoE ignored asset price inflation it must follow that their bosses at HM Treasury ignore assets from their accounting.

    This is where economics must be reformed.

    Also, put almost any of the participants in this blog in a suit, let them gain the (fake) gravitas of baldness, pay them 250K or more a year and they could have done a better job than any of the MPC or HM Treasury.

    Why are these guys still in their jobs they after-all gave us the credit crunch and these same guys are now working towards a long thirty year depression - they all need the chop!

  • Comment number 14.

    Stephanie,

    More argument about the BoE and the interest rate, all in the language of the economists who do not even agree on their own language's terminology, or whether the statistics of the day of argument are correct.

    What you have interpreted of what Mr Sentence has said is indeed quite fascinating reading, but is the analysis of the problems, when finally agreed, pointing to any solutions for consideration?

    Having printed as much new money as we can afford to borrow at present and declared an intention to fine tune a few public services, what has happened in terms of the implementation of economic policies to crawl our way out of this unprecedented mess?
    Nothing except talk of a 1/2 percent raise on the BoE interest rate maybe, and only maybe later this year, how dynamic and imaginative.

    This never ending waffle, without proposed policy solutions, by economists about future interest rates, rising commodity prices, employees cost of living wage demands and higher unemployment has one simple solution; a Prices and Incomes Policy legislation to attempt to stabilise and define the contemporary uncertain problem.

    Another good start would be to 'eat the ass of the sacred elephant' and put the market forces economic policies in the waste bin, this is a well proven part of the present mess we are in, and at this stage of the economic and financial mess is not part of the solution.

  • Comment number 15.

    Non FSA 10

    I find your comments thoughtful.De-industrialization began here in the 1980s and continued through the Labour period on the Warren Buffet principle that a buck is a buck is a buck however earned.

    Through the pressures of globalization,outside of pharmaceuricals and defence,Britain is becoming an entropot for routine assembly of products like motor cars while the more lucrative research and development happens elsewhere.

    We are now in a situation where open markets no longer work to our advantage although our elites ,who are a generation out of date, think they do.

    We need to ring fence both infant industries and those where we have a strategic interest so they are not sold off by the money men.The French do this so there are precedents without running foul of trade agreements.

    Unfortunately many of our business and political elites represent the interests of multinational corporations.The economic cris is a warning that we either respond appropriately to our current weakness or succumb to the weight of foreign capital.

  • Comment number 16.


    Geoff Berry wrote:
    This never ending waffle, without proposed policy solutions, by economists about future interest rates, rising commodity prices, employees cost of living wage demands and higher unemployment has one simple solution; a Prices and Incomes Policy legislation to attempt to stabilise and define the contemporary uncertain problem.

    Another good start would be to 'eat the ass of the sacred elephant' and put the market forces economic policies in the waste bin, this is a well proven part of the present mess we are in, and at this stage of the economic and financial mess is not part of the solution.

    Sympathetic to your last paragraph,reservations about your first.The prices and incomes policies of the seventies were inflexible,caused rigidities in the pricing of labour and of commoditities,and never worked because instead of addressing the causes of inflation,they froze a current situation where we imported oil at inflated prices which caused a continuing upward pressure on wages and prices without compensations elsewhere in te economy.

    De-industrialization and the flight into financial services is the culprit leaving us with a trade balance permanently in the red and causing indebtedness.We must become responsible for ourselves,face down international capital where it is not in our interest,show the kind of guts we display on the battlefield.This is for us,it`s ours not theirs,so we do as the French do,nurture our start ups,shelter them from the money men,ring fence our strategic industries.Refuse to allow our national brands to be exported.



  • Comment number 17.

    Bank holidays here bank holidays there no reduction in pensions according to teachers where,s all the money coming from who's creating it who's working, it would seem that the public want an increase in their standard of living but who,s to pay we have got by on borrowed money and are due for a reality check the irish,the greeks and portugese are just beginning to experience what happens when you live above your means how long will it be before we get the message the rest of the world is moving on earning their increase in their standard of living the west has lived off the backs of cheap labour for 400 years methinks the parties over

  • Comment number 18.

    Elsewhere ( www.bbc.co.uk/news/business-13196307 ) the BBC reported

    "the counter argument runs that it is too soon to increase borrowing costs as the economy is too fragile to withstand it"

    This says it all. The Great British Broadcasting Corporation cannot find an inflation based counter argument to raising interest rates. The unelected, unaccountable BoE/MPC have consistently ignored their primary objective - there is no reason to assume this undemocratric behaviour will not continue. The BoE/MPC has lost credibility, but it has taken the rest of us with it on this journey.

    It is one thing injecting liquidity at those rare time when markets fail to deliver, but you don't keep doing it. (If you keep taking testoterone somethings shrink).

  • Comment number 19.

    Nope sorry, relevance of MPC over the last couple of years, cant see it, and for that matter the next couple of years. For years we all oohed and ahed when the News told us base rates had been raised or cut, but only cos we knew the next day there would be lots of silly adverts in the papers to tell us that the banks / building societies had followed suit.

    Winnie the Pooh has more hope finding out the reasoning behind market interest rates at the bottom of his honey pot than the MPC have of seriously having any relevance for the foreseeable.

  • Comment number 20.

    Swan song for a hawk



    Swan song for a hawk

    No! Just an up the swanee song from the" owe for the wings of a dove" comic operascrew that think they are well positioned on the HMS iceberg soon to be refered to by suckers as the good ship lollypop

    The MPC WILL CARRY ON PROPPING UP THE MONTECARLO OR BUST sillyconeyesed allAAAboard titantic system till they FINNISH scrapingk the barnicles off their hull for saying" whoes a pretty buoy then"

  • Comment number 21.

    The only way to pay off debt is with maw debt[at 0% ]and inflation ....even a fool knows that!!!!!!! and penieson fun manurgers. with rites of passage.

  • Comment number 22.

    Whether doves or hawks they don't have the correct theory of value & so don't have a good understanding of the capitalist economy & its inevitable breakdown.

    Just ask them why we have crises.

  • Comment number 23.

    To summarise:

    We are experiencing inflationary pressures from commodity prices.
    We are experiencing deflationary pressures from reducing real household disposable income and continuing constraints on corporate borrowings.

    Mr Sentance and his fellow hawks believe that we should increase interest rates in order to exert further downward pressure through further reducing disposable incomes and increasing constraints on borrowings.

    So that will make the average look better!

    At what point did blindly following the KPI(RPI/CPI?) become the priority over the real objective of sustainable growth.

    I give the MPC more credibility for seeing the bigger picture.


  • Comment number 24.

    I think the message is slowly sinking in that the weak pound causing unneccesarily high inflation and a big squeeze on disposable income is worse than raising rates, increasing the value of the pound and having lower inflation with a squeeze on the incomes of the overborrowed but a rise in the incomes of the prudent. Not only does this make economic sense but it also puts the UK and the BoE back on the path to something resembling credibility.

  • Comment number 25.

    I must admit to being totally bemused at the argument that higher interest rates will have a detrimental effect to small and medium business. As a small business man in manufacturing myself I have seen the savings rate on our money reserves dwindle down to next to nothing while our overdraft facility for working capital has remained relatively unchanged over the last five years.
    My raw material costs are now spiralling upwards due to commodity price rises and the weakness of the pound which is putting more of a squeeze on our margins and less money to re-invest
    Higher interest rates = stronger pound = lower material costs=lower inflation=better profits to re-invest.

    Mortgages, before the GFC hit BOE rates were generally in-line with standard variable mortgage rates. With BOE interest rates at 0.5% and SVR at 3.5-4% banks are filling their boots with the extra margins they are making. It’s a con, the interest rate is being kept low so our wonderful banks can continue to repair their balance sheets, make excessive profits and fill their troughs at the expense of the rest of the economy.
    The line raising interest rates will hurt our economy is basically a load of old tosh!!!

  • Comment number 26.

    We sure do have a problem!

    But I am not of the opinion that politicians and economists are stupid. They know what we need to do to reset the economy, but it is politically unthinkable. So we are locked in a softly, softly approach which will perpetuate the problem for the rest of my life ... and cost us even more.

    I'm in favour of democracy, but democracy is an on-going experiment and it will be interesting to see if we can get ourselves out of this. But we have no chance all the time cuts are described by the media, especially the BBC, as "bad news", but tax rises are similarly described.

  • Comment number 27.

    The Sentence view is broadly right on exchange rates. European Euro-rate is less than half it is in the UK, even with the skewed figures of CSO, and a major factor in this is the exchange rate.

    Wage inflation beyond the overpaid underperforming "management class" will not have a major impact. The drag of unemployment is mitigated by EU citizens still coming to the UK for work.

    Sentence fails to address is the UK "debt hangover" and the reluctance to save. This major problem has as its root inflation and mortgage market failure to deliver long term fixed rate mortgages as in the US and many parts of Europe that protect owners from interest rate changes. This latter point and "non consequence" martgage default was a key factor in speeding the US recovery at least for thos ein work.

    Once the interest rate rises we can be sure it will add another limit to demand and further cut retail sales with all that implies for UK fiscal health.

  • Comment number 28.

    "There's not much sign that the Bank's reputation for curbing inflation has been permanently hit. But underneath, he worries that the Bank's credibility has been eroded by the MPC's reluctance to take action "

    They have no credibility, their remit was to control inflation and they have failed miserably.....

    We can all see that if the choice to made is 1) Support the banks balance sheets or 2) support the people of this country

    It is number 1 all the way.

    We are all being taken for mugs.

  • Comment number 29.

    21. At 01:40am 27th Apr 2011, SirLoinsaaalot wrote:
    The only way to pay off debt is with maw debt[at 0% ]and inflation ....even a fool knows that!!!!!!! and penieson fun manurgers. with rites of passage.


    In my view, only a fool knows that!!

    The only way to really pay off debt is by spending less than income, whether by a person, a company or a country.

  • Comment number 30.

    re #9
    Oh no it's not!

    There is greater individual wealth in the world than ever before. That wealth (money) is seeking returns that are as high as possible: the theme of this Blog is about the return on pure cash.

    Countries around the world have chosen to reduce the investment return on cash so cash goes off elsewhere to find a higher return.

    There are other factors at work as well. Increasing affluence in the developing world and the 'communist block' is increasing the demand for (better) food. The BP disaster in the Gulf of Mexico prevented a major source of oil coming on stream. Increasing military activity raises the demand for fuel for ship, aircraft and armour use.

  • Comment number 31.

    13. At 19:39pm 26th Apr 2011, John_from_Hendon wrote:
    Andrew Sentence may be in agreement with me on interest rates but... what I find most troubling is the whole idea that the MPC/FPC is in some way independent.

    Let us face the facts: Interest rates should have been far higher for all of the noughties and then there quite probably the country would not have been saddled with crippling levels of debt which are crushing the public and the banks.

    The rot in the interest rates argument set in over a decade ago and the rot at the heart is Mervyn King and Past and present permanent secretaries of HM Treasury and the 200 shoddy BoE economists who find that they can ignore asset price inflation.

    Asset price inflation hangs around for decades whereas revenue inflation can be extinguished far more rapidly so asset price inflation is far more damaging than revenue inflation - yet the BoE ignore it!

    I can make (and have previously made) a convincing argue then asset price inflation is ignored becasue the Treasury ignores assets in the national accounting. So the other wise sane BoE is in fact in no way independent as there are controlled via the need to manage the cpi which itself deliberately and negligently ignores asset prices - all due to the blindness of national accounting.


    ................................................................

    I completely agree with you about asset price inflation, and interest rates from the point where the BoE were given responsibility for setting them.

    Unfortunately, we are where we are, and where I disagree with you is that I don't believe that we can get to where we want to be/should be in quickly. We need to acknowledge where we are and begin to take small steps towards where we need to be. (The old joke about the Irishman giving directions "You don't want to be starting from here" springs to mind).

    Unfortunately, the banks do recognise the inflated values of assets upon which loans are secured in their balance sheets. If we rapidly devalue those assets (by increased interest rates, loan defaults etc) then the banks go under. We have already decided (probably wrongly) that we would not let that happen. Now that we are a few years down that road we can not suddenly jump back to the beginning in one fell swoop and then set off in a different direction.

    Sudden and dramatic asset price deflation would be as damaging to the economy as sudden and dramatic cpi/rpi deflation. Starting from where we are, we need (and probably for several years) higher than ideal cpi/rpi in

  • Comment number 32.

    re #26
    Agreed. That is the potential tragedy. The pain and loss and hurt and struggle of many people will be obliterated by a fudged or bodged form of recovery that leaves the underlying problems firmly in place.

    Post Budget there have been distinct signs that Dave and GO have taken their eye off the ball!

    Perhaps another major shock is needed to truly wake us up. Some people thought (and probably still think) there was going to be another major financial crisis.

    If there is one coming, it seems a little distant right now. But if we manage to stagger into some sort of recovery (don't get too excited by today's numbers - there is a long way to go) over the next year or two, we will drag the rest of the world along with us only to see them zoom up and away while we moulder away in a pre-2007 fashion.

  • Comment number 33.

    #31 continued

    Starting from where we are, we need (and probably for several years) higher than ideal cpi/rpi inflation, balanced by asset price deflation until we reach an equilibrium in the economy. Unfortunately we will all be a lot worse off by the time that equilibrium is reached.

  • Comment number 34.

    32. At 09:02am 27th Apr 2011, Up2snuff wrote:

    "Some people thought (and probably still think) there was going to be another major financial crisis."

    I'm one of them.

    Read between the lines. The 2% target was abandoned in 2008 when we started printing money. (The US are still at it.)

    The MPC thought we were facing depression and deflation (and possibly WWIII), but have swung the pendulum too far the other way. Hyperinflation has the same conclusion.

    Read Paul Mason's Idle Scrawl for some suggestions as to what happens when bread gets too pricey....




  • Comment number 35.

    A signal that we are serious about the threat of inflation would have great psychological weight, more than its likely real effects. The debt party is over, ultra-low interest rates cannot become the norm or asset prices such as houses will stay high and out of reach for the young.

    £ is too weak, credit too cheap, a small rise is overdue. Or do the powers that be want to inflate their way out of debt..?

  • Comment number 36.

    Some passing comments not supported by facts;

    post #15

    'Through the pressures of globalization,outside of pharmaceuricals and defence,Britain is becoming an entropot for routine assembly of products like motor cars while the more lucrative research and development happens elsewhere.'

    --------------------------------------------------------------------------------

    Whilst we might not get all the high end added value contribution to global manufacturing that we could - not sure that UK is an assembly entrepot on a large scale - ie that we take in components bolt a product together and export in material volumes - my guess is we do this largely for access to domestic market and perhaps a little bit for europe ? - anyhow I wouldnt be investing in any company that planned to do that on a large scale in the uk - whereas I would be investing in a plan to lever value on the high end of our technological capability - (provided of course the govt got its harebrained skilled labour policy sorted - ie in immigration and education).

    #30 - 'There are other factors at work as well. Increasing affluence in the developing world and the 'communist block' is increasing the demand for (better) food. The BP disaster in the Gulf of Mexico prevented a major source of oil coming on stream. Increasing military activity raises the demand for fuel for ship, aircraft and armour use.'

    Would agree with the some of the other global factors - but suspect that the economic significance of BP's Macondo well is not the lost production from that particular field affecting global surplus etc - but in the increased cost of exploration and production in general due to increase contingency plans for relief wells, polution clear up costs, well integrity measures, associated insurances etc etc and the possible loss of access to potential plays in deepwater areas considered particularly environmentally sensitive.

    and of course interest rates should go up - and the two main reasons they haven't are;

    a) BOE dont really know what the impact of all their policies are - and economics being in inexact 'science' are only slightly competent to tell you what has happened after the fact and completely incapable of accurately forecasting the future.

    b) There are more votes in supporting the current level of personal debt than making a start on unravelling it by increasing its cost.



  • Comment number 37.

    Well, the numbers are out and as I've posted before, don't get too excited. It's just one quarter and there may be later adjustments.

    All they do is make Ed Balls and any other N.Labour and union spokespeople (who rubbished the ONS and GO for talking about the pre-Christmas bad weather) look really stupid.

  • Comment number 38.

    12. At 19:37pm 26th Apr 2011, bryhers

    I didn't get all my information from Steph's blog. Sentance has been quite outspoken about his thinking over wage demands, which I believe to be a major flaw in his argument. He also assures anyone who will listen the recovery is in better shape than we all think so capable of taking higher rates, again I disagree totally. You cannot base policy around conjecture or hypothesis.

    http://www.guardian.co.uk/business/2011/mar/22/inflation-interest-rates-andrew-sentance

    Here's a bet for you, Trichet will reduce EU rates in the late summer or early autumn.

  • Comment number 39.

    34. At 09:36am 27th Apr 2011, newblogger wrote:
    32. At 09:02am 27th Apr 2011, Up2snuff wrote:

    "Some people thought (and probably still think) there was going to be another major financial crisis."

    I'm one of them.

    --------------------------------------------------------------------------------

    It's for certain, no turning back now.

  • Comment number 40.

    Yes, the shouting about a manufacturing lead growth seems to have become somewhat muted in Westminster village.

    Types complaining about the lack of a manufacturing supply base to supply them components simply allowed that base to disappear by not buying from it. Its not rocket science. The longterm future for the UK manufacturing base is likely to be the continued shrinkage in terms of people working in it.

    So in the absence of a 'manufacturing lead growth' where is this growth - as in growth above the 'normal' 'rebound' that follows any recession - and is likely to be somewhat muted - due to come from.

    I hardly think saying that manufacturing is not the engine it once was yet failing to identify an alternative other than making it easier to import by strengthening the pound is a brilliant assessment of the economy. But perhaps I am missing something.

    To the guy in the street it will make little difference whether it is higher interest rates or inflation hitting their pocket. Its just a merry-go-round.

    There are reports of both private and commercial cash holdings building up and until it hits the streets as expenditure I can't see much happening. 2011 is going to be much of keeping on keeping on.

    This is a debt driven consumer society and people are not looking for debt at the moment. That leaves the grey brigade who generally have cash but are cautious with it which is why they have it. Until debt - sustainable not unhinged - is engaged the economy does not look to be going anywhere in a hurry.



  • Comment number 41.

    37. At 10:06am 27th Apr 2011, Up2snuff wrote:
    Well, the numbers are out and as I've posted before, don't get too excited. It's just one quarter and there may be later adjustments.

    All they do is make Ed Balls and any other N.Labour and union spokespeople (who rubbished the ONS and GO for talking about the pre-Christmas bad weather) look really stupid.
    ..................................................

    So 6 months of stagnation then, and the tax increases for the new tax year yet to impact. I agree. Don't get too excited!

  • Comment number 42.

    39 NSH

    The amount of debt bubbling away under the crusty surface the politicians and bankers are walking around on is incredibile. Perhaps the crust will give way and they will all go down in it. Its a credibility problem at the end of the day, or should that be a an incredibility problem. Who will rush forward if the crust goes. After all the world has already been saved hasnt it, by Gordy B, of - Sorry for the entanglement - fame. So we then just discuss whether they are waving or drowning I guess.

    Never have so many paid so much for so few.

  • Comment number 43.

    40. At 10:25am 27th Apr 2011, Arthur Daley wrote:
    To the guy in the street it will make little difference whether it is higher interest rates or inflation hitting their pocket. Its just a merry-go-round.

    ................................................

    As the majority of mortgages are now SVR or trackers, a rise in interest rates is more likely than rpi/cpi inflation to lead to increased wage demands.


  • Comment number 44.

    His remarks here chime with recent gloomy comments about the loss of Britain's manufacturing base, with big firms complaining that they have no domestic component suppliers to turn to, to take advantage of the weaker pound. This is something the Bank recently investigated for itself, with depressing results

    yep the UK has been denuded of several supplier level supply chain manufacturing capabilities which has accelerated since 1997, whilst this keep inflation low in this period the jobs just went to china and India etc. Ie it has been hollowed out from within and nothing done about it

  • Comment number 45.

    Stephanie,

    Will my query about Treasury/BoE canteen prices be published or be censored - sorry moderated as last week?
    My understanding is Mervyn promised to review prices in response to staff complaints about increases - is this true?
    Seems on a par with index linked bonds for the few pensioners?

  • Comment number 46.

    29 AnotherEngineer:

    'The only way to really pay off debt is by spending less than income, whether by a person, a company or a country.'

    Nope, you can get somebody else to pay it for you, which is the current policy guv'n'r. A government does not have any money of its own de facto. It appears that many banks do not have any money of their own de facto. And if an individual declares bankrupt they do not pay their debt. This is not a linear matter guv'.

    Debt also appears to warp financial gravity in an Einsteinian way, it certainly warps some politicians minds as they start talking nonsense.

  • Comment number 47.

    43 NoNo

    And inflation wont?

  • Comment number 48.

    The MPC's credibility and reputation for curbing inflation is already hit. Does anyone have confidence that, after year upon year of failing to get near the target, the MPC can actually do its job? The idea of ignoring external shocks, such as oil prices - not so much a shock as a trend, is ridiculous. Rates MUST go up, should never have been allowed so low. The MPC should be replaced wholesale with individuals willing to take a decision, rather than bury their head in teh sand, ignore the rest of the world as they are only 'shocks' and hope the situation will fix itself

  • Comment number 49.

    After today's GDP growth figures of 0.5% I think he must be off his rocker to call for a rise in interest rates http://bit.ly/hBfySD

  • Comment number 50.

    9. At 18:59pm 26th Apr 2011, sandy winder wrote:
    Oh come off it. It is absolutely absurd to blame the food and oil price rises on speculators. These prices have been rising continuously since irresponsible governments started printing boatloads of money. It is hardly rocket science. What else could possibly happen?

    ......
    I think both money printing (QE2) and speculation are to blame. Goldman Sachs managed to get an exemption in the early 90s to allow them to bet on commodities (it had been banned in the past), and it has had a significant effect on prices. There is a useful article on this at http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405?page=2

  • Comment number 51.

    Correct me if I am wrong... but haven't most people taken out mortgages with a 25 year payback period? You cannot be serious to think that a 2 year spell of 0.5% base rate is anything other than a really good breather to get your "house in order" if you have been struggling financially.

    There are so many that keep commenting on here that seem to think that it is the government's responsibility (and the BofE) to keep zombie personal and business finances afloat.

    If your personal spending, or business plan, is only possible when the economy is living on a bubble of cheap debt, then it is about time you face reality. 2 years is enough. We need Sterling to have value again. And businesses that have viable long term sustainability, not based on almost free money. There are SO SO many in this country so inoculated from reality by left wing "have it all at someone else's expense" dogma.

    It is about time most people faced up to the fact that they do pretty ordinary jobs, and they simply are not worth what they think they are. They cannot sustain their standard of living while being so ordinary. They have only managed to in the past by exploiting others in the East. But many better educated and more motivated are working for far less around the world. That is why the work that we would want to keep is now going to them.

    Go to India and see how many obese people are paid by the state to get and stay fat, and out of work, living in real terms much like a normal 40 hour a week worker.

  • Comment number 52.

    The MPC appear to have no interest in their mandate: From this perspective, they have a weak level of credibility. In the short term, it may work out well. In the long term, having an unelected body making decisions based on the members personal views of the potential outcomes, rather than conforming to the written constitution, will weaken the basis of the institution.

    Any future decisions on rates will be tainted by the knowledge that the MPC ignored their mandate in the past. Thus, if they are required to act on rates in the future, they may well have to raise significantly higher than would otherwise have been the case.

    One hope it works out well. Institutions that have circumvented written policy in the past do not tend to have a good record of historical outcomes.

  • Comment number 53.

    25. Jon, you are absolutely correct in your thoughts on interest rates and how to grow by reinvesting profits rather than cheap borrowing.

    Unfortunately society (the economy) is now so skewed toward ever more borrowing and pumping up the growth of asset prices to effectively make money worth less and less.

    Savers continue to be sacrificed to save the balance sheets of the reckless, both corporate and private.

    The simple questions no one in power and authority seems capable of addressing are:

    1) How can any continual growth be "sustainable" on a finite planet?
    2) How can we feed and find jobs for an ever growing world population whilst maintaining any ability for the planet to replenish it's resources such as water and quality soil and essential ecosystems for the even relatively near future?
    3)Are we simply fulfilling Einstein's definition of insanity, namely to "keep doing the same thing and expect different results. " Do we seriously think that working ever harder and becoming ever more efficient is the way to fulfill the needs of our citizenry? If so where's the evidence?

  • Comment number 54.

    Amazing how these so-called experts remain both inflation / job / house loss proof!!!

  • Comment number 55.

    Sentance makes some good points and though I think he is dead wrong in his conclusions over interest rates, it is always good to have someone who can challenge the concensus with reasoned argument.

    The real problem, it seems to me, is the suspicion that the bank has recognised in private what it dare not say in public, namely:
    (1) above-target inflation is not currently the worst prospect, and the bank is actively targetting growth instead of inflation;
    (2) that as a means of controlling the money supply, its stated control technique (the interest rate lever) does not work in the current conditions.

    As Paul Krugman pointed out (http://web.mit.edu/krugman/www/trioshrt.html and elsewhere) when the world is de-leveraging the required rate of interest to control inflation may be negative - as it almost certainly now is - and thus the lever is ineffective except as a purely theatrical gesture like the Governer's eyebrows.

    We all learned the lessons of monetarism during the 1970s. Now we need to re-learn the lessons of Keynes.

  • Comment number 56.

    What credibility, the hawk?

    Poor growth figures just released, the UK economy is not yet in any position to withstand to the shock of higher borrowing costs. We live & work, if we still have a job, in an economy that has effectively flat-lined for 6 months.

    Monetary policy has to remain expansionary, even if headline inflation is above target, in order to support, what little there is, of a very weak recovery.

    The government has embarked on a course of fiscal consolidation which, if anything, it can be argued has contributed to weak growth. However, due to it being a fixed policy, with no plan B, it relies on economic growth, or the central tenet of cutting the deficit will never be dealt with, with the populous getting poorer and the deficit getting worse over time.

    Put simply, a collapse in tax take will only add to the deficit problems. Unfortunately, much of the fiscal tightening is still yet to be felt, together with the subsequent further squeeze on consumers.

    The fear of the current inflation rate becoming locked in by higher inflation expectations and therefore faster wage increases, does not correlate with what is actually happening in industry & the threat of rising unemployment. There are numerous businesses classed as high risk of going under.

    Inflation has been driven by rising commodities prices, such as oil (which is being driven higher both by strong demand from Asia and by supply worries due to the Middle East uprisings) and internal factors such as the VAT rise. It is not being fed by wage demands.

    Raising interest rates will increase the cost of borrowing for both firms & consumers alike, tipping the UK back into recession, especially after the shock 0.5% contraction in the economy seen in the last quarter of 2010. Revenue to the exchequer will continue to fall & their fiscal policies, will fail.

    There has to be clear signs that a period of sustained economic growth is underway & the economy back on track, before consideration is given to raising interest rates. Due to the route decided upon by this government, growth is THE prerequisite & the signs to not currently point to it happening to any real degree.

  • Comment number 57.

    re #34
    I'm kinda undecided. I can see the structural problems. I can see the way the politicos go off at half-cock firing money (and missiles, bombs and bullets) all over the place. And I can see how world non-sovereign wealth could be used now to deliberately destabilise things. And then there's the ongoing problem of terrorism. It could all come tumbling down around our ears and will, one day, no doubt do so. Except my ears, despite the so-called wildly increasingly life expectancy, could be six feet under or scattered to the four winds before it happens.

    But then I'm also aware how, had things been done slightly differently in 2006/2007 or factors had coalesced slightly differently in 2007/08 or the econo-politicos had responded slightly differently in 2007/08 we might have missed most of the recent disaster and just had to deal with a few more business failures in the usual way of things.

    On the other hand, someone (can't remember who) once said that a rocketing gold price is a guarantee of trouble .....

  • Comment number 58.

    29. At 08:40am 27th Apr 2011, AnotherEngineer wrote:

    21. At 01:40am 27th Apr 2011, SirLoinsaaalot wrote:
    The only way to pay off debt is with maw debt[at 0% ]and inflation ....even a fool knows that!!!!!!! and penieson fun manurgers. with rites of passage.


    In my view, only a fool knows that!!

    The only way to really pay off debt is by spending less than income, whether by a person, a company or a country.

    ----------------------------------------------------------------------------------

    Sorry AE but sir Sirloinsaaalot is correct here, the only way to pay of debt is to borrow more as more money is alway required to pay off the interest when money is created through factional reserve lending.

    If debt is repaid without additional lending as is happening currently, then the money supply dwindles to nothing and we all starve.

    Even the govenment expects personal debt to balloon over the next few years, but it is the only way.

    Its madness i tell ya

  • Comment number 59.

    51. At 12:18pm 27th Apr 2011, jonearle wrote:
    Correct me if I am wrong... but haven't most people taken out mortgages with a 25 year payback period? You cannot be serious to think that a 2 year spell of 0.5% base rate is anything other than a really good breather to get your "house in order" if you have been struggling financially.

    There are so many that keep commenting on here that seem to think that it is the government's responsibility (and the BofE) to keep zombie personal and business finances afloat.

    If your personal spending, or business plan, is only possible when the economy is living on a bubble of cheap debt, then it is about time you face reality. 2 years is enough. We need Sterling to have value again. And businesses that have viable long term sustainability, not based on almost free money. There are SO SO many in this country so inoculated from reality by left wing "have it all at someone else's expense" dogma.

    It is about time most people faced up to the fact that they do pretty ordinary jobs, and they simply are not worth what they think they are. They cannot sustain their standard of living while being so ordinary. They have only managed to in the past by exploiting others in the East. But many better educated and more motivated are working for far less around the world. That is why the work that we would want to keep is now going to them.

    Go to India and see how many obese people are paid by the state to get and stay fat, and out of work, living in real terms much like a normal 40 hour a week worker.

    ....
    Your post infers that the solution is to pay people a pittence so they can compete with the far east. However, people on low wages cant spend except on essentials. And approx 60% of demand in the UK economy comes from consumers spending. What we have is a classic case of the over accumulation of wealth reducing net demand. Its the flaw of capitalism where inevitably an ever smaller proportion of society end up holding an ever larger proportion of the wealth until eventually everyone except those at the top are living at subsistence levels. And when this happens you get uprisings/revolutions.

  • Comment number 60.

    Not too sure just how heavily geared UK business actually is today - you would have thought that some had been busy generating some cash in the last two years - certainly not taking on debt at the same pace as prior to the bust ?

    Could well be that some the VC aquired businesses have pretty scary gearing - cus thats all part of the plan - and some of course have already fallen over - but if interest rate goes up and they fail to refinance at a sustainable rate then they have to sell completely or party (ie issue more shares or sell the whole show) and hence write off or dilute their capital - if the basic margin in the business without the debt (EBITDA) is ok then the net outcome is a stonking loss to some vc investors who took a risk backed by cheap money and I cant help thinking thats show business ?

    Anyone know how most big public cos are financed ? by shares and bonds mostly ? Suppose some of them have some variable debt ? But not crystal clear to me that a 1% increase in base rate would drive direct to their cost of money and then on to the P&L and the cash flow. Cant help thinking its at the noise level again.

    I suspect that small businesses struggle to get much gearing built up anyway as no collateral - and therefore if the business is fundamentally healthy the impact of increase of even 2.5% on the debt shouldn't be terminal - unless the fundamentals are pretty marginal. Another blogger in SME manufacturing has already made the point that on his economics its the cost of materials that are the bigger worry.

    I therefore cant help thinking that a interest rate rise of even 1% is probably at the noise level in the system actuarily - but not importantly in the signal that it sends both politically and economicaly.

    Isnt the biggest deal to do with consumer sentiment - ie how rich we all feel - or otherwise - to the extent that that makes us all take on even more debt to pay for what we want - that might be good for high street now - but medium term ?

    All of this is of course pure guess work with long rulers - and with a sceince based education I am very much in favour of evidence based decision making - but as the BOE's attempts to forecast show - those bloggers calling for evidence based economics are deluded - if they think we can actuarily determine the effect of a 1% change in the headline cost of money. The spread on the standard deviation of the outcome would be so big as to make the assessment almost meaningless ? Or in english there%2

  • Comment number 61.

    In the last year the pound has appreciated 8% against the dollar.

    http://finance.yahoo.com/echarts?s=gbpusd=X#symbol=;range=1y;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=;

    In the last two years the pound has appreciated 12% against the dollar.

    When measured by value manufacturing industry (apart from a blip in the eighties) has never been in decline.

    http://www.theregister.co.uk/2010/02/22/manufacturing_figures/


    The unemployment rate (2010 to February 2011) was 7.8 per cent and there were 2.48 million unemployed people.

    The inactivity rate was 23.2 per cent and there were 9.30 million inactive people aged from 16 to 64.

    Total pay (including bonuses) rose by 2.0 per cent on a year earlier.
    Regular pay (excluding bonuses) rose by 2.2 per cent on a year earlier.

    This would indicate that as at February 2011 about 30% of the working population in the UK are sitting around doing nothing and real wages are down about 2% when inflation is taken into account.

    http://www.statistics.gov.uk/pdfdir/lmsuk0411.pdf

    I can’t for the life of me find any evidence of a fall in the pound that relates to the dollar.

    As mentioned by others interest rates need to go up to collapse what’s left of the housing and commercial property bubble in the U.K. and I feel sure that the only reason they have not is the threat to the banks balance sheets and nothing else.

    The construction industry (down 7% in the first quarter) need to get back to work and realistically priced premises and dwellings would help.

    Mind you- you can prove anything with statistics!

  • Comment number 62.

    58. At 14:33pm 27th Apr 2011, debtcrisisdave wrote:
    Sorry AE but sir Sirloinsaaalot is correct here, the only way to pay of debt is to borrow more as more money is alway required to pay off the interest when money is created through factional reserve lending.
    If debt is repaid without additional lending as is happening currently, then the money supply dwindles to nothing and we all starve.


    How can borrowing more repay debt? It is just being rolled-over not repaid!

    I agree that if debt is repaid then consumption is reduced, but borrowing is just bringing consumption forward and the piper has to be paid eventually.

    I fail to see what banks lending out most of their deposits has got to do with this discussion.

  • Comment number 63.

    61. At 15:02pm 27th Apr 2011, UnionRep wrote:
    ............As mentioned by others interest rates need to go up to collapse what’s left of the housing and commercial property bubble in the U.K. and I feel sure that the only reason they have not is the threat to the banks balance sheets and nothing else................


    A number of people here seem to think that a collapse in the property market would only affect the banks (I assume building societies are implicitly included).

    What about the people (a large proportion of the population) who have all or most of their assets tied up in their house?

  • Comment number 64.

    I am a little lost by the various arguments about who would lose and who would win in the event that the MPC did, or did not do, something different to their current policy.

    The point of having currency is to have a trading medium. By devaluing the currency, faith in that trading medium begins to be lost.

    By taking apparent short term gains in the form of inflation (to reduce the immediate pain felt by the excessively indebted) we replace competition with a culture of a subsidy safety net for risk takers, funded by a reduction in the general population's future ability to earn.

  • Comment number 65.

    63. At 15:40pm 27th Apr 2011, AnotherEngineer wrote:

    A number of people here seem to think that a collapse in the property market would only affect the banks (I assume building societies are implicitly included).

    What about the people (a large proportion of the population) who have all or most of their assets tied up in their house?

    Um, how about they live in them? Then, if they didn't treat their home as an investment, which has been the problem in this country for as long as I can remember (I'm only a young 'un), and houses are just homes, the value is irrelevant. Until the point of sale to up or downsize of course.

  • Comment number 66.

    23 wrote

    At what point did blindly following the KPI(RPI/CPI?) become the priority over the real objective of sustainable growth.

    I give the MPC more credibility for seeing the bigger picture.

    ------------------------------------------------------------------------

    And what about API – why was this not seen as bad and the MPC eye’s taken off the ball on this one in the last 15 years which has fuelled the asset bubble plus private debt levels.

    Maybe reducing API should now be their new remit?

  • Comment number 67.

    #65. markthinks wrote:
    63. At 15:40pm 27th Apr 2011, AnotherEngineer wrote:

    A number of people here seem to think that a collapse in the property market would only affect the banks (I assume building societies are implicitly included).

    What about the people (a large proportion of the population) who have all or most of their assets tied up in their house?

    Um, how about they live in them? Then, if they didn't treat their home as an investment, which has been the problem in this country for as long as I can remember (I'm only a young 'un), and houses are just homes, the value is irrelevant. Until the point of sale to up or downsize of course.

    --------------------------------------------------------------------------------

    markthinks, your answer is too simplistic. The majority of people who brought their homes (not those with second, third, buy-to-let or holiday homes) did exactly that, to live in.

    Unfortunately, wacking up interest rates together with a collapse in the property market would effect them worst of all. They would still have a large outlay to continue to pay, in terms of a mortgage, but against an asset of comparatively small value!

    It is those that inflated the bubble, with second, third, buy-to-let & holiday homes that caused the over inflation due to supply & demand.

    If you can think of a way of drastically reducing property prices & at the same time reduce the outgoings of those struggling to keep a roof over their heads, in a dour economy, I'm sure you'd have a lot of support.

    The alternative will be the cash rich will take advantage of the collapsing property market to snaffle all those cheaper properties as second, third, buy-to-let & holiday homes! causing another bubble.

 

BBC iD

Sign in

BBC navigation

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.