Bank of England divided over dilemma of soaring house prices

Economics editor

An external member of the Financial Policy Committee poured cold water last night on hopes that the Bank of England's new macro-prudential toolkit would be able to prick asset bubbles. He hinted at a potential disagreement with Mark Carney, the Bank's Governor, and cast doubt on the widespread belief that the committee is poised for action to curb the housing boom.

Delivering his first speech since joining the committee last year, Richard Sharp said people should not expect the new regulator to be "omniscient" and cautioned that it was unrealistic to expect the Bank to be able to spot asset price bubbles in advance.

"We should remember that it is always easy to see bubbles in hindsight, but it is not always as easy to see them when they are developing," he told an audience at the London School of Economics. "Certainly my experience has led me to be all too well aware that to seek to forecast future market directions or developments is invariably an extremely hazardous exercise."

Mr Sharp's sceptical tone contrasts with Mr Carney's belief, expressed last month, that the Bank would be able to hold interest rates down for an extended period because regulators could use the new macro-prudential toolkit to neutralise risks to the financial system.

One area where the FPC has come under pressure to deploy these tools is in relation to the housing market, where prices are rising nationwide at about 10 per cent a year. Many have called for the committee to recommend watering down the Chancellor's Help to Buy mortgage subsidies at its meeting later this month to take some heat out of the market.

But in his speech last night Mr Sharp, who spent 23 years at Goldman Sachs and is now chief executive of DII Capital, questioned whether it was appropriate for regulators to intervene. "If a bubble is funded by bank debt I think the answer is likely to be yes, but it is unfortunately less clear-cut if the links between a bubble and financial stability are less obvious," he said.

In the current housing boom prices have shot up over the past year without a corresponding increase in mortgage approvals and bank debt. The London market, where prices have been rising the fastest, is dominated by cash buyers, rather than by people taking out mortgages.

At last month's Inflation Report press conference Mr Carney said that raising interest rates to deal with booming house prices would be the "last line of defence" against a housing bubble. He stressed that macro-prudential tools could do the job successfully.

In contrast Mr Sharp stressed "the current lack of definitive empirical evidence" that such tools will work. The apparent divergence of views suggests the FPC could be divided on how to respond to the housing market. The committee is due to release its latest Financial Stability Report on 26 June.

Mr Sharp suggested last night that rather than seeking to head off shocks to the financial system, the FPC's main duty was to make the financial system resilient to them.

"It is better that the FPC should be viewed as unequivocally accountable for ensuring that, when such shocks do occur – and indeed they will – the system has built up sufficient strength and resilience so that such events can be effectively managed," he said.

Euro growth slows: ECB to loosen policy

Price cuts by eurozone firms failed to prevent business growth from losing momentum in May, all but sealing the case for looser monetary policy a day before the European Central Bank meets.

Markit's Composite Purchasing Managers' Index (PMI) showed that while output across the bloc remained solid in May the pace of growth eased – despite output prices falling for the 26th straight month.

"Today's PMIs remain consistent with some recovery in the eurozone," said Annalisa Piazza at Newedge Strategy.

"That said, we rule out that the picture of moderate recovery will be an obstacle for the ECB to justify further accommodation this week."

Start your day with The Independent, sign up for daily news emails
Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm tomorrow
Arts and Entertainment
Mark Wright has won The Apprentice 2014
tvThe Apprentice 2014 final
News
File: James Woods attends the 52nd New York Film Festival at Walter Reade Theater on September 27, 2014
peopleActor was tweeting in wake of NYPD police shooting
Arts and Entertainment
X Factor winner Ben Haenow has scored his first Christmas number one
music
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Sport
Martin Skrtel heads in the dramatic equaliser
SPORTLiverpool vs Arsenal match report: Bandaged Martin Skrtel heads home in the 97th-minute
News
Detective Tam Bui works for the Toronto Police force
news
News
The monkey made several attempts to revive his friend before he regained consciousness
video
Extras
indybest
Arts and Entertainment
Darrell Banks’s ‘Open The Door To Your Heart’
music
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'