Hot housing market needs to cool off before rates rise

 

Outlook "As one of the fastest growing economies in Europe we always listen to the Commission's recommendations with interest," was the response of a government source to a telling off from Europe over the economy.

In other words: yah-boo sucks to you, Brussels; keep your concerns about our housing market to yourselves. Just a day later the Markit/Cips services purchasing managers' index appeared to justify that stance. The economy's dominant sector is booming, with hiring at a 17-year high.

The Government might pooh-pooh Brussels's concerns, but the Bank of England isn't so blasé. It's already intervened once in an attempt to apply some coolant to the market, by forcing banks to take a much harder line when they assess clients' ability to repay their loans.

If that doesn't work, and I question whether it will, can an interest rate rise be far behind?

The bank is right to be cautious. It's also true that a scarily large number of people are still only just making their repayments, even now. Household budgets remain under pressure. The political consequences of a rate rise putting them under further strain could be severe (and watch out, Tesco).

But there are risks to not acting, and they're increasing. Economists still don't expect the Bank of England to raise interest rates until the middle of next year. At this rate they might just have to revise their forecasts.

It might just be the time for the hawks on the Monetary Policy Committee to show their talons.

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