King warns on interest rate worries

Governor says immigration muddies jobless rate. Retail sales fall but house prices still rising
Click to follow
The Independent Online

The British authorities have no idea how many people are living in the United Kingdom following the recent wave of immigration, the Governor of the Bank of England said last night.

Mervyn King said that the lack of accurate statistics on the size and make-up of the workforce was hindering the bank's ability to set interest rates.

His comments came as the latest figures from the CBI showed an unexpected fall in retail sales, while a batch of surveys showed house prices continuing to rise.

In an unusually frank criticism, the Governor yesterday told a House of Lords committee that the 2001 census had made mistakes and said it was vital that the Government ensured that the next population count in 2011 was "adequately resourced".

Mr King said: "We just don't know how big the population of the UK is because the composition of the population - between young and old, immigrants versus ordinary residents - has changed in recent years.

"It may be that the statistics are not giving an accurate reading." He said rules on benefits for migrants might mean that the claimant count might be understating the level of unemployment. On the other hand, the official measure, based on the labour force survey, might be overstating joblessness.

The level of unemployment in an economy is a key tool for setting interest rates as it helps tell policymakers how much spare capacity there is in the economy - higher unemployment reduces the need for a hike in rates and vice versa.

Mr King said it was impossible to rely on the unemployment levels and rates in the labour force survey because they were "grossed up" from estimates of the size and make-up of the population. "This reinforces the need for a good estimate of our total population and that when it comes to the next census it is adequately resourced," he said. The ONS came in for fierce criticism after it had to admit it had "found" an extra million people a year after the 2001 census.

David Blanchflower, a member of the Bank's Monetary Policy Committee and a labour market expert, said the 660,000 increase in national insurance numbers over the past year was double any official estimate.

Mr King also issued a veiled warning to homebuyers after the recent house prices rise. "It is not easy for us to understand why house prices relative to conventional measures of earnings are so high," he said.

His warning came as a new monthly report on the housing marketby the Land Registry showed the price of the average home jumped1.3 per cent in September. This took the annual rate of house price inflation to a 15-month high of 6.3 per cent. It said the increase was driven by a strong rise in the South-east and in London, where prices rose 2.2 per cent.

It is the latest report to point to a boom in London house prices, probably linked to City bonuses and overseas speculative investment.

Knight Frank, the estate agents, said that the price spike in the capital was fuelling the market for country homes, with prime house prices up at an annual rate of 10.7 per cent in the year to September - equivalent to £875 a day, every day for a year.

The Nationwide building society struck a moderate tone, saying house prices rose another 0.7 per cent in October, down from September's 1.3 per cent. The annual rate was almost flat at 8.0 per cent.

There was a mixed message from the consumer economy with a rise in confidence but a fall in retail sales. The CBI employers' group said its retail survey showed that sales volumes fell at their fastest pace in seven months in October.

Analysts expect the MPC to raise rates to 5 per cent next week, despite Mr King saying there were no "done deals."