The Bank of England has no "immediate concerns" about surging house prices and consumers' burgeoning debt burden, its Governor Sir Edward George said yesterday. In remarks that provide the clearest hint to date that the Bank will keep interest rates on hold for the foreseeable future, Sir Edward said the health of the consumer sector was "positive encouragement".
"There has not been a sense on the Monetary Policy Committee that this has reached the point at which we should become immediately concerned," Sir Edward said during the International Monetary Fund meetings in Washington this weekend.
The comment will be seen as highly significant as the Governor appeared to be speaking on behalf of the whole committee, which earlier this month voted unanimously to keep rates on hold at their 38-year low of 4 per cent for the fifth month in a row.
Sir Edward also played down fears that the recent rise in oil prices could trigger a surge in inflation that would require a hike in rates. "We have to distinguish between short-term uncertainty and the medium-term situation," he said.
Last week the IMF warned in its twice-yearly world economic outlook, that the Bank would have to hike rates "soon" unless consumer spending and borrowing slowed.
Gordon Brown, the Chancellor of the Exchequer, also struck an upbeat note, saying he was much more optimistic about the economy both this year and next. "Manufacturing production is now rising and we expect business investment to start rising soon," he said.
Mr Brown also defended the decision in last week's Budget, which raised eyebrows at the IMF, to raise the forecast for long-term growth in the UK economy to help justify his plans to inject more than £40bn into the cash-starved National Health Service.
Mr Brown said the hike in the growth rate assumption to 2.5 from 2.25 per cent had been approved by the National Audit Office as "realistic and cautious" as it was based on the immigration-driven rise in population.
The Chancellor said he believed the UK, which has suffered from falling rates of productivity, was on the brink of a US-style growth miracle.
"We see our situation as akin to the US in the first years of the 1990s so that we see initially a big improvement in employment and we are looking for that employment growth to be followed by productivity growth," he said.
"All our measures in the Budget are reforms aimed at pushing forward productivity gains."
Over the weekend Mr Brown met with his fellow finance ministers from the Group of Seven (G7) rich nations that also includes the US, Canada, France, Germany, Italy and Japan.
In its communiqué, the G7 said economic recovery from the global slowdown was underway but warned: "Downside risks remain, including those arising from oil.
"Each of us has an ongoing responsibility to implement sound macroeconomic policies and structural reforms to sustain recovery."
Meanwhile Wim Duisenberg, president of the European Central Bank, said oil and food prices together with a small impact from the launch of euro notes and coins would keep inflation above his 2 per cent target for longer than had been expected.
But he said: "Given the medium-term outlook the monetary policy stance is the appropriate one for the foreseeable future."Reuse content