Treasury hints at need for April rate rise

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The Independent Online

The Treasury sent a thinly veiled message to the Bank of England to raise interest rates to curb the housing market as one of the Bank's deputy governors appeared to prepare the financial markets for a move as soon as next month.

The Treasury sent a thinly veiled message to the Bank of England to raise interest rates to curb the housing market as one of the Bank's deputy governors appeared to prepare the financial markets for a move as soon as next month.

Jon Cunliffe, a senior Treasury official, said he expected the current double-digit rates of house price inflation to slow as the effect of the Bank's two recent interest rate hikes fed through to the economy. "They've got the instrument that's most capable of addressing the housing market, and they've got the framework to do it," Mr Cunliffe told MPs on the Commons' Treasury Committee.

His remarks added to speculation that the Government's decision not to dampen the housing market in the Budget with higher stamp duty rates had put pressure on the Bank to take action.

Yesterday Sir Andrew Large, a former City banker responsible for financial stability at the Bank, said he had been "conscious" of the scale of household debt when voting for a rate rise. He warned spiralling debt levels could "at some point trigger a sharp demand slowdown" that could threaten both financial stability and the Bank's ability to hit its inflation target.

Sir Andrew has voted to raise rates at five of the last six meetings of the nine-strong Monetary Policy Committee. "On several occasions over recent months I have found myself voting for a rise, with a view to discharging our mandate to stabilise inflation at the target level with stability in the monetary arena," he said.

His comments come a few days after Paul Tucker, an executive director at the Bank, said rates would rise "gradually", and Rachel Lomax, the other deputy governor, said the economy was strengthening.

Interest rate futures fell on the remarks as dealers bet Sir Andrew was hinting at a rise next month, even though a majority of analysts in the City believe the next increase will come in May.

Ciaran Barr, the chief UK economist at Deutsche Bank, said the MPC's decision on 8 April would be close. "I think they are giving themselves the option to go in April," he said. "The one thing they don't want to do is to surprise the markets."

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