Outlook: Rates Medicine Is Taking Effect on House Prices

Article excerpt

ONE SWALLOW does not a summer make, but at some point the runaway housing boom had to falter, and it was inevitable that when this happened, it would be seen as a sign of a peak. Yes, prices did fall an average pounds 795 or 0.9 per cent last month, said the monthly Halifax survey, but that followed two months when the price rose pounds 4,204 in 60 days - pounds 70 a day.

While house-price inflation of 15 per cent a year is nowhere near the 40 per cent peak of the 1980s, it is still running at easily enough to justify further interest-rate rises. In its quarterly inflation report last month, the Bank of England said it expected house-price inflation to be 10 per cent by the end of the year. This continues to look optimistic.

The interest-rate medicine is plainly having some effect. Lending is slowing, loan approvals are down and price rise not as big as they were. But it is also helping to keep sterling high and unfairly punishing parts of industry. Arguably, it is also interfering in the development of the new economy, which needs access to cheap and plentiful capital.

The case for more wide-ranging policy action therefore looks compelling, and it is now a racing certainty that the Chancellor will raise stamp- duty rates at the higher end of the property ladder in the Budget. …