House price 'threat' to economy
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A downward spiral of house prices and a drop in mortgage lending are the biggest short-term economic threats, a Bank of England rate-setter has warned. Kate Barker, a member of the Bank of England's Monetary Policy Committee, warned that the bank would not be able to stop this in the short term. Therefore, she said, the MPC would be paying particularly careful attention to the financial and property markets. But rate cuts would be hard to justify in the face of inflationary pressures. "The risk I believe to be of most concern is around the interplay between the property market and the financial sector resulting from the credit turmoil," she said. "If credit tightening were to prove more severe than in the MPC's present central projection, leading to a significant fall in lending to households and companies, this could prompt a further decline in property values. "The consequent adverse impact on growth could prove difficult to turn around quickly, potentially resulting in a protracted period of low output growth and below target inflation," she told the North Staffordshire Chamber of Commerce. |
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