Belfast Telegraph

Don't rely on housing market bounce, Bank of England boss Mark Carney warns Belfast

By Margaret Canning

Northern Ireland should look to have an economy based on stable growth rather than a short-term bounce in the housing market, the governor of the Bank of England has said.

Mark Carney, who will soon mark one year at the top of the bank, spoke to the Belfast Telegraph after meeting key businesspeople from around Northern Ireland.

Earlier this week the bank was compared to an "unreliable boyfriend" after Mr Carney appeared to give mixed messages on how soon interest rates would go up. He had said rates could rise "sooner than markets currently expect".

In an interview at Titanic Belfast yesterday – his only interview with any daily media organisation in Belfast – Mr Carney was asked when interest rates would go up, after being held at the historic low of 0.5% for five years.

He said: "We don't know. The short answer is that the guidance we are giving to households and businesses... is that because of the variety of big forces that are acting on our economy – heavily indebted households, governments that are consolidating debt, a weak export partner in Europe, the strength of the currency, changes to the financial system, and all the big forces that are here today and will remain in the immediate term – the appropriate path for interest rates is likely to be limited increases in interest rates at a gradual pace.

"The exact timing of the start of that process will be determined by the evolution of the economy and we will be watching the data closely."

Interest rates have a crucial relationship to family budgets because they dictate the cost of borrowing, especially the cost of mortgages.

This week, the Bank of England announced measures to restrict mortgages – including not allowing lenders to lend any more than 15% of residential mortgages at more than 4.5 times a borrower's income.

The bank's aim is to stop the UK's housing market from overheating – especially in London, where prices have jumped by nearly 19% in the past year.

But in Northern Ireland, house prices have only just started to recover from the crash of 2008, when prices fell up to 60% on prices up to 2007. Could those new measures harm the embryonic recovery in Northern Ireland?

Mr Carney said: "We calibrated them (the measures) intentionally to ensure that markets such as Northern Ireland and similar markets across the UK can continue their recovery.

"It's not just a question of prices. And by the way, we don't focus on prices but levels of activity and how many homes are built and how many people move and the risks associated with indebtedness around that.

"The way we set these measures is for responsible lending and there is responsible lending now in Northern Ireland and there's room for that lending to grow.

"Obviously having lived through the terrible experience of the last few years what we all want to avoid is a market that grows with a very rapid rise in debt."

He said the success of the economy should not be built on short-term increases in house prices.

He said: "The aspiration to own your own home is natural and entirely understandable. What we can do as the Bank of England is make sure that people take out mortgages to buy homes – and they are mortgages that they can repay for the life of the mortgage.

"And a consequence of that – for everybody whether they own their home or rent or live with their parents – they still have an economy that's going to grow, and not because of a short-term boost that comes from a bounce in the housing market but because of long-term fundamentals that are consistent with stable growth."

He said he had found the businesspeople here to be in a positive mood. But he added: "I would temper that as positive relative to a difficult period for this economy and for the economy across the UK as a whole.

"Businesses are hoping to develop new markets, new export markets away from traditional export markets. They're hiring, they're investing – but their ability to raise prices and expand margins are limited by demand that's good but not yet great."

Mood here positive, but climate still difficult

The Belfast Telegraph was the only daily newspaper to interview the governor of the Bank of England. Margaret Canning spoke to Mark Carney after he emerged from a meeting with key members of the Northern Ireland business community

Q. What did you learn from the businesspeople you were speaking to?

A. I would say the mood within the room was positive. But I would temper that as positive relative to a difficult period for this economy and for the economy across the UK as a whole.

Business Editor Margaret Canning interviewing Mark Carney

Q. Could the measures announced this week to cool the London housing market harm our market, which is recovering only gradually from the crash?

A. We calibrated them intentionally to ensure that markets such as Northern Ireland and similar markets across the UK can continue their recovery. It's not just a question of prices. And by the way, we don't focus on prices but levels of activity and how many homes are built and how many people move and the risks associated with indebtedness around that. Obviously having lived through the terrible experience of the last few years what we all want to avoid is a market that grows with a very rapid increase in debt.

Q. Typically the media and homeowners celebrate when house prices are rising – is that the right attitude?

A. The aspiration to own your own home is natural and entirely understandable. What we can do as the Bank of England is make sure that people take out mortgages to buy homes that they can repay for the life of the mortgage. And a consequence of that – for everybody whether they own their home or rent or live with their parents – they still have an economy that's going to grow and not because of a short-term boost that comes from a bounce in the housing market because of long-term fundamentals that are consistent with stable growth.

Q. You were compared to an "unreliable boyfriend" in the House of Commons over your guidance on interest rates. Is that hurtful or do you take it on the chin?

A. I'm focused on achieving our objectives with my colleagues on the Monetary Policy Committee and Financial Stability Committee. With the Monetary Policy Committee, that's making sure that inflation gets to target in a way that's consistent with a durable expansion. We've come off a terrible recession and want to make sure expansion continues. With respect to the financial policy committee, achieving financial stability and avoiding types of risk that we all just lived through.

Q. When will interest rates go up?

A. We don't know. The short answer is that the guidance we are giving to households and businesses and the discussion we had in the other room is that because of the variety of big forces that are acting on our economy – heavily indebted households, governments that are consolidating debt, a weak export partner in Europe, strength of the currency, changes to the financial system, all the big forces that are here today and will remain in the immediate term – the appropriate path for interest rates is likely to be limited increases in interest rates at a gradual pace.

The exact timing of the start of that process will be determined by the evolution of the economy.

Q. Are our companies right to focus on obtaining powers to obtain a lower rate of corporation tax?

A. It's really not for us to comment. We have more than enough responsibilities between monetary policy, overseeing banks and thinking about the housing market. We'll just stick to our direct responsibilities.

Q. What's the answer for people feeling squeezed because of the strong pound?

A. The recent strength of sterling reflects the relative strength of economy. But if it's going to persist we need to improve productivity and that goes back to businesses investing. The issue for business is to continue for the plans they have put in place to build the productivity and the currency should settle over time.

Belfast Telegraph

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