19
Sep
House price falls may cause inflation undershoot, MPC member states
A member of the Bank of England's monetary policy committee (MPC)
has stated in a speech that inflation may undershoot its target if
house prices are allowed to fall too much.
While suggesting that prices may "adjust" at the same time as
prices and incomes recover, MPC member Spencer Dale said there
could be an impact if house price falls cause credit conditions to
tighten further.
He stated: "There is a risk that the continuing adjustment of the
housing market amplifies the impact of the tighter credit
conditions by more than I expect, resulting in a protracted period
of weak consumption spending."
Such a consideration may be a factor in persuading the MPC to cut
interest rates and help ease the cost pressure on mortgages, thus
enabling the housing market to bounce back sooner.
In his speech to the Liberal Democrat conference this week the
party leader Nick Clegg advocated a monetary policy directly linked
to house prices.
This could mean instructing the MPC to target the retail prices
index rate, which includes house prices, rather than the consumer
prices index, which does not.
