The narrow path

13 October 2004 By Edward Hadas

The Bank of England boss needs higher rates to check the housing market, but that could damage an already weakening economy. So King is trying to talk his way out of trouble. That’s great if it works. But don’t count on it.

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UK consumer inflation in September was at a 1.1% rate. That index does not include any adjustment for the cost of housing. House prices were roughly flat in September, but are up 20% in the last year. The retail price index, which does include housing costs, was running at a 3.1% rate.

UK GDP will grow by 3.4% in 2004 and 2.7% in 2005, according to Goldman Sachs. In July, the firm expected a 3.7% growth in 2004 and 2.8% in 2005.

Overnight interest rates in the UK have increased from 4.0% to 4.75% since April. The futures market indicates no change in rates for the next 12 months.

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