David Blanchflower does not mention that falling rates has created imbalances and, as rates are expected to fall further, one of these imbalances (residential housing prices) is already showing added momentum. With consumer spending key to GDP growth, and with heated residential prices looking like they are continuing upwards, I think this is a real concern at the Bank of England. Recall that in 2006 the BoE raised rates in order to curtail UK house price growth, even though this was outside the Bank's mandate. Its argument was that house prices were so inflated that they risked damaging the wider British economy. Mr King raised rates only briefly and then cut them, leading to further asset and credit expansion. It seems that the current BoE is fearful of repeating these past mistakes of Mervyn King, by cutting rates too early and boosting the existing capital imbalances (which last time led up to 2008). If there is a nasty bit of data on the horizon, as Mr. Blanchflower suspects, that would change interest rate momentum, but what data is that?
David Blanchflower does not mention that falling rates has created imbalances and, as rates are expected to fall further, one of these imbalances (residential housing prices) is already showing added momentum. With consumer spending key to GDP growth, and with heated residential prices looking like they are continuing upwards, I think this is a real concern at the Bank of England. Recall that in 2006 the BoE raised rates in order to curtail UK house price growth, even though this was outside the Bank's mandate. Its argument was that house prices were so inflated that they risked damaging the wider British economy. Mr King raised rates only briefly and then cut them, leading to further asset and credit expansion. It seems that the current BoE is fearful of repeating these past mistakes of Mervyn King, by cutting rates too early and boosting the existing capital imbalances (which last time led up to 2008). If there is a nasty bit of data on the horizon, as Mr. Blanchflower suspects, that would change interest rate momentum, but what data is that?
Thank you, KH, for these interviews.