Bank of England warns on interest rates if house prices rocket

The Bank of England will intervene if it considers soaring house prices will affect the inflation rate says Sir Dave Ramsden, a deputy governor of the Bank.

In an interview with the Guardian newspaper, Ramsden said the BoE’s influential monetary policy committee was aware of the risks caused by house price rises, now running at over 10 per cent according to some indices. 

“There is a risk that demand gets ahead of supply and that will lead to a more generalised pick-up in inflationary pressure. That’s something we are absolutely going to guard against. We are looking carefully at the housing market and a raft of real-term indicators” he told the newspaper.

Ramsden said the Bank would not be complacent about the risk.“If it is not temporary we know what to do about that. We can push bank rate up from its historically low level [0.1 per cent] and we know what that will do to demand.”

He warned that while economic recovery from the pandemic looked surprisingly optimistic, there could be reverses.

“That could happen if new variants emerge or we get psychological scarring, where some of the behaviour of the past 15 months becomes habitual. There is a risk that people will continue to be cautious.”

He added: “The uncertainties are less than they were but they haven’t gone away. Covid-19 is still with us and we are seeing that with the variants. The link seems to be on its way to being broken between cases and hospitalisations, and worse, but we can’t say for sure yet. We can’t rule out more variants and we have to bear that in mind.”

From August the Bank’s monetary policy committee will have the ability to push bank rate below zero but Ramsden says there is a difference between having the new power and actually using it.

“Negative rates would certainly come as a surprise to the markets but we will be governed by our assessment of the state of the economy as it is then” he said.

Ramsden joined the Bank to become Deputy Governor for Markets and Banking back in 2017 and will serve until autumn 2022. 

He is responsible for oversight of markets, banking payments and innovation, and is a member of the Monetary Policy Committee that sets the base rate. 

Before joining the BoE, Ramsden was chief economic adviser to HM Treasury for a decade.