As this blog has warned time after time, rebuilding the economy on the back of a surge in house prices will be to guarantee another crash. Government ministers are rejoicing at the increasing forecasts of economic growth, putting the UK ahead of almost everyone else, while heedless of the warnings of almost every single forecaster that there is already a house price bubble which is unsustainable.
To illustrate this, a recent statistic indicated that if prices and wages had risen at the same rate as house values since Thatcher sold the first council house, an oven ready chicken would today be over £50 and the average wage would be over £80,000 per year. Put another way, before Thatcher fired up the British obsession with home ownership, people could afford decent housing. Now they cannot and the economy is weighed down by the fact that Britain is the most indebted nation in the world after America.
The Bank of England has been given the power to intervene with measures to cool the market and avoid a re-run of previous pain. It appears to be dithering on the sidelines, with some executives issuing warnings but as yet no action. It cannot delay any longer without losing a good deal of its credibility. It is Mark Carney’s first major test and one he cannot fail.
