Last night’s speeches at the Mansion House were refreshing in that George Osborne, who had remained indifferent from the carefully calibrated warnings from the previous governor, Sir Mervyn, now Lord, King about various aspects of the economy, woke up at last to the dangers of house prices and a debt fueled recovery. Mark Carney warned of structural imbalances and of the need for Bank Rate to rise sooner rather than later, even quite soon. Many had felt the previous pronouncements from the Bank about interest rates too complacent.
This is good news. We now know both the Bank and the Treasury are aware of icebergs floating about and are willing to act if we appear headed for one. We can breath a quiet sigh of relief that immediate collision will be averted. The problem remains that we should not be in these waters at all and our course still needs to be re-set. Too much of the consumer boom relies on money borrowed from banks and finance houses, who in turn borrow from abroad in order to lend; the pound is far too high making imports cheap and exports expensive; this has a negative impact on UK manufacturing and employment, especially in local industries; we are not only over-borrowed and borrowing still, but running trade and budget deficits at every level.
All this is masked by a feel good factor arising out of inflating house prices, because these increase borrowing margins for consumers to spend, but so far no really big plan for house building exists to increase supply by the margins necessary. The brown field site initiative, also launched last night by the Chancellor, is a contribution too small to turn the tide.
It was a good banquet at the Mansion House last night, but as yet not good enough. But it was a move forward in the right direction.