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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: biometricgngboy who wrote (15148)	11/16/2003 8:53:11 AM
From: biometricgngboy	Read Replies (1) \| Respond to of 306849

Bank warns consumers over debt Mark Tran Wednesday November 12, 2003 The governor of the Bank of England today issued a thinly-veiled warning to consumers to curb their seemingly insatiable appetite for spending and borrowing. Mervyn King urged consumers to consider whether they are taking on more debt than they can handle. "There is a risk that heavily-indebted households will be badly affected by changes in economic circumstances or interest rates," he told a press conference. "Everyone needs to think carefully about the amount of debt they can afford." His warning came as the Bank released its quarterly inflation report, an assessment of the UK economy and the global situation including forecasts for growth and inflation. Earlier this month, the Bank's monetary policy committee (MPC) raised interest rates by 0.25% from a 48-year low to 3.75%, the first upward move for almost four years. The move came amid growing concern at the continued buoyancy of the housing market and record levels of personal debt. Today's Bank report said that house price inflation was well above earnings growth, adding: "That is clearly not sustainable in the medium term." It noted that house prices have been increasing at around 1% per month (or 13% on a yearly basis), according to the Nationwide building society, while an index from the Halifax mortgage bank suggested larger increases. "The longer house price inflation continues to exceed growth in average household incomes, the greater the additional upward pressure on spending and inflation in the near-term, and the greater the risk of a sharp adjustment in house prices and thus to spending further ahead," the Bank said. The Bank has been hoping that the consumer boom and housing market would cool of their own accords, but has been consistently disappointed in both respects. House prices are picking up again after a brief pause at the beginning of the year, although Mr King said that a deceleration in consumer spending was taking place. "Latest data suggests that house prices have increased faster than expected in the August report and, as a consequence, the MPC has raised its central projection for house price inflation in the near term," the Bank said. The Bank also raised its forecasts for both economic growth and inflation. Its report said that underlying inflation - which excludes mortgage interest payments - would edge down from its current rate of 2.8% in the near-term, staying "close" to its 2.5% target for the rest of the Bank's two-year forecast period. The report also said that growth would remain "marginally above [its] trend" of 2.5% throughout the forecast period. "The broad picture is one of steady growth and consumer spending, combined with strong growth in public expenditure and a modest expansion in business investment," it said. "The Bank will tread very carefully on interest rates," Marc Ostwald, a bond strategist at Monument Securities, told Reuters. "The BoE is determined to bring debt down but, at the same time, there is no doubt they are very wary of the risks of precipitating a crash in the consumer sector." politics.guardian.co.uk