Mark Carney given interest rate headache as inflation remains stubbornly high and house prices surge

By Hugo Duncan

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Headache: Mark Carney has pledged rates will not rise until unemployment falls to 7 per cent or lower - something he does not expect until late 2016

Headache: Mark Carney has pledged rates will not rise until unemployment falls to 7 per cent or lower - something he does not expect until late 2016

Mark Carney was yesterday given an interest rate headache as inflation remained stubbornly high and house prices surged.

Official figures showed the Consumer Prices Index rate of inflation held firm at 2.7 per cent in September having been above the 2 per cent target since the end of 2009.

The Office for National Statistics also said house prices across the UK rose by 3.8 per cent in the 12 months to August – hitting a record high of £247,000. The double-whammy cast fresh doubt over how long the Bank of England will be able to hold interest rates at 0.5 per cent.

Carney, who succeeded Lord King as Governor in July, has pledged rates will not rise until unemployment falls to 7 per cent or lower – something he does not expect until late 2016. But others think the Bank will be forced to raise rates far sooner due to high inflation, a new housing bubble and a sharp fall in unemployment.

The jobless rate drop from 7.8 per cent to 7.7 per cent between May and July and ONS figures today will show if there was any further progress in the three months to August. James Knightley, an economist at ING, said: ‘With house prices continuing to rise and on-going job gains, we continue to look for an early 2015 rate hike.’

The recovery in the housing market is raising eyebrows at a time when the government is looking to give it a further boost through mortgage support schemes such as Help to Buy.

MPC member Martin Weale yesterday told MPs he is ‘concerned about the recent buoyancy of house prices’.

He added: ‘You would expect low interest rates to push house prices above the long-term sustainable trend. People who are taking on mortgage debt do need to be sure that they can afford to look after it, even if interest rates eventually return to what we regard as normal levels.’

Nobel Prize winning economist Robert Shiller also warned of a housing bubble in London.

The American, who predicted the 2007 housing price crash, said: ‘It looks somewhat like a bubble, prices are going up pretty fast.’


The comments below have not been moderated.

What is it with Carney's thing about unemployment being down to 7%. Does he really believe that the economic future of this country depends upon how many of the fat, lazy people who don't want to work we make do so? Perhaps he might use the vacancies statistic in the equation Unemployed - current vacancies = %? Bobby, Leicester

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Well, the longer they put it off, the quicker they will rise when they do. It surely must be in the interest of many to have a slower rate of increase rather then a short and sharp raise which would shock the system into more unknown who knows what.

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Easy solution, George Osborne will say inflation is dropping and house prices outside London are in fact plummeting, and I am sure there are those on this forum who wil back his every word.

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Perhaps being from Canada he'd not heard the "events dear boy events" quote. Why oh why did he have to shout about his "forward guidance" like some new sherriff riding into town.... doing that boxes him in and then makes him look stupid if he has to change direction - imagine the howls if interest rates do need to rise suddenly. The other thing is these days just raising interest rates seems a bit one dimensional and surely the Government/BoE's tinkering has added to the problems with inflation eg QE, FFL, green taxes and the rest.

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Excellent news, lets hope he does soon!

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You realise soon is likely to be 2015?

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M22@@@@@2015 is soon enough for me! That is a huge U turn on what was going to be 2020 by some forecasters earler in the year!

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One word, CANADA.

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The only G8 country not to go into recession after the crash?

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They should put rate up to 0.75!! Simple!!! I doubt they will b4 easter,, gut less.... all talk....

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Thats why he was warned not to make promises, sometimes its very difficult to keep them.

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He could have asked Cameron, Brown, Balls, Cleggy, etc., etc. about that! Bobby, Leicester

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