News Column

Interest rate rise 'a last resort'

July 4, 2014

DEPUTY Bank of England governor Jon Cunliffe has said raising interest rates would be an effective but "very blunt" way of tackling risks to financial stability from booming asset prices.

British house prices are rising at their fastest rate in nine years - led by a 26 per cent increase in London - prompting speculation the central bank may need to raise rates to keep them in check.

But Mr Cunliffe said rate rises were a last resort - a view also expressed by chief economist Andy Haldane earlier this week - and the BoE would prefer to use more targeted lending curbs first.

Speaking in Liverpool yesterday, he said: "Using interest rates to deal with financial stability risks can carry a high cost. It is a very blunt instrument that affects the economy as a whole. So although it is an effective line of defence, it should be seen as one of the last lines of defence."

The central bank has previously said its decision to raise record- low interest rates will be driven by how much slack is in the economy, particularly in the jobs market, rather than house prices.

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Source: Herald, The (Scotland)

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