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Why does the Bank of England is keeping an eye on house prices?

Bank of England

The Bank of England is watching with interest the sharp rise in house prices, while assessing the possibility that the rapid recovery of the British economy from the effects of the Coronavirus pandemic will lead to the persistence of the high inflation rate.

Bank of England Deputy Governor Dave Ramsden said that there is a risk that demand will exceed supply in the market. This leads to a more comprehensive rise in inflationary pressures.

“We are looking carefully at the housing market and a raft of real-term indicators,” Ramsden was quoted as saying.

“If (inflation is) not temporary we know what to do about that. We can push bank rate up from its historically low level (of 0.1%) and we know what that will do to demand.”

Bank of England

Bloomberg indicated that the Deputy Governor of the Bank of England is optimistic about the economic recovery.

However, the inflation rate could be lower than expected if the economy slows after the initial recovery period of economic activity, Bloomberg said.

Ramsden pointed to the mutated strains of the Coronavirus, or the long-term psychological effects of the pandemic on consumer behavior, as possible reasons for the slowdown in the economy.

Negative interest rate

On the possibility of the central bank resorting to a negative interest rate policy, Ramsden said that having a ready-to-use monetary policy is different from actually using it, adding that the Bank of England would not take such a step.

On the other hand, the manufacturing sector in the United Kingdom grew during the month of May, but by less than expectations, according to the survey of market research company IHS Markit on Tuesday.

The Purchasing Managers’ Index reached 65.5 points last month, after recording 60.9 points in April.

Analysts had expected the index to rise to 66.1 points.

It is noteworthy that a reading above 50 points means growth in the sector, and less than that means a contraction.

Financial experts had confirmed that the move to keep the interest rate at its previous levels of 0.1% would enhance the stability of the country’s economy, especially with the start of recovery and the lifting of the economic closure.

Experts pointed out that the low interest rate will lead to a stagnation of savings. At the same time to choose more risky investments to increase their retirement funds, they warned.

The bank kept its key interest rate at an all-time low of 0.1% and the size of its bond-buying program unchanged at 895 billion pounds ($1.24 trillion).

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