UK Housing market at risk!
The IMF did not specify how far rates should rise from their current 4 per cent. But the statement made plain that the two rises sanctioned by the Bank so far were unlikely to be enough.
The Bank should not raise rates by too much at once, as because sharp increases in the cost of borrowing could trigger a nasty downturn in the consumer economy. Instead, a series of “early but gradual” increases in the base rate would give the housing market the best chance of a soft landing.
The Bank’s Monetary Policy Committee voted to leave base rates at 4 per cent for the time being, but further increases are widely expected in the coming months.
The IMF said that the buoyant UK housing market, which appears to have got off to a strong start in 2014, was one of the main reasons to worry over the outlook for the UK economy. In the short term, the housing market was likely to bolster growth and was one of the key factors behind the upward revision in the UK 2014 growth forecast to 3.1 per cent, the IMF said. Further out, however, boom could turn to bust, with potentially disastrous knock-on consequences for consumer spending.