MPC Minutes Show Bank Of England Trapped Between A Rock And A Hard Place - CABLE

1.05.05pm BST (GMT +0100) Wed 22nd Oct 2003

Vincent Cable MP, Liberal Democrat Shadow Chancellor, responding to the publication of the Bank of England's Monetary Policy Committee minutes, said; "The economy is now in its most precarious position since Labour came to power."

"The house price bubble is fuelling consumption and keeping the economy going, but even the Bank of England accepts house prices are based on irrational speculation."

"The only source of comfort is that people can afford to pay the interest on these debts because rates are so low. The Bank of England is terrified of raising interest rates, but risks extending the boom to even more dangerous levels."

"It is time for the Government to take action to protect ordinary homeowners against irresponsible lending."

ENDS

Notes to editors

Today's MPC minutes note that house prices are 'well above' what the Bank considers sustainable and that the recent rises in house prices may have been driven by 'speculative behaviour and/or over-optimistic views about the sustainable level of house prices' (para. 12). Below are four worrying signals on the housing market, some of which has come out since the MPC met:

· Half of all mortgage borrowers are borrowing over three times their income - the highest ever (Council of Mortgage Lenders, 20/10).

· Less than half of all mortgage lending is now for new house purchases - almost half is remortgaging for spending elsewhere (Council of Mortgage Lenders, 20/10).

· The ratio of debt to income is now 120%, compared to 40% in 1975 and 100% at the height of the Lawson boom (Bank of England Quarterly Bulletin Autumn 2003).

· The ratio of house prices to income is now 160%, a similar level to the ratio just before the collapses in house prices in 1973 and the early 1990s (Bank of England Quarterly Bulletin Autumn 2003).

· Vince Cable MP has been warning for over a year that the Government, Bank of England and Financial Services Authority need to address aggressive and irresponsible lending by some of the leading commercial banks, which even they acknowledge publicly to be out of control.

· He has noted that the FSA and Bank of England need to take responsibility for ensuring that lending institutions are not taking excessive risks with consumer and commercial lending against property prices - to avoid a Japan-like situation of a collapse in asset prices.