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BoE boss: No need for rate change
LONDON, England (CNN) -- The governor of the Bank of England said on Friday the country's red-hot housing market should cool this year, easing the need for a sharp change in interest rates. Eddie George said even though the UK economy has been recovering more slowly than expected, inflation should remain near the BoE's target of 2.5 percent. He added there are no signs that the property bubble will burst any time soon. "As far as the UK economy is concerned we are liable to see growth around trend over the next couple of years and inflation [will be] fairly close to target," he said in an interview with CNN. George said the biggest uncertainty facing the UK economy is the slow recovery in other countries and the threat of war in Iraq. "There are downside risks: Global risks, uncertainties relating to Iraq and risks to more rapid... fall off in consumption. But these are just risks." But he played down concern over a possible crash in the housing market, saying given the economic outlook for the UK "I actually think that is unlikely." "I think it would be worrying if they [house prices] continued to rise at the pace they did in 2002. This year we estimate that there will be a slowdown in the rate of increase," he said. "If house prices rose by 10 percent or even less that would be consistent with a moderation in the rate of growth of consumer spending, which we expect to see that consistent with a pickup in global demand." Given this economic environment, George said there was no need to adjust interest rates at this time. George, who has headed the BoE's nine-member Monetary Policy Committee since 1993, will step down in June. He will be replaced by deputy governor Mervyn King, who has been in the No. 2 position since 1998. During his term, George has presided over the first period in the BoE's history when it -- and not the government -- had sole authority to set interest rates. In that time, the UK economy, the second-largest in Europe, has managed to outperform other European countries. The economy grew by 0.9 percent in the third-quarter of 2002, while Germany -- the region's biggest economy -- expanded by 0.3 percent and No. 3 France grew by 0.2 percent. On Thursday, the Institute for Supply Management said its index of UK manufacturing business conditions rose to 54.7. Analysts had forecast an increase to 50.3. The BoE has kept interest rates unchanged for 13 straight months due to concern over the booming housing market, which has outweighed worries of a weak global recovery. As a result, the UK central bank has held steady on borrowing costs even as the European Central Bank and the U.S. Federal Reserve lowered their key rates by half a percentage point in December. Both the BoE and the ECB will meet on Thursday to set rates for the coming month. The BoE's key rate has been at a 38-year low of 4 percent since November 2001, which has helped to fuel consumer spending and house purchases -- both of which have shielded the economy from the worst of the slowdown. UK house prices rose 1.7 percent in December, for an annual increase of 25.3 percent and the highest level in more than 13 years, the Nationwide Building Society said on Thursday. The average house price increased in value by £23,662, or £65 a day, in the past year, the society said. The average house is now worth £117,206.
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