Is Mark Carney about to be tested by the markets?
Newly crowned Governor of the Bank of England, Mark Carney, has today suggested that he would “personally intervene” in the event that the UK housing market was headed towards a potentially damaging house price bubble. This comes just days after the Governor of the Bank of England confirmed that UK base rates were unlikely to be increased until after the next election in 2015. So, is Mark Carney about to be tested by the investment markets?
If you read the mass media you may well get the impression that Mark Carney is about to come under pressure after suggesting that base rates would not rise until at least 2015 and that he was “comfortable” with the buoyant UK property sector. However, there were a number of provisos which were introduced with his interest rate statement which have perhaps been overlooked.
Control inflation and house prices
While the Bank of England is “comfortable” with inflation and house prices in the UK at this moment in time, there was a proviso confirming that UK base rate could possibly increase if inflation ran out of control or house prices continued to move strongly forward. This was conveniently overlooked by a number of investment analysts who are suggesting that Mark Carney could be about to pick his first fight with the investment markets and test his authority.
Quote from PropertyForum.com : “The Office for National Statistics (ONS) has upgraded UK economic growth in the second half of 2013 from 0.6% up to 0.7%.”
The fact that he has suggested he would “personally” intervene is perhaps not the most useful of comments because immediately it pits him against the investment world, a world which can be unforgiving and no respecter of reputation.
Controlling the mortgage markets
Recent data suggests that we are now looking at growing interest in the UK property market and the biggest lending surge in the UK since 2009. There is a need for the UK authorities, predominately the Bank of England, to keep a very close eye on lending figures and if required to reduce the attractions of lending for investors. We are potentially approaching a situation where the UK economy is moderately improving while investment in property markets and lending is showing very surprising strength.
A simple tweaking of the credit supply arrangement currently in place in the UK could effectively stall or delay further progress in the mortgage market which would have a significant, and almost immediate, knock-on effect in the UK property sector. This would not be the preferred action because the UK authorities would prefer to see a softer more considered approach but if investors keep chasing prices higher and higher then this may well be the only real option in the short term.
Testing his resolve
Mark Carney will most certainly come under more and more pressure in the short to medium term with investment analysts looking to the newly crowned Governor of the Bank of England to make a statement and draw the lines of battle. He is certainly not afraid to call the shots, to warn investors and investment markets about overheating and it looks as though he is very keen to take a hands-on approach. The reputation and authority of the current Governor of the Bank of England could be made or broken in an instant.
We are not suggesting that Mark Carney is in trouble but this first major fight with the UK investment markets could well be just around the corner.