Bank of England all talk and no action on UK property boom

If you look back 12 months ago the Bank of England began to publicise signs that the UK property market, especially the submarket in London, was moving into dangerous territory. There was talk of interest-rate rises, stifling finance and indeed the UK government talked the talk but so far neither of these two bodies has been prepared to walk the walk. So, are the Bank of England all talk and no action on the UK property boom?

Whether we like it or not, with the Bank of England supposedly independent from the government, there is a reluctance to walk the walk with regards to action required to curtail booming property prices in the UK. Why is the Bank of England afraid to take action?

Using the media has failed

In years gone by the Bank of England and the government of the day have used the UK media to highlight problems with property prices and in many cases these have turned into self-fulfilling prophecies, often taking the pressure off property price rises. The situation today is very different due to a number of factors which include a growing percentage of overseas investors and the fact that the Internet has in many ways taken the focus and strength away from powerful media outlets of years gone by.

Quote from PropertyForum.com : “The UK property market is in effect two very separate markets with London and the rest of the UK often showing different levels of performance. We would be very interested to learn your opinion of the UK market at the moment and the prospects for the medium to long term.”

The scare tactics used by the Bank of England have so far failed miserably and while we see yet more comment in the press today, other action will need to be taken to control UK property prices.

Is this non-action politically motivated?

Whether governments and politicians like it a lot, there is a history of provoking booming property markets ahead of general elections to curry favour with the electorate. There will be howls of derision at this particular comment but there is evidence of boom and bust scenarios pre-and post-elections with many people gathering the opinion that the UK property market is nothing but a political pawn.

The situation at the moment is even more alarming because the Bank of England is supposedly independent of the government of the day and without political interference. On paper this seems fine, seems to work, but behind-the-scenes there have been rumours of pressure from politicians to restrain possible interest rate rises ahead of the election in 2015. These have all been denied in public, by both the government and the Bank of England, but subtle pressure has been placed upon the Bank of England to postpone any major action until after the election.

Is this a new phenomenon?

While to many people today the booming UK property market, and the Bank of England’s inability to react, would seem to be a relatively new phenomenon. However, as we touched on above this is a pattern which has been repeated time and time again over the years and many investors and institutional fund managers are fully aware of this. Indeed some investment strategies pre-a general election in the UK will be influenced in some shape or form by the reluctance of governments and central banks to rock the boat.