Thursday, November 28, 2013
The Bank's Financial Stability Report
Posted by David Smith at 05:00 PM
Category: Thoughts and responses

This is the relevant part of Mark Carney's opening remarks in launching today's Financial Stability Report:

"Housing activity has picked up from a low level and prices are 7% higher than a year ago. Price increases are gaining momentum and broadening out around the country. Valuations, while below levels reached in 2007, are high by historic standards and are likely to rise in the near term.

"The immediate threat to financial stability from these developments is mitigated by the higher quality and levels of capital at banks and building societies as well as by material improvements in underwriting standards since the crisis.

"Risks to financial stability may grow if there are further substantial and rapid increases in house prices and a further build-up of household indebtedness. These risks would be amplified if underwriting standards on mortgage lending were to weaken as has been the case in previous house price cycles.

"As part of a graduated response, the FPC is acting in concert with other authorities to implement a package of measures to guard against these risks. Some of these measures are already in train; others are new. Collectively, they are significant. But they are not exhaustive: in today’s FSR, the FPC outlines a wide range of additional steps that it could take in future, should they be necessary to meet its statutory objective to ensure financial stability."

The message is that the Bank will not allow a housing bubble to develop. The fact that this action has been taken should reduce the need for higher interest rates. The opening remarks are here, and the full report here.