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UK house buyers echo business leaders in delaying investments, says Mark Carney

  • 05/09/2019
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UK house buyers echo business leaders in delaying investments, says Mark Carney
UK house buyers have bucked the trend of upbeat consumer spending and instead joined the more cautious business sector in delaying investments, Bank of England (BoE) governor Mark Carney has said.


The comments were among evidence given to the Treasury Select Committee on the current and potential future impacts of Brexit, on 4 September.

Carney said: “The cost of mortgages and mortgage terms have continued to improve for borrowers. Mortgage conditions are exceptionally loose and despite that, and despite confidence about their personal financial situation, the housing market has been relatively soft.

“Investment by a household — the biggest investment decision, buying a flat or a house — parallels what’s happening on the business side where people are holding off.”

The BoE governor was responding to questions from Wes Streeting, Labour MP for Ilford North, about ongoing robust consumer spending including whether it constituted an inflationary risk.

Carney said: “Confidence is due to the strength of the labour market. Not just low unemployment, high employment, but very high levels of vacancies as well, and now, job churn returning to historic levels. People are confident that they have a job and that job isn’t going away, and also that they can move to another job.”

“We’d been waiting in particular for job churn to start because we expected once that started, wages would begin to firm, and that’s exactly what has transpired,” he added.

“What’s driving consumption? Growth in real income. Does it provide inflationary risk? It’s one of the upward pressures,” he said.


Uncertainty principles

Gertjan Vlieghe, external member of the Monetary Policy Committee, Bank of England, explained further: “We have learned a lot over the past few years about the distinction between people saying they are uncertain, and it actually affecting spending decisions.

“There are circumstances were uncertainty has a big effect on spending and circumstances where it doesn’t seem to. The households who have this dichotomy between yes they are uncertain but they are still spending is one example where it hasn’t, or hasn’t yet come through.

“The counter example is that firms are very uncertain about the political environment and their future trading environment, but we have very strong evidence that it is influencing their spending,” Vlieghe said.

“Relative to overall consumption, durables, cars and houses, have not done as well as overall spending.

“House price growth has slowed to nearly zero, activity has been flat, and that certainly hasn’t looked like the kind of market you’d expect when looking at aggregate consumption growth, which has been relatively better,” he added.


Banking resilience 

The Select Committee ran through the substance of ‘Letter from the Governor to the Treasury Select Committee regarding updated Brexit scenarios’.

The BoE’s analysis showed that the UK could lose 5.5 per cent in GDP in a no-deal Brexit worst case scenario.

However, Carney stressed that the BoE and the UK banking system were adequately capitalised with good levels of liquidity to withstand potential economic shocks.

He said there was £1tn of liquidity among the major UK banks and that they had the potential to access an additional £300bn from the BoE.

“The core of the financial system is ready for Brexit, including a disorderly Brexit. To reinforce that, we take the BoE’s assessment of the impact of it on the economy and map that to the hit to banking system and demonstrate that we have been stressing institutions to more severe domestic and global scenarios,” Carney said.

“System readiness is not just for Brexit but also global downturn,” he added.

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