Cable calls for new ground rules for MPC
The Liberal Democrat’s treasury spokesman has called on the Chancellor to clarify “ground rules” for the Bank of England’s Monetary Policy Committee (MPC).
Today the MPC decided to raise interest rates by a quarter of a per cent, taking them to 4.75 per cent, the highest level since September 2001.
Last July base rate stood at 3.5 per cent, but it has climbed gradually partly due to concerns about the housing market.
Dr Vince Cable said that the MPC has been forced to “improvise” an interest rate response “to ‘bubbling’ house prices and a higher level of household borrowing which are clearly major but not part of their mandate.
“We now have a bizarre monthly ritual in which the Bank of England pretends to control consumer inflation but is actually controlling house price inflation and the two do not always tally.
“Doing good by stealth is not a satisfactory basis for transparent economic management.”
Mr Cable called on Gordon Brown to “make absolutely clear the responsibilities of the Government, the Bank of England and the Financial Services Authority in respect to assets and household debt.”
“The Government’s policy of benign neglect is putting undue reliance on the Bank to accomplish too many policy objectives at once. The main casualty in all this is likely to be manufacturing which is just recovering from prolonged stagnation.”
Dr Cable also predicted that the base rate could reach five per cent next year, and warned that many people would find themselves in mortgage difficulties.
“We have already witnessed mortgage possession orders increase by 13 per cent in the last year and what we don’t want is a rerun of the repossessions of the early 1990s. With cut backs in benefits for those people in mortgage arrears it is absolutely essential that people are covered through mortgage protection.
“Gordon Brown should be protecting home owners by making mortgage payment protection insurance an opt out rather than an opt in. It is also absolutely essential that in this situation the Government ensures that the market for insurance is competitive, open and transparent.”
