IMF Wants Low UK Rates Except if Needed to Cool Housing

The International Monetary Fund has said UK interest rates should stay low for now, but the Bank of England policymakers must be ready to raise them should other measures fail to keep the housing market in check.

The IMF said that so-called macro-prudential measures should be the “first line of defence” against financial stability risks from the housing market. But ultimately more must be done to raise the supply of housing to meet demand, it said, echoing warnings from economists and the Bank of England’s governor, Mark Carney.

The Washington-based IMF also warned of a check to George Osborne’s ambitions to rebalance the economy towards manufacturing, as it warned that sterling was “moderately overvalued”, while net trade has not been a strong factor in the economic recovery.

Nonetheless, confirming its forecast for the UK to be one of the world’s fastest expanding big economies, the IMF said the country’s “prospects are promising”.

“Headwinds that previously held back the economy – including adverse credit conditions and diminished confidence – have eased. There are signs that demand is becoming more balanced, with growth in business investment now ahead of private consumption. Employment growth has remained strong. Despite this, inflation has been contained,” it said in its latest report on the UK.

The assessment follows the IMF’s latest outlook for the world economy last week in which it revised up its UK growth to 3.2% for this year and 2.7% for 2015.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza