GORDON BROWN issued a coded rebuff to the Governor of the Bank of England yesterday as he tried to calm fears of a sharp fall in house prices before the general election.
The Chancellor used an interview to underline the importance of keeping stability in the housing market and in the wider economy while dealing with inflationary pressures.
His repeated emphasis on stability stood in contrast to the warning given to prospective homebuyers this week by Mervyn King that house prices were unsustainable.
Mr Brown, appearing on GMTV, was asked to respond to the Governor’s suggestion that it was a bad time to buy a home. He replied: “He did not actually say that. He said there are risks. There are obviously risks: we have got terrorism around the world, we have got oil prices that have gone up. We have to deal with all these. We have got to ensure that throughout all these changes, massive changes taking place around the world, we maintain that stability.”
Asked about the prospect of further rises in interest rates, Mr Brown said: “That is a matter for the Bank of England, but remember that interest rates now are relatively low compared with what they were in the past and compared to what they were 10, 20, 30, 40 years ago.”
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He was also asked about Mr King’s separate remarks at the Mansion House dinner, in which he suggested that government borrowing had become out of balance with tax revenue. Mr Brown again emphasised the importance of stability during a period of difficulty and said: “It is for the banks to set the interest rates, it is for me to ensure that we have policies that keep inflation generally low.”
The remarks were his first public response to Mr King’s warning on Monday about the increased risks of falls in the housing market, which caused alarm and irritation in the Treasury. A crash or sharp correction in the housing market is seen in government circles as one of the biggest risks to a third Labour general election victory, given the importance of property prices to the middle classes.
Ed Balls, the Chancellor’s chief economic adviser, had already used a speech to play down the prospect of falls in the property market, saying that price rises were driven by factors such as disposable income, restricted supply and economic confidence.
Oliver Letwin, the Shadow Chancellor, said that the Chancellor’s comments were an attempt to slap down the Governor. He said: “Although expressed with the exquisite subtlety of a central banker, this was a wake-up call, which the Chancellor ought not to to ignore. Gordon Brown, and the rest of the country, are about to discover that the independence of the Bank of England in setting interest rates has consequences for a Chancellor who runs a big Government and finances it with big borrowing.”
He added: “The Bank will ensure that the people pay for the Chancellor’s borrowing in higher interest rates. If Gordon Brown wants to avoid either further tax rises or higher interest rates, he had better adopt my plans for more moderate growth in public spending instead of slapping down the Governor of the Bank of England.”
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Vince Cable, the Liberal Democrat economics spokesman, said: “The Governor, who I have every sympathy for, is trying to manage expectations because his scope for using interest rates in this respect are very limited.”