Interest rate hikes may be required to combat “a raging housing boom” in London and the South East, Business Secretary Vince Cable has warned.
Speaking on the BBC1’s Andrew Marr Show yesterday, the LibDem MP suggested a housing bubble was growing in parts of the country.
He said the Bank of England may need to consider interest rate rises much sooner than it is currently planning, despite the effect it would have on the manufacturing sector and over-indebted consumers.
He said: “Of course, the danger of raising interest rates is that you hit those parts of the country which are not yet fully recovered and you push up the exchange rate; that hits manufacturing, we don’t want that.
”On the other hand, if you don’t increase interest rates, if that’s the way the Governor and the Bank of England go, then, of course, this boom that’s taking place in house prices gets out of control and the only people who can live in parts of London are foreigners and bankers, and we don’t want that either.”
Cable also said he believed the Government’s Help to Buy scheme may need to be reviewed following a warning from Standard & Poor’s which has raised “quite serous worries” about it.
In confirming the UK’s AAA rating last week, S&P said net government debt will hit a peak of 89 per cent of GDP in 2015, a year earlier than expected.
“Relative to peers, we consider the UK to benefit from higher-than-average fiscal flexibility, meaning that under pressure the Government would be willing and able to increase tax pressure and/or cut public spending by at least 3 per cent of GDP in the short term,” S&P said.