BoE's Broadbent: Rates could rise fair amount before problems

LONDON Sun Oct 20, 2013 1:16pm BST

Flowers bloom outside the Bank of England in the City of London September 19, 2013. REUTERS/Suzanne Plunkett

Flowers bloom outside the Bank of England in the City of London September 19, 2013.

Credit: Reuters/Suzanne Plunkett

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LONDON (Reuters) - The Bank of England has some leeway to raise record low interest rates without hitting borrowers buying homes with the help of government lending schemes, BoE policymaker Ben Broadbent said on Sunday.

The government launched a flagship loan guarantee plan earlier this month to help people buy houses, prompting criticism it could fuel a property bubble and burden buyers with unsustainable debt once rates return to normal levels.

Asked on Sky News whether he worried how borrowers will cope with higher rates, Broadbent said: "The numbers entering the scheme are relatively low. And although interest rates will at some point start to rise, you've got to remember quite how low a level we are starting from.

"I think there is a fair amount they could go up before borrowers got into great difficulties."

The central bank has kept interest rates at a record low of 0.5 percent since 2009 and has pumped 375 billion pounds ($600 billion) of new money into the economy since the financial crisis.

A cross-party committee of lawmakers has warned that the government housing schemes risk raising prices rather than supply.

In August the central bank committed to keeping rates on hold until unemployment falls to 7 percent - something it forecast would take at least three years - unless inflation threatens to get out of control.

Broadbent said that guidance could be reconsidered if inflation becomes a problem, although the central bank would only raise rates once the economy is on a secure footing.

"We want to ensure that this recovery continues…and is not choked off by a premature rise in interest rates," he told Sky News. "If, in the meantime, inflation became a problem, then that is something that could end the guidance."

In a separate interview, outgoing Deputy Bank of England Governor Paul Tucker said the era of state bailouts of big banks could be drawing to a close.

"I cannot see how the U.S. administration could persuade Congress to provide taxpayer support to some of the biggest U.S. banks," he said in an interview with the Sunday Telegraph.

"I don't mean it would be completely smooth right now; it would be smoother in a year or so as more progress is made. But in extremis, it could be done now. Europe has not yet reached the same point, but is not far behind. The necessary legislative regime is close to completion."

(Reporting by Peter Griffiths; Editing by David Cowell)

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Comments (1)
Stu255 wrote:
Interesting that Paul Tucker suggests the implicit sovereign guarantee enjoyed by the “Too Big To Fail” systemically important banks is actually a falsehood.

What has he been smoking?

Nobody wanted the 2008 bailouts, that’s why the Tea Party are in Congress. The electorate baulked at the Grand Larceny that was committed by the financial services sector.

Yet here we are 5 years later and the DJIA is 15,500 as the Federal Reserve blows a gigantic bubble in the bond market.

It’s a joke. The last gasp of the USD before we all start trading in Yuan.

Good riddance.

Oct 20, 2013 8:08pm BST  --  Report as abuse
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