Ex-Bank heads attack Osborne mortgage plan

 
Tim Wallace
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THE GOVERNMENT’S flagship Help to Buy scheme is a short-term political move rather than a serious attempt to boost the economy, former top Bank of England officials argued yesterday.

The scheme guarantees a portion of the mortgage for housebuyers with small deposits, but former deputy governor of the Bank Rachel Lomax dismissed the plan as “a short term political fix.”

“This policy is simply the hair of the dog,” she told Fathom Consulting’s monetary policy forum, arguing “there was a credit explosion, and now there has been a failure to understand that.”

“Ultra-loose monetary policy is already having undesirable side effects, slowing down the economy’s readjustment,” Lomax said.

Also at the event was ex-deputy governor Sir John Gieve, who warned growth is likely to remain at one to 1.5 per cent for the foreseeable future.

And former monetary policy committee member Marion Bell expressed concern that the Bank’s new remit allows policymakers to boost inflation above the current two per cent target for a longer time period.

“There could be an argument that there is a debt crisis and that could be inflated away,” Bell said.

“It is a shame there is not a debate around that – we may instead now end up with higher inflation in the long term through the back door, and this is not the right way to do that.”

All three senior economists said they hope incoming governor Mark Carney will shake up the Bank of England, changing the narrative around the state of the economy to inject optimism into the UK.

That is likely to involve a major new round of money printing, potentially buying up a wide range of assets like corporate loans in an effort to both stimulate the economy and repair banks’ balance sheets.

More upbeat rhetoric on the abilities of the Bank combined with more open demands on the government could also represent a clean break with Sir Mervyn King’s reign at the Bank and boost confidence, they argued.

“Expect to be amazed,” said Lomax.