Brown backs the Bank on rates

GORDON Brown has cleared the way for interest rates to rise to avert a collapse in the housing market. The Chancellor signalled his support for a rise by declaring that he will back the Bank of England as it makes 'difficult decisions' in the coming months.

In an interview with the Financial Times, he made clear that he shared the growing fears about the spectacular rise in housing prices. 'With this strengthening global recovery and domestic consumer demand already strong, against a background of historically low interest rates, the Bank will have tough choices to make in the coming months to ensure sustainable growth and the maintenance of stability,' he said.

'By prompt action and early action in the past the Bank has avoided the risk of stop-go instabilities. We will, as a Government, continue to back the Bank in the difficult decisions that they have to make.'

His comments follow the call from the Council of Mortgage Lenders, which represents the big banks and building societies, for a rate increase to head off a housing crash.

The Treasury stressed that Brown was not calling for a rise, or trying to influence the Bank's independent monetary policy committee. The Chancellor's words will step up pressure for a rate increase, however, even though analysts had felt the weakness of stock markets might lead the committee to make no change this month.

The Bank's Deputy Governor, David Clementi, had already warned that the rise in house prices was 'unsustainable'. He told MPs on the Commons Treasury select committee earlier this month that the longer the increases continued, 'the sharper the eventual adjustment'.

In his interview, the Chancellor also tried to pour cold water on suggestions that the fall of the pound against the euro had made a referendum on the single currency next year more likely. Speculation intensified earlier this week after the pound hit a 32-month low of 65p per euro - just short of the 67p level many analysts believe must be reached before Britain can join the single currency.

However, Brown made clear that he was not going to be swayed by fluctuations in the currency markets. He said: 'The important thing that I think the British people do understand is that these decisions have got to be made with a view to the long-term future of the economy, rather than simply on short-run considerations'.

Brown added that the decision on a euro referendum would be based on the five economic tests he set out five years ago.