Control the boom, says IMF

BY THE elliptical standards of the International Monetary Fund the message is blunt enough. Britain is doing very nicely thank you, but there is a risk that there could be an 'abrupt correction' in the housing market that could disrupt the sunny outlook.

This does not come as a surprise. As the latest Bank of England minutes note, house-price inflation has been picking up again since the middle of last year (when the Bank thought it would start to moderate) with all the main forecasters projecting a take-off.

The Halifax and Nationwide indices have risen by 5% over the last three months. This is worrying deputy governor Sir Andrew Large, who was the lonely voice this month seeking a quarter-point rate increase to 4.25%, in the belief that it might discourage an unsustainable boom.

Overall the outlook for the world economy and Britain, as set out in the IMF's world economic outlookis bullish. America is expandingstrongly and will grow by 4.6% this year.

Britain looks good with output projected to climb by 3.5%. Euroland should grow at 1.7% in 2004 after the disappointing 0.4% in 2003.

World trade volumes will soar by 6.8% this year and 6.6% next year. The IMF argues that this is an ideal time for retrenchment in those countries where economies have recovered and there is danger of an asset price bubble.

Heading the queue is Britain, closely followed by the United States. It is now expected that rates will rise here in the coming months, after two quarter-point lifts since November, although the peak could be below the 5% forecast in financial markets.

Alan Greenspan at the Federal Reserve is also warming up public opinion for a rate increase, having left the key market rate at 1% since June last year. But the Fed may well try to hold off until after the American elections in November.

The IMF identifies fiscal problems in the US and Britain. In both countries the budget deficit is too high. It suggests that Gordon Brown engages in what it politely describes as 'fiscal consolidation' which is Fund code for cutting spending and increasing taxes if necessary.

The Fund also questions the way in which Brown has been spending taxpayers' money and warns of waste and inefficiency.

Brown sought to address some of this in his Budget just a month ago. But his solution to waste in government spending is to reform the public sector, sack people and plough the money back into education and other services - which does little to address a budget deficit projected at £33bn.

In terms of politics, the strength of the American and British economies could not come at a better time with elections looming in both countries. But it also means that warnings about looming fiscal problems are likely to remain unheeded.

Fortunately, the Bank of England is insulated from politics. It has the power to slow rampant consumption and make room for manufacturing recovery by gently raising rates.

It is already clear that the new consumer prices index - which excludes a serious house price element - is misleading in the battle against inflation. The sooner the Bank acts to raise interest rates and slow consumption, the less risk there is of an almighty crash in house prices.

Sir Andrew Large may be in a minority of one, but he is on the right track.

Premier's promises

TONY Blair's commitment to assist people who lost their pension entitlements in company wind-ups comes none too soon.

Much of the running for compensation has been made by the ASW steel workers, but it has become evident with each crisis in manufacturing that the Pensions Protection Fund will be too late to assist.

The meltdown at bus maker Mayflower, where there is an £18m hole in the pension fund, is the most recent example of workers potentially being deprived of their lifelong savings.

One can only hope that the Prime Minister delivers on the pledge he has made and that his words were not simply Blair-like gesture politics aimed at easing difficulties with his backbenchers. Until now the Department of Work & Pensions has been dismissive of ideas for redressing the scandal, fearing the long-term costs.

It is commendable that the government is addressing the special case of workers let down by poorlydrawn legislation at the time of the Maxwell pensions fraud.

But it might also consider the 750,000 better-heeled Equitable Life policyholders sold short by regulatory neglect.