Housing to slow, warns Bank

WHERE rates will go, neither I nor the market knows... So says Bank of England governor Mervyn King, with a poetic flourish and a swipe at the City pundits.

That said, the August inflation report led most economists to stick by their predictions that rates will peak at between 5% and 5.5%, though views were divided on the timing of future increases.

Some City scribblers are even suggesting it is already time to look forward to rate cuts, possibly as soon as next year.

Barring an unforeseen shock, King looks likely to continue his 'softly-softly' approach of raising rates gradually.

The report, as King says, paints a 'remarkably benign' picture, though there are significant risks which could push borrowing costs in either direction.

Worryingly for homebuyers, the Bank is once again warning on house prices. King, who for a long time denied there was a property 'bubble', has now cautioned several times that the risks have increased. Whilst not predicting pain on the scale of the last housing crash, when tens of thousands were trapped in negative equity, the Bank is forecasting a sharp slowdown in the rate of growth in house price inflation, currently running at an annual rate of 22% according to the Halifax.

King points to the house price-to-earnings ratio, now at levels significantly above its previous peak in the late Eighties, as a possible alarm signal.

The Bank does not rule out the possibility of actual house price falls, though the monetary policy committee does not consider this the most likely scenario, given that the economy is strong.

Growth is healthy and interest rates are historically low, as is unemployment, despite yesterday'sfigures showing a rise in the jobless total in the quarter to June.

Oil - soaring to new highs on virtually a daily basis - is another obvious risk factor. King made clear that the MPC has spent a great deal of time discussing the oil price, but attempted to dampen down worries.

As he points out, the impact on the UK is tempered by the fact that we are still broadly self-sufficient in oil. Prices in real terms are a long way from their 1970s peak and British industry is now much less dependent on the black stuff than in the past.

Whilst official figures show that we became a net importer of oil by volume last month for the first time in eleven years, King argues that our increased exposure as a result of dwindling of North Sea supplies will be slow and steady.

It may be frustrating that the governor stresses the uncertainties and the difficulties of predicting the future path of rates.

After all, if he says he doesn't know which way they are going, what hope is there for the rest of us? But with the risks in either direction looking evenly stacked, he obviously feels as if he is trying to balance in the middle of a seesaw and is reluctant to shift his weight very far one way or the other.

Google-eyed

AFTER a number of potential glitches, the Wall Street float of internet search engine Google is finally happening.

The listing, which will make billionaires of its young founders and a handful of lucky investors who got in early, will be an important litmus test in a couple of ways.

The level of enthusiasm for Google will be a gauge of how far internet companies have gone on the road to rehabilitation after the boom and subsequent bust. It will also be a challenge to investment bankers.

As befits a self-consciously wacky California company, where staff wear roller blades and cuddle dogs to save on heating, Google is not going in for a conventional float. Instead it is having an online auction for shares which will allow small investors to bid directly.

If it works, it will be a serious worry to the well-paid investment bankers who normally control share floats. Considering the disgrace they brought on themselves with some of the earlier dotcoms, it is hard to have too much sympathy.

Bring on the bids

PLENTY of shots are being fired in the phony war for control of mortgage bank Abbey, even though only one bidder, Spain's Banco Santander, has so far tabled an actual offer.

HBOS is threatening one. The rest of the big players - Lloyds TSB, Royal Bank of Scotland, HSBC and Barclays - are either hinting they will pile in too, or at least refusing to rule it out.

In the meantime, the spin doctors are in overdrive rubbishing their rivals with stories about possible job losses, cash machine charges, lavish headquarters and the like.

Roll on the real bids.