King douses house blaze

MERVYN King is not usually in the business of issuing direct warnings. But in his Glasgow speech the Governor of the Bank of England highlighted his misgivings about the housing market.

There was a strong hint that after last week's rise in the base rate to 4.5%, there may be more to come.

King believes that the surge in house prices, which have doubled over the last five years, may no longer be sustainable. He cautions that the 'chances of a fall in house prices are greater than they were'.

He suggests anyone thinking about a move 'should consider carefully the possible future paths of house prices and interest rates'.

The governor's comments echo concerns of analysts such as Capital Economics, which believes that house prices are 'significantly overvalued', leaving them vulnerable to a fall.

The significant difference is that King has the means to make it happen by raising interest rates rapidly. King's comments came on a day when the Office of the Deputy Prime Minister added to the housing market misgivings by pronouncing that there was an acceleration in April and prices are now 10% higher than a year ago.

The Prescott data is somewhat out of date in that both the Halifax and Nationwide have gone on to produce even more worrying May figures - but there is no doubting the trend, despite estate agents insisting there has been some cooling.

It is not just house prices that are rising. Manufacturers' output price rises are climbing, reaching 2.4% in May fuelled by higher oil, chemical and imported equipment costs. Oil is a factor in the widening American trade deficit which swelled to a record breaking-48.3bn (£26.7bn) in April - well above forecasts.

In Britain the rise in the more closely-watched consumer prices index will probably be less steep, but there is no mistaking the trend. That is why the normally circumspect King is lifting his head above the parapet.

Brown's record

BEFORE Labour took office in 1997, admonitions from the Governor could be shrugged off as hot air. But the singular achievement of Gordon Brown's period as Chancellor was the dramatic decision he took in those early days in office to give the Bank of England its independence.

This ushered in a new period of economic stability and low interest rates.

As Brown breaks a record today by becoming the longest serving Chancellor for more than 180 years, the landmark will be low key. In the wake of the disastrous election results for Labour, he will not want any of the adverse outcome to rub off on him.

Yet he has a record that in some respects speaks for itself. Britain has enjoyed an unprecedented period of growth under his stewardship, inflation has been kept low and unemployment has tumbled.

He even managed to keep the public finances in order by building a war chest from the sale of mobile phone licences and taxes on dividends paid to pension funds and utilities. These are just two of the 66 tax changes, many of them surreptitious, engineered by Labour since it came to power.

Unfortunately, as Brown passes the marker of 2,600 consecutive days at Number 11 set by David Lloyd-George, not all in the garden is rosy.

The jury is out on the public spending splurge and fiscal policy is looking far less prudent than it once was. Savings have been woefully neglected and many of Brown's innovations - such as the family tax credit system - have been hopelessly complex.

No one can dispute that it has been an exciting ride and one in which Britain has punched well above its weight globally at the International Monetary Fund. But given the Chancellor's higher ambitions, we will not wish him a further seven years in the job.

Rose lottery

THE doors of M&S continue to spin rapidly with Alice Avis, the marketing director, the latest to depart.

But the easy way in which the directors of Marks throw the company's money around, with sign-on fees and big payoffs, is causing consternation among institutional shareholders. They argue that the careless handing of shareholders' funds leaves a great deal to be desired.

It is noted that in the past Stuart Rose has been a dab hand at negotiating contracts for himself that have paid out handsomely when companies have been taken over.

If the next step for the new regime is to cut the wages bill - M&S currently pays its staff a 38% premium to the High Street - then a better example from the boardroom would be desirable.