BoE's Bean: current issues in UK monetary policy

There has been much recent media commentary about excessive consumer spending and a "debt time bomb", but Mr Bean notes that "the household savings rate has not been unusually low". He points out that the household debt build-up has been primarily associated with asset accumulation rather than consumption and that is largely a by-product of developments in the housing market: first-time buyers and those trading up the housing chain have been willing and able to take out larger mortgages, while last-time sellers and those trading down have been investing the housing equity thereby released into financial assets rather than spending it. The risks to the outlook posed by heavily indebted households are consequently less significant than has been suggested.

Mr Bean observes that, when interest rates are a long way from "normal", forecasts for inflation and growth assuming that rates follow a path implied by the financial markets provide a more plausible picture of prospects than assuming interest rates remain constant, and he announced that "in future Inflation Reports (the MPC) will be placing the primary emphasis on the projection based on market rates".

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Speech by Charlie Bean, Chief Economist and Member of the Monetary Policy Committee, Bank of England to the Institute for Economic Affairs, London, 28 July 2004.

Click here to read the speech "Some current issues in UK monetary policy" on the Bank of England's web site