- Says buy-to-let tools will help BOE to rein in housing threats
- BOE is forecast to leave its key rate at 0.5% Thursday
Chancellor of the Exchequer George Osborne asked the Bank of England’s financial stability officials to keep an even closer eye on the risks to Britain’s economy as he blamed global turbulence for denting the outlook.
With the BOE’s Monetary Policy Committee forecast to leave its key rate at a record-low 0.5 percent on Thursday, where it’s been for seven years, the risk is that imbalances start to emerge. The chancellor is required once a year to make recommendations to the central bank’s Financial Policy Committee, headed by Governor Mark Carney. He can also tell the 10-member panel how he sees its responsibilities in relation to support for the government’s economic policy.
I am “publishing the new remit for the Financial Policy Committee, the body we created to keep an eye on emerging long-term risks in our financial system,” Osborne told lawmakers in his annual budget speech to the House of Commons in London on Wednesday. I am “asking them to be particularly vigilant in the face of current market turbulence,” he said.
Osborne said the Office for Budget Responsibility cut its forecast for growth in gross domestic product this year to 2 percent from the 2.4 percent it saw in November. The economy will grow by 2.2 percent in 2017 and 2.1 percent in 2018, compared with forecasts of 2.5 percent and 2.4 percent four months ago, he said.
He argued that his stewardship for the past six years has put Britain in a good position to deal with global headwinds.
“Financial-market volatility since the start of the year will drag on U.K. growth so it is important for the Chancellor to demonstrate that he’s vigilant to global economic conditions,” said Kallum Pickering, an economist at Berenberg in London.
Osborne also said he was confirming in a letter to Carney that the remit for the MPC remains the symmetric inflation target of 2 percent. The OBR forecast inflation will be 0.7 percent this year and 1.6 percent next year, he said.
He said he welcomed the FPC’s commitment to review the wider impact of regulation on the financial industry, and underlined the importance of vigilance. The Committee should focus on building on its “achievement” of setting out the framework for banks’ capital requirements and on implementing a stable regulatory environment, he said.
“The importance of vigilance cannot be overstated,” he said. The FPC’s analyzes of parts of finance outside the core banking system “will ensure that systemic risks will be considered regardless of their source.”
He said the Treasury will table a response to its consultation on giving the BOE powers over buy-to-let mortgages in due course. And that “the buy-to-let tools will further enhance the Committee’s ability to address housing-market risks.”
“I remain committed to ensuring that the Committee has all the appropriate tools its needs,” Osborne said.
The chancellor noted that the Bank of England Bill calls for membership of the FPC to rise to 12 from 10. Assuming the Bill passes in its present form, current members will be joined by a deputy governor for markets and banking, reflecting the role being placed into legislation, and by an additional external member, who will maintain the balance between executive and non-executive members.