RICS calls on BoE to raise interest rates

The Royal Institution of Chartered Surveyors says the Bank of England must raise interest rates this week to dampen the housing market and prevent economic volatility.

Milan Khatri, chief economist at RICS, says: “The recovery of the economy this year has exceeded all expectations, the stockmarket is at it’s highest level for over five years and there has yet to be any noticeable negative impact from the August interest rate rise on the economy or the housing market.

The experience of late 2003 and 2004 shows that it takes several rounds of interest rate rises to take the heat out of the housing market when the economy is performing well.

A pre-emptive rise in interest rates will help to contain inflation pressures and wage rises in the next year, providing for a more stable economic environment.

“The Bank of England would be well advised to act this week.”

RICS supports the expected decision by the Bank of England to raise interest rates by 25 basis ponts to 5% this Thursday, which would be the highest level since September 2001.

It says consumer confidence levels are very healthy and have been supported by falling oil prices and rising employment levels.

In October, households viewed their financial position as the best in close to four years.

There has also been some evidence that spending on the high street has slowed in October but RICS says this is likely to be a blip.

Manufacturing output is expanding once again with the rise in output in September the strongest in two years due to a robust global economy pushing up export sales.

The service economy is also performing strongly due to the very active business and financial services sector.

More than 250,000 jobs were created in the year to August, which is near double the historical average for the economy.

The housing market has shrugged-off the August interest rate rise with the Bank of England reporting that mortgage activity in September rose to the highest level since February 2004 and 24% above the average for the past decade.

RICS estate agents have reported that demand for homes continued to rise into October.

It argues that, so far, a strong economy is proving more important than higher interest rates in driving the direction of the market. With the supply of property coming onto the market falling, house price rises are likely to remain firm into the New Year.