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Bank of England Governor Sir Edward George has given the clearest indication yet that the Monetary Policy Committee may be preparing to raise interest rates to dampen the demand for goods and services amongst high spending British consumers.
Speaking to a parliamentary committee, Sir Edward George told how the committee would have no option but to raise rates if domestic demand growth did not slow. He said: "If it doesn't happen that domestic demand slows, and the external situation picks up, that's when it would generate inflationary pressure. At some point we will have to moderate the rate of growth of domestic demand."
His deputy, David Clementi, reiterated his view that house price inflation is currently running at an unsustainable level and advised buyers and lenders to be increasingly wary of a sharp correction in prices the longer the boom goes on.
However, Sir Edward also repeated his doctrine that it is not the job of the MPC to try and control house prices, with underlying inflation, or RPIX being the principle focus.He said: "You cannot say we don't care about house prices, but we are interested in the total picture. We absolutely take account of house prices. We do not believe the current rate of house price growth is sustainable but it is a factor that is driving consumer spending."
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