Untenable in the long run Although I cannot see any problems right now, I do not believe that nominal house prices can continue to increase by an average of well above 7 per cent a year as they have done since the start of the 2000s. This is not sustainable in the long term. And when we now consider when is the best time to begin raising the repo rate, my colleagues and I will be carefully examining variables such as house prices and lending. As I pointed out, for instance, in connection with the monetary policy meeting in February, I believe that during the interest rate increase phase ahead of us it might be appropriate to “lean against the wind” – to emphasise some concern by raising the repo rate slightly sooner than we might otherwise have done. But as I also said then, monetary policy is not the most effective means if one wishes to slow down, for instance, house price developments slightly. I then said I would like to see measures such as Finansinspektionen setting a limit for the loan-to-value ratio for new mortgages. Now they have presented a proposal for this and we will carefully monitor its effects. Leaning against the wind concerns, in my view, avoiding large fluctuations in inflation and the real economy – what provides the best-balanced monetary policy. It is thus about monetary policy, not financial stability.
That is why I am pleased to say that I shall be one of Vikram’s patrons for his Benefit year in 2007. Of course, I could not talk about sport in the Black Country without referring to football. Nowhere had, in my day, more first division teams within a few miles radius than the Black Country. And all the supporters of those teams have had many opportunities over the years to learn how to win and, especially, how to lose. But for the sake of local interest and rivalry, I am looking forward to the day when Wolves and the Albion are restored to the Premiership. Just as football needs a referee, so does the economy. I think of the Bank of England’s Monetary Policy Committee – the MPC – as the referee for the economy. The MPC sets interest rates to keep inflation on track to meet the 2% target. We want to allow you to focus on running your businesses – you are the players – while the MPC quietly gets on with its job. You may have seen in the news that yesterday the Bank of England published its latest Inflation Report. That set out our view on the prospects for the economy over the next couple of years. Perhaps I could briefly summarise our latest analysis of the UK economy. For the past year GDP has grown at a rate around its long-term average. Inflation has picked up and has been above the 2% target since May.