Financial News

  • 29 January 2014, 8:56

Cable Warns About Wrong Type Of Recovery

Business Secretary Vince Cable has warned that Britain's economic recovery could prove to be a "short-term bounce" if it is based on a housing boom.

He made the comments on the eve of the publication of the latest GDP figures, which have shown the country's strongest growth since the financial crisisbegan in 2007.

Butthe senior Liberal Democrat expressed concern that the recovery is too heavily based on housing prices and consumer spending.

"Despite a fall in real earnings, consumers have had the confidence to start spending again - dipping into their savings held for a rainy day and making use of rising house prices, at least in London and the South East, to borrow more easily," he said.

"Despite these encouraging signs, the shape of the recovery so far has not been all we might have hoped for."

In the speech at the Royal Economic Society at Bank of England, Mr Cable said that a "real recovery is taking place".

But he said sustained growth is dependent on rebalancing the economy and preventing a return to "boom-bust cycle".

"The big question now is whether and how recent growth and optimism can be translated into long-term sustainable, balanced, recovery without repeating the mistakes of the past," he said.

"We cannot risk another property-linked boom-bust cycle which has done so much damage before, notably in the financial crash in 2008.

"Indeed, unless our government put long term rebalancing at the heart of economic decision-making I believe the recovery could prove to be short-lived."

Mr Cable did stress he is "confident" the government is taking action to ensure the UK has a "sustainable, balanced, long term recovery" - rather than a "short-term bounce".

But he said he was concerned about the effects of loose monetary policy on asset prices but stopped short of calling for a tightening.

Sky's Political Correspondent Sophy Ridge says: "There will be a few eyes rolling in the Treasury because we do have these positive GDP figures Vince Cable is still sending out a warning that this is not the kind of growth we want.

"To be fair to the Business Secretary though, there are some economists that do agree with him.

"Vince Cable's concerns are that there is not enough growth in exports, business investment - it's all based on consumer-driven spending and crucially on a housing boom."

"He's concerned that the Government's Help to Buy policy could essentially cause a housing bubble, which could drive up growth in the short term, but not in the long term."

The Cabinet minister has previously expressed concerns about the Government's Help to Buy policy.

Under the scheme, which came into effect at the beginning of October, people can buy homes of up to 600,000 with a deposit of just 5% as the Government guarantees up to 20% of the mortgage.

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