Mazzucato and Kaletsky Debate U.K. Mortgage Plan on BBC

The Bank of England took the first step in putting the brakes on the surging property market as it scrapped the United Kingdom’s flagship initiative that encourages mortgage lending, introduced earlier this year by Treasury minster George Osborne.

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Governor Mark Carney said the Funding for Lending scheme (FLS) stimulus was no longer needed amid rising house prices, and it would instead be further focused on helping small business borrowing, which remains muted.

The Bank of England boss is afraid of a runaway mortgage market. He said price rises could soon turn into an express train with only one brake: an interest-rate hike. Starkly put, the mortgage market is a threat to the low interest rates currently supporting the economy and its ability to recover.

While the central bank often talks about having an array of financial controls in its toolbox, its main weapon against a bubble is an interest-rate hike. Using this blunt weapon must be avoided, Carney warned, because there were still large parts of the economy struggling to survive. In the northwest, the East Midlands and northeast of the U.K. there are plenty of businesses still dependent on low-cost credit.

Last week on BBC Newsnight, Mariana Mazzucato, a grantee of the Institute for New Economic Thinking and author of The Entrepreneurial State: Debunking Private vs. Public Sector Myths, and Anatole Kaletsky, Institute chairman and columnist for Reuters debated these crucial points. What type of lending will spur growth in the U.K. economy? Is the problem a supply of finance, or the quality of finance and the lack of a courageous state willing to offer the patient long-term committed finance needed for innovation led growth?

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