Brown to Ignore King on UK Housing Warning

British Prime Minister Gordon Brown, wanting to jumpstart UK’ sagging economy and avoid recession, may have to disregard the advices of his own central bank.

King: Rescue a Big Illusion Only

Yesterday, Bank of England Governor Mervyn King told the parliament that rescue attempts on the housing market is only an illusion as it could jeopardize taxpayers.  King also warned that increased spending of government poses serious risks that could trigger spiraling inflation.

King’s advice came at the heels of PM Brown’s open mindedness to proposals to revive the grinding UK mortgage market to salvage the housing sector from its worst downturn since the 1990s.  The report released on the behest of the Treasury department recommended extension of guarantees on all securities backed by housing loans.  The report also urged the Bank of England to provide lending facilities as an emergency measure.

Analysts said that the BoE governor is actually sending warning signals especially on the emphasis of putting taxpayer’s money at risks if a rescue is attempted.

Brown Government Faces Serious Challenges

Brown however is facing serious challenges from his own Labour Party as its popularity plummeted to an all time low in over a decade.  Reviving the economy has become a critical pressure area for Brown who announced recently his government’s plan to help first time home buyers and cut taxes on property purchases.  However, banks are increasingly becoming stingy in extending loans for mortgages as the credit market has been routed for a year already.  

Alistair Darling, Chancellor of the Exchequer will accept proposals in the weeks ahead to seek solutions for the current logjam.  Brown and Darling do not have clear preferences on the issue.

Peter Dixon of Commerzbank in London said the government can do something if it really wants to.  He said the Bank of England is extending liquidity but a guarantee is a totally separate issue.

King insisted that he does not intend to make a position on government initiatives.  His testimony however spent too much on warning the government about the risks of mortgage guarantees.

Attractive Only at First Glance

King said a rescue attempt could be very attractive at first glance.  The governor however said that the option has been applied in North America resulting to a squeeze out of the mortgage market.

The US Treasury Department seized control of Fannie Mae and Freddie Mac on September 7 as the continuing slump of the housing sector threatened to bring down numerous companies attached to the housing loan market.

Governor King also emphasized that the Bank of England will not use its generous lending facilities but instead will start a plan to provide credit lines for banks having short term liquidity troubles.