The NIESR, which provides academic analysis for industry and policy makers, said the Bank of England should have raised interest rates by 50 basis point instead of the 25 point increase it opted for. It claimed only a sharp increase would put the brakes on consumer confidence.
The research followed results from the Nationwide Building Society House Price Index which showed an increase of 2.1 per cent in July, increasing annual house price inflation to 20.3 per cent.
Ray Boulger, senior technical manager at Charcol, said: “If you want meaty headlines then this is the way to do it. There was no way the Bank was going to increase the rate by half a per cent. Some of these economists live in a very blinkered world.”
CML communications manager Bernard Clarke, commented: “This is obviously at odds with what we are saying will happen. We believe the current policy of a gradual rise in interest rates will lead to a soft landing for the housing market.”
The NIESR review predicted the UK economy would grow by 3.3 per cent in 2004 and 2.7 per cent in 2005, though a decline in house prices over a sustained period of time would remove a quarter per cent off annual gross domestic product between 2005 and 2008.
