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Cable warns against complacency despite recovery signs Mortgage scheme could lead to house price bubble warns Cable
(about 7 hours later)
Lib Dem cabinet minister Vince Cable has said the government cannot be complacent about the economy despite growing signs of a recovery. A government scheme designed to boost the housing market could lead to a new price bubble, Business Secretary Vince Cable has warned.
The business secretary said he and other ministers "can't rest on our laurels" and "a few quarters of good economic data" did not mean the country was out of the danger zone. The Lib Dem minister has called for a rethink of plans to provide government guarantees for low-deposit mortgages beginning in January.
Chancellor George Osborne recently suggested the UK is "turning a corner". He said there were already signs of "serious housing inflationary pressures" in parts of the country.
But Labour says millions feel insecure, with living standards still squeezed. But Downing Street said the plan would remove "obstacles" to aspiring buyers.
The latest unemployment figures showed a continued fall in the number of people out of work to below 2.5 million - although there was a rise in youth unemployment and the numbers in part-time work. The Help to Buy Scheme, announced in March's Budget, is designed to help first-time buyers get on the property ladder and enable existing homeowners to "trade up" to larger properties by giving banks greater confidence to lend.
'Dangers remain' Under the second phase of the scheme, the government will guarantee a proportion of the loan for purchases of up to £600,000 for those able to put down a deposit of between 5% and 20%.
In a speech to a CBI conference at Warwick University, Mr Cable said it was not "difficult to see evidence of confidence returning". The assistance, championed by Chancellor George Osborne, will be available for three years.
There were "positive trends" in manufacturing and export growth which pointed to "the beginnings of a recovery story", he said. 'Changing conditions'
But efforts to create more balanced and sustainable growth, rather than relying on growth in the City and the property market, "won't simply emerge of its own volition", he added. Some economists have questioned whether such a major government intervention in the mortgage market - on top of existing equity loans for first-time buyers - is justified, saying it may lead to an unsustainable increase in prices.
"In fact, I see a number of dangers. One is complacency, generated by a few quarters of good economic data," Mr Cable said. Recent indicators have suggested that prices are already increasing at their fastest rate for almost seven years - boosted by competitive mortgage rates and continuing imbalances of supply and demand.
"There are risks, not least the housing market getting out of control. Recovery will not be meaningful until we see strong and sustained business investment, and this... as a share of GDP, is currently the lowest in the G7." Mr Cable told Sky News that ministers should "certainly think about how it [Help to Buy] should come into effect, indeed whether it should come into effect in the light of changing market conditions".
'Embarrassing' "We don't want a new housing bubble," he added.
Speaking to the BBC earlier on Wednesday, Mr Cable said the recovery was a "marathon, not a sprint" and it was "going to take a long time to get the British economy on the right track" and to rectify the mistakes made by previous governments. "In many parts of the country it clearly isn't a problem. If you are in Northern Ireland or Wales or indeed the East Midlands you would wonder what all this is about,"
He denied Labour suggestions that he was at odds with Mr Osborne and said he agreed with the chancellor that the opposition's criticism of the government's strategy and its call for a "Plan B" had been proved wrong. "But certainly in London and the South East, in the north-east of Scotland, in other areas, there are serious housing inflationary pressures."
But shadow business secretary Chuka Umunna said Mr Cable's speech was an "embarrassing slapdown" to the chancellor. The chief executive of Barclays, Antony Jenkins, has said he is concerned about the potential for a "property-driven boom" and although the Bank of England is monitoring the state of the market carefully, "these things can be difficult to control".
"It also reminds everyone that you can't trust a word the Lib Dems say," he added. "Vince Cable has supported the chancellor's policies, which choked off the recovery in 2010." 'Not weapons'
"Three wasted years of flatlining that has left families worse off and done long-term damage to our economy is his record and he should take responsibility for it." But No 10 said the scheme would go ahead as planned.
The CBI's director general John Cridland said there was "gathering momentum" in the economy, but more needed to be done to correct the "profound economic imbalances which built up during the boom years", including developing a "coherent" industrial strategy. "We are faced with a situation - because of the fall in availability of 90 to 95% loan-to-value mortgages - where many first-time buyers are faced with a real obstacle to making a home of their own," a spokesman said.
"It is important we address this issue."
In an upbeat speech on the economy earlier in the week, Mr Osborne said 95% mortgages were not "weapons of mass financial destruction" but legitimate products that enabled those who could not save enough for a larger deposit to buy a home.
Mr Cable has suggested an "uncontrolled" rise in house prices is one of the risks to a sustainable long-term economic recovery but the Council of Mortgage Lenders has described the pace of housing activity - compared with pre-2007 boom levels - as "moderate".
Speaking at a CBI conference at Warwick University on Wednesday, Mr Cable said there were clear signs the economy was beginning to pick up but the upturn would only be "meaningful" when business had the confidence to increase levels of investment.
He also warned against complacency "generated by a few quarters of good economic data".
The CBI's director general, John Cridland, said there was "gathering momentum" in the economy but more needed to be done to correct the "profound economic imbalances which built up during the boom years", including developing a "coherent" industrial strategy.