The Bank of England has taken a calculated gamble in cutting interest rates to their lowest level in 48 years. The bet is that the prospect of yet cheaper mortgage bills won't spark a fresh round of house price hikes, or prolong the Indian summer in some parts of the property market.
The value of the Notting Hill mansion flat owned by Mervyn King, the new governor of the Bank of England, has doubtless slipped because of local factors. But the story is very different elsewhere. In the north, prices are up in areas as diverse as prosperous Macclesfield (51 per cent higher in the space of a year, according to Halifax figures) and less salubrious Grimsby (up 49 per cent).
The housing market desperately needs to be cooled down as quickly as possible. Already, first-time buyers find even the lowest rung on the property-owning ladder out of reach. Meanwhile, every increase in property values and fall in mortgage costs entices homeowners to go deeper into hock to finance current consumption. The problem is that the more house prices go up, the greater the risk that a serious bubble is being inflated. And the longer this goes on, the greater the risk of the bubble bursting. People are saddling themselves with levels of debt that their parents and grandparents would never have countenanced.
But such things are not the Bank's primary concern. Its goal is to hit an inflation target two years hence. Everything else is subsidiary.
It's all very awkward. High street spending is the main fuel that keeps the UK economy ticking along (though public spending is now taking up the slack). Exports and business investment are contributing little. The temptation is to turn a blind eye to house prices, the main factor fuelling the spending boom.
But a modest downturn now may be a price worth paying to prevent a more savage bust a couple of years down the track. To suggest such a thing is taboo. In the role of Labour finance minister in Australia 15 years ago, Paul Keating (later prime minister) was lucky to escape with his political life when he suggested that the belt-tightening he introduced was "the recession we had to have". The media went berserk. Uninterrupted economic growth is regarded as a basic human right.
I don't believe in hair-shirt economic policies. But we may be stoking up greater pain down the road by prolonging for one moment longer this dangerously unbalanced path of economic growth.
Good luck to John Tiner, the City's new chief policeman. He's going to need it. Tiner has just been named as successor to Sir Howard Davies, chief executive of the Financial Services Authority. His appointment has been widely welcomed in the Square Mile. Which - call me a cynic - is a reason for wondering whether the right man has been chosen for the job. Tiner will shoulder enormous responsibility and wield great power. (I've argued before in this column that running the FSA is actually a bigger - though less prestigious - job than governing the Bank of England.) He gets to supervise banks and regulate the savings industry. He will be in charge of bringing the crooks to book. He'll be responsible for consumer protection and education. And he'll have to run a department that has now expanded to 2,200 people.
He starts with the City's reputation at a low ebb. Confidence, already thin after the mortgage and pension misselling scandals, has been dealt fresh blows by Equitable Life and the split-capital investment trust debacles. The bear market has given ammunition to those who see the City as largely parasitic, its employees interested only in lining their pockets. The idea that it is a beneficent conduit through which the nation's savings efficiently finance enterprise and provide income for old age has been hideously corrupted.
The FSA needs a fighter, with the will to make the City a bit more honest and a bit less greedy, and with an appetite for nailing and jailing the bad apples. Successful regulation is partly about claiming scalps - pour encourager les autres - not about persecuting the innocent with more and more bureaucratic box-ticking. Until he joined the FSA in 2001, Tiner was a senior partner at Arthur Andersen, whose clients included many City firms. He understands financial services and is generally seen as sympathetic to the industry. He is said to be a safe pair of hands, and his dedication cannot be questioned: he sacrificed close to £750,000 a year when he quit the private sector for public service.
Those attributes would be fine were the City in good shape and in good odour with its customers. Right now, however, what the country needs is someone prepared to be extremely awkward.
Patrick Hosking is deputy City editor of the London Evening Standard
