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The Bank of England today said it is ready to reverse quantitative easing as the housing market showed further signs of recovery.
Policymakers on Threadneedle Street said the Bank will have to withdraw the £175 billion of freshly printed money it has pumped into the economy, but only when the time is right.
It came as figures from the British Bankers' Association showed mortgage lending is back up to levels last seen at the end of 2007.
The BBA said 42,088 home loans were approved for house purchase in September, up from a low of a little over 18,000 in November last year.
The economy has been boosted by the reduction in interest rates to 0.5% and the £175 billion the Bank has ploughed into the system through quantitative easing.
Adam Posen, a member of the monetary policy committee, said: "In the medium term, meaning more than six months out, there's no question that we're going to have to reverse the extreme policy measures that we took.
"The reason for being very cautious is because there are high stakes involved. It's not because things are that knife-edge or that uncertain but it's that you don't want to make a big mistake.
"So we on the MPC are being very cautious."
Spencer Dale, the Bank's chief economist, said: "A challenge for the future will be the pace at which we withdraw the exceptional stimulus of the £175 billion of quantitative easing the Bank of England has provided."
Reader views (1)
Yes they've done a great job at suckering another load of people take on massive debts, just so that those who already own houses can feel a bit richer. They think they're clever but what are they going to do when:
Interest rates go up - which they will and must.
Tax goes up to repay the massive borrowing - which it will and must.
Overseas investors stop buying Government debt - the risk of which is growing all the time as government debt and money printing increases.
They seem to be determined to replace one form of crash with another. The biggest mistake was the dropping of interest rates. Who does it benefit? People with mortgages. Whereas leaving interest rates where they were would have made saving attractive - and people would have the interest to spend.
You have the feeling that none of these clowns has learnt anything from history.
You cannot borrow your way out of debt. Just cannot be done.
- Mike Wilson, Winchester, UK
