Household Debt, House Prices and Consumption Growth

7 Pages Posted: 7 Apr 2005

See all articles by Stephen Nickell

Stephen Nickell

University of Oxford - Nuffield College of Medicine; Bank of England - Monetary Policy Committee

Abstract

In this speech, Stephen Nickell, member of the Bank's Monetary Policy Committee, considers two questions. First, what, if any, are the connections between household debt accumulation and consumption growth in the United Kingdom? The answer is that there seems to be no significant relationship. Second, given that the ratio of house prices to earnings is at a record level in the United Kingdom, what can we say about the equilibrium level of this ratio today and what are the implications for prospects in the housing market? For a variety of reasons, in particular the sharp fall in long-term real interest rates since the late 1990s, the current equilibrium ratio of house prices to earnings is well above its average level over the past 20 years. However, the precise level of this equilibrium ratio is difficult to pinpoint as is the speed with which house prices will return to it. As a consequence, while we know that house price inflation will slow, precisely how fast and how far is highly uncertain.

Suggested Citation

Nickell, Stephen, Household Debt, House Prices and Consumption Growth. Bank of England Quarterly Bulletin, Autumn 2004. Available at SSRN: https://ssrn.com/abstract=700093

Stephen Nickell (Contact Author)

University of Oxford - Nuffield College of Medicine ( email )

New Road
Oxford, OX1 1NF
United Kingdom

Bank of England - Monetary Policy Committee ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

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