How the great property market bail-out is making you poorer

The government's attempts to avoid a house price crash will lead to higher inflation and lower wages for just about everyone.

I've been participating in a Channel 4 live blog about savers and the miserable rates of interest they are getting on their cash.

The Bank of England's deputy governor, Charlie Bean, says that savers who don't think they are getting enough interest on their cash should keep their consumption up by spending their capital instead. Savers, obviously, find that a pretty unpalatable solution to their problems. They wonder if a better solution might be for the Bank of England to note that inflation is far, far higher than 2%, and to put rates up.

Sadly, that isn't going to happen. What we are seeing in the UK economy at the moment is a sustained effort to engineer nominal property price stability. Why? Because sustained property price falls and their knock-on effects through consumption to the rest of the country are currently considered to be just too damaging to our still-fragile financial system. But while everyone is worrying about deflation, it is entirely possible that this price stability (or the effort to create it at least there is no guarantee that it will work) will come at the cost of inflation in pretty much everything else.

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The idea, for what it is worth, is that at this point in the cycle, price inflation won't lead to wage inflation. That's because, with unemployment so high, only the very unionised think they stand a chance of wage rises any time soon. The net effect, then, is real wage deflation for most British workers, something that obviously makes them poorer. We are supposed to accept this without complaint on the basis that being paid less in real terms makes us more competitive on the world stage and hence more prosperous in the long term.

That might or might not be the case (it is worth noting that similar arguments have been used to defend sterling depreciation and worker impoverishment for decades). But I wonder, if everyone understood the price they were paying for the government's attempts to avoid a house price crash,whether they'd be altogether happy.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.