Bank chiefs 'failed to spot crisis'

22 December 2008 07:29am

The Bank of England failed to spot the seriousness of the looming economic crisis despite rocketing house prices and credit levels, its Deputy Governor said.

Sir John Gieve said the Bank had spotted "some crazy borrowing" and unsustainable asset prices and predicted a correction was on its way.

But he said the Bank "didn't think it was going to be anything like as severe as it turned out to be".

"Why didn't we see that it was so serious? I think that's because we, perhaps, we hadn't kept pace with the extent of globalisation," he told the BBC.

He said the period of growth before this year's crash did not resemble previous boom and bust cycles because it lacked the typical big increases in earnings, consumption and activity.

"We saw the credit, we saw the house prices, but we did see a fairly stable pattern of earnings, prices and output," he said.

Sir John is a member of the Monetary Policy Committee (MPC), whose job it is to set interest rates to keep official inflation rates at 2%.

He also has specific responsibility for financial stability and is a member of the board of the Financial Services Authority.

The Bank of England has slashed rates this year in an attempt to control inflation which was still more than double the 2% target in November.

But inflation is set to plunge below 1% next year as the UK economy slides into recession.

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