Ready (to go) Eddie's parting shot on fixed-rate loans

Sir Eddie George, departing governor of the Bank of England, yesterday warned the government against forcing British homeowners into fixed-rate mortgages to smooth the way for euro entry.

Raising the take-up of continental-style fixed-rate borrowing to tame Britain's volatile housing market was one of the euro-friendly policies announced by chancellor Gordon Brown earlier this month, when he delivered a no verdict in the Treasury's five economic tests for euro entry.

Sir Eddie yesterday used his 49th and final appearance before the Treasury select committee to tell MPs that with the option of fixed-rate borrowing already available to homeowners, the government should "let the market decide".

"There are long-term fixed-rate mortgages if you want to take them up... the question is, is there an appetite for them?" he said.

"I see no reason at all why public policy should not encourage them if that is what the authorities choose to do," he added, but cautioned: "You cannot impose them, even through public policy."

A Treasury spokesman yesterday refused to rule out legislating to boost the popularity of fixed-rate mortgages, but said the chancellor was awaiting the outcome of an independent review of the issue by Professor Richard Miles, who is due to produce interim findings in the autumn.

After gleefully punching the air when committee chairman John McFall asked if he was "demob happy", Sir Eddie gave a cautiously optimistic assessment of the prospects for the economy during yesterday's hearing, saying sterling's recent depreciation against the euro should help to boost growth.

"We are looking to an improvement in net external demand as a result of the softening in the exchange rate," he said. However, he thought recovery in the global economy was likely to be gradual. "I don't think anything we have seen suggests we are going to see a sudden bounce," he said.

The governor, with other members of the Bank's monetary policy committee, also took the opportunity to scotch speculation that switching over to the same inflation measure as the eurozone, as the chancellor plans to do this year, would lead to substantially lower interest rates.

Professor Steve Nickell, one of the committee's independent members, said that if the chancellor set a 2% target on the so-called HICP measure, "over some period, monetary policy would be fractionally looser," - but having reached the target, "monetary policy would be exactly the same."