Monetary Policy Case Study

Britain’s Housing Market: Pound vs US Dollar Dilemma

OR

Abstract:
Low interest rates were one of the prime reasons for the sustained booms in Britain's housing market, while a weak dollar was one of the prime reasons for a strengthening pound. The Monetary Policy Committee of the Bank of England was caught in a dilemma whether to contain the booming housing market by increasing interest rates or restrain the appreciating pound by decreasing interest rates. Finally, the Monetary Policy Committee chose to contain the housing market by increasing interest rates with the hope that the pound would not appreciate much. However, the falling dollar did not seem to help them.

Pedagogical Objectives:

• To discuss the relationship between interest rates, the pound's exchange rate and the housing market.

Keywords : Britain's housing market, Monetary Policy Case Study, UK pound vs US dollar, Spot exchange rate, Interest rates, Bank of England, Gold exchange standard, Depreciation of the pound, Inflation and deflation, European Union, Base rate, Monetary Policy Committee, Boom and busts in the housing market, Black wednesday, European Central Bank, Overvalued dollar