All periods over the last thirty years appear to have involved great uncertainty, and today looks less uncertain than, say 2008-9, and no worse than average. It just happens to be today, so people worry about it. After nearly ten years of weak wage growth it would be a good bet that this will continue, and policy should be based on this assumption. Policy can be flexible if this is not the case. The labour market might change, and weak technical change and slow growth in labour input quality may suddenly switch to higher growth. But then, both could also slow even further. Risks are not always symmetrical, and higher rather than lower growth of earnings may be more likely, but the most likely outcome is that this year will be like the last five years. Uncertainty is not a reason for inaction. Policy makers could afford to wait in raising interest rates, but it would be best if they raised rates now. Small changes in interest rates have very little impact on either output or inflation. A delay may mean larger increases in future for the same inflationary pressures, and these larger, delayed movements may involve more costs than several, more timely, small increases in rates. The costs of acting too early are small, coming mainly through the exchange rate. Interest rates should start to rise now and rise twice more this year.

A more widespread weakening of the UK housing market would slow consumption growth and hence reduce GDP growth. The initial slowdown could itself be evidence of anticipated slower GDP growth, but it would still feed-back and reduce consumption. The effects could be significant in the short term if the anticipated fall in house prices is fully taken on board by consumers, but it is more likely to be a continual drag on growth as the negative implications for incomes of exit from the EU slowly become clear. In addition, weak house prices may reduce entrepreneurial activity and business investment, as many small ventures are initially financed on the back of loans secured on residential property. Housing wealth affects consumption for the same reasons that government debt is part of wealth, as Barrell and Weale (2010) discuss. Barrell et.al. (2015) present evidence of the relative impacts of financial and housing wealth on consumption in the UK, and show that housing wealth has larger and more significant effects on consumption. These effects can be noticeable, as we have seen in the last three housing cycles in the UK over the last 30 years. The impact of the use of residential property as collateral on investment behaviour is discussed in Bahaj et al (2017). They suggest that house price falls could noticeably and negatively affect investment growth in the UK. Bahaj, S., Foulis, A., and Pinter, G., (2017) ‘Home Values and Firm Behaviour’ Bank of England, mimeo Barrell, R., Costantini, M., and Meco, I., (2015) ‘Housing wealth, Financial wealth, and Consumption: new evidence for Italy and the UK’ International Review of Financial Analysis vol.42 pp.316-23 Barrell, R. and Weale, M. (2010) 'Fiscal policy, fairness between generations, and national saving'. Oxford Review of Economic Policy, 26 (1). pp. 38 – 47