The Royal Institution of Chartered Surveyors (Rics) said that a 5% annual rise should trigger caps on how much people could borrow relative to their incomes or the value of the property.

It is not suggesting that sellers should face a limit on how much they could charge for their homes.

The Bank said it was being vigilant.

Activity in the UK housing market has picked up in recent months after a few years of inactivity during the financial crisis.

There has been considerable debate during the week about the future of the UK housing market and the potential for government schemes to create an artificial price bubble.

Some forecasters are suggesting increases in house prices could break through the 5% barrier this year, owing to increasing demand from first-time buyers at a time when the number of homes for sale remains low.

‘Firmly anchored expectations’
Joshua Miller, senior economist at Rics, said that it was important to stop any debt-fuelled house price advance.

“The Bank of England now has the ability to take the froth out of future housing market booms, without having to resort to interest rate increases. Capping price growth at, say, 5% is one way of doing this,” he said.

“This cap would send a clear and simple statement to the public and the banking sector, managing expectations as to how much future house prices are going to rise. We believe firmly anchored house price expectations would limit excessive risk taking and, as a result, limit an unsustainable rise in debt.”

The Bank’s governor, Mark Carney, told MPs on Thursday that the Bank was vigilant on house prices but that parts of the country had not seen any recovery in the housing market.

In previous speeches, he has said that he has a toolkit in place to keep a lid on any potentially damaging boom.

This includes asking, but not telling, banks to limit how much they can lend to individuals and making them set aside more capital if they want to carry on providing mortgages.

‘Build more homes’
Simon Rubinsohn, chief economist at Rics, told the BBC that the cap was more of a “speed bump” for the housing market “so people wanting to enter the market are aware of some of the risks”.

He said that the 5% level could be debated and there needed to be a regional dimension to reflect housing market activity in different parts of the UK.

Rics members, including estate agents, wanted a stable market, rather than a volatile one, he said, adding that he did not believe there was a house price bubble at present.

In its report, Rics pointed to the example of Canada – the former home of Mr Carney – where the central bank took action to limit mortgage availability.

However, Sir Howard Davies, former deputy governor of the Bank, said that a cap would not work.

“The problem is that we are not building enough homes,” he said.

Figures from the Office for National Statistics, published on Friday, showed that demand for new public and private housing helped push up construction orders.

Any limit on house price rises would be resisted from those who remain in negative equity in some parts of the country. It would also be unpopular among first-time buyers if there was a restriction of mortgage lending.

Recent house price surveys show increases in prices, but this was compared with some drops a year ago.

The Halifax survey said that prices had risen by 5.4% in the year to August, while the Nationwide said house prices in August were rising at an annual rate of 3.5%.

The Nationwide compares prices in one month with the same month a year ago. However, the Halifax compares a three-month period with the three-month period in the previous year.

US consumers barely increased their spending in July, as workers saw their salaries shrink because of government spending cuts.

Spending increased by 0.1%, according to the US Commerce Department.

Big-ticket items, such as cars and fridges, saw the biggest declines.

Consumption makes up 70% of the economy, and the run-up to the new school year, starting in July, is typically the second-biggest shopping period of the year.

Large retailers such as Wal-Mart, Macy’s and Kohl’s have warned in recent earnings reports of sluggish consumer demand, as US job growth continues to lag and wages stagnate.

Further uncertainty over the timeline of the US Federal Reserve‘s decision to slow down its policy of propping up the US economy by keeping rates low has led to stock market volatility and increasing mortgage rates.

US stocks are set to end their worst month in a year later on Friday.

Separately, a final reading of US consumer sentiment data showed a drop, after a four-year high in July.

The August reading fell to 82.1 from July’s 85.1, as concerns over the crisis in Syria led to further worries about oil and gas prices in the autumn.

The declines come just a day after US second-quarter GDP was revised upwards to 2.5% from 1.7%, surprising many economists.

India’s economy continues to slowdown according to the latest government figures.

For the April-to-June quarter, it grew at a rate of 4.4%, compared with the same period in the previous year.

It was a weaker performance than most economists had been expecting and was a slowdown from the first three months of the year, when growth was 4.8%.

A contraction in mining and manufacturing activity was behind the slowdown.

Friday’s figures show the economy is now expanding at the slowest rate since 2009.

“We do not wish to sound alarmist, but concern on the economy can hardly be overstated,” said Chandrajit Banerjee, Director General, Confederation of Indian Industry, in reaction to the latest figures.

“The economy needs the undivided attention of policy makers,” she said.

It adds to the pressure on Indian Prime Minister Manmohan Singh, who earlier addressed parliament over the nation’s economic problems.

“Growth may have slowed from the heady days of 7%-plus growth, which was more than double America’s in the late 1990s and 2000s, but it’s still a decent clip”

Linda Yueh
Chief business correspondent

In his statement to parliament, made before the figures were released, the prime minister said India was not facing a repeat of the crisis in 1991.

Back then, India’s foreign currency reserves became so depleted that it had to borrow from the International Monetary Fund to pay its import bills.

“Growth will pick up in the second half, barring extreme unforeseen eventualities,” the prime minister said.

He also said that a strong monsoon would boost harvests and help reduce food inflation.

Mr Singh was also keen to reassure the nation over the falling value of the Indian rupee, saying it was “a matter of concern”.

The rupee hit a record low against the dollar on Wednesday and has fallen more than 20% this year.

That fall is damaging for the economy, as India imports large amounts of fuel and foodstuffs and the weak rupee makes those imports more expensive.

Mr Singh said: “Clearly, we need to reduce our appetite for gold, economise [on] the use of petroleum products and take steps to increase our exports.”

Repercussions
He also blamed the fall in the rupee on “external” factors.

The prime minister highlighted the impact of developments in the US, where the economy is improving and officials at the central bank have started to talk about cutting back on stimulus measures.

“In a more equitable world order, it is only appropriate that the developed countries – in pursuing their fiscal and monetary policies – should take into account the repercussions on the economy of emerging countries,” he said.

The Indian government has raised the import duty on gold and increased deposit rates to stem the outflow of money

The way the US economy is measured has changed, to include the amount spent on intellectual property outlays such as pop song production and drug patents for the first time.

“GDP is probably the single most important statistic affecting businesses, households, and governments,” says Steve Landefeld, director of the Bureau of Economic Analysis (BEA), which measures gross domestic product – the total amount of goods and services produced in the US economy during a given quarter.

Calculating GDP, he says, is incredibly difficult, because “it’s a continually changing economy that we’re chasing”.

Now, in what the BEA says is the biggest change in the calculations since 1999, the way that US economic activity is reported has been updated.

The goal is to finally include something many have already noticed: the shift away from the production economy of factories and farms towards the knowledge economy – the investment and economic production in intellectual property, which includes everything from the amount spent on writing a hit TV show to researching a cancer cure.

“
Start Quote

Overall it’s a very significant addition to GDP – around 2.5%”

Steve Landefeld
BEA director
Why are the calculations changing?

Think back to 2007. It was the year of the franchise: Spider-Man 3 and Shrek the Third topped the box office.

For economists, these films were some of the most mysterious products created in the US economy that year.

Although revenues from the box office, as well as DVD sales and TV subscription fees, were included in the GDP calculations, not a single cent spent on making these films – or any song or TV show ever made – has been included in the way economists calculate GDP.

In fact, the BEA estimates that in 2007, the total amount spent on producing creative output such as films, TV and music was $70bn (£46bn at today’s exchange rates).

However, because of the way GDP was calculated at the time, none of that was included in the output figure.

If you added in the amount spent on research and development – such as producing a new blood pressure drug or computer chip – that’s another $300bn that wasn’t counted.

Now, those expenditures, as well as tweaks to how pensions are calculated as part of economic activity, will be included in the figures.

Beyonce
How do you measure the value of “Single Ladies”?

It’s easy enough to understand how the investment in Beyonce’s latest single contributes to the US economy (beyond the dance moves, of course). Songwriters are hired, studio managers put in extra hours and so on.

But putting an actual figure on how much is invested is “really hard”, says Mr Landefeld, particularly when it comes to the economic contribution of intellectual property such as patents and copyrights.

“This stuff is not bought and sold in markets. You don’t say: ‘Hey, I need a patent for a new drug, let me go out and buy one.’

“There’s no marketplace, like there might be for a new building to evaluate prices.”

So the statisticians at the BEA have tried since 2005 to figure out the best way to tabulate the economic output of all of the intellectual property production that we can intuitively tell is going on around us.

They’ve essentially created approximations of pricing models, using input from businesses and leaders around the globe.

“The most similar change we did to this was back in 1999, when we first capitalised [included in GDP] computer software,” says Brent Moulton, head of national accounts at the BEA and the man tasked with creating and implementing the GDP revision formula.

“I think we learned that it would be better to first develop this type of estimate where we could go around and talk to users and experiment with different approaches.”

“
Start Quote

As the world becomes more and more global, it’s just harder to track down these production relationships”

Brent Moulton
Head of national accounts, BEA
Adding $370bn to the US economy seems like a lot. What’s the impact of these changes?

“Overall it’s a very significant addition to GDP – around 2.5%,” says Mr Landefeld.

Some claim that the decision might be seen as a political ploy by the Obama administration to inflate the US economy – although this is a view that’s widely been discredited.

But on the other hand, the impact won’t be as big as you might expect, as it’s not just this quarter’s GDP figure that is being recalculated: all the data, going back to 1929, is getting updated.

So while the overall size of the economy will appear bigger, there will not be a significant change in the growth rate.

“What [GDP revisions] probably won’t do is change our picture of the momentum in the economy – these changes probably aren’t going to have a big effect on that,” says Lewis Alexander, chief US economist at Nomura and a former adviser to US Treasury Secretary Timothy Geithner.

But Mr Landefeld of the BEA does think that by acknowledging the role that research and development plays in economic production, the numbers could help organisations, such the US government, in better estimating the impact of funding choices on areas such as the National Science Foundation in the future.

“A large range of public and private decision-making will be affected by this and informed by this,” says Mr Landefeld.

generic prescription pills and capsules
Drug patents will now be included in the GDP calculations
How does this compare with the way GDP is calculated in other countries?

Part of the reason for the change in calculations has to do with a co-ordinated effort among the world’s biggest economies to standardise the way their economic output is calculated. The approach came out of what is known as the System of National Accounts, which happened in 2008.

Already, Australia and Canada have started implementing similar changes, and the European Union and the UK are set to follow suit.

“As the world becomes more and more global, it’s just harder to track down these production relationships,” says Mr Moulton.

“You hear about production taking place all around the world and it’s really hard to sometimes take that global production process and figure out how much can be attributed to a particular economy.”

The hope is that by better co-ordinating measurements, a clearer picture of both global economic growth can be created, as well as more accurate data that can help world leaders better co-ordinate policy.

The UK’s services sector has expanded at its fastest pace since December 2006, a survey has indicated.

The Markit/CIPS Services Purchasing Managers’ Index (PMI) rose to 60.2 in July from 56.9 the month before, a stronger showing than economists had expected.

Any reading above 50 indicates growth.

The numbers complete a trio of positive PMI figures for July, after strong showings in both the construction and manufacturing sectors last week.

Markit said its UK All Sector PMI, which combined the three, was 59.48, the highest since its records began in January 1998.

Continue reading the main story
Analysis

image of Hugh Pym
Hugh Pym
Chief economics correspondent, BBC News
They are surveys rather than hard data. But the Purchasing Managers’ Indices (PMIs) are watched closely by market analysts as reliable forward looking indicators of activity in the UK economy.

And if the latest results prove well-founded, the UK is in for strong growth in the current second quarter of the year. The services sector accounts for three quarters of economic activity, so July’s strongest result since December 2006 bodes well for future expansion.

Economists have been busily upgrading economic growth forecasts for the UK. On Friday the National Institute of Economic and Social Research pushed up its estimate for 2013 and 2014.

But whether this contributes to a sustained fall in unemployment remains uncertain. And UK output, unlike that of some other leading economies, is still below where it was in 2008, before the recession.

Paul Smith, senior economist at Markit, said indications were that there would be a “further strengthening of GDP” in the third quarter of the year, “as the UK heads towards ‘escape velocity’ and self-sustaining economic expansion”.

‘Firmer footing’
The latest UK services figure contrasts with data from the eurozone services sector, which showed a contraction at 49.8.

“It appears that the much improved weather helped services activity in July and we doubt that this rate of expansion can be sustained,” said Howard Archer, chief European and UK economist for IHS Global Insight.

“Nevertheless, there does appear to be a marked underlying improvement in activity under way, with the UK economic recovery genuinely moving to a firmer footing.”

And Victoria Clarke, economist at Investec, said the latest UK PMI data had produced another set of “storming” figures.

“Coupled with the lead that we saw in the construction PMI and the pretty solid manufacturing PMI, all those indicators are suggesting the UK recovery is really gaining pace now,” she added.

PMI surveys are based on data from various private-sector firms, which supply information on factors such as output, new orders, stock levels, employment and prices.

Despite the upbeat UK figures the FTSE index of leading blue-chip stocks was virtually unchanged in early afternoon trade.

The US economy added 162,000 new jobs in July, according to the US Labor Department.

The figure – which measures the number of jobs outside the US farming sector – was below economists’ expectations of more than 180,000 and the government also cut its previous estimates for hiring in May and June.

Nonetheless, the new jobs helped the unemployment rate to fall to 7.4%.

That was down from 7.6% and is the lowest jobless rate in four years.

The news adds to the picture of a slowly growing US economy and may make its central bank more likely to end its monetary stimulus programme.

The Federal Reserve is currently buying $85bn a month in bonds which helps to keep borrowing costs low.

However, there is much speculation as to when the Fed will start to rein in this stimulus programme.

Its chairman, Ben Bernanke, has said that it might start cutting down the rate of bond buying by the end of the year and stop altogether by the middle of 2014, depending on the strength of the economy.

Continue reading the main story
Analysis

image of Samira Hussain
Samira Hussain
BBC business reporter, New York
At first glance, a 7.4 %unemployment rate seems like something to cheer about. That’s a point two percent decline from the month before and a far cry from the double digits we saw at the height of the US financial crisis. But a closer look at the labour participation rate tells a different story. The current percentage of working age adults in the United States in the labour force sits at 63.4%. That calls the actual strength of the US economic recovery into question. While the number of people who have a job went up, there are still a number of people who have dropped out of the labour force completely. Couple that with the weak GDP growth and slowing in hiring shows this economy isn’t picking up as robustly as some would hope.

Earlier this week, figures showed that the US economy grew at a faster-than-expected annualised pace of 1.7% in the second quarter of the year.

That was up from the growth rate for the first three months of 2013, which was revised lower to 1.1% from 1.8%.

‘Grinding along’
Gordon Charlop, of Rosenblatt Securities said the figures were moderately encouraging: “The idea that the unemployment dropped at all, went below 7.6%, is showing that the trend is going the right way.

“We’re sort of grinding along here. We’re not surging. I don’t think there’s anything here that will cause the Fed to do anything significant.”

Revisions to previous months’ data saw May’s jobs increase downgraded to 176,000, below the 195,000 previously estimated, while June’s increase was lowered to 188,000, from the 195,000 originally reported.

Paul Ashworth, chief US economist at Capital Economics, said despite that, the employment picture was much brighter than last year: “While July itself was a bit disappointing, the Fed will be looking at the cumulative improvement.

“On that score, the unemployment rate has fallen from 8.1% last August, to 7.4% this July, which is a significant improvement.”

Other figures released on Friday confirmed the picture of moderate economic growth.

US consumer spending and inflation both rose in June, with the US Commerce Department saying spending was 0.5% higher and annual inflation running at 1.3% – although that is still well below the US target of 2%.

US President Barack Obama has addressed Michigan car workers to build support for his plan to raise taxes on the rich and avert a looming “fiscal cliff”.

The visit follows face-to-face meetings with Republican House Speaker John Boehner at the White House on Sunday.

After their first private talks since Mr Obama won re-election, both sides said communication lines “remain open”.

Deep spending cuts and tax rises due to take effect on 1 January threaten to derail US economic recovery.

Extended benefits for the long-term unemployed and a temporary cut to payroll taxes are also scheduled to expire at the same time.

International observers, such as Christine Lagarde, head of the International Monetary Fund, have warned that there would be ripple effects for the rest of the world if US lawmakers are not able to agree to a deal.

Tax rise hit
Mr Obama’s appearance at a car factory outside Detroit was his latest public outreach effort to sell a plan that would increase taxes for the rich while extending Bush-era tax cuts for everyone else.

During Monday’s campaign-style event he told auto-workers that while he was prepared to negotiate on some issues, he “won’t compromise” on tax rises. He avoided criticising Republicans directly.

Mr Obama promised Democrats would “make some tough spending cuts on things that we don’t need” as part of his budget plans, but he did not mention any specific cuts by name.

Without action by Congress, the president said, middle-class families would see a $2,200 (£1,369) rise in taxes in 2013.

“That’s a hit you can’t afford to take,” he said,

Mr Obama also waded into the contentious issue of “right-to-work” laws in Michigan – a law backed by state lawmakers on Friday under which employees in a unionised workplace can refuse to join the union or pay union dues.

Proponents say the proposals will bring more jobs and economic benefits to Michigan, while opponents say the laws are designed to weaken unions and lead to lower wages. On Monday, Mr Obama sided with the unions fighting right-to-work.

“These so-called ‘right to work’ laws, they don’t have to do with economics, they have everything to do with politics,” Mr Obama said. “What they’re really talking about is giving you the right to work for less money.”

‘Shifting focus’
The president’s proposal to avoid the fiscal cliff calls for $1.6tn (£990bn) in new tax revenue over 10 years.

Continue reading the main story
What is the fiscal cliff?

Under a deal reached last year between President Obama and the Republican-controlled Congress, existing stimulus measures – mostly tax cuts – will expire on 1 January 2013
Cuts to defence, education and other government spending will then automatically come into force – the “fiscal cliff” – unless Congress acts
The economy does not have the momentum to absorb the shock from going over the fiscal cliff without going into recession
Are you facing the fiscal cliff?
Mr Boehner, the top Republican in Congress, has said that he is prepared to consider increasing tax revenue – by closing loopholes and limiting deductions rather than raising rates.

Neither side revealed details about the meeting between Mr Boehner and Mr Obama on Sunday, but representatives released identical statements saying “the lines of communication remain open”.

On Monday, White House spokesman Jay Carney told reporters travelling with the president to Michigan: “The president does believe that we can reach an agreement.

“We, broadly speaking, continue to engage in this process with important players and stakeholders.”

Although Republicans are philosophically opposed to raising taxes, some congressmen have recently suggested they would consider agreeing to Mr Obama’s demand.

Republican Senator Bob Corker told Fox News on Sunday: “There is a growing group of folks looking at this and realising that we don’t have a lot of cards as it relates to the tax issue before year end.”

He added that if Republicans accepted the higher top tax rate, “the focus then shifts to entitlements, and maybe it puts us in a place where we actually can do something that really saves the nation”.

The Republican counter-offer would aim to collect $800bn in revenue by closing tax loopholes and deductions.

Christine Lagarde told the BBC there would be global ripple effects if the US went over the fiscal cliff
It would also reduce government spending by $1.4tn, raising from 65 to 67 the age of eligibility for Medicare, a popular healthcare programme for the elderly, and by changing the way annual increases in Social Security payments are calculated.

So far, Democrats have appeared reluctant to discuss reforms to major entitlement programmes.

Senate Democratic Whip Dick Durbin told NBC News on Sunday: “We need to address that in a thoughtful way through the committee structure after the first of the year.”

The White House has repeatedly said it would not support any deal that did not increase tax rates on the wealthiest.

If a deal cannot be reached, economists say the fiscal cliff would suck about $600bn out of the economy.

The measures were partly put in place within a 2011 deal to curb the yawning US budget deficit.

China’s economic growth rate may be gathering pace again, as the government released strong industrial output and retail sales figures.

Industrial production rose by 10.1% in November, compared with a year earlier, according to the official data from the National Bureau of Statistics.

This was better than expected, and the strongest performance since March.

At the same time, China’s retail sales increased by 14.9%. This was also the best showing for eight months.

‘Sweet spot’
The official economic data are the first to be released since the Communist Party appointed its new leaders last month.

The figures will be good news for them, but also for the world economy, as China’s factory output is indicative of global demand for the country’s consumer products.

Until the end of September, China had seen seven consecutive quarters of a slowing economic growth rate, due to both falling exports and weak domestic demand.

The data for the current three months from October to December will be released in the new year. For July to September, the rate of growth was 7.4%, down from 7.6% in the first quarter the year, and 9.2% for 2011 as a whole.

Other data released on Sunday showed that Chinese inflation rose slightly to 3% in November – from 2.7% in October.

“The Chinese economy is in the sweet spot now with rebounding GDP growth, rebounding earning growth and low inflation,” said Lu Ting, China economist at Bank of America Merrill Lynch.

India’s industrial output rose more than expected in October, boosted by increased demand during the festive season in the country.

Factory output rose 8.2% from a year earlier. Most analysts had forecast a rise of 4.5%.

Manufacturing activity, which accounts for almost two-thirds of overall output, rose 9.6% from a year earlier.

Analysts said the data was also helped by a low base and did not indicate a recovery in India’s economy.

Industrial production had dipped 5.1% during the same month last year.

“It’s a positive surprise, but bear in mind the jump is distorted by last year’s low base, and this is going to reverse in November,” said Rajeev Malik, a senior economist with CLSA.

Mr Malik explained that the festival of Diwali, which is traditionally associated with a surge in consumer demand in India, was celebrated in October last year and in November this year.

Factories mostly manufacture and ship their goods ahead of the festival, and as a result, there had been a fluctuation in demand during the respective months.

“The real, credible assessment will be possible only after the November data,” Mr Malik said.

Mark Carney, who will take over as governor of the Bank of England next year, has suggested targeting economic output instead of inflation.

At the moment, the Bank’s job is to aim for an inflation target of 2%.

Targeting gross domestic product (GDP) that has not been adjusted for inflation would mean the economy would have to catch up with previous shortfalls, Mr Carney said in a speech.

He said it might be a good option when interest rates were near zero.

Mr Carney is currently governor of the Bank of Canada.

He said one problem with changing the target would be that “people must generally understand what the central bank is doing – an admittedly high bar”.

It was his first speech since the unexpected announcement of his appointment to the Bank of England top job.

Targeting the country’s economic output rather than inflation would be a major change to monetary policy, although it is not within the power of the Bank to change its target.

Targeting inflation has been a key plank of economic orthodoxy around the world for decades.

Mr Carney also suggested that a central bank could make it clear how high inflation or unemployment would have to go before interest rates would be increased.

He said that people would have to be confident that rates would stay very low even if there was a small rise in inflation above the target level, because otherwise, low rates would be a less effective stimulus to the economy.