Part B Directions: In the following text, some sentences have been removed. For Questions 41-45, choose the most suitable one from the list A-G to fit into each of the numbered blank, There are two extra choices, which d not fit in any of the blanks. Mark your answers on ANSWER SHEET 1. The days are getting shorter and the house-price forecasts are dropping faster than the last of the autumn leaves. Forecasts of a price crash, which began life as a minority view, are now banging in the middle of the mainstream. (41) ______. One of the most aggressive interest-rate forecasts is from John O’Sullivan at Dresdner Kleinwort Wasserstein. He expects the Bank of England to cut the base rate to 40% by the end of next year in efforts to limit the house-price drop to 5%. (42) ______. But these things can change rapidly. The shift in rate expectations, particularly among City econ0mists, has been dramatic, and it is reflected in the currency markets. (43) ______. The other impact of housing will be on firms, particularly retailers. The Bank has been working hard to try to prove that housing and consumer spending have "decoupled", because the final two years of the boom in house prices coincided with a softening of spending growth. (44) ______. Charlie Bean, the Bank’s chief economist, repeated the "decoupling" case last week, but admitted there were big uncertainties. And underlying this quest for understanding has been the fear, certainly for the chancellor and his political advisers, that boom could turn to bust. For a government that promised no return to boom and bust, the excuse that only one part of the economy had turned to bust would cut little ice with voters. The relationship between house prices and election outcomes is not a perfect one. Having slipped in 2000, prices were rising strongly at the time of the 2001 election, which Labour won comfortably. (45) ______. The change in the housing climate will be a test in another way. In the budget the Treasury factored in a modest slowdown in consumer spending next year, from just over 3% to 2.5%, but within the context of strong overall growth of 3% to 3.5%, with exports and investment taking up the slack.[A] Capital Economics, which got there first, had its 20% price fall starting this year with a 5% drop and continuing for another couple of years.[B] My view is that the Bank’s monetary policy committee, having worked hard to get rates up from last year’s emergency low level of 3.5% to the present 4.75%, won’t surrender cuts without a fight and would like to keep rates where they are for quite a long time.[C] But Mervyn King, the governor, is too good an economist to have real confidence in a view based on a short run of data. When the housing market tanked in the past, consumer spending suffered. In the absence of better evidence to the contrary, that has to be the assumption this time.[D] Booming house prices were as welcome at the Treasury as flower arrangements at a hay-fever convention. The Treasury could not understand how, having delivered low-inflation economic stability, it had a housing boom as powerful as in the unstable days of the late 1980s.[E] It has hit the financial markets in at least three ways. The housing downturn has changed perceptions about the interest-rate outlook.[F] The pound has been climbing against the dollar but slipping against the euro. Its rise against the sickly dollar would have been much bigger had it not coincided with the softening of the outlook for rates.[G] On the other hand, the Tories lost the 1997 election despite a strong housing market, having won in 1992 at a time when prices were falling. Margaret Thatcher’s 1983 and 1987 victories came when prices were soaring. 43