London - Bank of England Governor Mark Carney said policymakers will act if signs of a property bubble emerge as new data points to continuing strength in the housing market.
“We are watching it closely and we will as appropriate make our views known in terms of the degree of this risk and the potential action that should be taken to address it,” Carney said in an interview with the Daily Mail published on Friday.
Nationwide Building Society said home prices rose 0.6 percent this month and that the BOE’s commitment to maintain record-low interest rates may be helping to support demand. Carney signaled that any response from the central bank to housing would be through its Financial Policy Committee, set up to monitor risks to the financial system, rather than through tighter monetary policy.
“We have the responsibility to assess emerging vulnerabilities in the economy such as housing, make those assessments and recommend action,” Carney said in the newspaper. “Interest rates are principally an instrument of monetary policy for achieving the inflation outcome and there are other tools that address risks.”
Housing is also being boosted by government measures introduced by Chancellor of the Exchequer George Osborne. Carney indicated these may provide too much of a stimulus and that it might be a “challenging task” to curb a bubble.
“It would be difficult to achieve if there were a host of government policies or other events that are pushing in the other direction,” the governor said in the Mail.
The Nationwide report showed that house prices rose 3.5 percent in August from a year earlier to an average 170 514 pounds. Separate data on Friday showed consumer sentiment climbed to the highest in almost four years this month and Britons became more inclined to spend after economic growth accelerated in the second quarter.
There are “signs that the UK economy is finally gathering momentum”, said Robert Gardner, chief economist at Nationwide. The BOE’s guidance on interest rates “may also help support confidence amongst potential buyers”.
Carney joined the BOE in July and introduced guidance this month, linking policy to the jobless rate, currently at 7.8 percent. The central bank has said it won’t consider raising its benchmark until unemployment falls to 7 percent, which it doesn’t see happening until the end of 2016.
Carney said August 28 he wants to give households and businesses confidence that “interest rates won’t go up until jobs, incomes and spending are recovering at a sustainable pace”.
The same day, he downplayed concern that government programmes and a prolonged period of low interest rates mean “the seeds are being sown for a new cycle in the housing market”.
Data from the BOE on Friday will probably show that mortgage approvals rose to 58 800 in July from 57 667 in June. While that would be the highest since 2008, it’s still only half the average in the five years before the recession.
The improvements in the property market in the past year “must be kept in perspective”, Carney said. “Mortgage approvals are currently running at only a little more than half, and transactions a little more than two-thirds, of pre-crisis levels.” - Bloomberg