The Bank of England must avoid "pouring oil on the fire" of rising house prices, rate-setter Paul Fisher has warned.
His comments come amid signs of a rapid recovery in house prices — up 5.4 per cent across the country in the year to November and nearly twice as fast — 11.6 per cent — in London.
The Bank has withdrawn its Funding for Lending scheme from household lending, “partly because of its own success”, and the Bank’s executive director for markets believes mortgage lending is “not... as yet excessive”.
But he added: “Sharply rising house prices are a potential source of instability and we should not risk adding policy oil to that particular fire.”
Fisher also stressed that the Bank’s Monetary Policy Committee was in no rush to act on raising interest rates despite the shock fall in unemployment to 7.1 per cent yesterday, close to the Bank's 7 per cent forward-guidance threshold.
Rate rises are “still some way off” according to Fisher, who added: “The realistic challenge for the MPC is to avoid a big mistake either by choking off the recovery too soon, leaving the economy in a quagmire, or by allowing inflationary pressures to build excessively, requiring a sharp tightening in interest rates (and the potential for another recession) to bring inflation back under control.”
He said the MPC would make an “appropriate judgement” about policy when unemployment hit the 7 per cent threshold.