Bank of England keeping an eye on UK 'microwave' housing market, says chief economist Spencer Dale

Bank of England in no rush to hike rates, says chief economist Spencer Dale (PA)

The housing market is capable of overheating with little warning, a senior Bank of England official said on Friday, amid rising concerns that the Government’s mortgage subsidies could be inflating a fresh property bubble.

The Bank’s chief economist, Spencer Dale, noted that the British housing market traditionally has a “microwave-type quality to it, with a tendency to turn from lukewarm to scalding hot in a matter of a few, economic seconds”. Separately, two thirds of 27 economists surveyed by Bloomberg News agreed that the UK housing market is at risk of running too hot.

A host of data in recent months has shown house prices accelerating upwards. Acadametrics and LSL Property Services said yesterday that house prices rose 0.6 per cent last month and that transactions exceeded 77,000, the highest November total since 2007. The Royal Institution of Chartered Surveyors also reported this week that 59 per cent of surveyors expect rising prices over the next three months, the highest reading since September 1999.

The Bank of England’s Financial Policy Committee regulator signalled its intention earlier this month to intervene in the property market if there are signs of a new bubble. The Treasury/Bank of England Funding for Lending Scheme will cease to subsidise mortgage lending from next month. But George Osborne’s Help to Buy subsidies, which guarantee 15 per cent of the value of new mortgages, will remain in place.

The Chancellor defended Help to Buy when he appeared before the Treasury Select Committee earlier this week and denied that there was a property bubble forming.

“Of course we have to be vigilant, and we have a system for that, but there is not that issue today” he said.

The comments of Mr Dale echo the thoughts of the Bank’s Governor, Mark Carney, who said in New York earlier this week that the British housing market has a tendency to shift rapidly “from stall speed to warp speed”.

Mr Dale, who was speaking at a Confederation of British Industry lunch event in Newmarket, maintained that the Bank has the necessary tools to avert a housing bubble. The Bank will be asked to evaluate Help to Buy next year, although it lacks the authority to close the scheme on its own.

Mr Dale also stressed on Friday that the Bank would keep interest rates on hold until the economy was growing strongly, and he added that a hike in base rates from their present historic low of 0.5 per cent was “still some way in the distance”.

“Yes, interest rates will rise at some point,” he said, “but only against a far-stronger economic backdrop, when your output is higher, your order books are fuller, and you and your customers are better able to withstand a rise in borrowing costs”.

In his speech, Mr Dale said that consumers, who have been driving the economic recovery this year, need to pass the “baton of growth” to businesses, although he admitted that the traumatic events of the past few years “may colour and contaminate business behaviour for many years to come”.

The Office for National Statistics reported on Friday that the construction sector increased output in October by 2.2 per cent on the previous month, mainly on the back of new house building.

It also said revisions to previous estimates of growth in construction meant that total GDP growth in the first quarter of this year could be raised next week from 0.4 per cent to 0.5 per cent and growth in the third quarter from 0.8 per cent to 0.9 per cent.