Mark Carney might be about to meddle in Britain’s love affair with housing.
With a growing number of analysts saying the property market is at risk of overheating, 67 percent of respondents to Bloomberg’s monthly survey of economists predict the Bank of England governor will take steps to cool real estate next month. Measures could range from forcing banks to hold more capital to tightening mortgage-approval criteria.
Carney this week issued his most forthright warning on housing yet, indicating that a response may be imminent to curb values that are surging about 10 percent a year. Still, any intervention by the Financial Policy Committee in a market that has long been Britain’s national obsession may be tempered to ensure it doesn’t derail the economic recovery.
“The tone and the sense of urgency has shifted at the BOE,” said Philip Shaw, an economist at Investec Securities Ltd. “The consensus view appears to be that while there’s no national problem for now, it would be unwise to ignore the threat of problems developing later on.”
Carney isn’t alone in signaling concern. His deputy governor for financial stability, Jon Cunliffe, who also sits on the FPC, has said it would be “dangerous” to ignore the property momentum.
In the Bloomberg survey, more than four fifths of 28 economists said housing is at risk of overheating, the most since the question was first posed in November. Rightmove Plc said asking prices for homes rose 3.6 percent this month, propelling the average to a record 272,003 pounds ($457,600).
Housing has evolved into Carney’s biggest concern after record-low borrowing costs, a supply shortage and government incentives bolstered values. The FPC will hold its next meeting on June 17 and publish recommendations on June 26.
“The biggest risk to financial stability, and therefore to the durability of the expansion, those risks center in the housing market,” Carney said in an interview on Sky News broadcast on May 18. “That’s why we are focused on that.”
Prime Minister David Cameron said today the government will consider any changes to its stimulus program that the BOE recommends.
“It’s absolutely right that we are alert to any dangers,” Cameron said on BBC Radio. The FPC has the tools “to call out any problems in our economy, any bubbles in our economy, and to act on them and Mark Carney has all those powers at his disposal.”
The improving housing market has helped bolster the economy, and 71 percent of economists in the survey said the U.K. has now reached what Carney has termed “escape velocity,” up from 40 percent last month.
Economic growth accelerated to 0.8 percent in the first quarter and the BOE said last week that a gradual strengthening of productivity and real incomes “together with growing confidence of companies to invest, should underpin the durability of the expansion.”
In a separate Bloomberg survey, economists revised up their growth forecasts for this year and next year by 0.1 percentage point and now expect expansion of 2.9 percent and 2.5 percent. The BOE sees the U.K. growing 3.4 percent this year and 2.9 percent in 2015.
“The economy has started to head back toward normal,” Carney said at a press conference last week.
Economists see inflation averaging 1.8 percent this year and 2 percent in 2015, according to the survey. Data today showed price growth accelerated to 1.8 percent in April from 1.6 percent, boosted by transport costs because of Easter.
The governor sidestepped questions then about when the BOE will lift its key interest rate from a record-low 0.5 percent. Investors are pricing in an increase in the first half of 2015, a view shared by economists.
Thirty-five percent of 46 respondents in the survey predict the BOE will increase rates in the first quarter of 2015 and 35 percent said it will wait until the three months ending June. Eleven percent see an increase before the end of this year.
To contact the editors responsible for this story: Craig Stirling at firstname.lastname@example.org Fergal O’Brien