Carney Says He’s Alert to Bubble Danger for House Prices

Bank of England Governor Mark Carney said policy makers 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 today.

Nationwide Building Society said home prices rose 0.6 percent this month and 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. “Interest rates are principally an instrument of monetary policy for achieving the inflation outcome and there are other tools that address risks.”

The pound was little changed against the dollar and traded at $1.5497 at 10:07 a.m. in London.

The housing market is also being boosted by the government’s Help to Buy program, which allows people to buy a home with a deposit as little 5 percent of the value of the property. Carney indicated there is a risk of too much stimulus and that it might be a “challenging task” to curb a bubble.

‘Other Direction’

“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.

The Nationwide report showed that house prices rose 3.5 percent in August from a year ago to an average 170,514 pounds ($264,600). Separate data 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.

The BOE said today that mortgage approvals rose to 60,624 in July, the highest since March 2008.

There are “signs that the U.K. 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.”

Forward Guidance

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 Aug. 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 programs and a prolonged period of low interest rates mean “the seeds are being sown for a new cycle in the housing market.”

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.”

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