The Bank of England “should not hesitate” to take action to rein in the housing market if it poses a risk to the economy, Chancellor George Osborne has said.
Mr Osborne was speaking ahead of the publication of an International Monetary Fund assessment of the state of the UK economy, which is expected to warn that the potential for runaway growth in house prices represents a threat to the recovery.
The IMF is expected to acknowledge that its warning in a similar report last year that the UK Government should change course to stimulate recovery has been proven incorrect, and Mr Osborne said he expected to agree with everything said by the organisation’s managing director Christine Lagarde when she unveils her findings at the Treasury.
Mr Osborne said that he agreed with Ms Lagarde and with Bank of England governor Mark Carney on the need to be “alert” against the possibility that a build-up of excessive debt could present a risk to the recovery.
The Chancellor told BBC Radio 4’s Today programme: “We need to be alert to the build-up of debt in the housing market, we need to be alert when we see house prices rising.”
He said he had established a mechanism, through the Bank’s Financial Policy Committee, to monitor and react to signs of the housing market overheating.
“We have created - this Government, me as Chancellor - the mechanism to deal with that,” he said. “We have given the Bank of England the tools to do the job and they should not hesitate to use those tools if they see these developments turning into a risk for the British economy.”
Asked whether this was a decision for the Bank which he would take no view on, Mr Osborne responded: “I have a very strong view. We need to keep a close eye on these developments and as and when we think they are a risk to our economy we should act, and I have created the mechanism to do that.”
Ms Lagarde will unveil the IMF’s annual Article IV assessment of the UK economy alongside the Chancellor at the Treasury.
The Financial Times reported that the document would drop criticisms of the coalition Government’s overall economic strategy expressed last year, when chief economist Olivier Blanchard said Britain’s deficit reduction strategy was “playing with fire”, but would highlight the UK’s rapidly improving housing market as a potential threat to a sustained upswing.
Mr Osborne has had advance sight of the report but refused to reveal details of its contents.
But he said: “What I think you are going to hear from her is a lot of support for what we are doing in Britain, support for our economic plan.”
He added: “I think you will find I am going to agree with everything the IMF say later today.”
Mr Osborne acknowledged that the report would flag up risks to the economy, but added: “Their job is to point out the risks in the economy. There are risks from weaknesses abroad, like weaknesses in the euro area.”