IMF issues UK housing bubble warning

<p>The UK government has denied there is a housing bubble.</p>

The International Monetary Fund (IMF) has reminded the UK's government that it needs to be aware of the economic risks of a housing bubble.

Property values have been rising fast in the UK since the end of the recession and the increasing house prices have been fuelling the UK's economic recovery in the last few months.

Despite this, UK chancellor George Osborne has insisted that the economic recovery has not been built on the back of a housing bubble.

The IMF stated that the Bank of England will have to enact policy measures "early and gradually" if it is to help the country to avoid a housing bubble. The Bank's Monetary Policy Committee recently announced it is holding interest rates for another month, with UK interest rates retained at 0.5 per cent since March 2010.

In its latest update, the IMF said: "Macroprudential policies should be the first line of defence against financial risks from the housing market."

Growth increase

The IMF recently increased its growth forecast for the UK economy, saying it is now set to grow by 2.9 per cent over the course of 2014. The IMF was also forced to admit it was wrong to say the UK's economic recovery had been built on consumer spending, noting the UK has moved towards a more "investment-led recovery".

Howard Archer, chief UK and European economist at IHS Global Insight, previously warned that the threat of a UK housing bubble growing in the next few months is "very real", but the chancellor told BBC Radio 4's Today programme the government has a mechanism in place to prevent this from happening.

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."

UK interest rates are widely expected to remain at 0.5 per cent until 2015 at the earliest, with Bank of England governor Mark Carney recently said rates will rise incrementally.

Following the new IMF report, the FTSE 100 index was up by 0.34 per cent at 12:40 BST.

Find up to date information on the FTSE 100 and spread betting strategies at City Index

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.