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."
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.
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