(MENAFN- Khaleej Times) A measure of house prices rose to the highest in a decade
Bank of England Governor Mark Carney said the UK economy needs further policy support and pledged to maintain vigilance over the risks easy money might create for the housing market.
"We need to provide a lot of stimulus, but that stimulus can create risks," Carney, 48, said in an interview on the "Charlie Rose" show aired on Bloomberg Television.
"We need to take other steps in order to reduce those risks. If we don't, we're going to create bigger problems down the road or we're going to have to pull back too soon on monetary policy, which is the last thing we want to do."
Data on Tuesday showed a measure of UK house prices rose to the highest in more than a decade last month. Carney, the first foreigner to run the BoE, took action to head off a potential housing bubble last month by diluting a credit-boosting programme. He said in a speech in New York on Monday that the move will help officials keep monetary policy loose for longer.
"The true recovery is beginning," Carney said in the interview. "We've got big headwinds from Europe, from the currency, from ongoing deleveraging, from households" and "we have not yet seen businesses really starting to invest, really starting to believe in these recoveries."
Carney, who previously ran the Canadian central bank, took charge of the BoE in July and a month later unveiled his first major policy initiative when he introduced guidance on the future path of interest rates.
The new approach, which aims to help businesses and consumers make investment decisions, includes a pledge not to raise the benchmark rate until unemployment falls to seven per cent. The jobless rate is currently at 7.6 per cent.
In a question-and-answer session after his speech at the Economic Club of New York, he said guidance has been 'effective' in holding down short-term rates and bolstering the economy.
Britain's economic recovery accelerated in the third quarter as investment and house building helped to offset the biggest drop in exports in more than two years. Gross domestic product increased 0.8 per cent from three months earlier, matching an initial estimate, data showed November 27.
"I feel pretty comfortable about the near-term outlook," Carney said in the interview. "But the longer-term outlook is going to turn on these bigger questions of business investment, what happens to productivity, what happens to the so-called supply side of our economy."
While the economy is growing, it remains 2.5 per cent smaller than before the global financial crisis. BoE officials project unemployment will reach seven per cent as early as the end of 2014.
"The supply side, this is the big question," Carney said. "Whether it's the Federal Reserve or the Bank of England, we both see that this adds impetus to giving stimulus now to get people back into work as quickly as possible."
In his speech, Carney said while news on the British economy has been "positive," the recovery needs more robust global growth and that strong demand from the euro area remains "some way off."
The governor also said that risks from high household debt, the housing market and Britain's current-account deficit "merit vigilance but not panic."
He said that the UK recovery will "need to be sustained for a period before productivity - and real wage - gains can resume in earnest."
On housing, Carney said in his interview that "there's some welcome recovery in the UK housing market, but let's be prudent, let's act early, let's ensure that it continues to evolve in a constructive way."
UK gross mortgage advances rose 19 per cent to 49.5 billion pounds ($81 billion) in the third quarter from the previous three months, and were 25 per cent higher than a year earlier, the BoE said on Tuesday. That's the highest amount in five years.
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