House price growth 'unsustainable

Bank of England member Marian Bell today warned that Britain's housing market was growing at an unsustainable rate.

Ms Bell, one of the nine members of the Bank's Monetary Policy Committee (MPC) which is responsible for setting interest rates, added that the longer the sharp rises continued the "more abrupt" the ultimate slowdown may be.

The comments, made at a speech given to the Confederation of British Industry (CBI) repeat a caution given by the Bank of England's deputy governor, Mervyn King, last month.

Mr King, who will be replacing Sir Edward George as governor next year, said the Bank did not expect house price rises to continue indefinitely and cautioned there was a "growing risk of a sharp correction"'.

Ms Bell today said: "The recent rate of increase in house prices is not sustainable. The Committee's central projection is for house price inflation to slow soon, with prices becoming broadly stable after two years, but there are significant risks.

"The longer the recent exceptional rate of house price inflation continues, the more abrupt the ultimate slowdown of house prices and consumption might be."

Recent figures have shown the housing market continuing to rise. Data from Nationwide Building Society said the cost of a home rose by 2% last month, pushing growth for the year to the end of November up to 25.5%, while mortgage bank Halifax's survey showed prices rose by 1.4% in November.

The rises have been fuelled by the Bank of England pushing down interest rates to their lowest level for nearly 40 years in the wake of September 11 and the general economic slowdown.

In her speech, Ms Bell added that financial markets had steadied over the autumn, while prospects for world growth had recovered and the UK economy, having stagnated around the turn of last year, was growing again.

"Now things look somewhat brighter, leading to a degree of cautious optimism about the future," she said.

Ms Bell's speech marked her first six months as a member of the MPC. Her term began in June and last week she voted on interest rates for the sixth time.