Bank boss ready to burst any new property bubble

The new central bank boss said lenders could be asked to restrict borrowing terms or even be forced to hold more cash on their balance sheets to dampen down an over-heated property market.

His warning came as he also sought to reassure that interest rates were set to stay at record lows for at least three years as part of an effort to shore up his flagship ‘’forward guidance’’ policy following a poor reception in the City.

In his highly-anticipated first UK public speech, Mr Carney insisted: “Rates won’t go up until jobs and incomes are really growing.

“The knowledge that interest rates will stay low until the recovery is well established should give greater confidence to households to spend responsibly and businesses to invest wisely.”

The guidance prompted fears that the Bank Rate might rise sooner than expected.

But Mr Carney said: “We do not intend even to consider raising it before unemployment falls to seven per cent.”

He added the Bank stood ready to launch more economy-boosting measures if necessary.

Mr Carney, who succeeded Lord King at the helm last month, also unveiled new plans to bolster bank lending by another £90bn.

Facing mounting criticism over stringent demands for lenders to bolster their financial reserves, Mr Carney said all banks and building societies that meet the new capital requirements will be allowed to reduce asset holdings elsewhere.

This will reduce holdings by £90bn once all eight major banks and building societies meet the capital rules.

“That will help to underpin the supply of credit, since every pound currently held in liquid assets is a pound that could be lent to the real economy,” he told business leaders at a CBI event in Nottingham.

Mr Carney said there were signs that the UK recovery is “broad based and set to continue”.

But Britain is still lagging far behind other countries, producing three per cent less than it did five years ago, while Germany has grown by two per cent, the US by five per cent, Australia by 13 per cent and China by more than 50 per cent.

While the Bank’s task is to “secure the fledgling recovery”, he said this would not come at the expense of letting another credit and housing boom get out of control.

Fears of a property bubble have been fuelled as government initiatives such as Help to Buy, low interest rates and improved mortgage access, have sparked a bounce-back in the housing market.

Mr Carney said new powers handed to the Bank and its independent Financial Policy Committee mean it has the tools available to prevent another credit crisis developing, adding “we are now fully prepared to deploy them if that were needed”.