LONDON (Reuters) - Britain’s economic recovery is at an early stage and is still reliant on rising house prices and consumer demand, Bank of England Governor Mark Carney said in an interview on Tuesday.
“At this stage most of the growth in momentum is coming from the household sector and there’s a pick-up in the housing market from quite low levels,” he said in an interview with Cardiff’s Western Mail newspaper while on a visit to the Welsh capital.
Earlier on Tuesday central bank data showed that mortgage approvals hit a five-year high, accompanied by a modest increase in lending to larger businesses, which Carney said was broadly where he wanted it to be at this stage in the recovery.
But he added in an advance copy of the interview published on the paper’s website that he would be vigilant about any future excessive lending to households, and that he hoped to see more access to finance for start-up companies to give growth a firmer footing.
“We may not see very strong net lending figures but it’s important that new businesses are getting access to credit because now we’re starting to be at a point in the recovery where that should really start to happen,” he said.
Britain’s economy has recovered strongly since the start of the year after a lengthy period of stagnation following the deep 2008-09 recession.
But much of the growth has been helped by rising consumer spending at a time when take-home pay is still falling in real terms, raising doubts about its sustainability.
Some economists are also concerned that government schemes to encourage house purchases may lead to untenable increases in prices, though the rises are so far concentrated in London and neighbouring regions.
Carney stressed that housing transactions were still almost a third below pre-crisis levels, and that the central bank had other tools at its disposal to avoid it having to raise interest rates to tame house price rises in one part of the country.
“If there are imbalances ... in some parts of the economy, whether it’s a sector such as housing or some regions, we can to a degree help lean against those so that we don’t use our broadest tool, which is monetary policy, to try to attack a specific issue in a specific part of the country,” he said.
In April the BoE gained powers to tweak lending rules for banks on a sector-by-sector basis, and shortly after his arrival in July, Carney committed the central bank to keep its main interest rate on hold until unemployment falls to 7 percent from its current 7.7 percent.
“We’re not going to look to tighten monetary policy until we see real traction and momentum in this recovery that has been sustained for some time,” Carney said on Tuesday, echoing language on monetary policy he had used the previous week.
Reporting by Christine Murray, writing by David Milliken, editing by Sarah Young and Barry Moody