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Carney says housing remains biggest medium-term risk to UK

[LONDON] The British housing market remains a threat to the country's economic recovery even after officials took action last year to tame risky lending, Bank of England Governor Mark Carney said on Tuesday in Parliament.

"The legacy of high indebtedness and structural imbalances in the UK economy means that there are risks that, if left unchecked, could undermine the durability of the expansion," he said in testimony to the House of Lords. "The biggest medium- term risks relate to the housing market."

While real estate will continue to be monitored by the Financial Policy Committee, Mr Carney said the Monetary Policy Committee is staying focused on returning inflation to the 2 per cent goal. He noted that consumer prices will barely increase for much of the year because of weak commodity costs and slack remaining in the economy.

The MPC left the key interest rate at a 0.5 per cent last week, as officials monitored the impact of record-low inflation on expectations for prices. Mr Carney has already had to write one letter to the Treasury explaining why inflation, now at 0.3 per cent, has strayed so far from the bank's target, and he anticipates sending a few more letters this year.

Mr Carney's wide-ranging comments to the Lords' Economic Affairs Committee may be among his last in public before government officials undergo a purdah period before the May 7 general election. Among risks he pointed to were those stemming from a long period of low interest rates, and misconduct in financial markets.

"Time and again, this country has seen how quickly responsible can turn to reckless, creating imbalances that ultimately destabilize the economy," he said.

Mr Carney's mention of housing-market risks follows action the BOE took last year to cool real estate. In June, the Financial Policy Committee said lenders must limit the proportion of mortgages at 4.5 times income to no more than 15 per cent of their new home loans. It also said banks must decline loans to borrowers who fail a new stress test for interest-rate increases.