Bank chief softens housing crash alert

The Bank of England Governor was forced to backtrack today after suggesting the housing market may be heading for a crash.

Mervyn King was left looking isolated after mortgage lenders questioned the warning.

In a radio interview today, he tried to play down his remarks to a CBI dinner - claiming he had never predicted a crash.

He said he was simply trying to alert buyers to the fact that house prices could

fall and interest rates could

rise. He said: "When people are thinking of moving into the housing market they should be aware that house prices can sometimes go down as well as up."

Fears of a property crash are rising after the Bank's surprise decision to raise interest rates last week by a quarter-point to 4.5 per cent.

The UK's biggest mortgage lender, Halifax, insisted the

market was

not heading for Eighties-style price falls, saying today's economic climate was very different. Chief economist Martin Ellis said the market was underpinned by very high employment and low interest rates. He said: "Back in the late Eighties there was a big problem to do with inflation in the economy. In response to that, the Government increased interest rates very aggressively, doubling them over a period of 15 months.

"This caused... the economy to go into recession, which caused unemployment to go up very sharply to over three million."

Meanwhile, new official figures today show that rocketing oil prices have pushed inflation to its highest since April last year.

The Government-preferred consumer price index shows a rise to 1.5 per cent in May from 1.2 per cent in April this year, driven by higher transport costs - mainly due to dearer fuel as a result of record crude oil prices.