IMF: UK high house prices peril economic recovery

Accelerating house prices and low productivity pose the greatest threat to the UK’s economic recovery, the International Monetary Fund (IMF) has warned.

In a report on Friday, the IMF warned the British government that the rising property values in the country could leave households more vulnerable to income and interest rate shocks.

According to the IMF, house price inflation is particularly high in London.

The global financial organisation urged the UK government to consider modifying or even putting an end on its mortgage guarantee scheme, known as Help to Buy scheme, if house prices showed signs of overheating.

The IMF report also said that productivity growth remained low in the country despite some evidence of the economic recovery strengthening.

“Accelerating productivity growth would spur investment and output, while allowing real wage increases without triggering inflation. If productivity continues to be flat, however, growth will eventually stall,” it added.

In the past 12 months, Britain’s house prices have gone up by about 10 percent and a Reuters poll of analysts have predicted that the prices will continue to rise another eight percent this year.

The Organization for Economic Co-operation and Development (OECD), the IMF and other economic think tanks have all voiced concern about the possibility of a price bubble.

British Prime Minister David Cameron, however, has dismissed suggestions of a house price bubble, saying there was “no evidence” that the market was unsustainable.

Britain’s housing market crashed in 2007, triggering one of the worst recessions in the country’s history.