Eddie George: House price boom will not bust

Sir Eddie, who is to step down as governor later this year, said he failed to see why there should be any crash in house prices, although he predicted that they would "moderate sharply".

He acknowledged that there were risks facing the economy and that consumer spending was likely to slow down, but said all the indications were that interest rates would stay near their current 4 per cent level.

"On the basis that we are anticipating the economy, on our central expectation, will grow close to trend, that inflation will remain close to target; that’s not something that implies a sharp change in interest rates in either direction," George said.

Dismissing the likelihood of a house-price bust to follow the boom, he told BBC Radio: "What we are anticipating is that the rate of increase in house prices will moderate quite sharply. We are not expecting a fall in house prices."

The governor said that the Bank of England expected to see "a gradual moderation in consumer spending" during the year. But he said the economy was being "supported helpfully" by Chancellor Gordon Brown’s planned increases in public spending.

Employment remained "remarkably strong", George said, and incomes were increasing steadily.

A stronger rebound in the world economy would give more support to the British economy than any other factor, George added.

"The thing that would help the UK economy more than anything else I can think of is for a clearly established stronger recovery in the world economy," he said.

George also warned against reading too much gloom into some nervous statements put out by retailers in the run-up to Christmas, even though post-Christmas trading has shown an improvement.

He said: "There is always a short-term fluctuation in retail spending over Christmas and the New Year. You should not put too much weight on particular surveys at this time of year."

The Bank of England is expected to keep interest rates on hold for the 14th month running at its meeting this week. Most economists believe there will be no change.

George’s comments came as the Bank of England said that consumer credit - a sign of consumer confidence and a potential guide to the future direction of interest rates - rose at its slowest rate during November since August 2001.

The Bank said that unsecured net lending increased by 1.4 billion during the month, down from 1.76 billion in October.

A separate survey said Britain’s construction sector continued to expand strongly last month, but was down on November’s seven-month high.

The Chartered Institute of Purchasing and Supply said its construction purchasing managers index - which reflects activity in the sector - fell to 55 in December from 56.2 in November. Any figure over 50 signals expansion.