The Bank of England is keeping a wary eye on the UK’s "microwave" housing market, its chief economist, Spencer Dale, said today.

The latest sign of concern in Threadneedle Street comes two weeks after the Bank brought a halt to financial institutions using its Funding for Lending Scheme to gain access to cheap cash for pumping into the mortgage market.

At an event for employers’ group, the CBI, Dale said a healthy housing market “is good for our economy and would help to support recovery” as well as supporting consumer confidence. “But,” he added, “let’s not be naive. Anyone with more than a passing interest in British economic history is aware that the UK housing market has a sort of microwave-type quality to it, with a tendency to turn from lukewarm to scalding hot in a matter of a few economic seconds. The Bank is fully aware of this risk.”

Dale says the Bank is far better equipped to control the housing market than previously through the Financial Policy Committee, which has potential tools at its disposal such as forcing banks to hold more capital or restricting high loan-to-value mortgages.

But the Royal Institution of Chartered Surveyors said this week that 59% of surveyors forecast rising prices over the next three months, the highest reading since September 1999. According to official figures, UK house prices rose 3.8% in the year to September but London prices are rising at more than twice that pace, up 9.4%.

Dale added that consumers needed to pass the “baton of growth” to businesses but admitted that the traumatic events of the past few years “may colour and contaminate business behaviour for many years to come”.

Interest rate rises are still “some way in the distance” although the chief economist said they shouldn’t be treated with “dread and fear”. When rates go up it “will be a sign that we have finally turned the corner for home,” Dale added.