* Haldane: Higher rates can help stop asset bubbles
* Regulatory steps should be tried first, rates last resort
* Some markets might be "over-egged", volatility may rise
* "Precious little sign" of immediate wage pressures
(Adds context, detail)
By David Milliken
LONDON, July 2 Raising interest rates is the
Bank of England's last line of defence against asset price
bubbles, its chief economist, Andy Haldane, said on Wednesday as
British house prices posted their biggest rise in nine years.
Figures out earlier on Wednesday showed that house prices
have risen by nearly 12 percent in the past year and are more
than 25 percent higher in London - the sharpest increase there
since the eve of the 1987 financial crash.
Haldane - speaking at a panel discussion on financial market
risks - said some markets might be getting "over-egged".
"As recently as last week, we at the bank took some action
overtly with an eye to stop a market - in this case housing -
becoming overheated, not today but in future," he said at the
event hosted by the Financial Times.
"Equally important is that we've said at the bank that
monetary policy can on occasions have a role to play in insuring
against these financial stability risks - not as a first line of
defence but sometimes as a last line of defence."
Last week, the central bank set limits on how much most
Britons can borrow to buy a home and required lenders to
undertake more stringent checks that borrowers could cope with
higher interest rates.
But BoE Governor Mark Carney said the measures were unlikely
to bite until next year, and some economists think rising house
prices could add to pressures from a fast-growing economy that
might make the central bank raise rates before the year is out.
Haldane said that for now, he saw "precious little sign" of
the wage pressures that could prompt the BoE to make an early
rate rise. All BoE policymakers think Britain's economy has more
scope to grow before rates need to go up from their record-low
0.5 percent, though annualised growth rates above 3 percent mean
the slack is disappearing fast.
However, Haldane said the risk of high inflation might be
appreciably lower than before.
"There is a chance that we are structurally overestimating
inflation and wage pressures in Europe. That's why we are where
we are," he said.
British inflation fell to 1.5 percent in May, and the
European Central Bank has cut interest rates into negative
territory to ward off the risk of deflation.
Haldane also said that big swings in financial market
sentiment were now more likely than before the financial crisis,
as some risk had transferred away from banks to other investors
such as asset managers.
"On average, those fear and greed cycles in financial
markets will be more exaggerated than in the past," he said.
Regulators also had to consider whether to broaden their
focus on risks from leveraged investments to include those that
were not financed by borrowed money, he said.
(Reporting by David Milliken; Editing by Robin Pomeroy, Larry