The property boom may be over, warns Bank of England boss

The Bank said yesterday that the last decade had been characterised by low interest rates and inflation, but added: 'We cannot guarantee that the next ten years will be so "nice".'

This is technical jargon - an acronym for 'non-inflationary consistently expansionary' - used to describe economic stability.

The Bank's warning, contained in a memo submitted to the Treasury Committee, could signal a period of higher inflation and interest rates.

It comes a week after the cost of living index rose to 3.1 per cent, the highest for 15 years and far above the Government's 2 per cent target.

High inflation means an interest rate rise - the fourth in less than a year - is almost guaranteed next month. The rate is already at a six-year high of 5.25 per cent.

In its memo, the Bank of England said the past decade has been unusually 'nice'. The period has been referred to as 'The Great Stability' with inflation as low as 1.1 per cent and interest rates down to 3.5 per cent.

The conditions have fuelled an economic boom, but the Bank warns that this 'benign' background could be coming to an end.

Its statement follows an open letter to the Government from nine of Britain's leading economists.

They warned that interest rates may have to climb as high as 7.5 per cent to control inflation.

That would be a severe blow for homeowners who have stretched themselves to the limit to afford sky- high property prices.

The Bank's memo also raises fears about the huge debts many have taken on - including 'super-size' mortgages of more than £150,000.

Britain's debt mountain has ballooned to a record £1.3 trillion, compared with just £500 billion when Labour came to power. The memo said: "There is more evidence to suggest that the level of unsecured debt might be presenting problems."

This includes credit card borrowing, overdrafts and personal loans. Secured debts are mortgages and other borrowing 'secured' on property.

The Bank said its annual survey suggests around a third of unsecured borrowers find their debt 'a burden'.

The warning comes in the week that official figures showed around £1 billion in mortgages was handed out every day in March.

This is equal to about £42 million every hour, with borrowing reaching record levels.

The average house price is more than £200,000, but economists fear the decade-long property boom could be about to come to an end.

Former Government adviser David Miles, chief UK economist at the American investment bank Morgan Stanley, said yesterday: "Falling house prices at some point is very likely but timing is somewhat difficult to predict."

Another economist, Ed Stansfield from Capital Economics, said house price falls in London next year are 'not impossible to imagine'.

A fall would be a sharp shock for Londoners. Thousands in the capital have become 'property millionaires' as a result of soaring prices.

There may be more palatable news in the short-term, however. Bank of England governor Mervyn King said yesterday that he expects 'quite a sharp fall-back in inflation in the next four to six months'.

Giving evidence to MPs on the Treasury Committee, he said insisted the Bank is 'completely determined' to bring inflation back to its target of 2 per cent.

George Osborne, Shadow Chancellor, said: "Since the early 1990s, the whole world has enjoyed low interest rates and inflation thanks to the rise of countries like China.

"Gordon Brown should have used this unique period to prepare our economy for more stormy times ahead by creating a simple and competitive tax system, less regulation and reformed public services.

"Instead he blew the chance and leaves Britain less prepared for an uncertain future than it should be."