The Bank of England kept its benchmark interest rate steady Thursday to support the U.K. economy's ongoing recovery, as figures showed house prices rose at the most rapid pace in almost 12 years during May.
The central bank said its rate-setting Monetary Policy Committee agreed to keep the BOE's benchmark rate at a low of 0.5% and the total size of its bond portfolio at 375 billion pounds ($628 billion) following its two-day meeting.
The decision was as expected. Sterling and U.K. government bonds were broadly unmoved.
The U.K. economy has hit its stride in the past nine months following a long period of stagnation. The International Monetary Fund expects the economy to expand by 2.9% in 2014, the fastest rate of growth among the Group of Seven leading developed economies.
BOE officials led by Gov. Mark Carney have signaled they will keep interest rates low to spur spending and investment and put more Britons back to work as long as inflationary pressures remain subdued. Annual inflation was 1.8% in April, and the central bank expects it to remain close to its 2% target over the next couple of years.
Investors expect the BOE to begin lifting its benchmark interest rate early in 2015. Officials have said they plan to tighten policy gradually and don't expect to have to raise the central bank's benchmark rate higher than 3% for some time.
Britain's return to growth has sparked fears of a housing bubble. As the MPC concluded its two-day meeting Thursday, figures released by mortgage lender Halifax showed house prices rose by 3.9% from April, the largest monthly gain since October 2002.
BOE officials are watching the market closely for signs that borrowers may be taking on too much debt, which could slow the economy and threaten the stability of the financial system.
Mr. Carney has said raising interest rates will be the last line of defense against an overheating real-estate market and that officials will instead use new "macroprudential" powers to cool it down first. These include tightening affordability tests for new borrowers, limiting how much buyers can borrow relative to their income and demanding banks finance their mortgage books with more capital.
The MPC's counterpart on financial stability, the Financial Policy Committee, will outline its latest thinking on housing June 26.
June's MPC meeting was the first as a rate-setter for Andrew Haldane, formerly the central bank's financial stability director. He joined the MPC June 1 as the BOE's chief economist, replacing Spencer Dale, who has moved into Mr. Haldane's old role.
The nine-member MPC is getting two more new faces in the coming months. Kristin Forbes, a U.S. academic who advised President George W. Bush, joins in July. Nemat Shafik, formerly a top official at the International Monetary Fund, arrives in August.