The Bank of England should not raise interest rates to prick the housing market bubble, a member of the monetary policy committee said last night.
Kate Barker, formerly chief economist at the CBI, also said she did not believe the housing market, which has seen prices more than double in the past five years, was necessarily set for a spectacular bust of the type last seen in the early 90s.
Speaking to a business dinner in Yorkshire last night, Ms Barker said: "I do not think that the risk of a big house price fall is so critical that it should dominate all the other policy considerations.
"It is also perhaps worth noting that the MPC has been urged to act to 'prick the housing market bubble' for some time. I am not convinced that the economy would have benefited if we had followed this advice a couple of years ago."
The committee has raised interest rates twice since November, to 4%, because it fears accelerating economic growth will stoke inflation in the future.
The City widely expects it to add another quarter-point to base rates next week but many economists say this is because it is increasingly concerned about runaway house prices rather than inflation, which is at 1.1%, well below its government-set target of 2%.
Ms Barker said she was very surprised at how far house prices had risen, and were continuing to rise.
"As house prices have risen, it is, however, increasingly likely that at some point they may fall back, but it is by no means certain either that they will necessarily fall significantly, or that any decline will be abrupt."
She said it was not clear what would trigger a house price collapse but if one did happen, the Bank would probably have to cut interest rates.
Ms Barker, who has a reputation as a "dove" on rates, gave no indication about whether she would be voting for higher interest rates next week but did not seem in a hurry to raise the cost of borrowing.
Her fellow MPC member Marian Bell, in an interview with the Financial Times yesterday, also rejected the idea of using rates to calm the housing market, where prices are rising between 15% and 20% annually.
But she seemed in favour of an increase at next week's meeting when she suggested that consumption, investment and government spending were picking up while spare capacity in the economy was dwindling.
"The economy has been growing above trend, and probably still did in the first quarter, and if that's expected to continue, then inflation will be rising."
Ms Barker also said that industry appeared to be emerging from a three-year slump, with profitability, investment and confidence all rising.
Separately, Gordon Brown, who has also sought to play down fears of a housing market crash, said the government fully supported any rate moves the Bank might make.
Britain was well placed to benefit from the new global economy but still had plenty to learn from the United States, he told the Institute of Directors' annual convention, announcing a joint initiative to boost business links between the two countries.
