For a man whose declared aim is to make the Bank of England’s deliberations boring, Mervyn King has a strange way of going about it.

The Bank governor, who succeeded Lord “Eddie” George last year after serving as his deputy, does not go about his business lightly.

His big speeches are carefully choreographed. He pledged early on that they would mainly be made outside London and accompanied by interviews in local newspapers and on local radio.

King’s press conferences are preceded by a full dress rehearsal, with Bank staff playing the role of journalists asking awkward questions.

So as King sat in the Bank’s high-tech conference centre on Wednesday, presenting its quarterly inflation report to the world as he has done for the past 12 years, he knew he would be generating headlines.

Included in the report — approved by the nine men and women on the Bank’s monetary policy committee (MPC) — was a prediction guaranteed to send shudders up and down the avenues of suburban Britain.

House prices, said King, are now expected by the Bank to fall. The “soft landing” long-predicted by Britain’s inflation guardians is now officially forecast to give way to something rather more bumpy.

It may mark a pivotal moment in Britain’s long housing boom, a prolonged climb in which prices have trebled in less than nine years. In January 1996 the average house price in Britain was £50,521. Now it is £152,159.

The boost to wealth and household wellbeing has been huge, particularly in a period when the stock market was weak. But now the party is over. It was, admitted King under questioning, “the first time we’ve made a statement like that”.

And, while the Bank merely predicts a “modest” fall in prices, probably lasting only a matter of months, it is not ruling out something bigger.

House prices are overvalued, on some estimates by as much as 30%-40% compared with their long-run average in relation to people’s earnings. The average for the ratio since 1982 has been 3.8, but now it stands at more than 5.5.

Even allowing for some rise in that average in response to lower interest rates and inflation, as well as other factors, which Bank economists do, a significant overvaluation remains. King expects it to be worked off over the next two to three years, either as a result of rising earnings or falling houses prices — or more likely a combination of the two.

But will it be a “modest” fall in prices, with a drop of perhaps 3% or 4% spread over a few months, or a 1990s’ style crash?

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