SUDDEN changes in the housing market pose the biggest threat to the UK economy, the International Monetary Fund (IMF) warned last night.

In an unusually stark message, the IMF warned potential house buyers to exercise particular caution because house prices were "out of touch".

In two further blows to Chancellor Gordon Brown, it said the economy was running close to capacity and forecast growth next year would be lower than he predicts.

The news comes only days after Mr Brown told the Labour Party Conference that the strength of the economy should form the centre-piece of the re-election campaign.

In its World Economic Outlook report, the IMF said: "The central risk remains an abrupt adjustment in the housing market, where - despite signs of cooling in recent months - prices still appear higher than can be explained by developments in fundamentals."

The warning is starker than the comments made by the Governor of the Bank of England, Mervyn King, in June.

He said that house prices were well above what most people would regard as sustainable in the longer term.

House price growth remained subdued during September as the market continued to show signs of slowing down, figures from Nationwide showed last night.