Interest rates could rise from their historic low of 0.5% sooner than expected, Bank of England governor Mark Carney has warned.
He said "gradual and limited" increases would be needed as the economic recovery progresses, and that while it would be wrong to start now, this was "coming nearer".
Mr Carney also signalled that the Bank could take "graduate and proportionate actions" within weeks as a separate measure to cool the threat of an overheating housing market - described as the greatest danger to the economy.
Interest rates have been held at 0.5% since 2009 to try to nurse the UK back to health but the strength of the recovery has heightened speculation about when they will rise, with City experts pencilling in a hike next spring.
But in his first Mansion House speech since becoming governor, Mr Carney said last night: "It could happen sooner than markets currently expect."
The remarks are likely to intensify some economists' predictions that a hike could take place as early as this year - and are in contrast with remarks last month when the governor appeared to dampen speculation about an early rise.
Mr Carney said in his speech that growth had been much stronger and unemployment fallen much more quickly than had been expected.
He reiterated that rate increases would be "gradual and limited" as the UK continued to face a series of challenges - the greatest being from the threat of a housing bubble, with exports also struggling and debt too high.
He said the economy was "unbalanced internally and externally", pointing to indications that despite a better picture on unemployment there remained too much "wasteful spare capacity". Wage growth was subdued.
High levels of private sector debt would be "particularly sensitive" to a rate hike, the governor added.
Mr Carney said the need for "vigilance and activism" was most acute in the housing market which was "showing the potential to overheat" - with prices up around 10% a year, approaching early 2007 levels.
He said the Bank was concerned by the threat posed by indebtedness of overextended borrowers and pointed to the vulnerability of the UK in having household debt of 140% of disposable income.
Mr Carney said raising interest rates today would be the wrong response, reiterating that this would only be a "last line of defence". The governor added: "Fortunately, we are not up the proverbial creek without a paddle."
He pointed to powers including caps on loan-to-income (LTI) and loan-to-value (LTV) ratios on mortgages, amid increasing expectations that the Bank will deploy some of these tools when its Financial Policy Committee (FPC) reports in two weeks.
The governor said the FPC would "weigh carefully... the merits of graduated and proportionate actions to mitigate the potential vulnerabilities arising from what is the greatest threat to the domestic economy".
But he said that such "insurance policies" would not necessarily affect the path of interest rate increases.
Mr Carney said the need to use up wasteful spare capacity while achieving the inflation target of 2% would "likely require gradual and limited interest rate increases as the expansion progresses".
"The start of that journey is coming nearer," he added.