Rate hikes 'to continue' despite market slowdown

29-May-2007

The Bank of England is likely to continue with its policy of raising interest rates despite a potential cooling of activity in the housing market, analysts have advised.

Lowering inflation rates will take precedence over maintaining the buoyancy of the property market, according to Capital Economics analyst Paul Dales.

Earlier this month the Bank raised rates for the fourth time this year to 5.5 per cent, but with inflation still 0.8 per cent above the target level of two per cent, further rises are still considered likely.

"Even a more meaningful slowdown in mortgage demand would not be enough to stop interest rates from rising twice more to six per cent by the autumn," Mr Dales commented, according to the Daily Mail.

House prices rose by 6.7 per cent year-on-year during May compared to April's 6.8 per cent increase, new figures from Hometrack have revealed.
"The expected slowdown will be exacerbated by any further increases in interest rates above the (current) 5.5 per cent," Hometrack research director Richard Donnell commented.

To find out about the different ways of financing a first home, see our section ‘Affording Your First Home’.

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