Bank keeps rates on hold despite house price surge
Published 08/12/2006 | 10:03
The Bank of England left interest rates unchanged yesterday just after hours after a report showed house prices were rising at their fastest pace in 16 months.
The decision had been unanimously predicted in the City but signs of a mini-property boom kept alive forecasts for a move early next year. Halifax bank said the average price of a home jumped 1.7 per cent in November - the fourth month of 1 per cent-plus gains in a row.
That took the annual rate of house price inflation to 9.6 per cent, its fastest pace since March 2005 - and up from an 8.6 per cent rise in October.
Halifax said that the 56,000 new jobs created in the three months to September had fuelled demand at a time when the supply of homes for sale was still scarce. "Immigration continues to push inflation up," said Sarah Bloomfield, an economist at City analysts CEBR. "The strong rise in house prices will have taken most by surprise, keeping the possibility of a rate rise early next year a possibility."
Halifax played down concerns of a boom saying there were signs the market was cooling. It cited surveys from the Royal Institution of Chartered Surveyors and House Builders Federation showing a drop in buyer enquiries.
Martin Ellis, its chief economist, said the slowdown in average earnings combined with the squeeze on household income from rising utility bills should temper demand for homes. "As a result we expect house price inflation to ease over the coming months," he said.
But some in the City said the evidence of rising house prices and the threat of an inflation-busting new-year wage round would prompt the Monetary Policy Committee to raise rates in February. "Until strong money-supply growth is brought under control the risk of higher interest rates will remain," said Graeme Leach, chief economist at the Institute of Directors.
But the City was still split 50-50 over the need for another rate rise. Philip Shaw, chief UK economist at Investec, doubted workers would be able to win significant pay rises.
Meanwhile services firms have enjoyed their strongest growth in profitability for at least eight years, the CBI said today.
Service sector firms said rises in new business had enabled them to increase employment and led to an improved outlook for investment in the year ahead. Costs and prices rose only moderately in business and professional services, such as accountants and architects, but rather faster in consumer services.