Base rates unchanged but Halifax puts up mortgages

The Monetary Policy Committee has decided to leave interest rates unchanged at 7.25 per cent. But this failed to stop Halifax raising mortgage rates yesterday afternoon. Lea Paterson reports.

The City breathed a sigh of relief yesterday at news that the Bank of England's Monetary Policy Committee (MPC) had decided, at least for the time being, to leave interest rates on hold.

Sudhir Junankar, assistant director of economic analysis at the CBI, said: "We think the decision was justified by the information on the economy." Jeremy Peat, chief economist at Royal Bank of Scotland agreed: "I am sure this is the correct decision. Both Treasury and Bank of England forecasts point to a marked slowdown in the UK economy through 1998."

Following recent signs that the economy could be slowing down, including data released yesterday suggesting a bumper Christmas on the high street could be off the cards after all, the MPC's decision had been widely anticipated. But some mixed economic signals in tandem with last month's surprise rate rise had left the markets jittery in the run-up to yesterday's announcement.

It was not all good news, though, for millions of UK home-owners. Halifax announced that, on 1 January, it will increase its mortgage rates by 0.25 per cent to 8.7 per cent. Gren Folwell, deputy chief executive of Halifax, said its rate rise was a direct consequence of the Bank's decision on November 6 to increase interest rates by 0.25 per cent.

Mr Folwell said: "We decided not to pass on any increase in mortgage rates to our existing customers before Christmas but preferred to wait to see the outcome of the December meeting of the Monetary Policy Committee." Halifax will shortly announce details of its new saving rates, also due to rise from 1 January.

Data from the Confederation of Business Industry seemed to support the MPC's decision. Retail sales growth slowed in November, according to the CBI, with a positive balance of 23 per cent of retailers saying that sales were higher than at this time last year. This compares with positive balances of 38 per cent for October and 26 per cent in September. "It was a weaker survey than we had expected," said economists at HSBC Markets.

New figures on construction orders also signalled that the eagerly anticipated economic slowdown could be on its way. New construction orders received by contractors in the three months to October were 1 per cent lower than in the three months to July. The Engineering Employers' Federation also said yesterday that pay settlements were below the rate of inflation for the third month on the run.

But not all indicators are pointing in the same way. Alastair Eperon, chairman of the CBI's Distributive Trades Survey Panel, said: "Anecdotal evidence from retailers points to cautious optimism that consumers will spend more freely in the remaining weeks to Christmas."

And although new construction orders are lower than in the three months to July, they are still running at 4 per cent higher than at this time last year. Other figures out yesterday also suggest the economy is still growing strongly. Sales of new cars last month were 12.5 per cent higher than in November last year.

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