Continued surge in house prices puts icing on case for rate rise

House price inflation accelerated last month, according to the final piece of economic news before the Bank of England's interest rate decision today that will cast doubt on the slowdown in the housing market.

House price inflation accelerated last month, according to the final piece of economic news before the Bank of England's interest rate decision today that will cast doubt on the slowdown in the housing market.

Halifax, the country's largest mortgage lender, said the price of the average property rose 1.3 per cent - up from June's 1.2 per cent - to take the annual rate of inflation to a 14-month high of 22.1 per cent.

Some analysts said the strength of the survey would add to calls for an unprecedented half-point rate rise by the Bank's Monetary Policy Committee, but Halifax was quick to highlight signs of slowing.

Martin Ellis, its chief economist, said the rises in the past two months were much slower than the 2 per cent-plus average seen in the first five months of the year. "I know we have been here before with signs of a slowdown that have evaporated and that it is early days to be conclusive, but things do now point towards a genuine slowdown this time," he said.

This week Rightmove, an estate agents' website, said sellers had cut their asking prices by an average of 0.5 per cent in the final three weeks of July. The Royal Institution of Chartered Surveyors (Rics) said its members witnessed a sharp fall in new enquiries from buyers in June, indicating that the Bank's four rate rises since November had started to bite. Mortgage approvals are also down, according to Bank data.

Alan Castle, an economist at Lehman Brothers, said it supported his views that today's likely quarter-point rise would be the last in the current cycle. "Policymakers will put more weight on the weakness of more forward-looking indicators of the housing market such as the Rics survey and mortgage approvals, both of which point to a slowdown through the second half of the year," he said.

Analysis by Deutsche Bank showed that of the 10 measures of house price inflation, four showed "tentative" signs of a slowdown, four were rising and the other two were unclear. "The housing market is expected to respond over the coming months to higher interest rates but the speed of the slowdown is debatable," George Buckley, one of its UK economists, said.

Hopes of a slowdown in the consumer economy were boosted by separate figures showing that activity in Britain's dominant services sector slowed last month. The Chartered Institute of Purchasing and Supply said its index of activity slowed for the third month in a row, to its lowest level in more than a year - although it was still the 16th month of uninterrupted growth. There was good news on the inflation front as the pace of price rises slowed sharply in July because of "strong market competition".