Growth will peak by end of year as rate rises hit consumer confidence

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The Independent Online

Economic growth will peak in the final three months of this year before settling back to more normal levels in 2005, forecasters said yesterday.

Economic growth will peak in the final three months of this year before settling back to more normal levels in 2005, forecasters said yesterday.

A composite gauge of the state of the economy fell last month for the fifth successive month and the lowest level since January 2001. Research group NTC said the index had been depressed by the impact of the Bank of England's five interest rate rises since November.

The drag from falls in consumer confidence and new car registrations and rises in market interest rates were more pronounced than in June, while the boost from shares and the housing market were weaker.

"The data continues to suggest that the UK business cycle will peak at some point in the fourth quarter of 2004, before turning down towards its long-term trend in the first months of 2005," it said. The survey is in line with this month's forecasts from the Bank, which believes rates will dampen growth in 2005; GDP growth will slow from close to 4 per cent at the end of this year to 2 per cent by 2006.

NTC said the scale of the downturn should be treated with caution, as many of the statistics required for July's result were absent. The picture was further confused by NTC's coincident indicator for June, which assesses the current economic position, which suggested the UK business cycle had turned at the end of the first quarter.

Official data on Friday is expected to confirm that economic growth in the second quarter rose by 0.9 per cent on the previous three months.

There was also fresh evidence the UK's rampant housing market was slowing as the number of home sales slowed in July. The Inland Revenue said the number of properties sold in England and Wales fell last month to 157,000 on a seasonally adjusted basis from 161,000 in June. It was the first monthly fall since March. But the figures are a lagging indicator and relate to purchase decisions taken before the Bank's last three rate hikes.

It follows a run of surveys pointing to a slowdown culminating in a report from Hometrack property website on Sunday showing prices fell in August for the second month.

The country house market, however, staged a recovery during the first half of the year following a revival of City bonuses and increasing confidence in the economy, separate figures showed. The estate agent Knight Frank said the average price of a prime country home, such as a manor house or cottage, rose by 10 per cent.

The rise follows a weak 2003 in which prices fell by 0.5 per cent, with prices in the South-east dropping by 7 per cent.

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