House price slowdown linked to rate rises

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The Independent Online

Growth in house prices and Britain's dominant services sector both slowed last month, according to figures yesterday that gave the first hint the rises in interest rates had begun to bite.

However both sectors showed robust growth while new orders for services companies - from lawyers to plumbers - hit a seven-year high. Analysts said the mixed message was another reason for the Bank of England to leave rates on hold today but warned borrowing costs would rise again - perhaps as soon as April.

Halifax, the mortgage lender, said the average home sold last month fetched £148,089, a 1.6 per cent rise on January, the lowest monthly gain since November. But this pushed the annual growth rate up to 17.8 per cent from 16.0 per cent, making it the fastest rate since last September.

Halifax said the market was still healthy but said the two rate rises in November and February had hit affordability by pushing up the amount of income needed to meet mortgage payments. "The ongoing strength of the housing market is underpinned by a strong labour market, historically low interest rates and low mortgage payments in relation to earnings," Shane O'Riordain, head of group economics at Halifax, said. He added that prices had also been underpinned by a lack of supply, pointing out despite a 5 per cent rises in new house building last year, supply was still very low by historic standards.

Meanwhile a snapshot survey of managers in 700 services companies showed a slight slowdown in activity last month. Business expectations also fell even though firms saw more new orders than at any time since May 1997, according to the Chartered Institute of Purchasing and Supply. Its president, David Rich-Jones, said he did not believe this survey, combined with the slowdown in manufacturing was "justification" for a rate rise. "There's expansion - yes; but things are not expanding at such a fast rate."