Interest rates held as house prices rise sharply

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The Independent Online

The Bank of England resisted calls to cut interest rates yesterday as a survey showed house prices posted a sharp rise in March.

The Bank's Monetary Policy Committee left its base rate on hold at 4.5 per cent for the eight month in a row, in line with the unanimous forecast by City economists.

The predictable outcome contrasted with the European Central Bank, where policymakers also left rates unchanged but surprised markets by playing down the chance of another move next month.

The MPC released no statement with its decision, but analysts expect only one member, Stephen Nickell, will have voted for a cut.

This nine-strong committee was one member short after Richard Lambert's early departure to take the top job at the CBI.

Trevor Williams, at Lloyds TSB Financial Markets, said: "A rate cut was always unlikely. With growth around the long-term average and inflation on target, the MPC had no real incentive to act."

The City was divided over the next move, with most seeing a cut more likely than an increase.

James Knightley, at ING Financial Markets, said: "With manufacturing numbers also disappointing again and the service sector surveys off their highs, we see the risks to growth as being on the downside, which in a tough competitive environment, should keep inflationary pressures benign. Consequently, we continue to look for a rate cut in August."

The UK's major employers' groups, the CBI, British Chambers of Commerce and the manufacturers' organisation the EEF, urged the Bank to stand ready to cut rates if the economy took a lurch for the worse.

But Ben Broadbent, an economist at Goldman Sachs, said: "We continue to think the next move is likely to be up and expect a quarter-point rise towards the end of the year."

Advocates of the Bank's "wait-and-see" policy received fresh ammunition from the monthly survey from Halifax, which showed the average price of a home rose 0.9 per cent in March.

It followed a 1.1 per cent jump in Nationwide Building Society's index for the same month and was the sixth successive monthly rise of 0.9 per cent or above.

Howard Archer, at Global Insight, said: "The Halifax report is further evidence that house prices have upward momentum."

He said he was "dubious" that house prices would be unable to sustain sharp gains for an extended period, but it would be enough to prevent a rate cut until at least August.

In Frankfurt, the ECB left the refinancing rate at 2.5 per cent. Jean-Claude Trichet, its president, corrected market expectations of a rate rise in May. The euro fell after M. Trichet said the bank did not share markets' forecast of a May increase. "The present high probability which is given for an increase of rates in our next meeting does not correspond to the present sentiment of the Governing Council," he told a news conference.

The euro fell more than a cent against the dollar to $1.221, and fell from the record level of ¥144.92 it had hit against the Japanese currency. Traders had bet on a rise in May after a news agency reported a "majority" on the council was in favour of a rise.

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