Rate rise more likely despite downbeat data

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Analysts in the City of London have firmed up their bets on a rise in interest rates next month, despite a raft of data yesterday showing a slump in house prices, car sales and festive shoppers last month.

More than four out of 10 City economists expect the base rate to hit a six-year high of 5.25 per cent in February, compared with one in three last month. But the poll by Reuters, carried out in the three days up to yesterday, showed a majority still believe that rates have peaked at 5 per cent and will stay there until 2008.

The doves on the Bank of England's Monetary Policy Committee were handed fresh ammunition by figures from Halifax showing that house prices unexpectedly fell by 1 per cent last month. The drop contradicted figures from Nationwide building society showing a 1.2 per cent jump, and Halifax was quick to play down its significance. "It remains too early to conclude that this indicates a genuine slowdown in the housing market," said Martin Ellis, its chief economist. "Continued economic growth, rising employment and an ongoing lack of supply will continue to drive up house prices over the coming months."

However, he said rising interest rates, greater pressure on household finances and subdued growth in earnings would constrain the demand for homes in the long run.

Independent analysts agreed, saying the Halifax data ran counter to other evidence showing a shortage of supply and an increase in mortgage approvals. They highlighted that the annual rate had hit a 21-month high of 9.9 per cent. Howard Archer at Global Insight said: "Ongoing strong mortgage activity and a shortage of supply in many areas suggest house prices could well see further buoyancy as pricing power is currently tilted towards the vendor."

Ed Stansfield at Capital Economics agreed the latest figures should be treated with caution, but said they should provide "pause for thought" for those who claimed that the two rate rises since August had had no discernible impact on the market.

Meanwhile, the Society of Motor Manufacturers and Traders (SMMT) said new car registrations fell 14.7 per cent in December from a year ago. But it said the figures were distorted by a change in company car tax rules at the end of 2005. "The fall in new car registrations comes as no surprise," said the SMMT's chief executive, Christopher Macgowan.

Separately, the two companies that produce data on shopper numbers said Christmas had been a major disappointment for retailers. FootFall said visitor numbers to the UK's major shopping centres were 7.8 per cent down on 2005, while SPSL said it had measured a 2.4 per cent fall.

Tim Denison, a director of SPSL, said: "Progressively over the last eight years our data have shown shoppers taking to the streets later and later."

Natasha Burton, a spokeswoman for FootFall, said: "The forecasters are already talking about winners and losers this Christmas and the internet is already proclaimed by many as this year's winner."

The pound hit a six-week low of $1.9287 against the dollar, although this was mostly driven by strong labour data in the US.