Downbeat surveys point to rates being kept on hold

The Bank of England is likely to keep interest rates on hold this week amid fresh evidence that a slowdown is hitting the housing market, the City and manufacturing industry.

The Bank of England is likely to keep interest rates on hold this week amid fresh evidence that a slowdown is hitting the housing market, the City and manufacturing industry.

According to the employers' organisation the CBI, the revival of the financial services sector has faltered, with volumes, profitability and confidence all falling for the first time in 18 months.

Meanwhile a "poll of polls" carried out by the accountants BDO Stoy Hayward warned that manufacturing is likely to struggle in the next few months as the recent spate of interest rate rises hits consumer spending and factory orders.

The financial markets are now waiting to see figures on mortgage equity withdrawal from the Bank tomorrow and data from Halifax on house prices this week to confirm that a housing market slowdown is under way.

In advance of the figures, a survey carried out by the property website assertahome.com showed that confidence in the housing market was ebbing after a fleeting recovery in August. According to the survey, 32 per cent of househunters expect prices to fall over the next 12 months, compared with 30 per cent in August.

Philip Shaw, the chief UK economist at Investec, said: "The monetary policy committee is almost certain to keep the official repo rate at 4.75 per cent. There has been a stream of evidence suggesting that the housing market turnaround is genuine and there are more signs of a slowdown in consumption."

BDO also said it expected rates to be kept on hold this week, saying that both its output index and its optimism index had dipped in September. However, the accountants said they still expected to see one more increase in borrowing costs in November before the interest rate cycle hits its peak.

The CBI's quarterly survey of the financial services industry also showed that, despite the slowdown, average costs per transaction increased over the past three months at the fastest rate for nine years. "Difficulties with the economic recovery are now spreading to the financial services sector," Ian McCafferty, the CBI chief economic adviser, said.