Bank urged to hold interest rates

Estate agents today warned that a rise in interest rates could be the "straw that breaks the camel's back" for the housing market, with activity already at low levels and buyers in short supply.

With the Bank of England set to make an announcement on Thursday, the National Association of Estate Agents (NAEA) joined the chorus in urging the Bank's monetary policy committee (MPC) to hold fire.

Peter Bolton King, the chief executive of the National Association of Estate Agents (NAEA), said: "The MPC hold the life of the housing market in their hands this week. If they choose to increase interest rates it is likely that the market in many parts of the country could grind to a halt."

While the NAEA may be hyping its fears - recent housing market surveys showed that prices have been perking up again - others have also urged the Bank to keep rates at their current level of 4.75%.

The Engineering Employers Federation (EEF), a lobby group for manufacturers, today also called on the Bank to hold borrowing costs after a new survey showed that manufacturing output and orders had dropped.

Growth in the sector slowed in the last quarter and most companies kept staffing levels unchanged, according to the poll of 1,150 firms, the EEF said. It also said manufacturing growth was at its slowest for over a year, with exports outpacing domestic orders.

"Whilst manufacturing passes through this soft patch, the Bank of England and the chancellor have a crucial responsibility to avoid measures which could unnecessarily damage confidence," Steve Radley, the EEF's chief economist, said.

Recent comments from Bank of England policy makers have made industry nervous of a rate rise sooner rather than later. Not only did one member of the MPC - Paul Tucker - vote for a rate increase last month, but also recent remarks by some other MPC members, particularly Rachel Lomax and, to a lesser extent, Kate Barker have indicated that they believe rates will probably have to go up a bit more.

In addition, the central forecast contained in the Bank of England quarterly inflation report for February showed inflation moving modestly above its 2% target in two years' time, although the report considered the risks to the forecast were "somewhat to the downside".

However, Howard Archer, an economist with the consultancy Global Insight, predicted that the Bank will leave rates unchanged this week, which would mark the seventh month in a row that rates have remained the same.

"While there is an outside chance that it could raise interest rates by 25 basis points for the first time since last August, we think it is more likely to hold fire until May while it gathers more evidence on the state of the economy, particularly consumer spending, and underlying inflationary pressures," Mr Archer said.

The NAEA said the Bank should consider carefully the full consequences of its decision.

"The housing market is showing only marginal indications of recovery from last year's slowdown and any significant additional pressure could prove to be the final straw," the NAEA said.