House price rises dim rate cut hope

Rising house prices and evidence of a consumer borrowing binge yesterday dulled hopes that the Bank of England will deliver an election eve cut in interest rates.

Lending to consumers almost doubled to £1.7bn in March, the highest increase since records began in 1993, according to figures from the Bank, suggesting that consumers are not afraid to go further into the red despite the downturn in the world economy.

The Bank is also likely to be alarmed by signs of resurgent house price inflation. The annual rate of house price growth rose to 7.7% last month from 6.6% in April, according to figures from the Nationwide building society.

Analysts said the figures might persuade the monetary policy committee at its meeting next week that interest rates should be kept un changed, despite worries about the international outlook.

"Record consumer credit, rising house prices and firm consumer confidence all point to continued buoyant activity on the high street and rates on hold next week," said Ross Walker from the Royal Bank of Scotland.

The Nationwide rejected suggestions the market was heading for a crash in parts of the South-east and London.

Its group economist, Alex Bannister, said with incomes rising and interest rates falling, it remained confident in its forecast of a 7% rise in national prices this year.

The average price of a home rose 0.8% last month, an increase of just over £1,000 to £87,267. A year ago the figure was £81,006.

The building society said the average price of a house had increased by 50% in the four years since Labour came to power. Prices rose 12% during the Conservatives' last term.