MPC confirms property cool-off

Hopes that interest rates have peaked grew after minutes of this month's monetary policy committee meeting, released yesterday, showed support for the view that the housing market and consumer spending are starting to slow.

Although the Bank of England's nine-strong committee voted unanimously to raise rates by a quarter-point to 4.75% - the fifth such rise since November - there was no discussion of a half-point increase, as some City pundits feared at the time. The MPC considered arguments for leaving rates on hold, but "did not find them persuasive".

The minutes echoed last week's quarterly inflation report by implying that if interest rates rose to 5% then inflation would hit its 2% government-set target in two years' time. Inflation is only 1.4% but the MPC expects strong economic growth to push it higher next year.

Until recently financial markets were convinced that rates would be at 5.5% or more in a year's time but now believe they might not rise much above their present level.

"Recent data provides tentative signs that higher borrowing costs are beginning to be felt. Indeed, the committee has noted that there are signs that the housing market is cooling and the consumer is moderating. This suggests that UK interest rates may be approaching their peak," said Robyn Barnett, economist at UBS.

The minutes showed that the MPC thought the balance of risks to its inflation forecast were broadly balanced but its list of downside risks was a lot longer than that for the upside.

The downside risks were that the housing market could slow more abruptly than expected, as could consumer spending, that external demand might be hit by high oil prices and productivity growth could pick up rapidly. The main upside risk was that wage inflation might accelerate because of low unemployment.

As the minutes were released, two surveys appeared to add to the sense that the housing market may be coming off the boil.

The National Association of Estate Agents said prices fell 0.1% last month as buyers were frightened off by higher interest rates and Bank governor Mervyn King's warning in June that prices could fall.

The website Rightmove, which monitors property prices, said they fell 2% last month, and more than 4% in Greater London, which it said was leading the slowdown.