Bank of England set to hold rates

HOUSE prices have stabilised and mortgage lending is tailing off but credit card spending continues unabated. That‘s the dilemma that the Bank of England must confront when its monetary policy committee finishes its monthly two-day meeting to decide what to do with base rates.

After a break in July, the Bank lifted rates by a quarter-point in August but has since left them on hold amid growing signs that the economy was taking the hint after five such rises since November 2003.

As far as homeowners are concerned, the boom is over. The Halifax has confirmed as much and estate agents up and down the country are saying the same thing – the market is cooling and prices are dropping.

There seems to be no rate rise pressure coming from the property market - the latest data suggested buyers were holding off on purchases, putting downward pressure on house prices.

According to the Nationwide Building Society, property prices fell by 0.4% in October - the first fall in three years.

With home repossession orders also at a three-year high, some analysts predicted the market will have to fall by as much as 20% to restore profitability.

There‘s also a great deal of concern in the business community that more rises could tip the economy into a downward spiral.

The manufacturing sector is not performing brilliantly and the employers‘ association, the Confederation of British Industry, has warned of a risk to employment levels if there are more rate rises. Industry is already suffering thanks to surging oil prices and weak demand from overseas companies.

Experts, however, believe that a rise this month is unlikely.

Investec economist Philip Shaw says the MPC is likely to sit on its hands for now.

Indicators show that the economy is weaker than many believed - gross domestic product was projected to have grown by only 0.4% in the three months to the end of September - its weakest quarter since early last year.

Inflation has also been weak and, at 1.1%, is currently at its lowest level since March and well below the Government's target of 2% over two years.

HSBC economist John Butler said: 'With growth softer and consumer inflation benign, the Bank will feel it has time on its hands before it needs to act again.'