Bank unanimous on rates rise

ALL nine members of the Bank of England's monetary policy committee voted to raise interest rates by a quarter-point to 4.75% earlier this month, according to meeting minutes released today.

However, despite calls from some City economists for more dramatic action to cool Britain's booming property market, committee members did not even discuss a half-point hike.

The notes also revealed the Bank's fears over the 'complicating factor' of rapid growth in the buy-to-let market.

The Bank's own 'informal' research suggest the market is slowing, but it warned that few people were selling because of lower future price rises.

The MPC feared that as buy-to-let owners wake up to the prospect of slower growth, they will sell up in greater numbers which 'could help to precipitate a more abrupt adjustment' in house prices.

It also said there were more signs the pace of house price increases was beginning to 'slacken'.

The committee, whose aim is to keep inflation under control, only weighed the arguments for a quarter-point rise or leaving them unchanged. One MPC member was still particularly worried by the record rise in consumer debt but was concerned that a rise in rates could create difficulties in the future.

'What it means is that there isn't a particularly high chance of further near-term monetary tightening and it means all eyes will be on the Inflation Report in November,' said Alan Castle, economist at investment bank Lehman Brothers.

Some economists still expect a rate rise as early as next month, although most believe it will come later in the year.

'Base rates are likely to remain unchanged at the September meeting but a further hike is a real possibility before the year end,' said Simon Rubinsohn, chief economist at broker Gerrard. 'The November meeting is the most likely timing.'

Last week in its quarterly Inflation Report, the Bank said it expected inflation to level off after hitting its target of 2% in 2006, based on the market's current assumption that interest rates would go no higher than 5.25% next year.

Some economists argued that the Bank indicating where it believes interest rates will peak might undermine its attempts to stop consumers racking up larger debts.

Several studies have pointed to a cooling property market. A monthly survey by the Royal Insititute of Chartered Surveyors said prices were frozen nationally in July and fell in the South East. Price monitor Hometrack found that house prices in London fell by 0.4% in July, with falls as steep as 1.9%in some areas.

Useful links