Bank expected to raise UK rates
Data showing house prices continuing to rise has added to expectations that UK interest rates will rise this week.
The Bank of England's Monetary Policy Committee (MPC) is beginning its two-day July meeting, where it is expected to lift rates to 5.75%.
Although rates were kept at 5.5% at last month's meeting, four out of the nine MPC members wanted a rise.
House prices rose 0.4% in June, the Halifax bank said. Annual house price inflation rose from 10.6% to 10.7%.
And a statement by estate agent Savill's said that while rate rises had started to bite in some provincial areas, growth in London and the South East remained "strong".
Spending concerns
With two days of talks concluding with the latest decision on Thursday, analysts point to the Bank's recent warnings about inflation.
While UK inflation fell to 2.5% in May, it still remains above the 2% target.
The expected rate rise would slow consumer spending, said accountancy firm PricewaterhouseCoopers, which has published a report saying that paying off household debts has reached record levels.
Repaying money borrowed, and the interest on it, now takes up 19% of the average UK household's disposable income, PwC said.
And the Nationwide Building Society reported that the string of rate rises had contributed to consumer confidence falling for the the first time in six months during June.
Bank of England governor Mervyn King, who chairs the MPC, also said last month that people should expect higher interest rates by the end of this year unless consumers and companies slowed spending.
He said the Bank was concerned that spending was rising faster than the economy's ability to cope with the higher demand, and said that "more persistent inflationary pressures have picked up".
Rate hold urged
Philip Shaw, chief economist at Investec, said that an increase to 5.75% at this month's meeting was definitely the most likely outcome.
"We have long argued that the committee would be unlikely to wait until the next Inflation Report in August to tighten again," he said.
"Does this view look correct? We very much think that it does."
Despite the predicted rise, business leaders have urged the Bank not to raise interest rates this week.
The EEF business group pointed earlier this week to the fact that while inflation remains above the government's target, it is now falling, thanks to the four increases in interest rates since last August.
"We have supported the Bank all the way through the current cycle of increases," said EEF chief economist Steve Radley.
"However, we now believe that there are indications that the medicine applied so far is beginning to take effect and the case for another rise is not made."
Source: bbc.co.uk
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