Bank in ?-point rate rise

The chances of an interest rate rise next month receded yesterday when the Bank of England, which raised its main rate to 4.75 per cent, said the housing market was beginning to slow.

Yesterday's quarter-point increase was expected, but the dovish tone of the monetary policy committee's statement prompted City economists to scale back expectations of a further rise next month.

Futures markets reacted dramatically, pricing in less aggressive rate rises over the coming months.

"The tone of the MPC's statement on the housing market and consumer spending probably reduces the likelihood of another rise in September," said Philip Shaw of Investec.

The MPC said that, although the housing market remained buoyant, "there are now signs it is starting to ease, and the growth of consumption may be moderating".

A housing market crash represents the biggest risk to the economy, so the Bank will welcome signs that home-buyers are finally taking notice of the five rate rises since November.

Some economists think the MPC will have discussed a half-point rise this month to prepare markets for another rise next month. But Ross Walker at Royal Bank of Scotland Financial Markets said: "It does not sound like the Bank is trying to prepare the markets for a further rate hike in September."

All eyes will now be on the Bank's inflation and growth forecasts, due out on Wednesday.

A Reuters survey yesterday afternoon found that nearly half of the 32 economists polled thought the next rise would be in November.

The MPC noted that output growth, investment and public sector spending were robust, demand in export markets was picking up and business surveys pointed to continued expansion.

"With demand already high relative to the supply capacity of the economy, continued strong growth is likely to lead to rising inflationary pressures," it warned.

But the National Institute of Economic and Social Research, which yesterday estimated that the economy had grown by an inflationary 0.9 per cent in the three months to July, chastised the Bank for not raising rates to 5 per cent.

"We remain of the view that rates should have been increased more sharply already and, in particular, that today's increase is too small," said Martin Weale, the institute's director.

Nine financial institutions, including Abbey National, HSBC and Egg, immediately passed on the quarter-point rise to savings rates. Abbey, the second largest mortgage lender, said it was raising its standard variable mortgage rate to 6.75 per cent. Others were reviewing mortgage rates last night.