Interest rates may have peaked, the Bank of England signalled in its quarterly inflation report yesterday and it also hinted house prices could fall further in the coming months.
Last week the Bank's monetary policy committee left interest rates on hold at 4.75% for the third month in a row after five increases since November 2003 appeared to finally slow down the economy.
The report said that assuming base rates remain on hold, inflation will pick up next year and rise to the Bank's target rate of 2% in two years.
The Bank was guarded in its statements however, saying there were significant uncertainties surrounding the forecasts, particularly on oil and house prices. "Where interest rates will go will depend on the economic data as they emerge over the coming months," said BoE governor Mervyn King.
The Bank appears more certain that the housing market has turned as mortgage and home sales data indicated a faster change than expected in the last few months and it now expects residential prices to fall modestly for a period.
King said, "House prices have on average stopped rising - they have been broadly flat over the past two months - and a slowdown in the housing market is evident in virtually all the indicators. A downside risk is that the housing market, and with it consumer spending, slows more markedly than in the central projection."
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