The current surge in house prices was not on the minds of the Bank of England’s Monetary Policy Committee when they met to fix interest rates for this month, though they did wonder where the money was coming from at a time when financial markets were not performing.

Members voted 7-1 in favour of holding rates at 4.5% based on inflationary developments being broadly in line with expectations and forecasts in the May inflation report.

The only deferring member of the committee was David Walton who wanted a rise in rates of 0.25%. This was the second month running he had voted this way over his concerns over rising inflationary pressures.

The most significant news since the May inflation report had related to developments in financial markets. If the recent appreciation of sterling and falls in equity prices were sustained, then the consequent impact on import prices and personal sector financial wealth would tend to reduce inflationary pressures, the minutes noted.

On the other hand the recent equity and commodity price falls had not been that large when set against the sharp price increases observed over the previous twelve months; and the sterling ERI had remained within the range it had occupied in recent years.

The falls in equity prices, if sustained, were likely to have a modest dampening effect on consumption growth, committee noted. Recent housing market data had been somewhat mixed; and the three-month growth rate of unsecured lending had continued to slow quite sharply. It was difficult to know how much weight to attach to this latter development. If the slowdown were related to a tightening in credit conditions by banks, it might have contributed to the slowdown in consumption growth in Q1. At the same time, however, the growth rate of households’ secured lending had remained strong.

It was possible that households were choosing to incorporate some of their unsecured debts into their secured borrowing, thereby lowering their cost of finance, the members thought.

The minutes are likely to boost expectations of an upward movement in rates, although analysts expect them to remain on hold for the time being.