Property prices: Mixed message

The Bank of England has left interest rates on hold for the second month running.

The decision to leave rates at 4.75 per cent follows the publication of data pointing to a significant drop in manufacturing output

As the monetary policy committee began a two-day meeting on Wednesday, there were mixed messages about the state of the economy.

The Halifax reported that UK house prices rose by 1.4 per cent in September despite a series of recent interest rate increases.

But the manufacturing sector is warning that rate rises may have taken their toll on the sector.

Factory output fell by 0.8 per cent between August and July prompting fears that the recent upturn has been undermined by the increases in interest rates.

The drop is the largest since 2002 and comes amid fears that a similar slowdown in the US are putting a squeeze on the sector.

Reacting to the news, the Institute of Directors said the decision was "sensible".

"Today's decision was as expected. The Bank of England is sensible to adopt a wait and see approach as the effects of the interest rate rises over the past year take effect," said chief economist Graeme Leach.

"There is clear evidence of a housing market slowdown and manufacturing output has fallen for three months in a row. But this does not mean that interest rates have peaked.

"The UK output gap is now positive. In other words, actual output is above potential output, thereby risking an acceleration in inflation.

"We think there is a 50-50 chance of another interest rate rise before the year-end."

And TUC chief economist Ian Brinkley said the would be relief at the decision.

"Business and homeowners need a sustained period of interest rate stability," he said.

"Activity is slowing in the service and manufacturing sectors and higher borrowing rates are starting to tame the housing market. Holding interest rates is the sensible course."