House price rise 'gathers pace'

Britain's housing boom continued to flourish in May according to Halifax, the UK's biggest mortgage lender.

The bank's latest survey showed prices jumped by 2.2% in May, slightly up on the 1.8% rise in April, with prices up 20.4% on last year.

The rise means that the average property now costs nearly £158,000.

Low interest rates and too few homes being built has driven prices higher, with many expecting the Bank of England to raise rates on Thursday.

Supply shortage

There is little doubt that house price growth has yet to modify. It makes it more likely the Bank of England will raise rates Philip Shaw, Investec

Halifax said that prices were rising fastest in northern England and Wales and should continue to do so for the rest of 2004.

But in southern England house price inflation has also picked up after a "significant slowdown" in 2003.

Overall, the Halifax said a healthy UK economy combined with a drop-off in the supply of new homes lay behind continued price growth.

Halifax pointed to a 3% fall in the number of private sector new houses completed in the first three months of 2004 compared to the same period in 2003.

But Halifax said they expected the rate of price increase to slow later in 2004, as recent interest rate rises and falling numbers of first-time buyers began to have an impact.

Houses for sale are in short supply

The Halifax figures may strengthen the case of those calling on the Bank of England's Monetary Policy Committee (MPC) to raise interest rates to cool consumer debt and the housing market.

"There is little doubt that house price growth has yet to modify. It makes it more likely the Bank of England will raise rates," Philip Shaw, an economist with investment firm Investec, said.

The MPC meets on Wednesday and its decision on interest rates will be announced on Thursday.