Hopes of loan rate cut as house prices fall again

A slew of gloomy data, particularly about the deteriorating property market, shorten the odds that the Bank of England will ease the burden on homeowners, said economists.

The shift came after Britain's biggest mortgage lender, Halifax, said house prices fell 1.1 per cent in November - the first time since early 1995 that they have fallen three months in succession.

Another key measure, from Nationwide building society, showed consumer confidence plummeting faster than at any time since 2004.

The Bank's Monetary Policy Committee started its meeting today and will give its decision at noon tomorrow.

The official base rate is now 5.75 per cent after five 0.25 per cent rises since summer last year, hugely increasing the cost of servicing mortgages for millions of homeowners.

The consensus view had been that the Bank would wait until February before cutting rates, but many experts are now tipping a 0.25 per cent or even 0.5 per cent reduction, the first since August 2005.

Philip Shaw of banking group Investec said: "The chances of a rate cut have risen sharply as a result of another fall in the Halifax house price index.

"We had been expecting the MPC to hold for this month but the outcome for tomorrow is now uncertain. I'm coming to the conclusion that they are not going to be able to wait until February, but it is a knife-edge decision tomorrow.î

Howard Archer, chief UK economist at forecasters Global Insight, said he expected a 0.25 per cent cut tomorrow followed by two further moves in the first half of next year, pushing the base rate down to five per cent by the summer.

Howard Wheeldon, analyst at BGC Partners, called for a 0.5 per cent cut tomorrow because "holding off until February is no longer an option.î

The hopes sent the FTSE-100 index soaring 83.5 points to 6398.7. Sterling dropped more than two cents to $2.0386.

There are still some fears that prices - particularly of food and drink - are rising too fast and the Bank of England will wait until after Christmas to apply a final squeeze to inflation.

The Bank is set a target headline inflation rate of two per cent, but the most recent set of figures showed prices rising at a higher-than-expected 2.1 per cent a year. The BRC-Nielsen Shop Prices Index for November, published today, showed food prices were 4.3 per cent higher than a year ago.

The MPC meeting comes against the bleakest economic backdrop for more than a decade. Yesterday the Financial Services Authority warned 1.4 million homeowners would struggle to refinance their mortgages next year because of the "very real prospectî that the global credit crunch will get worse.

The high street is braced for a tough Christmas and New Year as consumers struggle to make credit card payments. According to a survey by MoneyExpert.com, about 4.4 million consumers still have not finished paying the debts they built up last Christmas.

Economic growth next year is expected to be little more than two per cent, compared with the earlier forecast of near three per cent. As yet, no mainstream economists are predicting recession, but many fear the risk is there for the first time in more than 15 years.