Consumers put paid to a rate reduction

A £45-a-day rise in the value of the average home and signs that booming consumer demand is leading to higher prices in the shops have dampened hopes of another cut in interest rates today.

After last month's surprise cut in the cost of borrowing, the City expects evidence of strong consumer demand to persuade the Bank's monetary policy committee to leave rates on hold.

The CBI said yesterday that retail sales were growing at the fastest rate for nearly five years, allowing shops to push up prices and boost profit margins .

Spending is being underpinned by cheaper mortgages, and by the strength of the housing market. The cost of a home rose by 1.5% in August, pushing annual inflation in the property market back into double figures, according to the Halifax, Britain's biggest mortgage-lender.

"These figures make it unlikely the Bank will cut rates again at least until the MPC receives convincing evidence that their expectation of a slowdown in consumer demand is actually starting to emerge," said George Buckley of Deutsche Bank. Interest rates have been cut four times this year to stave off recession, as manufacturing has continued to suffer from the slowdown in world demand.

Fresh leaks of the International Monetary Fund's autumn assessment for the global economy showed that officials have further downgraded their growth forecasts for Britain and other leading industrial countries.

The UK economy is expected to grow by 2.0% this year, down from last month's preliminary forecast of 2.1%, and well below the chancellor's Budget forecast of 2.25-2.75%.

With German growth now predicted to be be just 0.9% this year, Britain is still expected to be one of the fastest growing economies in Europe this year and next. This, coupled with yesterday's economic news, led to a sharp rise in sterling, up by two-thirds of a percent against the euro to 61.05p, its highest for six weeks.

Analysts said that Britain remained a two-speed economy, with business services firms suffering as a result of the recession in manufacturing, while the market for consumer services remained strong.