Gloom may delay rise in interest rates

The Bank of England is expected to leave interest rates unchanged this week for the eighth month running - but the City will be scrutinising housing and retail sales data for indications of where rates will head in June.

Most economists are predicting a further 0.25 per cent rise before rates start to fall again, and the consensus had been that this would come in June. But if the crop of gloomy statistics released last week are borne out in April's figures, a rate rise could be delayed still further.

The Halifax's house price index is expected to echo the cautious findings of last week's data from Nationwide. Its index showed a 0.6 per cent drop in prices during March, leaving the annual rate of house price inflation at 7.9 per cent - the lowest since June 2001. But the Bank of England's own figures on mortgage approvals suggested that the market could already be levelling off. Approvals in February rose slightly, from 82,000 to 85,000, although that is still 30 per cent down on the previous year.

The drop in house price inflation already seems to be having an impact on the high street, with the Confederation of British Industry reporting that retail sales in March were the worst for the time of year since 1992. If the gloomy picture is confirmed in the British Retail Consortium's sales monitor, due on 12 April, it could ease pressure for a rate rise.

'The longer the current pattern continues, the greater the chances that the next move in rates will be down,' said Jonathan Loynes of Capital Economics. But he added there was still a risk of a rise.

Uncertainty about interest rates has been reflected in the stock market, which has failed to break convincingly through the 5,000 barrier. That is likely to last until after the election. While most commentators expect a Labour victory, the stock market is likely to remain subdued until it is certain.