House prices increase

Last month's interest rate rise drove up UK house prices by 1.6 per cent, according to mortgage lender Halifax.

August's increase was the largest since monthly gain since September 2004, and followed a 0.4 per cent rise in July.

However, Halifax pointed out that the rise followed the upward trend established the other two times the Bank of England has raised rates since 1997. Last month saw the first interest rate cut in two years, by 0.25 percentage points to 4.5 per cent.

Martin Ellis, Halifax chief economist, commented: "The ongoing growth of the UK economy, robust earnings growth and historically high levels of employment all underpin the housing market.

"The slowdown in economic growth in 2005 and the high level of house prices in relation to average earnings will, however, continue to curb housing demand and should prevent a renewed surge in house prices."

Halifax added that the UK economy continues to grow, with average earnings growth outpacing consumer price inflation at 4.2 per cent and 2.3 per cent respectively.

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