THE Bank of England has increased interest rates by a quarter point for the second month in a row to 4.5 per cent, but two major organisations disagree as to what effect the rise will have on house prices.

The CBI argue that, although it does mark a slight shift in policy of the Monetary Policy Committee (MPC), the decision will have little influence on house prices because interest rate levels are not the main factor behind the rapidly increasing cost of houses.

CBI Director-General Digby Jones said: “Consecutive rises do mark a shift from the gradualist, well-signalled MPC policy of the past and will do little to control house prices, rising due mainly to lack of supply in the housing market, or the inflationary effect of wage increases evident in the public sector.”

But the Royal Institution of Chartered Surveyors had a slightly different reaction, seeing another rise as indicative of the Bank’s fears over inflation prospects amid the continued strength of the economy.

They argue that a slowdown in house price inflation will be noticeable during the second half of the year as the impact of the cumulative one per cent rise in interest rates since last November feeds into softer market demand, which will also help to reduce household spending.