The latest Hometrack survey of over 5,000 agents and surveyors showed a slowdown in both supply (-5.4%) - the largest monthly fall for 4 years - and demand (-9.5%). Falling demand in particular is likely to impact on pricing levels over the first half of 2011.

In January 2010 demand stood at -2.7%, a sharp contrast to today’s figure of -9.5%. This suggests that the housing market is facing more fundamental underlying issues than the usual post-Christmas slowdown.

With recent rises in the cost of living, household budgets will only come under further strain if concerns over rising inflation translate into higher interest rates. Mounting concern over a possible interest rate rise will act as a further dampener on demand.

Article By Propertytalk Live.

Will they or won't they?

Director of Manage My Property, Andrew Bald comments:

It seems that more recently, rather than the interest rate decision being a formality [as it has been for the last two years], the interest rate debate is back!  Everyone is talking about "will they or won't they" and it is all becasue of recent inflation figures showing it to be way above the Bank Of Englands 2% target.

For me, the economy is still in a perilous state and is certainly not back on the way to growth yet, the last GDP figures show that.  This, coupled with the fact that a great portion of the inflation is in fact imported inflation (high commodoty prices etc) and also with the austerity measures beginning to hit home, means raising interest rates now could cause severe damage to the recovery of the UK economy, not to mention the housing market.  Many leading economists think inflation will drop back naturally in 2012 so making a move on interest rates now could be premature.

There is also this belief that raising interest rates strengthens the pound, this in some circumstances is true, but the pre-requisite is you need to have a growing and stable economy, which is not the case.

A big part of how well a country bounces back from economic decline is confidence, to raise interest rates now would be severe knock to this!