One of Britain’s biggest financial trade bodies warned the Bank of England today not to raise interest rates to 6 per cent despite revealing that mortgage lending soared to a record £34.2 billion in June.

The Council for Mortgage Lenders (CML) urged the Bank’s rate-setting Monetary Policy Committee to “carefully assess” the impact of the five rate hikes made over the past year before taking any further action.

The body, which represents banks and building societies across the UK, added that June’s record gross lending figure may have been distorted by the sheer number of homebuyers rushing to complete before rates went up, as widely predicted beforehand, in July.

Michael Coogan, the CML director-general, said: “Despite the record level of mortgage lending, there are signs that the market is feeling the cumulative effects of the five interest rate rises we have seen over the past year.

“This effect will become more evident in the coming months.

"We believe the MPC should carefully assess the impact of past rises on inflationary pressures before it takes further action."

The warning came as official figures showed that retail sales in June were 3.4 per cent up on a year ago, slightly less than expected, adding to the case for rates to be kept on hold.

The Office for National Statistics added that food sales rose by their lowest monthly rate since 1999.

Halifax, the UK mortgage lender, later increased its forecast on house price inflation for 2007 as a whole from a previous 4 per cent to 6 per cent but put the rise down to faster than expected growth in the first six months of the year. It said that price inflation was now beginning to slow.

Philip Shaw, chief economist at Investec, said: “There are an increasing number of signs that consumer-related areas are experiencing a slowdown.

“And that supports the argument that the Monetary Policy Committee should wait and see for a number of months rather than rush into raising rates.”

The Bank of England pushed the cost of borrowing up to 5.75 per cent this month, a move expected for weeks beforehand.

Stronger-than-expected inflation figures yesterday briefly raised fears that rates could rise next month.

The £34.2 billion of gross mortgage lending recorded by the CML in June compares with £31.4 billion in May — a 9 per cent rise.

The month-on-month increase was 12 per cent in 2006 and 15 per cent in 2005.

The CML said that much of June’s record was driven by remortgaging rather than new home loans.

Only two days ago, the CML said house prices could rise by the smallest amount for more than a decade in 2008.

House price growth is running at 10 per cent, but the CML expects this rate to halve by the end of the year.

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