The Bank of England’s Monetary Policy Committee's (MPC) voted today to keep the interest rates unchanged at 5.75 per cent, as the six-year high in borrowing costs helped to push house price inflation down by 0.6 per cent in September.

The MPC was widely expected to keep British borrowing costs at the present rate despite the turmoil in the financial markets.

Interest rates have risen to a six-year high after five increases since August last year. The European Central Bank (ECB) also held the interest rate today, at 4 per cent.

Jean-Claude Trichet, the ECB President, said that the view on medium-term economic activity was favourable.

However, he added: "Given the financial market volatility and the reappraisal of risk seen in recent weeks, this assessment is surrounded by heightened uncertainty."

Mr Trichet expects inflation to remain above 2 per cent for the rest of this year and into next year before moderating again.

He added: "Our monetary policy stands ready to counter upside risks to price stability. The governing council will monitor very closely all developments."

The five increases in UK interest rates since August last year finally appear to be taking the pace out of housing inflation, according to figures released by the Halifax, showing the first monthly fall since December last year, when prices declined by 0.9 per cent.

Overall, house prices in the third quarter of this year rose by 0.9 per cent, but this is compared with an increase of 3 per cent in the first three months of 2007 and 2.3 per cent in the second quarter.

Halifax's figures tally with third-quarter data from Nationwide, revealing a 1.6 per cent rise in prices, compared with a 1.9 per cent increase in the second quarter.

Martin Ellis, chief economist at Halifax, said: "September's price fall is consistent with the normal behaviour of the market during a slowdown.

"A mixed pattern of monthly price rises and falls is a typical feature of a more subdued housing market."

Halifax said today that annual house price inflation in the year to September reached 10.4 per cent, compared with 11.4 per cent in the 12 months to August.

Nationwide annual figures show a tightening from 10.2 per cent to 9.3 per cent.

On the yearly figures, Halifax said: "The annual rate should decline further over the next few months as the strong monthly house price gains during the autumn of 2006 drop out of the year-on-year comparisons."

The rate of mortgage approvals has also dropped, falling by 5 per cent to 109,000 in August, 9 per cent below the same month last year.

The average house costs £198,500, with the South of England again experiencing the biggest increase in prices.

In Greater London, house prices rose by 2.3 per cent and in the South East by 1.8 per cent.

Halifax said: "Nonetheless, the gains in Greater London and the South East were lower than in the previous few quarters, suggesting that the market is slowing in these parts of the country."

Nationwide said that the average house price in London broke through the £300,000 barrier but that inflation was slowing in nine of the 13 regions in the UK that it examined.

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