House prices gathered steam this month, forging ahead with their strongest gains since December, and further hardening the City view that a new rise in interest rates next month is a racing certainty.

However, fears that a May increase in borrowing costs will be swiftly followed by further aggressive base rate rises from the Bank of England were eased by soothing comments yesterday by one of the leading hawks on its Monetary Policy Committee, Paul Tucker.

Earlier, the latest barometer of property market conditions from the Nationwide building society showed that average house prices across Britain rose by a robust 0.9 per cent in April, accelerating from a 0.5 per cent gain last month.

On the heels of this week’s figures showing the economy growing more strongly than expected in the first quarter, and last week’s jump in headline consumer price inflation above 3 per cent, the buoyant house price figures did little to dispel expectations that a new rate rise in May is now all but a done deal. Yet, while the spring revival in house prices suggested by the Nationwide figures implied that three previous base rate increases have yet to dramatically cool conditions, economists said that underlying trends in the market were still weakening.

The 0.9 per cent April rise in prices shown in yesterday’s survey was well below the average 1.1 per cent monthly gain shown by Nationwide’s data for the second half of last year.

At the same time, prices in the last three months compared with the previous three – seen as a good gauge of the trend – rose 2 per cent in April, down from 2.9 per cent in February, and highs of 3.3 per cent in December and January.

Analysts added that a rise in the annual rate of house price inflation on Nationwide’s data, from 9.3 per cent in March to 10.2 per cent in April, was mainly due to the fact that the survey showed prices had stagnated in April last year.

Mr Tucker meanwhile dampened anxieties that interest rates could be pushed up to levels as high as 6 per cent this year. In a speech to a Merrill Lynch conference, Mr Tucker, the Bank’s executive director for markets, said he expected inflation to fall back “quite sharply” to its 2 per cent target. He added that a combination of increased base rates and rising market interest rates meant that monetary policy was “edging towards restrictive, so long as inflation, as expected, falls back in the near term”.

Mr Tucker said that public expectations of future inflation, a key concern for the Monetary Policy Committee, “have been well anchored to our target”, although he emphasised, too, that “no one should be in any doubt that the committee is determined to keep it that way”.

Economists said that Mr Tucker’s remarks suggested that, although rates could rise again on the heels of a likely increase next month, the threat of back-to-back moves may be less than some have suggested. Alan Clarke, of BNP Paribas, said: “The comments appear relatively calming and almost doveish.”

Foreign exchange markets seem to have reached a similar conclusion, with the pound dropping by almost 0.4 per cent on its trade-weighted index. Sterling fell almost 1.4 cents against the dollar, dropping below $2 to $1.9919. The euro also strengthened 0.19p, to 68.3p

Times Recommends

• Toyota recalls 437,000 cars including Lexus
• Myners says bonuses are bleeding pension funds
• Japanese company faked safety reports on seats