Sluggish response to interest rate rises leaves Bank's decision finely balanced

City economists said that the latest economic data left the Bank of England's Monetary Policy Committee decision on interest rates finely balanced, although the majority are forecasting a quarter-point rise to 5.75 per cent at noon today.A slew of data about house prices, service sector inflation and equity withdrawal, as the Committee began its proceedings, pointed to an economy that is not responding quite as rapidly and unequivocally as expected to the four interest rate increases - amounting to 1 percentage point - imposed by the Bank since last August. Only the British Retail Consortium's shop price survey suggested signs of diminishing inflationary pressure; prices were 0.5 per cent higher than at the same time a year ago and shop prices rose by only 0.2 per cent between May and June.The Halifax house price survey, by contrast, suggested that inflation in the property market, although moderating, remained in double digits in June: houses were up by 0.4 per cent, taking the annualised rate to 10.7 per cent. The picture was confirmed by Savills, which said "demand for prime commercial property across Europe remained strong in the first half of 2007".Prices in the service sector also accelerated last month, with little sign that companies were losing "pricing power" - a key factor for Bank officials. The CIPS activity index - covering businesses from hotels to financial services - rose to 57.7 from 57.2 in May. That was the highest since January. There was a rise in both input and output price inflation. George Buckley, an economist at Deutsche Bank, said: "This survey adds further justification to tomorrow's expected rate hike and a continuation of growth and price pressures at these levels could support further action ahead."Figures from the Bank of England itself also showed Britons are continuing to cash in on the rising value of their homes, though how much of this goes into immediate spending, as opposed to funding retirement plans, for example, is unclear. Housing equity withdrawal totalled £13.2bn in the first three months of 2007, only slightly less than £13.3bn in the last quarter of last year.Malcolm Barr, an economist at JP Morgan, said: "Nothing in the set of data released this morning looks likely to dissuade the MPC from the widely anticipated rate hike."The Monetary Policy Committee was split five to four to hold interest rates steady last month, with the Governor, Mervyn King, and other "hawks" in the minority. The presumption is that at least one "dove" will defect. KPMG's chief economist, Andrew Smith explained: "A rate rise is very much on the cards, with a high probability that at least one of the five MPC members who voted for no change last month will switch sides as the four hawks hold firm. While the uncertainty surrounding the economy - cited in June as a reason to wait - remains high, other arguments for keeping rates on hold no longer apply. The risk that back-to-back hikes might unduly alarm the markets has obviously passed; and, similarly, a rise would hardly come as a surprise this time: the majority of economists now expect a quarter-point increase, which is also fully discounted by the markets. The May Inflation Report suggested that, without one, inflation would overshoot the target in the medium-term."On a typical £110,000 repayment mortgage, a further quarter-point rise would mean an increase of £16.52 per month, on top of the £80 or so it has risen in the last year. More serious still will be the impact on the 2.3 million people whose cheap fixed-rate deals expire later this year, an issue that the new Chancellor, Alistair Darling, identified as one of his immediate concerns.