The Bank of England left interest rates unchanged at 5% today - as expected - as it continued its fight to keep a lid on inflation.
Policymakers have little scope to reduce rates after inflation hit 3% amid fears that it could move higher in coming months. Economists said there was no guarantee that interest rates will be cut at all this year.
The bank's vote against a cut came despite gathering gloom over the UK housing market and wider economy.
House price figures from the country's biggest mortgage lender Halifax revealed today that values fell by a further 2.4% in May, making the annual drop nearly 4% - the fastest rate of decline since 1993.
The bank's Monetary Policy Committee (MPC) is charged with keeping inflation at around 2%, but the measure hit 3% in April and is likely to remain above 3% until well into next year - potentially prompting a series of open letters from Governor Mervyn King to the Chancellor explaining the rise.
The bank warned last month that inflation could even spike as high as 3.7% this year.
Paris-based economic experts at the Organisation for Economic Co-operation and Development (OECD) slashed forecasts for UK growth yesterday, cutting predictions for GDP from 2% to 1.8% in 2008 and to 1.4% from 2.4% in 2009 amid weakening house prices and tighter credit conditions.
The slowdown in the economy is expected to bring inflationary costs down, as demand and spending eases back.
