Mortgage approvals fell to their lowest level in a year in March, official data showed on Wednesday, in a sign that higher interest rates are finally starting to bite.

The Bank of England said the number of approvals -- loans for house purchases agreed but not yet made -- fell to 111,000 from a downwardly revised 117,000 in February.

That was the lowest since April 2006 and well below forecasts for a reading of 117,000.

However, the figures are unlikely to alter expectations that policymakers will raise borrowing costs to 5.5 percent next week to tackle above target inflation.

"These figures will be welcomed by the Bank of England but will not derail the prospect of a rate increase next week," said Philip Shaw, chief economist at Investec.

The central bank has already increased interest rates three times since August and BoE Governor Mervyn King has said he would like to see house price growth cool, but so far prices have been rising fast and consumer demand remains robust.

Some economists have even suggested rates need to rise as high as 6 percent to curb inflation and prevent overheating.

The data also showed mortgage lending continued to rise strongly in March, by 9.902 billion pounds -- roughly in line with expectations.

However, the second monthly fall in approvals -- they were 119,000 in January -- could point to slower house price growth in the months ahead as higher borrowing costs and soaring prices squeeze out first time buyers from the market.

Survey evidence also suggests headline house price growth is being driven mainly by disproportionate strength in London and the south east.

The BoE figures showed consumer credit rose by 885 million pounds in March, broadly in line with analysts' forecasts but below the 1.041 billion pound increase in February.

Money supply growth for March, meanwhile, was left unrevised at a rate of 1.0 percent on the month and 12.8 percent on the year.

A number of independent economists have attacked the Bank of England for dropping the ball on consumer price inflation -- which spiked to a record 3.1 percent in March -- by ignoring sustained strong money supply growth.
Policymakers, however, have characterised the rise in the stock of money as only one of a number of factors driving prices higher. Energy costs should shoulder most of the blame, they argue.

Source: Reuters