London Briefing: The Bank of England has managed to pull off something that many of its detractors said would be impossible: a soft-landing for the housing market. Never before, according to popular myth that is, have UK house prices boomed without busting.

After rising steadily, and ultimately spectacularly, from 1996, it now seems that the market went sideways during much of the second half of last year. In some areas we see outright declines in prices (notably London) but not of an order of magnitude that generates too many headlines.

Different statistics tell different stories, of course, but the most accurate description of the UK housing over the past few months is that it stagnated. Bank lending for mortgages is losing steam: mortgage approvals are running at their lowest levels for nearly a decade.

In addition, the buy-to-let market now looks to be softening as well. Some commentators think that all of this is merely a prelude to an outright crash in the market and that claims of a soft-landing are a touch premature.

They note that personal bankruptcies and insolvencies are running at rates last seen in the recession of the early 1990s. People are going bust earlier in the cycle this time around because borrowing and leverage is so much higher. In addition, mortgage repossessions do seem to be on the rise, albeit from very low levels. Time will tell, of course, but the Bank of England must be feeling pretty pleased with itself, at least so far. A property bubble that seems to be gently deflating is no mean achievement.

The natural question to ask of the bank now is: what next? Until recently most economists and market observers had been predicting that the next move in interest rates would be down. Signs that the weaker housing market had spilled over into consumer spending coincided with a broader lull in the global economy - in such circumstances it is natural to suggest that interest rates have peaked.

But recent data have called into question the nature of that growth pause. It is looking true to its name, and there are one or two signs that the economy may well be picking up again. There are even hints - no more than that - that the property market may be responding to those expectations about lower interest rates. The Bank itself has just raised its growth and inflation forecasts compared to those it published last November.

All of this has led some analysts to question the assumption that interest rates have peaked. While the Bank described the growth outlook as robust in its most recent Inflation Report, it also stated, somewhat unusually, that growth risks lie squarely to the downside.

Perhaps that is how it squares the circle of raising its inflation forecast but not interest rates. Downside worries seem to lie with the UK consumer; it was a rather weak Christmas according to the Bank, but not catastrophically so. The Bank has previously argued that the links from the housing market to the broader economy are not as strong as are popularly supposed; it seems a rethink on this has taken place and the Bank boffins are no longer quite so sure. As always, much depends on the external environment. With the labour market tight any pick up in growth above trend might feed straight through into wages and overall inflation.

The most likely swing factor in the months ahead will be world trade: if global growth remains robust, as seems likely, UK forecasters might be surprised by the strength of exports.

One problem for the Bank is that inflation has picked up by slightly more than it had forecast. The absolute level is not a problem and there are no suggestions that we are about to witness an inflation shock. But the fact that we are experiencing a bit of inflation creep has added to worries that we may not yet have seen the peak in interest rates.

If oil prices spike up again we might not see financial markets as sanguine as they were last year about the potential inflationary consequences.

Analysts are now more divided about the outlook for UK rates. My own hunch is that we have yet to see the peak. And those inflation numbers will, for the first time in ages, command very close attention.

Chris Johns is an investment strategist with Collins Stewart. All opinions are personal.