UK house prices jumped 2.2 percent in May to push annual housing inflation above 20 percent for the first time since June 2003, a key survey showed yesterday, adding pressure on the Bank of England to raise rates.

The seasonally-adjusted Halifax House Price Index showed prices ignoring three interest rate rises since November to pick up pace from the 1.8 per cent monthly increase and the 19.1 per cent year-on-year increase reported in April.

The Bank of England has consistently denied targeting house prices but some economists believe it should raise rates to check rampant housing inflation to avoid a crash that could unsettle the economy.

A narrow majority of economists polled by Reuters last week said they expect the BoE to raise interest rates another quarter point to 4.5 per cent when its Monetary Policy Committee meets tomorrow.

Strong housing demand, together with supply shortages, have maintained house price inflation at a high level this year, Halifax said.

Halifax expects that the housing market will begin to slow later in the year and into 2005, as interest rate rises begin to bite.

However, economists sounded a note of caution about the Halifax figures, saying the actual rate of inflation was probably much lower than the 20.4 per cent Halifax registered in the three months to May compared with a year earlier.

Official figures from the Office of the Deputy Prime Minister showed annual house price rises below 10 per cent.

The average UK house price now stands at £157,849 (€236,088).

- (Reuters)