This is how inflation could affect house prices

Common sense says rising interest rates would put a cap on the market boom, perhaps with prices falling back a bit, writes Hamish McRae

The choice of homes on the market is starting to pick up, Zoopla has reported (PA Archive)

Will higher inflation mean even higher house prices? Or will the rising interest rates that are coming in to try to control inflation put a cap on asset prices in general, and especially property?

There can be no simple answers, of course. But the past few days have given us some clues as to the pace at which global interest rates are likely to rise. Tomorrow, chancellor Rishi Sunak will give some indications on inflation and growth of the UK economy in his spring statement. So this is a good week to try to make a judgement.

The clues on interest rates have come through over the past few days. Both the US Federal Reserve and the Bank of England increased rates last week – for the first time this cycle in the case of the Fed. That was all expected. The really interesting new indications have been what Jerome Powell, the chair of the Fed, said on Monday, and the market responses to that. In case people had not got the message that the Fed was serious about containing inflation, he said that if it was necessary to do so, the Fed would increase rates faster and further than the markets expected. If that meant increasing rates by half a percent at the next meeting, rather than a quarter, it would do so.