The Bank of England held interest rates at 4.75 per cent as fresh evidence emerged that the UK housing market has gone into reverse.

Millions of homeowners were spared higher mortgage repayments for the third month in a row - a move that fuelled speculation that rates may now have peaked.

The no-change decision by the bank's Monetary Policy Committee (MPC) was welcomed by business leaders and followed a stack of data which suggested the economy was slowing down.

That continued yesterday with the announcement by the Halifax that house prices fell by 1.1 per cent in October.

It said prices in the three months to October were down 0.4 per cent over the previous three months, marking the first quarterly fall since the last quarter of 2000 as five rate rises since last November squeezed the budgets of would-be buyers.

The MPC has raised rates gradually to ensure a soft landing in the housing market and the Halifax said a crash was unlikely due to factors such as the growth in employment and household income.

Yesterday's MPC meeting will have taken into account the Bank's quarterly inflation report, which is due to be released next week, and is likely to have acknowledged the slowdown in economic activity.

GDP was projected to have grown by only 0.4 per cent in the three months to the end of September - its weakest quarter since early last year.

It followed a tough summer for manufacturers as surging oil prices and weak demand from overseas companies contributed to a decline in output.

Investec economist Philip Shaw said the quarterly inflation report would also help the MPC to keep its options open on further rate increases, particularly as inflation is likely to remain below its 2 per cent target for a while yet.

He added that rates were likely to peak at 5 per cent in the first quarter of 2005 as the MPC attempts to counter an expected pick up in the world economy .

Economists also believe there is some underlying strength in the economy that has not been reflected in official data.

Mr Simon Rubinsohn, chief economist at Gerrard, said: "We still believe that there is a better-than-even chance that base rates have further to rise."

Business leaders had warned against another rate rise at a time when manufacturers face "serious pressures" .

According to the latest quarterly economic survey by the British Chambers of Commerce (BCC), business confidence is now in decline.

BCC director general Mr David Frost said: "The Bank must continue to take a cautious approach in the months ahead. We cannot rule out the possibility that interest rates have peaked."

CBI chief economic adviser Mr Ian McCafferty said: "It's clear the economy has slowed since the summer as the earlier rate rises have begun to take effect and global conditions have become more difficult."

The figures from the Halifax showed that the annual rate of growth in house prices is now below 20 per cent for the first time in six months.

The mortgage lender said there were also "tentative signs" that the pressures on first-time buyers were easing, with figures suggesting the ratio of house prices to earnings had peaked.

Halifax chief economist Martin Ellis said the October fall was part of the "ebb and flow" of the market . - (PA)