Britain's economy lagged behind stronger growth in much of the rest of the world last year as the rise in inflation triggered by June 2016's Brexit vote and weak wage growth ate into households' disposable income. Tuesday's data showed the biggest rise in the interest rate on existing mortgages since 2010. That spells further weakness in the housing market during 2018 when the BoE is expected to raise interest rates again, economists said.
"While the increase in interest rates in November was just 0.25 percent and mortgage rates are still at historically very low levels, there does appear to have been some impact on house buyers' psychology," said Howard Archer of economic consultants EY Item Club.
The BoE will signal next week whether it is likely to raise rates again in May or wait for clearer signs of what kind of trade deal Prime Minister Theresa May is likely to extract from the European Union. A government report seen by Buzzfeed News on Monday showed Britain will be worse off under each of three broad scenarios for the country's future relations with the EU than if it stayed in the bloc.