Lingering hopes of an early cut in UK interest rates were dealt another hefty blow yesterday when Monetary Policy Committee member Kate Barker hammered home her belief that the global financial market crisis was unlikely to stop continued domestic house price growth.

Barker also highlighted her view that, even if house prices were hit, this would probably not have a significant knock-on impact on consumer spending because any threat to the residential property market would arise from a tightening of credit conditions rather than changes in income expectations.

She also dwelled upon the potential upward pressure on inflation from the recent fall in the effective sterling exchange rate, with a 3.3% fall in the pound's value against the euro since the end of July more than outweighing its slight rise against the weak US dollar.

The Federal Reserve slashed benchmark US interest rates by a half-point to 4.75% on September 18 in an attempt to bolster growth in the world's largest economy. The global financial market crisis has its roots in massive default on home loans by those US households with poorer credit ratings served by the sub-prime mortgage sector. US house prices have fallen hard amid the turmoil.

But Barker, who was speaking yesterday to an audience of accountants in Southampton, appeared to signal the MPC would not be rushing to follow the Fed.

The MPC stood pat on October 4.

There has been much speculation about the possibility of a cut in base rates from 5.75% at the MPC's next meeting in two weeks' time, because this decision will be based on the committee's latest quarterly forecasts for inflation and growth.

A poll by news agency Reuters last week showed 14 of 52 economists, more than one in four, expected a quarter-point cut in rates on November 8. A total 37 of the 52 expected a cut by March next year.

Barker's comments are likely to reinforce expectations that any reduction will not come before the year-end, barring an unexpected economic turn for the worse.

She said the latest survey from the Bank of England showed, while financial institutions were intending to tighten credit conditions for companies, "this was less true for households".

She said that, while often quite sharp rises in interest rates for mortgage lending which was judged to be riskier would squeeze the finances of those UK households in this category, this would not in itself be expected to have a major adverse impact on the macroeconomy.

Barker said: "A more pervasive risk would obviously arise if there were a significant slowdown in the housing market. I stress that this is not my central expectation: the outlook for the housing market, as ever, is highly uncertain and little weight can be attached to any particular scenario. Much of the rise in UK house prices in recent years can be justified by the lower level of interest rates, the greater stability of the economy and the relatively weak supply response to rising demand. However, the level of house prices now is, on many estimates, above a level explained by these fundamentals, and therefore somewhat vulnerable to a major change in expectations about future prices."

In spite of this warning of vulnerability, she added: "But it is not immediately obvious why the recent developments in financial markets should prove the trigger for such a change. Firstly, a major economic slowdown, with an associated sharp rise in unemployment, is not expected. And secondly, although it is far too early to reach a firm conclusion, the balance of evidence so far on household behaviour is reassuring. There was little deterioration in consumer confidence in September. Retail sales volumes have remained strong throughout in the third quarter."

Barker, who noted the UK All-Share Index was at the end of last week at the same level as it was at the end of July before the financial market crisis unfolded, played down the notion of any significant threat to UK consumer spending from the recent turmoil.

She said: "With regard to the response of the consumer, there is some risk around the behaviour of the housing market, although it is not clear why recent events should prove a trigger which significantly alters previous expectations of continued robust house price growth.

"And, even if there were a major weakening in the housing market, the response of household consumption may be muted, since it is not expected to be linked either to rising unemployment or deterioration in households' income expectations."

Seemingly signalling she would be in no hurry to vote for a cut in interest rates, Barker added: "Our key focus remains keeping inflation on track to meet the target in the medium term. The MPC is considering how far the previously-robust economic picture is likely to be affected by recent financial market disruption. Not all of the changes since early August imply downward pressure on inflation; for example weaker sterling, if sustained, will tend to push up on prices.

"And upward pressures from commodity markets, in particular the oil market, remain a concern. In early August, I was concerned that the economic slowdown, which was anticipated following the monetary tightening put into place since August 2006, might not materialise sufficiently to reduce the upward inflation pressures. The evidence from business surveys and housing market indicators will be an important part of my judgment over the next few months about how far the downside risks to the outlook have increased."