The recent rise in interest rates has raised some concerns
within the UK property market, but it's believed that the market is
currently strong enough to comfortable deal with a base rate
increase, according to a new report.

Knight Frank's recent market outlook report showed that the all
property capital growth index increased by 0.7 per cent in July,
down on the 0.9 per cent reported for June.

The highest capital growth in the industry was in the industrial
sector, where growth was measured at 1.2 per cent, and the lowest
was the 0.2 per cent found in the retail sector.  Investment
volume between January and July was measured at £38.4 billion: a
decent increase on £30.1 billion for the same period.

James Roberts, chief economist at Knight Frank, said:

'Normally a rise in interest rates signals that the UK economy
has moved into a period of excess, and the Bank of England has
decided it is time to rein back inflationary pressures. So it is
unusual to find widespread discussion on when interest rates will
rise at a time when inflation is largely absent, and could stay
that way for some time,'

'However, this rate increase is different. It is a sign the UK
economy, like the US, is getting near to the day it can throw away
the crutches of very low interest rates. Indeed, UK policymakers
now want the safety net of higher rates. Should we hit another
economic crisis, the Monetary Policy Committee (MPC) will thus have
the option of cutting rates before resorting to printing
money,'

The Bank's guidance is that rates are likely to rise gradually
over a long period of time, and that there are good reasons for
this.  Big and sudden losses on bonds can re-open systemic
uncertainties.  If UK rates are too far ahead, the risk of
creating a future landing bubble will increase.

—