The Bank of England may have to cut UK interest rates because recent financial turbulence and higher borrowing costs pose a threat to the housing market and overall growth, the Organisation for Economic Co-operation and Development said yesterday.

The Bank of England may have to cut UK interest rates because recent financial turbulence and higher borrowing costs pose a threat to the housing market and overall growth, the Organisation for Economic Co-operation and Development said yesterday.

The respected Paris-based think-tank published its latest report on the UK on the day that a poll from news agency Reuters revealed a majority of economists now expects a cut in interest rates from the Bank of England. However, most of those now believing the next move in UK base rates will be down do not see a cut coming until early next year.

All 56 economists polled expect UK base rates to be held at 5.75% at the end of the next two-day monthly meeting of the Bank's Monetary Policy Committee on October 4. None believed the MPC would rush to follow the Federal Reserve's cutting of US rates amid the credit and stock market turmoil and a precarious American housing market.

However, 13 of the 56 predicted a cut in UK base rates to 5.5% by the year-end and 36 in all believed such a quarter-point reduction would happen by the MPC's March meeting.

The OECD said yesterday of the UK: "Although indicators of economic activity have been robust in 2007 to date, there is now a risk that growth will be weaker going forward, which could imply a need for interest rate reductions.

"The interest rate increases over the last year, together with recent financial market volatility, are expected to slow the housing market."

The MPC has raised UK base rates by a quarter-point on five occasions since August last year, latterly on July 5.

A survey yesterday from building society Nationwide showed UK house prices have held up well this month, in spite of the recent rollercoaster ride for global stock markets and mortgage bank Northern Rock's need to turn to the Bank of England as lender of last resort amid the credit market turmoil.

Nationwide said UK house prices rose 0.7% in September, better than City forecasts that monthly growth would decelerate from 0.6% in August to 0.4% this month. However, annual house price inflation dipped from 9.6% in August to a rate of 9.0%, which was the weakest since last October.

The British Bankers' Association meanwhile reported yesterday that the number of loans approved by the big UK banks for house purchase in August was down 14.2% on the same month last year at 61,051. Approval numbers are the most forward-looking indicator of mortgage lending.

The Confederation of British Industry's latest monthly distributive trades survey meanwhile showed yesterday that annual growth in UK retail sales remained higher this month than the average for the second half of 2006, although it slipped to its slowest pace this year.

Thirty-seven per cent of retailers reported sales this month up on September last year, with 25% saying they were down. The balance of 12% indicating annual growth was slightly adrift of the net 17% which had in August predicted a year-on-year increase in sales in September.

However, retailers thought sales were around average for the time of year and expected the more moderate annual growth in sales this month to be exceeded in October.

The credit market turmoil and the dramatic run on Northern Rock, itself a part of the FTSE-100 index of leading shares, has not so far had a lasting impact on the overall level of the UK stock market.

The FTSE-100 index yesterday rose 53.4 points to 6486.4. This is less than 4% adrift of its 6732.4-point close on June 15 - which had been its best finish for nearly seven years.

And experts see an advance from the current level in spite of the credit crunch.

A quarterly survey of 14 equity strategists, undertaken by Reuters between September 20 and 26 and published yesterday, showed a median expectation that the FTSE-100 index would climb to 6700 points by the year-end. Although down on the 6900 year-end level predicted in June, the latest poll signals a belief that the leading share index will finish 2007 relatively strongly. The median expectation is now that the FTSE-100 will by the end of September next year rise to 7005 points and then finish 2008 at 7213 points.

Forecasts of the FTSE-100's end-2007 level ranged widely, from 6100 to 7000 points. Predictions for the end of 2008 ranged from 6800 to 7670.

Northern Rock shares crept up 11.5p, or 6%, to 193.5p yesterday, amid renewed speculation that former Goldman Sachs banker Chris Flowers might lead a takeover and news that hedge fund RAB Capital had raised its stake.

A spokeswoman for Jose Maria Ruiz-Mateos meanwhile said last night that the Spanish entrepreneur had offered to buy a 10% stake in Northern Rock. Pilar Bernal said Ruiz-Mateos had delivered the offer through letters to Northern Rock's chief executive, Adam Applegarth, and to chairman Matt Ridley.

However, Northern Rock shares remain way adrift of their 639p level just before it emerged two weeks ago it had had to line up emergency funding from the Bank of England.

Meanwhile, sales of new homes in the US tumbled 8.3% between July and August to their lowest level since June 2000, a stark sign that the credit crunch is aggravating an already painful housing slump, according to figures from the Commerce Department.

However, the US Labour Department said new claims for unemployment insurance dropped by 15,000 last week to 298,000, signalling the overall resilience of the US economy.