House prices grew at the slowest rate for 18 months during July, according to Hometrack.

Citing the recent rise in interest rates by the Bank of England, the property research firm reported that the average cost of a home in England and Wales grew by just 0.1 per cent to £176,300, while price gains in the capital slowed from 0.7 per cent to 0.2 per cent over the same period.

In addition, the firm's survey of 3,500 estate agents across the country revealed that the annual rate of house price increases fell from 6.8 per cent to 5.9 per cent, with the slowdown due partly to the fact that the supply of homes being put onto the market has grown faster than the rate of demand over the past three months.

"It was inevitable that the steady increase in interest rates which began last year would ultimately impact on levels of housing demand right across the market,'' said Richard Donnell, Hometrack's director of research.

"We expect demand to remain weak over the second half of the year as the impact of higher interest rates continues to feed into the market."

The figures come as property market observers widely predict that interest rates will be increased to six per cent before the end of the year as the bank's monetary policy committee attempts to curb the rate of inflation.