UK house prices rise in February but inflation fears cloud outlook

British house prices rose in February at the fastest annual pace since October, mortgage lender Halifax said on Friday, but concerns about rising inflation and fewer interest rate cuts could weigh on the future.

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Halifax said house prices were 1.3% higher in the 12 months to February than a year earlier, above the 0.9% forecast in a Reuters poll of economists and up from 1.1% growth in January.

Prices rose 0.3% month-on-month in February, in line with the poll forecast but below January's 0.8% increase.

Amanda Bryden, Halifax's head of mortgages, said geopolitical uncertainty could influence the outlook for inflation and the wider economy.

Britain's inflation rate fell to a one-year low at the start of the year, and the Bank of England expects it to drop near its 2% target in April.

Matt Swannell, chief economic adviser to the EY ITEM Club, said interest rates could stay higher for longer if the escalation in the Middle East conflict persists, potentially affecting mortgage rates and the housing market.

"The sharp rise in oil and, particularly, gas prices has caused financial markets to reassess the speed and extent to which the (BoE's) Monetary Policy Committee will likely lower interest rates," Swannell said.

"Swap rates have risen, and this can be expected to feed through to higher interest rates on new mortgages, if sustained."

The BoE is expected to keep interest rates at 3.75% this month after holding them in February.