Interest rates are unlikely to be cut in 2001, remaining pegged at six per cent, Barclays has forecast.

The Bank of England, which is due to make its first decision on interest rates for the new yearon January 11, has held rates at six per cent since last February.

Economists have been divided over whether rates have peaked and will now fall or if they will be kept on hold to cope with inflationary pressures from increased public spending.

Barclays also suggested 2001 would be a year of restraint andstability in the housing market.

Although 2000 was a record year for mortgages, with gross lending topping £107 billion, the rate of growth for the year, at three per cent, was way below that of 1999's 28 per cent growth rate, said Barclays.

House price inflation would moderate to five per cent and could be lower by the end of the year, following much larger increases in 2000 and 1999, it suggested.

The finding echoes a study published by the Halifax, which suggested house prices would rise by a modest four per cent next year.

The Barclays mortgage Index also showed that the number of loans to first-time buyers in the South-East had fallen by 21 per cent year-on-year compared with a national average of 13 per cent.

Barclays mortgage director John King said: "The decline in affordability has been a major factor in holding back these potential homeowners from entering the market across southern England."

House price confidence was also dramatically down this year, with Londoners 15 per cent less confident about house prices than the UK as a whole.

People's belief in rising house prices peaked in the spring, when 64 per cent believed the value of their house would rise in the next 12 months.