BANKING group Northern Rock last night predicted that the housing market was likely to be subdued next year, as it issued a trading statement.

The group's predictions came as the Bank of England was accused of slowing the economy with a succession of interest rate rises this year.

Looking at prospects for the housing market, Northern said it believed interest rates, now at 4.75 per cent, were close to their peak.

It believed prospects for the home moving market remained healthy, but that the number of transactions was likely to be subdued next year.

As well as a general slowdown in the market, Northern said it expected first-time buyers to be slow in returning to the market.

It blamed increased levels of debt among 18 to 25-year-olds and the increased ownership of lower-priced properties by buy-to-let investors.

Northern remained on course to meet annual profit expectations after strong performances in all areas of lending. The mortgage specialist said it was comfortable with City forecasts for profits in the region of £429m, which represents like-for-like growth in line with its own targets for the year at 12 per cent.

Chief executive Adam Applegarth described the growth and improvement in market share as particularly encouraging, despite the quieter housing market.

He said the company expected the positive trends to continue into next year, with Northern's pipeline of agreed business being 23 per cent higher than a year earlier, at £5.4bn. In the residential sector, the figure is 21 per cent higher.

Northern's predictions for the housing market came as the Governor of the Bank of England denied that recent rises in interest rates had put the UK economy on the brink of a slowdown.

Mervyn King was criticised by a member of the Commons Treasury Select Committee, who said the bank had hit the brakes too hard.

Giving evidence to the committee, Mr King accepted the economy had lost momentum over the autumn, with growth substantially lower than expected, at 0.4 per cent.

The housing market had also gone into reverse, with most surveys reporting falls in property prices, while retail sales and investment figures were weak.

But Mr King said it was overstating the case to accuse the bank's monetary policy committee of hitting the brakes too hard by raising rates three times between May and August.