Lord Levene of Portsoken and Sir David Walker are backing a new acquisition vehicle that will list on the London stock market and attempt to acquire a chunk of the high street banking industry. That’s likely to mean a bid for either Northern Rock or parts of Lloyds Banking Group which will have to be sold in return for the state aid it received following its emergency rescue of HBOS in 2008.

Details of the plans are likely to be announced within days. UK Financial Investments, the body which manages the taxpayer’s interests in the banking sector, is understood to have been briefed on the project as have the Treasury and executives at the banks themselves. Cenkos, the investment bank, and Kinmont, an advisory firm, are working on the proposals.

The Halifax data follow on from the Nationwide reporting that the rise in house prices slowed to just 0.1% in June from 0.5% in May and 1.1% in April. The year-on-year rise in house prices moderated appreciably to 8.7% in June from 9.8% in May and 10.5% in April on the Nationwide measure.

The third successive drop in prices reported by the Halifax in June adds to a recent flurry of soft data on the housing market and stokes our relative pessimism over the housing market. Indeed, we increasingly suspect that house prices will be only flat over the rest of this year. We had previously thought a small rise was possible.

There are also concerns that the Bank of England will raise interest rates before the end of the year due to sticky, above-target inflation. Furthermore, if household confidence suffers from widespread significant doubts about the stability and longevity of the Conservative-Liberal Democrat coalition governments, this could impact negatively on the housing market.

Meanwhile, more properties are coming on to the market thereby moving the supply/demand balance more in favour of buyers. This is particularly relevant as a shortage of properties has been a key factor in the recovery in house prices from their early-2009 lows. It may well be that the new government’s decision to abolish Home Information Packs is now contributing to the rise in houses coming on to the market.

On the positive side, some support for house activity and prices will come from the current stamp duty holiday for first-time buyers on all properties costing up to £250,000. And interest rates are likely to stay low for an extended period to offset the fiscal tightening.

On balance, we believe that house prices are likely to be erratic over the coming months and will probably be only flat over the rest of 2010. Furthermore, it is hard at this stage to be optimistic about house prices in 2011 as the fiscal squeeze will increasingly kick in, which will hit people’s pockets and lead to serious job losses in the public sector.

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Further to today’s coverage in The FT I would like to bring to your attention an incorrect statement within the market report.

In your article you make a reference QIA in terms of a potential bid for Sainsbury. I would like to bring it to your attention that QIA does not make direct equity investments, any direct equity investments are made by Qatar Holding, the direct investment arm of the Qatar Investment Authority.

We wanted to ensure that you were aware of this so the same mistake is not made in the future.

Many thanks and regards,

The minutes of the meeting will be published at 9.30am on Wednesday 21 July.

We had expected interest rates to start rising in February 2011, but this looks questionable with the economy already set to be hit by Value Added Tax rising from 17.5% to 20% next January. So the first rate hike may well be delayed until the second quarter. And when interest rates do start to rise, the increases are likely to be very gradual and limited due to the need to keep monetary policy loose to counter the major fiscal squeeze. Specifically, we see interest rates only rising to 1.75% by the end of 2011.