The cost of taking out the most popular type of fixed-rate mortgage fell last month for the first time since February in the UK, Bank of England data showed yesterday.

The drop is welcome news for homeowners who had seen the cost of mortgage finance rocket to an eight-year high, but many analysts cautioned that it was too soon to say the credit squeeze was loosening its grip.

"Rates have fallen but they are still very restrictive given the current macro-economic backdrop," said Lena Komileva, a market economist at Tullet Prebon.

Figures from the central bank show the typical rate on a new 75 per cent loan-to-value mortgage, fixed for two-years, fell to 6.36 per cent from 6.6 per cent in June. The rate on a 75 per cent loan-to-value mortgage fixed for 10 years fell to 6.43 per cent from 6.46 per cent in June.

Swap rates, which underpin the cost of short-term fixed lending, have dropped sharply over the past month as falling oil price have encouraged speculation that interest rates will eventually be cut.

Money market rates show the Bank of England is likely to hold interest rates at five per cent for several months, but cut them to 4.5 per cent by the middle of next year.

Alan Clarke, an economist at BNP Paribas, said the fall in fixed mortgage rates would provide some relief to the thousands of homeowners whose existing fixed-rate deals were about to expire, but doubted it would do much to entice first-time buyers.

"This is the first bit of helpful news for a while but it comes on the back of a sizeable upward shift the prior month, so rates are still higher than two months ago," he said.

"If reports are correct that potential buyers are sitting on their hands in anticipation of possible stamp duty freezes, then to some extent it is academic what the cost of a two-year fixed rate is – new buyers are holding fire."

Meanwhile, Britain's Office for National Statistics said manufacturers' costs fell at their sharpest monthly pace in 1-1/2 years in July but were still nearly a third higher than a year ago, and analysts do not expect any let up from rising headline inflation just yet. Input prices unexpectedly fell 0.6 per cent on the month. Analysts had forecasts a one per cent rise but data revisions meant costs were still a higher than expected 30.1 per cent higher on the year. The recent sharp slide in oil prices – currently trading some $30 a barrel below the record high hit last month – has yet to be fully reflected in official data, which use an average of prices across the month.

That indicates input prices could fall markedly in August, as long as the cost of oil does not rocket higher once again.