Bank hints at higher rates

The Bank of England's interest rate setters have hinted that a rise in the cost of borrowing is in the pipeline.

All nine members of the central bank's monetary policy committee (MPC) this month voted to keep interest rates steady at their 48-year low of 3.5%.

But minutes of the meeting on 4 September revealed that some members thought "an increase in rates might soon become necessary".

They were concerned about the pace of consumer spending and soaring levels of household debt, fuelled by relatively cheap credit.

Hike "by New Year"

"It's clear that some members on the committee seriously mulled the idea of voting for a rate increase," said Philip Shaw, chief economist at Investec.

And Adam Cole, economist at Credit Agricole, said: "Unless there are clear signs of renewed weakness in global activity, a rate hike can only be a month or two away."

"The hawks could form a majority by early next year."

The extent of domestic demand had caught policymakers by surprise, the MPC minutes conceded, saying that demand had been "substantially stronger than was embodied in the August central projection".

In July, the month when interest rates were cut to 3.50%, UK consumers racked up the biggest increase in total borrowing on record, according to Bank of England figures.

High Street sales have also risen, with a particularly strong surge in June, prompted by hot weather, causing concern that inflation could climb even further above government targets.

However the MPC noted that interest rates at banks and mortgage providers had already gone up a little.

"That would restrain consumption growth somewhat, even in the absence of an immediate increase in official rates," the minutes said.