City forecasts UK base rate rise

Homeowners should be braced for a quarter point rise this week

The Bank of England is almost certain to raise interest rates on Thursday, analysts say, as it tries to cool soaring house prices and consumer debt.

Economists are virtually unanimous that the BoE's Monetary Policy Committee (MPC) will lift rates by a quarter percentage point to 4.25%.

Record mortgage lending, surging retail sales and a recovering manufacturing sector all point to higher rates.

Analysts now reckon base rates will reach 5% by the end of the year.

A sure thing

Recent figures have shown that consumers are still borrowing and spending enthusiastically and the manufacturing sector is picking up despite the strength of sterling.

How will the latest interest rate rise affect you?

In pictures

As a result, a more aggressive credit tightening policy could be the only way to rein in consumers.

Despite two rate increases since last November, mortgage lending rose by £9.3bn in March, taking the annual rate of increase to a record 15.2%.

Retail sales continue to grow strongly and even business leaders appear relaxed about the prospect of another rate rise.

"The CBI says it would understand if the BoE raised rates on Thursday - surely the ultimate sign that a UK rate rise this week is baked in the cake," said Ian Stewart, economist at Merrill Lynch.

Hawkish dove

Monetary Policy Committee member Marian Bell, who voted against November's rate rise, has argued that rates need to rise.

A UK rate rise this week is baked in the cake Ian Stewart, Merrill Lynch House prices still rising

Recently she said the amount of spare capacity in the economy was shrinking and inflation was on the up.

Economists argue that rates need to rise to cool the rate of house price increases and thus prevent a crash later on.

However, MPC members Marian Bell and Kate Barker have argued that they do not want to use interest rate policy to tackle the housing market.

But both have suggested they would not say no to a rate rise, provided it was justified by inflation forecasts.

With the economy on a bullish footing, inflation is expected to lift its head above the Treasury's 2% target over the next two years, helping the Bank to justify tightening credit.