Base rate 'to hit 4.75% this year'

THE City is betting heavily on a quarter-point rise in interest rates from the Bank of England this week and on a further three rises by the end of the year.

The rises would take the base rate to 4.75%, draining household budgets and leaving the average homeowner paying £54 a month more on a mortgage.

For those who have borrowed heavily to buy consumer goods, the squeeze will be even greater.

And taken together with sterling's recent strength, a rise will also hit the manufacturers and exporters now enjoying a fragile recovery.

This week's expected rise, from 3.75 per to four%, will push up the cost of the average home loan of £90,000 from £519 a month to £532.

Monthly payments on an interest-only mortgage for the same amount would rise from £356 to £375.

London money markets were last week signalling base rates of 4.75% by the end of this year. And of 46 City economists polled by the information service Reuters, 43 said Bank governor Mervyn King's Monetary Policy Committee will raise rates when it meets this week.

Ross Walker, economist at Royal Bank of Scotland, said: 'It is not a racing certainty, but the odds are 80-20 in favour of a rise. Recent figures for consumer confidence, retail sales and employment are all strong.'