Brown adviser signals rate rise

HOMEBUYERS face higher mortgage payments after an extraordinary intervention by Gordon Brown's right-hand man last night.

Ed Balls, the Chancellor's top adviser, effectively ordered the Bank of England to raise interest rates by a quarter of a percentage point to 4% later this week.

Addressing a local government conference, Balls claimed there was 'a consensus' that interest rates needed to rise to 'lock in' Britain's growing prosperity.

It is widely expected that the Bank's monetary policy committee will now increase the base rate. Building societies are almost certain to follow by increasing mortgage repayments for millions of people.

The supposedly autonomous committee was set up by New Labour in an attempt to reassure the markets that interest rate decisions would be free of political meddling. But the committee's two-day meeting, which starts today, now knows the Treasury is breathing down its neck.

Balls was referring to CBI chief Digby Jones who earlier this week acknowledged that interest rates needed to rise now that the economy was growing strongly.

Balls said: 'As the CBI demonstrated this week, there is now a consensus - across both industry and the regions - that a forward-looking and pre- emptive approach to monetary policy, backed by a sound fiscal policy, is the best way to lock in stability and deliver balanced regional growth.'

His words strengthened widespread expectations that the committee will follow up the increase it ordered in November with another quarter-point rise.

Experts warned that the jump could spell disaster for many homebuyers.

Earlier this month the Financial Services Authority raised fears of bankruptcies and repossessions as it emerged that homebuyers borrowed a record £ 270.6bn last year.

But Balls said higher interest rates were needed now to head off the threat of spiralling inflation in coming months and years.

'Having been the only economy to avoid recession, our challenge now is to entrench stability for the long term,' he said. 'It is precisely at this stage of the economic and electoral cycle that past British Governments have resorted to short-termism. We will not repeat those mistakes.'

He added that the rise would not hurt because growth was picking up in all regions of Britain.