City experts back early rate rise

INTEREST rates are set to rise within a month, according to a poll of leading City economists. Roaring High Street sales, a house price boom and an explosion in consumer credit have turned City opinion in favour of an early increase in borrowing costs.

Steve Russell at HSBC said: 'A rise by the Monetary Policy Committee in June or July would allow consumer spending to slow before an asset-and-debt bubble is created.'

The Bank of England meets on Wednesday as pressure mounts for an increase in the 4% base rate. Though a survey by information group Reuters found that only three out of 28 economists expected a rise this week, a majority forecast an increase by the end of July. Last month, the same poll found all 27 analysts surveyed expected no change in interest rates - and they were right.

Two surveys to be published on Wednesday may influence the MPC. The Purchasing Managers' Index is expected to show a slow recovery in manufacturing last month, reducing the need for lower borrowing costs to help exporters. The Confederation of British Industry's distributive trades survey is likely to show continued sales growth. Retail sales in April rose by 1.7% - the sharpest rise in two years.

The forecasting group Consensus Economics notes a similar hardening of City opinion. When asked in April to forecast the level of the three-month interbank rate, which tracks the MPC's rate three months ahead, analysts estimated 4.3%. In May, they put it at 4.4%.