City signals a new interest rate rise

THE odds are shortening on another rise in interest rates this week as house prices and consumer spending show no signs of abating.

Tumbling prices on Friday for Government stock and sharply higher money market rates flashed warning signs of higher borrowing costs.

The Bank of England's monetary policy committee meeting this week comes after its May decision to raise the base lending rate from 4% to 4.25%.

City analysts were divided over whether the MPC would hold fire or raise rates to 4.5%.

But in the markets, the key three-month interbank rate for June hit 4.71%, effectively 'pricing in' a quarter-point rise this Thursday.

Last week's Nationwide index showed house prices in the year to May rising at 19.5%, up from 18.9% in the year to April, taking the pace of growth to its fastest for a year.

This, combined with a Confederation of British Industry manufacturing report on Thursday showing company order books in May at their best levels in six years, fuelled speculation that the MPC might decide to act sooner rather than later to head off any revival of inflation.