George warns on spending

BANK of England Governor Sir Edward George has warned only hours before the Bank's monetary policy committee starts its monthly interest rate meeting that rates will have to go up if people don't stop spending.

Speaking to the Aberdeen Press and Journal, George said: 'Domestic demand will have to moderate of its own accord. If it doesn't we'll have to put rates up.'

Although most economists still expect the MPC to leave rates unchanged on Thursday at 4%, the lowest for 38 years, George's comments underline the growing argument for a rate increase at some point in the next few months. George said: 'Housing is part of it. Prices are growing at a rate which cannot be sustained for long and that will be taken into account.'

The consumer spending boom has been fuelled by a steep rise in house values that has made homeowners feel increasingly well off. Figures this week showed annual house price inflation of 19.8%, the highest for 13 years.

Sterling rose against the dollar and the euro following the Governor's remarks. The pound stood at $1.5303, off the day's low but down on last night's close in New York. Against the euro it gained two thirds of a cent at 64.38p.