Interest rates rise tomorrow

CHARLIE Bean and Kate Barker go into today's Bank of England monetary policy committee meeting safe in the knowledge their previous efforts have earned them new three-year terms on the nine-strong team of interest-rate setters.

However, they will have little time to rest on their laurels - the committee is facing a delicate balancing act of slowing the housing and borrowing booms without derailing the economic recovery.

These are the economic indicators that the committee will scrutinise before announcing its verdict at midday tomorrow.

Housing market

THERE'S no stopping the runaway boom. Figures last week from Nationwide showed property prices leapt 2.1% in April. That pushed the year-on-year rate of increase up to 19%, which is clearly unsustainable. The International Monetary Fund added its voice to doommongers warning of a crash.

Consumer debt

MORTGAGE borrowing grew at its fastest pace on record in the year to March, up £9.3bn during the month for a 15.2% annual increase. Driven by rock-bottom interest rates and easy credit, spending on plastic posted its biggest monthly rise for more than a year. The two recent rate rises have had absolutely no impact on borrowing.

Retail sales

EARLY indications point to a bumper month for the High Street in April. The CBI said Easter had boosted retail sales growth to its highest since January and the improvement was set to continue in May. Latest official figures showed sales in the first quarter were 6.6% higher than the same period a year ago - the fastest pace of increase for more than a year.

Growth

BRITAIN'S economic recovery remains on track, if unspectacular. Gross domestic product, a measure of overall economic activity, rose 0.6% in the first quarter, but lacked the punch of the previous quarter's 0.9% increase. Falling manufacturing output was blamed, but survey evidence suggests the industry recovery is in full swing.

Inflation

RATE doves seized on news of a surprise fall in inflation in March to its lowest for 18 months. Inflation on the consumer price index measure fell to 1.1% thanks to cheaper air fares and smaller petrol price rises than a year ago. It has been below the Government's 2% target for more than five years, but the Bank is convinced it will pick up sharply.

Labour market

ECONOMIC recovery is screwing the labour market tighter. Unemployment fell to a fresh 29-year low as the number of people out of work and claiming benefit dropped 4,200 in March to 882,200. The return of big City bonuses boosted average earnings growth to its fastest in nearly three years, but there is little evidence low unemployment is stoking wage pressures.

Global economy

THE US economy grew at a 4.2% annual rate in the first quarter against Wall Street forecasts of 5%. The disappointment was compounded by the first evidence of rapidly building price pressures. In the eurozone, meanwhile, the recovery is stuck in first gear.

MPC members' views

THE minutes of last month's MPC meeting came as a shock. The committee voted 8-1 to keep borrowing at 4%, with only arch-hawk Sir Andrew Large calling for an immediate increase. Since then, Paul Tucker has described the fall in inflation as 'no big deal', Kate Barker has said house prices could fall but that a crash is unlikely and Marian Bell has said spare capacity is shrinking.

Verdict

THERE'S no such thing as a dead cert, but this is as close as it gets: the MPC will lift rates tomorrow by a quarter-point to 4.25%. Regardless of low inflation and fragility in manufacturing, action is required to cool the housing and borrowing booms. The question is whether consumers will carry on borrowing and spending. Expect tough talk from the Bank when explaining its move in next week's quarterly Inflation Report.