Spending makes rate rise 'certain'

A DRAMATIC surge in High Street spending and manufacturing activity today cemented expectations that the Bank of England will raise interest rates on Thursday for the first time in almost four years.

The CBI said retail sales grew last month at the fastest pace for 18 months with more gains expected in the months ahead.

Meanwhile, a closely watched survey of the manufacturing sector from the Chartered Institute of Purchasing and Supply saw factory activity pick up to its fastest for nearly four years.

The Bank's monetary policy committee is tipped to lift the cost of borrowing by a quarter of a percentage point from its current 48-year low of 3.5%. It will be the first increase since February 2000 and will mean a typical homebuyer with a £200,000 repayment mortgage will pay a further £30 a month.

Four of the MPC's nine members voted for higher rates last month. The Bank's Governor, Mervyn King, voted for unchanged rates, but later said the period of low interest rates would have to end. Financial markets are predicting that rates will climb to about 5% by the end of next year.

Economist Philip Shaw at Investec said: 'We believe a rapid series of interest rate increases is off the agenda. However, rates could be on an upward path for some time to come.'