Square Mile set for rise in rates

THE CITY was braced today for the first back-to-back rise in interest rates for more than four years. Financial bookie Cantor Index forecast the FTSE 100 index would open nine points lower after yesterday closing at 4489.5. The pound was at an eight-week high against the euro.

A slim majority of economists predict the Bank of England will lift rates by a quarter-point to 4.5% at Noon today after similar moves in November, February and May. But it is seen as an extremely close call, with the probability of a rise put at just 55%.

A move from the Bank's monetary policy committee would reflect concerns that the housing and borrowing booms are running out of control, threatening the stability of the entire economy.

House price inflation has hit 20% and Britain's household debt mountain is nearly £1 trillion, equivalent to annual economic output.

Market analyst Datamonitor became the latest doommonger to warn that consumers are storing up trouble, racking up debt at the expense of saving enough for the long-term.

'There is an increasing view that property is a get-out-of-jail-free card, and that it will be the new pension,' it says in a new report.

'However, this is a high-risk attitude. Consumers may be left high and dry when a property crash does occur.'

Datamonitor does not expect a crash now, but says one is inevitable over the next 20 years.

Economists were sceptical another rate rise today would cool the housing market or consumers' appetite for debt.

Adam Law at Barclays Capital said: 'On its own, each increase doesn't make much difference, but we expect rates to rise to 5% from a low of 3.5% last year. The Bank's on a journey and we don't expect it to get to its destination until the end of the year. That's when people will notice.'

Ross Walker at Royal Bank of Scotland added: 'We've already had three rate increases and there's no evidence to suggest there's been any moderation in consumer behaviour.'