Treasury chief backs interest rate rise

Homeowners are braced for a rise in interest rates tomorrow after a key Treasury aide backed a "pre-emptive" strike to ward off increases in inflation.

Chief economic adviser Ed Balls made his surprise intervention two days before the Bank of England's monetary policy committee decides on whether there should be a rise.

Most economists expect the Bank to raise rates tomorrow by 0.25 per cent to four per cent amid clear signs of economic recovery and higher growth. Their view was strengthened after the remarks by Mr Balls, Gordon Brown's right-hand man, to a conference in Leeds.

He said: "There is now a consensus ... that a forward-looking and pre-emptive approach to monetary policy, backed by a sound fiscal policy, is the best way to lock in stability."

The Bank alone was given the right to raise or lower interest rates in a landmark decision by Mr Brown to grant it independence when he became Chancellor in May 1997.

Up until now, the Chancellor and Mr Balls have confined their comments to giving its decisions broad support - after they have been made.

Simon Rubison, economist at fund managers Gerrard, said: "I'm not sure that Ed Balls should be talking in such terms a day before an MPC meeting. I wonder if it's sensible for the Government to be saying these things when it doesn't make interest rate decisions."

CBI chief Digby Jones has backed a pre-emptive rate rise, claiming this could head off a sharper rise in the cost of borrowing in the months or years to come.