First interest rate rise in four years expected

Published on Monday 3 November 2003 00:00

INTEREST rates are expected to see their first rise in almost four years later this week, as the Bank of England tries to battle soaring house price inflation and rising debt levels.

Were the Bank’s Monetary Policy Committee to hike rates on Thursday, it would end the longest period without a rise since the 1940s. According to a poll of 43 analysts by Reuters, 37 said the key lending rate would go up by a quarter point to 3.75 per cent, from the current 48-year low of 3.5 per cent. It would be the first rise since February 2000.

The nine-member MPC was just one vote short of a rate hike earlier this month. Figures last week from Nationwide Building Society showed house prices in October scored their biggest gain in more than a year, while other numbers revealed that annual house price inflation increased for the first time in seven months, rising to 16.1 per cent for the year to the end of October from 15.5 per cent the previous month.

Other figures from the British Bankers’ Association showed that mortgage lending reached a new high during September, while the value of loans approved also set a new record. That suggests borrowing was gathering pace rather than easing.

John Butler, an economist at HSBC, said: "The resurgence in the housing market and consumer appetite for debt since July’s rate cut seems to cement a rate hike at next week’s meeting and indeed will raise fears that rates may need to rise substantially before the consumer cools."

Philip Shaw, an economist at Investec, said: "The Nationwide figures show the housing market has got a fresh head of steam following a slowdown in house price inflation early this year.

"Coupled with the strong mortgage lending we saw, this will make the MPC even keener to raise rates."