News: Rate rise predicted for Thursday

Homeowners with big mortgages could be under pressure this week as economic indicators that the Bank of England's Monetary Policy Committee uses to make its decision on interest rates suggest that an upward move is needed.

The MPC meets Wednesday and Thursday this week to make its monthly interest rate decision. It could be a tough call for the Bank’s short-handed band.

The Consumer Prices Index rate of inflation leapt to 2.5% in June - up from 2.2% in May and ahead of economy's forecast of 2.3%. This is also well above the Bank of England's target rate of 2% and puts pressure on the committee to curb inflation.

These sharp rises in inflation and growth, combined with a fresh rise in housing market activity, have prompted some economists to switch their forecast to a rate rise on Thursday. Seven out of 46 polled by Reuters thought that the Monetary Policy Committee would raise the base rate by 0.25% this Thursday.

Philip Shaw, chief economist at Investec Securities, said last week that this meeting would be the most hotly debated for some time with the focus on whether to keep rates unchanged at 4.5% - for the 12th month in a row - or raise them to 4.75%.

Added to this the National Institute for Economic and Social Research said on Friday the economy would continue to expand at its long-run average rate in the second half of this year, with official data showing the recovery from a weak 2005 was faster than it anticipated.

However, many economists are still sitting on the fence and new figures out from Hometrack (see our story, House price slowdown - but not in London today) suggest the housing market is slowing again. House prices in July rose 0.6% on the previous month, taking the annual growth rate to 3.2%. For the first time in nine months the number of estate agents reporting price increases declined.

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