Buoyant data point to rate rise

Expectations of another interest rate rise this week were cemented yesterday by data showing manufacturing picking up, mortgage lending rising at record rates and retail sales booming over Easter.

City economists said that the figures, which pushed up the pound by more than 1% against the dollar, pointed to an economy that was firing on all cylinders.

The Bank of England said mortgage lending in March jumped by £9.3bn, a record 15.2% surge on a year earlier and a figure which chimes with house price surveys showing the property market continuing to surge.

Strong mortgage approvals figures suggested that house prices would be well supported into the summer, while consumers added to their credit card bills at a pace not seen for over two years.

But the Liberal Democrats warned that trouble was brewing. "Large numbers of people are gambling on the house price boom - a gamble they may regret if house prices start to fall or interest rates rise," said Treasury spokesman Vincent Cable.

George Buckley, an economist at Deutsche Bank, said that expected interest rate rises would be likely to slow the housing market and consumer borrowing, although the Bank of England's two interest rate rises since November, which have put up the cost of borrowing to 4%, had not yet had much effect.

"This morning's data add further weight, if any were needed, to calls for the Bank of England to hike rates this Thursday," he said.

Financial markets are pricing in interest rates of up to 5% by the end of the year as the Bank attempts to prevent robust economic growth stoking inflation.

The growing certainty of a rate increase this week pushed sterling up by over 1% to $1.79 as UK-based assets looked more attractive.

The CBI's latest survey of the retail sector showed shoppers had flocked to stores over Easter, with 51% of retailers re porting stronger sales last month and only 21% saying sales were weaker. The resulting balance of 30% was up from 17% in March and was the best figure since January.

A separate survey from Experian Business Strategies predicted that rising incomes, a strong housing market and low unemployment would underpin consumer spending this year in spite of expected interest rate rises.

In addition a survey of the country's long-suffering manufacturing sector, which makes up a fifth of the economy, showed firms were enjoying strong orders and output. The purchasing managers' survey, conducted by the Chartered Institute of Purchasing and Supply and Reuters showed that the overall activity index for the sector jumped to 55.1 last month, the best since January.

Economists said the survey meant that official manufacturing data, which have been much weaker, were likely to indicate a recovery soon - especially with the world economy picking up strongly.