Rate rise likely after 'unbridled' lending

Economists predicted today that interest rates would rise next week, after figures from the Bank of England showed mortgage lending hit a new high during September.

Britons borrowed a record ?24.39bn during the month and, after redemptions and repayments were taken into account, mortgage lending rose by ?8.85 bn - well up on the previous high of ?8.26bn set in July.

The value of loans approved also hit a new record of ?30.92bn, as the market showed signs of accelerating rather than slowing down.

The figures make it increasingly likely the Bank of England's monetary policy committee (MPC) will increase interest rates at their monthly meeting next week.

If they did vote to raise rates from their current 48-year-low of 3.5%, it would be the first hike for three and a half years.

John Butler, an economist at HSBC, said mortgage lending was "ballistic" during the month, and showed signs of accelerating again.

"The MPC has been sending a message to households that rates may rise but it appears to have had little impact. The next step is that the Bank of England will be forced to deliver a rate rise at the November meeting," he said. "Our central expectation is that interest rates will rise by 0.5% by February 2004."

Shoppers also spent ?11.46bn on their credit cards in September, and after repayments outstanding debt on plastic rose by ?765m to ?52.22bn. "The personal lending numbers look strong right across the board. The mortgage figures show the mortgage market is in an unbridled boom," said Philip Shaw, an economist at Investec.

"The extent of personal borrowing has been a concern to the MPC for some time."

He said that given recent evidence of a recovery in the economy, the MPC was likely to raise rates next week.