Bank guru says interest rates must rise

THE Bank of England expert who wanted to raise interest rates last month, has warned that borrowing costs would have to rise soon to bring inflation under control.

Paul Tucker said he expected strong demand to push prices higher. He also hinted that the consumer sector's slowdown may not yet have started, pointedly making no reference to the recent drop in retail sales.

His warning came as BoE figures showed credit card borrowing unexpectedly rose in January by £2.3bn or 1.3%, lifting the annual rate to 12.6pc. The news will alarm policymakers who had hoped overstretched Britons would stop borrowing so much on plastic.

The Bank also said mortgage lending rose by £7.2bn, or 0.8%, in January, although the number of approvals remained low at 79,000. This coincided with a survey from Nationwide showing house prices rose by 0.5pc last month.

Taken together, the numbers defy the BoE's prediction that house prices would fall for a period. With inflation set to rise above the monetary policy committee's target, the City now expects interest rates to be raised in May.

However, the fate of the manufacturing sector is still in the balance. The Chartered Institute of Purchasing and Supply said the sector was growing at its slowest pace for 18 months, with exporters hit hard by the strength of the pound.

Orders fell last month and firms' margins were also pressed. Jobs were also cut faster than in the past 21 months.