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

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

The value of loans approved also hit a new record of £30.92 billion, 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 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 per cent, it would be the first hike for three and a half years.

John Butler, an economist at HSBC, said mortgage lending showed signs of re-accelerating.

He said: "That 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.

"The next step is that the Bank of England will be forced to deliver a rate rise at the November meeting. Our central expectation is that interest rates will rise by 0.5 per cent by February 2004."

About 136,000 loans for buying a house were approved during September, well up on an average of 117,000 for the three months to the end of August.

Unsecured lending also powered ahead with consumers borrowing £17.7 billion in the month through loans, credit cards and overdrafts.

After repayments were taken into account, unsecured debt rose by a strong £1.83 billion.

Within these figures, consumers spent £11.46 billion on their credit cards and after repayments, outstanding debt on plastic rose by £765 million to £52.22 billion.

Philip Shaw, an economist at Investec, said: "The mortgage figures show the mortgage market is in an unbridled boom."

Thursday October 30, 2003