THE Bank of England is set to raise interest rates on Thursday for the third time in four months.

After the fastest growth in the economy for four years, with rampant retail sales, record mortgage lending and another big jump in house prices, a quarter-point rise in rates this week is seen by the City as inevitable.

But after predictions from some economists that the Bank’s Monetary Policy Committee may contemplate a more drastic half-point increase, business groups sounded warnings against such aggressive action.

“A half-point hike is certainly now a real possibility,” said Howard Archer, of Global Insight.

Mr Archer’s comments came after a call for tougher action from the MPC from the influential National Institute of Economic and Social Research.

But the CBI said that such a move this week would be “a real blow to business”.

“The UK economy would be best served if the Bank maintained a well signalled, gradualist approach to interest rate rises. Any surprise moves simply risk pushing sterling higher and further squeezing exporters’ already thin margins,” said John Cridland, the CBI’s deputy director-general A half-point increase in rates remains unlikely, however. The MPC has never raised rates by more than a quarter point since it was set up in 1997.

Even if a rate rise is only by a quarter point, however, the Bank is likely to use its statement and next week’s quarterly Inflation Report to signal that further increases in borrowing costs are imminent.