INTEREST rates could rise again as soon as next month, City economists said yesterday, after the Bank of England sounded a warning over rising inflationary pressures from continuing strong growth.

After the Bank yesterday raised rates for the fifth time since November, eight out of fifteen leading economists polled by The Times said there was a strong chance of a further, back-to-back increase in September.

The quarter-point increase took borrowing costs to 4.75 per cent, their highest level in nearly three years.

But the City is split over how far and how fast rates will rise, after the Bank tempered its warning by noting signs that the housing market and high street boom have come off the boil.

“Although the housing market remains buoyant, there are now signs that it is starting to ease, and the growth of consumption may be moderating,” the Bank’s Monetary Policy Committee said in a statement.

Some analysts interpreted the comments as a sign from the MPC that rates do not have much further to rise, with Lehman Brothers arguing that interest rates may already have hit their peak.

Richard Iley, of BNP Paribas, said the statement suggested that the MPC believed its past four rate rises are biting. “This statement today for me is code that the medicine is working,” he said.

Other economists believe that rates will rise by as much as another percentage point. They argued that the Bank had also highlighted factors fuelling robust growth, including strong investment and government spending.

“The statement is consistent with what the MPC has been saying over recent months: strong growth, declining spare capacity and rising inflationary pressures,” said George Buckley, of Deutsche Bank — which expects base rates to climb to 5.5 per cent.

With all eyes on next week’s Inflation Report for clues to the Bank’s next move, pressure on the MPC to be cautious grew after worse than expected manufacturing figures.

The sector’s output fell by 0.7 per cent in June — after two months of expanding production, which had fuelled hopes for a sustained revival.

Despite these figures, the City said the sector’s recovery remained on course. But industry groups pressed the Bank to tread warily. “We call on the MPC to resist the clamour for a rapid tightening of monetary policy. Interest rate overkill could have damaging consequences,” the British Chambers of Commerce said.

HOW HIGH WILL RATES GO?

Lehman Bros 4.75%
BNP Paribas 5%
ABN Amro 5%
Barclays Capital 5%
Goldman Sachs 5.25%
Investec 5.25%
Icap 5.25%
Capital Econ 5.25%
Deutsche Bank 5.5%
HSBC 5.5%
Gerrard 5.5%
Citigroup 5.5%
Merrill Lynch 5.5%
Global Insight 5.75%
Lombard Street Research 6%