The odds of two further interest rates hikes this year shortened dramatically today as Britain’s biggest building society revealed that house prices were increasing at the fastest pace since the beginning of 2005.

Economists said it was now almost certain that the Bank of England will put the cost of borrowing up by a further quarter point to 5.75 per cent next Thursday - the fifth rate rise since last August - with another to follow before the end of the year.

Nationwide revealed that house prices have climbed by 1.1 per cent this month, taking the annual rate to 11.1 per cent, or more than £50 a day.

It said that while the housing market should still slow towards the end of the year, the house price growth rate for 2007 as a whole could still be 8 per cent.

Fionnuala Earley, chief economist, said that the price of a typical house was now £184,070, more than £18,000 higher than this time last year.

She added: “The resilience of the housing market will be another component to add to the rate rise camp’s argument.

“While we expected interest rates to increase to 5.75 per cent in August, this news will set the stage for that rate rise to move forward to July and for the risk of a rise to 6 per cent to increase significantly.”

Howard Archer, chief economist at Global Insight, said: “The Bank of England seems certain to lift interest rates by a further 25 basis points to 5.75 per cent in July or August, and we favour July.”

Nationwide's figures come two days after the Sir John Gieve, the Bank of England's deputy governor for financial stability, said the current interest rate level was too low to curb credit and demand growth.

Sir John, who voted for a rate rise earlier this month, said that it was better to tackle inflation than worry about the effects a further rate rise would have on economic growth.

Yesterday, the British Bankers Association said that mortgage approvals in May were at a six-month high despite the higher cost of borrowing.

Ms Earley put June's strong house price figures down to "volatility" and a lacklustre June last year but admitted a shortage of housing stock and high demand was continuing to underpin the market.

However, she stressed that the four interest rate rises seen in the past 10 months were beginning to have an effect with estate agents beginning to see a drop off in the number of enquiries from new buyers.

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