THE likelihood of a rise in interest rates has increased after the latest figures showed a surge in homeowner borrowing.

With the Bank of England anxious to prevent people becoming even more burdened by debt, the cost of borrowing is expected to rise next month.

The Bank's monetary policy committee (MPC) also said house price rises were "once again above expectations", and that UK consumers were sliding increasingly into debt.

Although it emerged that members voted 8-1 earlier this month to keep interest rates at 3.75 per cent, the committee said that a 0.25 per cent rise in November had done little to dampen growth in property prices or consumer demand.

Deputy Governor Sir Andrew Large, who is responsible for financial stability, said a rate rise was needed to prevent a repeat of the late 1980s and early 1990s, when consumer debt reached record levels.

Figures from the Council of Mortgage Lenders showed that homeowners borrowed 25 per cent more money last year than in 2002.

HSBC economist John Butler said the MPC was in a "catch-22" situation; it wanted to stem consumer borrowing, but worried about the effect of an interest rate rise on a public already heavily in debt.

He said: "The minutes of the MPC meeting are clear about one thing, this is a central bank that expects to be raising rates. The question is simply one of timing."

According to Investec economist David Page, the minutes pave the way for a rise next month, but retail sales data and GDP figures tomorrow could still persuade members to keep rates on hold.

The MPC said that if the economy continued to evolve as forecast in its November inflation report, then it believed a gradual rise in interest rates would be necessary.