INTEREST rates are likely to rise for the first time in nearly four years next week after figures showed house price inflation taking off again.

Nationwide Building Society said prices rose by two per cent during October - the biggest jump for more than a year and twice September's one per cent gain.

At the same time, annual house price inflation increased for the first time in seven months, rising to 16.1 per cent for the year to the end of October, from 15.5 per cent the previous month.

Earlier this week, Bank of England Deputy Governor Rachel Lomax told The Northern Echo there were great concerns among economists about levels of borrowing and equity withdrawal.

The Bank of England also found mortgage lending reached a new high during September, while the value of loans approved also set a new record, suggesting borrowing was picking up rather than slowing down.

These factors, combined with recent evidence that the economy was recovering, make it increasingly likely the Bank's Monetary Policy Committee (MPC), of which Ms Lomax is a member, will vote to raise rates for the first time since February 2000 when it meets next week.

Gordon Brown's chief economic advisor, Ed Balls, has also indicated that an interest rates rise would be backed by the Treasury if the MPC decided it was necessary.

Speaking at the Confederation of British Industry's North-East dinner, in Newcastle, he said: "We are determined not to put our commitment to stability and long-term discipline at risk.

"Over the past six years, British policymakers have not shirked or delayed taking tough decisions necessary to lock in stability for Britain.

"That is why we have - and will maintain - our disciplined approach to the long-term management of the public finances. And it is why we stand ready to back the MPC in all its decisions.

"Because, just as the MPC took early action to cut interest rates in the face of a global slowdown, so, too, will they continue with this forward-looking approach to lock in stability as the British economy strengthens and as all policymakers respond to the challenges and opportunities of the global upturn."

"We must not, and will not, repeat the mistakes of the past. We are determined to put stability first."

Rates were initially expected to be raised by 0.25 per cent from their current 48-year low of 3.5 per cent, but a 0.5 per cent increase now seems more likely than rates being kept on hold.