Directors warn over big rate rise

Business leaders urged the Bank of England to hold back from the "nuclear option" of a half-point rise in interest rates tomorrow as fresh figures pointed to a rebounding economy.

The Institute of Directors said it was almost inevitable the Bank would raise base rates for the first time in three and-a-half years.

But it said there was concern that households could buckle under huge debt burden if rates rose too high.

"A quarter point looks almost certain," said Graeme Leach, the IoD's chief economist. "The Bank will need to proceed carefully and we do not expect a half-point rise - the nuclear option."

Speculation of a rise in borrowing costs to 3.75 per cent tomorrow were heightened by figures showing that the construction industry expanded at its fastest rate for 27 months in October.

The Chartered Institute of Purchasing and Supply said activity rose to its highest level since July 2001 on the back of robust growth in new work. Housebuilding was at a three-year high.

The latest economic indicators follow a batch of surveys on Monday showing that manufacturing growth accelerated in the UK, the US and the eurozone in October.

The surveys, said Ciaran Barr, chief UK economist at Deutsche Bank, "really do signal an improving economy."