Brown hints at support for rate rise

Gordon Brown hinted last night that he would back a decision to raise interest rates to stop spiralling house prices and high street demand from driving up inflation.

Speaking on the eve of his annual Mansion House speech to the City of London, the Chancellor said the Bank of England would have "tough choices" to make as the global economy continued to recover.

His comments, in an interview with the Financial Times, were seen as suggesting that the Bank's Monetary Policy Committee should increase interest rates to slow inflation.

He declared himself "cautiously optimistic" on the prospects of a global recovery, but was cautious over the effects of a consumer boom on Britain's economic prospects.

He said: "With this strengthening global recovery and domestic consumer demand already strong, against a background of historically low interest rates, the Bank will have tough choices to make in the coming months to ensure sustainable growth and the maintenance of stability.

"By prompt action and early action in the past the Bank has avoided the risk of stop-go instabilities. We will as a government continue to back the Bank in the difficult decisions that they have to make."

Mr Brown's warning comes amid concerns at spiralling house prices, particularly in London and the South-east. On Monday, the Council of Mortgage Lenders called for a "modest" rise in interest rates to prevent a repeat of the housing market crash of the early 1990s. It said the Bank should attempt to avoid the need for more drastic steps in the future.

In the interview, Mr Brown also rejected speculation that the fall in the value of the pound against the euro might hasten Britain's entry into the single currency. He insisted that Britain would take a long-term view, despite the pound's fall to a 32-month low. Sterling has fallen from less than 60p to the euro to the current level or nearly 65p.

He said: "It's exactly the same issues that we are looking at in 2002-03 that we were looking at in 1997: the impact on investment, on employment, on financial services, the flexibility of the economies and the whole question of sustainable convergence. I wouldn't like you to conclude that somehow either the emphasis or focus has changed. It is the five tests which in my view have stood the test of time."