Brown hints at further interest rate increases

Gordon Brown yesterday put homeowners and businesses on alert for fresh rises in interest rates as he hailed the Government's success in fuelling growth and boosting employment.

The Chancellor delivered a strong hint that he will use November's pre-Budget report to raise his forecast for economic growth this year.

His comments come just before the Labour Party conference and will fuel speculation he is seeking to bolster his credentials to take over from Tony Blair as Prime Minister.

In a briefing on the fringes of the annual meetings of the International Monetary Fund and World Bank in Singapore, the Chancellor said: "Despite global economic uncertainty, economic growth in the UK is stronger and more balanced."

He said business investment was growing by more than 4 per cent a year and export growth had doubled this year, while employment was at a record high. "This shows we are pursuing policies that give the economy balanced growth."

But he warned: "We know that if we are to sustain growth in the future we must never be complacent and always be vigilant to risks.

"So that is why I supported the pro-active, forward-looking action taken by the Bank of England in August and why we will continue to base public sector pay settlements on our 2 per cent inflation target."

The latest figures showed that the economy posted annual growth of 2.6 per cent in the second quarter, above the range of 2.0 to 2.5 per cent set out in March's Budget. Asked if he would raise his forecasts in November, he said: "Look at the March figures and draw your own conclusions from that."

His outlook for growth and inflation was boosted by a slew of figures yesterday. The property website Rightmove said the boom in London house prices accelerated this month as soaring demand for property allowed sellers to raise their asking prices by almost 3 per cent.

The average price of homes in the windows of the capital's estate agents has jumped 2.9 per cent since mid-August, according to Rightmove.

But the survey for England and Wales showed prices have risen just 0.2 per cent this month after a 1.6 per cent fall in August.

Miles Shipside, its commercial director, said there was no need for a rate rise. "Asking prices are at a virtual standstill," he said. "The market appears to be correcting affordability issues itself and does not need further intervention from the Bank of England. At this pivotal stage it is likely to do more harm than good."

Meanwhile the CBI, the largest employers' group, said it now expected stronger economic growth of 2.7 per cent this year, rather than the 2.4 per cent it predicted in the spring. Buoyant consumer spending, greater business investment and a better trade position prompted it to raise its estimate. The CBI expects inflation will continue to rise and peak at 2.8 per cent early next year, forcing the Bank to put up interest rates to 5 per cent in November. However, it sees both growth and inflation easing next year as the world economy weakens.

A survey of households for the Bank showed that consumers believe inflation is running at 2.8 per cent, up from the 2.7 per cent in its May survey and far above the 2.0 per cent target.

Over the coming months, half expected inflation to stay above target, with one in seven fearing it will breach 5 per cent.

Mr Brown, who is chair of the IMF's monetary and financial committee, also flagged up the need for higher borrowing costs across the world.