Interest rates 'must rise'

Experts have said UK interest rates have to rise to slow a rapidly accelerating property market.

The Ernst & Young Item Club finds the continued strength of the UK housing and financial markets, not to mention growth in the UK labour force, as strong reasons for the Bank of England to increase interest rates.

"The UK economy is expanding quicker than many of us anticipated - but it can go faster," said Peter Spencer, chief economic advisor to the Item Club.

"However, interest rates need to be raised again in November to stop credit expansion and asset price inflation spilling over into excessive demand and inflation.

"If house prices continue to accelerate, interest rates will have to rise further in 2007."

The Item Club, which is the only economic forecasting group to use the Treasury's own economic model, reports house prices have been just one of the factors behind a buoyant economy.

As well as rising house prices the UK economy has been boosted in recent months by a rise in the number of older and retirement age workers, as well as migrant workers, increasing the size of the labour force; a buoyant FTSE; and healthy retail sales figures.

Interest rates last rose in August, but many analysts believe above-target inflation will see the Bank increase interest rates again in November.