Any lingering doubts that interest rates are poised to go up receded further yesterday as figures showed strong growth in the factory sector and on the High Street.

With the Bank of England's rate-setting Monetary Policy Committee (MPC) widely tipped to increase the cost of borrowing for the first time in three and a half years on Thursday, two key studies offered further evidence of economic recovery.

Figures from the Chartered Institute of Purchasing and Supply showed the UK's long-suffering manufacturing sector growing at its fastest rate for almost four years last month.

Meanwhile, the CBI said that retail sales grew at their fastest rate for 18 months during October.

Rates are now expected to rise for the first time since February 2000 to control rising consumer debt, in the face of growing evidence an economic recovery is beginning to gather pace.

The Bank of England cut the cost of borrowing to its current 48-year low of 3.5 per cent in July in a bid to shore up uncertain economic growth.

But since then revised GDP figures have shown the economy grew twice as fast as earlier thought during the second quarter of the year - prompting speculation that the Bank had based its decision on overly gloomy data.

Last month, minutes from the MPC's most recent meeting reinforced that impression showing that the committee had come within one vote of taking back the cut.

The latest data comes on top of figures last week that showed record consumer lending levels and monthly house price growth gathering pace again.

Simon Rubinsohn, chief economist at fund manager Gerrard, said that the reports provided the MPC with the "green light" to raise rates on Thursday.

He said: "The last real hurdle has been cleared with evidence that consumer spending is picking up and signs that manufacturing industry is now emerging from recession."

Meanwhile, John Butler from HSBC predicted a 0.25 per cent rise but said an increase of as much as 0.5 per cent was more likely than no change whatsoever.

CBI chief economic adviser Ian McCafferty accepted the case for the Bank to take back July's precautionary cut in light of the recent data but warned against a series of further rises.

He said: "The recent recovery in the wider UK economy is in its early stages and is still very fragile."

Tuesday November 04, 2003