THE Bank of England monetary policy committee (MPC) is expected to keep interest rates on hold at its meeting this week despite rising fears of a 1980s-style housing boom.

City economists are almost unanimous in forecasting rates will stay unchanged at five per cent when the MPC makes its announcement on Wednesday. Most still expect rates to remain at five per cent until early next year.

Some observers feared rates might rise earlier than forecast as evidence emerged of galloping house price rises.

Last week the UK's biggest mortgage lender Halifax reported house prices had risen 9.4 per cent in the year to August.

But fears of an overheating hous-ing market have been overplayed according to City economists.

Royal Bank of Scotland is predicting rates will stay on hold after mixed economic figures over the last week.

Although figures showed house prices had jumped and consumer spending had climbed, surveys by the Chartered Institute of Purchasing and Supply showed the pace of growth in both the manufacturing and service sectors had eased.

David Kern, chief group economist at NatWest, said the economy had shifted in the last three months and further rate cuts were now very unlikely.

But he said the MPC was likely to be cautious and not risk stopping the recovery in its tracks by raising rates too quickly.

"In the UK there is always a fear that we may repeat the mistakes of the late 1980s when it was left too late to act to cool the economy. But you must not over-react.

"There is uncertainty about the economy, but there is enough time to put a foot on the brake later if we have to," Mr Kern said.

He added the jump in house prices should be seen in the context of 1990-1995 when house prices fell for five years running.

Rising house prices should not be a concern for the MPC, he said unless they began to generate wider inflation.

But the underlying rate of inflation at 2.2 per cent is still well below the government's target figure of 2.5 per cent.

Expectations that rates will stay on hold were also buoyed by comments from Sushil Wadwhani, the newest member of the MPC, who was quoted last week saying he wanted to "give growth a chance".

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