By Mary Hennock BBC News Online business staff

Soaring house prices and consumer credit have increased the likelihood that the Bank of England will raise interest rates this week.

The decision of the latest monthly meeting of the Bank's rate setting committee will be announced at lunchtime on Thursday.

Even the Council of Mortgage Lenders has, for the first time, urged the Bank to raise interest rates to cool the housing market gently and avoid a crash later.

But though the pressure for the Bank to start raising rates from their present 40-year lows has never been stronger, most commentators think it will not happen quite yet.

One reason is that stock markets are still too jittery for the Bank's rate setting committee to upset them, economists say.

'Bad timing'

In recent weeks, global stock markets have see-sawed as investors' confidence has been undermined by the audit fraud scandals engulfing some of the biggest names in US business.

... the backdrop for the overall economy remains subdued even if the housing market is going from strength to strength

Ciaran Barr, Deutsche Bank

Last week, telecoms group WorldCom and copier firm Xerox both admitted to mis-stating their profits.

The Bank has kept rates unchanged at 4.0% at its last seven monthly meetings.

It sliced interest rates to protect growth in the aftermath of the 11 September attacks, but an increase in the second half of this year has been widely predicted.

"Were it not for the parlous state of world stock markets, we think that this week's meeting would be the occasion for that increase," said UK economists at investment bank Societe Generale (SG) in London.

"The risks to consumer, business and investor confidence are too high at present for the Bank to put up rates," said SG's Brian Hilliard.

Housing market overheats

But the case for an interest rate rise to make it more expensive for consumers to borrow is growing, economists say.

House prices have shot up by about 20% over the last year, surveys by Nationwide, Britain's biggest building society, and Halifax bank have revealed.

Consumer borrowing is at record levels, and rising by 1.5% a month.

Total mortgage lending reached �14.16bn during May.

This was 24% higher than the previous month and up 52% on lending in May 2001, the British Bankers' Association (BBA) said.

Spending spree

British shoppers used their credit cards to spend �6.53bn during May, a record amount in a single month, the BBA also found.

Outstanding debt on plastic rose by �64m in May, though there were signs that consumers were beginning to rein in spending.

Many fear homes will become unaffordable

May's increase was below April, when credit card debt rocketed upwards by �301m.

Strong consumer spending bolsters the economy, which depends on retail sales for two-thirds of growth.

But if too much of it is on credit there is a risk of a future collapse.

Uncertain outlook

One reason the Bank may stay its hand is that the overall economy is not yet as strong as had been hoped.

Manufacturing has been climbing out of recession but the sector is still fragile and activity barely increased in June, according to the closely-watched Chartered Institute of Purchasing & Supply (CIPS) report.

It suggests "industry is still not entirely on a firm footing", which "adds to the pressure on the MPC to delay to hiking base rates", said analysts at High Frequency Economics in New York.

As the Bank on Wednesday began its two-day meeting, it got some final data to consider on the vital retail and services sectors.

The Confederation of British Industry's (CBI) survey showed retails sales in June grew at their weakest level for 18 months.

And CBI director general Digby Jones told BBC Radio 4's Today programme on Thursday he wanted no interest rate change because the housing market was the only one to experience inflation.

Meanwhile, CIPS found expansion in the services sector continued in June, but at a slacker pace than the previous month.

'Wait and see'

Deutsche Bank economist Ciaran Barr said "the backdrop for the overall economy remains subdued even if the housing market is going from strength to strength".

"It buys the Bank of England more time to wait and see on [interest] rates, especially with inflation so subdued," Mr Barr said.

Bank of England governor Sir Edward George made much the same point last week.

With inflation comfortably below the government's target rate, he said, the Bank did not necessarily have to "deliver immediately", and still has some leeway before making a decision on a rate rise.

Inflation is currently running at 1.8%, putting it well below the 2.5% level at which the Bank would have to act.

"We think the odds on a rate hike this week are slim, but a rate hike is coming... soon," High Frequency Economics said.