Warning of interest rates increase

The UK's biggest building society has warned interest rates couldhit 6% after house prices rose by more than 1% during June.

The Nationwide figures showed a 1.1% rise in property values inthe month - more than double the rate of May's increase.

The Bank of England is widely expected to raise rates to 5.75% inJuly to keep a lid on inflation.

But the building society's chief economist Fionnuala Earley saidthe sharp increase in house prices revealed today "significantlyincreased" the risk of borrowing costs reaching 6%.

The Bank's governor Mervyn King told MPs today that inflationaryrisks were still prevalent in the economy, despite signs of a slowinghousing market earlier this year and "tentative signals" of slowingconsumer demand.

But Nationwide's figures showed the average home in the UK nowcosts pounds184,070 - more than pounds18,000 higher than a yearago. Annual house price inflation stood at 11.1%, up from 10.3% inMay.

This month the Bank's Monetary Policy Committee voted to holdrates at 5.5% in a knife-edge decision as five members of the MPCdecided to allow more time for the four rate hikes seen since lastAugust to take effect.

Experts said that the bullish Nationwide data would hardenattitudes among the Bank's policy-makers.