A LEADING economist who plays a key role in setting the cost of borrowing has hinted that interest rates will have to rise again.

Kate Barker, a member of the Bank of England’s Monetary Policy Committee, told an audience in Kent that it was “implausible” for interest rates to stay at four per cent.

Ms Barker was one of nine MPC members who took the decision to raise the rate by a quarter per cent to four per cent.

She was guest speaker the inaugural breakfast event hosted jointly by the Bank of England and Kent Business, the award-winning monthly newspaper published by the Kent Messenger Group (KMG), at The Orangery, Turkey Mill, in Maidstone.

During her talk on inflation, Ms Barker gave a clear indication that the recent rise was unlikely to be the last.

Asked about the prospects for interest rates, she said: “The forecasts I’ve shown you on the charts are based on rates slightly implausibly staying at four per cent.”

The 90 business leaders present took the word “implausibly” as a sign that rates would continue to go up this year, perhaps to the five per cent mark that some experts are predicting.

Donald Charlesworth, company secretary for Aylesford Newsprint, the newspaper and magazine recycling plant, said higher rates were bad for manufacturing, pushing up costs.

“We’ve seen a wonderful period in the last few years of low interest rates and it’s good for the economy,” he said.

Ms Barker, a former chief economic adviser to the CBI, also spoke about the change of inflation target for the Bank of England from 2.5 per cent to two per cent following the Government’s change in pricing measure.

Inflation is now measured by the so-called Consumer Prices Index (CPI) rather than the Retail Price Index. CPI excludes housing and council tax rates and tends to produce a low fiture. Ms Barker explained that less weight was given to “things where prices are rising".

She also outlined the state of the global and national economies. While the global economy was improving, she said, Europe was “still hesitant".

But consumer spending in Britain remained “robust,” despite the previous quarter per cent rise in November. She thought the public’s fondness for the high street might slow as higher interest rates and taxes hit pockets. Savings remained flat as people took on more debt.

There were hopeful signs for manufacturers, with a “dramatic pick-up” lifting the gloom surrounding industry for the past few years.

“The figures all suggest that manufacturers are feeling more cheerful,” she said. However, investment levels in industry were disappointing.

All the economic conditions for entry into the euro could be met, she said, but that would be a political rather than an economic decision.

Ms Barker is currently reviewing housing supply for Chancellor of the Exchequer Gordon Brown.

Her findings will not be revealed until the Budget on March 17. But she admitted that the housing market was “failing first-time buyers” but it was difficult to work out why.

It could be down to changes in income distribution or the restricted supply of first-time homes.

She warned that the increase in the loan-to-income ratio (often as much as four or five times annual income) could cause house price rises to weaken.

Ms Barker also claimed that while the number of people in work was increasing, the average number of hours they were working was going down.

Roger House, chairman of Kent Federation of Small Businesses, disputed this claim, saying that most of his members were working longer hours.

“I don’t recognise those figures at all -- hours of work are lengthening and income is reducing.”

David Lewis, KMG chief executive, had earlier welcomed Ms Barker and said his company was delighted to be developing an association with the Bank of England.