MANUFACTURERS last night urged caution ahead of an expected interest rate rise tomorrow.

The Bank of England's Monetary Policy Committee (MPC) is expected to increase the cost of borrowing for the first time in three-and-a-half years from its current 48-year low of 3.5 per cent.

Rates could rise by as much as 0.5 per cent to control rising debt amid growing evidence that consumer spending is picking up and signs that manufacturing is emerging from recession.

Last night, Alan Hall, regional director of the Engineering Employers Federation, said the upturn in manufacturing remained hesitant and recovery hopes would take a blow if higher rates led to further strengthening of the pound.

He said: "We urge the MPC on balance not to increase rates at its next meeting, but to move forward cautiously, keeping a close eye on currency movements."

Manufacturers found an unlikely ally in Peter Allan, chairman of the North-East region of the Institute of Directors, who urged caution.

He said: "A quarter-point upward movement in interest rates looks almost certain.

"However, the MPC will need to proceed carefully and we do not expect a half-point interest rate rise - the so-called nuclear option."

Graeme Summers, a city analyst with the Newcastle office of stockbroker Brewin Dolphin Securities, said that even a half-point rise should not stop a number of listed North-East firms continuing to grow.

Mr Summers cited Arriva, Barratt, Greggs, Northern Rock and Reg Vardy as examples, and said: "These companies invariably boast strong management teams, sound balance sheets, excellent cash flows and tightly controlled cost bases.

"While we may see a short-term blip in the markets this week, particularly if interest rates are raised by 0.5 per cent, we believe that rates should not go too much higher for some time."