Homeowners have been warned to expect a rise in interest rates after the housing market surprised the City.

Economists said the cost of borrowing was likely to rise to five per cent in May after figures showed house prices rising and the strongest demand for mortgages since the summer.

Lending figures released by the Bank of England also showed a more buoyant market, with net mortgage lending rising by £7.2bn, or 0.8 per cent, last month - the fastest monthly increase since September.

Analysts noted that last week the bank raised its inflation projections above its target of two per cent in two years' time and that monetary policy committee (MPC) members were starting to break ranks to press the case for a rise.

At last month's MPC meeting, Paul Tucker disagreed with his eight colleagues and voted for an immediate rise in the cost of borrowing.

Jonathan Said, an economist at the Centre for Economics and Business Research, said the Bank of England was likely to respond to cool the housing market.

However, other figures released yesterday offered a contrasting view of the strength of the economy, with the manufacturing and retail sectors under pressure.

Although a study by the Confederation of British Industry showed retail sales edging up last month, it was at a slower rate than analysts had predicted because stores found it difficult to sell so-called big-ticket items.

The manufacturing sector also lacked spark as growth remained at its slowest pace for 18 months, according to the Chartered Institute of Purchasing and Supply.