ECONOMISTS are tipping the Bank of England's rate-setting committee to keep UK interest levels at a 48-year low of 3.75 per cent when it meets on Thursday.

The Monetary Policy Committee (MPC) is expected to heed recent economic indicators which show the embattled manufacturing sector continues to languish while consumer confidence is propped up by the continued strength of the property market.

Figures from Britain's biggest mortgage lender Halifax showed that house price growth increased by 1.5 per cent in May after consumer confidence strengthened with the end of the Iraq war.

The return to higher growth following April's 0.5 per cent gain came despite a significant fall in the number of first-time buyers, which has moderated the overall pace of the market.

Halifax said the fundamentals underpinning the housing market remained in place, with low unemployment and low interest rates driving growth.

The figures have added weight to the view that the MPC will keep rates on hold this Thursday.

But economists warned that a strong argument for rate cuts remained with manufacturers still under pressure from lower output and fewer orders, a situation unchanged by the end of fighting in Iraq.

Data from the Chartered Institute of Purchasing and Supply (CIPS) yesterday showed that manufacturing industry declined for the sixth consecutive month in May and at a faster pace than the previous month.

John Butler, economist at HSBC, said: "On balance, the latest survey of the UK manufacturing sector was surprisingly weak."

The impact of the pound's recent weakness against the euro has also done little to boost flagging exporters or import prices.

Simon Rubinsohn, chief economist at stockbroker Gerrard, said: "Our suspicion is that the authorities will choose to wait a little longer to assess the impact of the weaker trend in sterling before providing any more assistance to industry."

Before yesterday, recent economic data had suggested consumer demand was slowing while business investment and output was starting to recover.

The CIPS figures have rekindled concerns that a recovery for the manufacturing sector could still be some way off.

Economists believe that despite the widespread predictions that house prices are about to slump, the Bank of England is unlikely to make another cut in interest rates while the housing market appears relatively healthy.

"House prices may not be rising at the four per cent monthly rate experienced at the end of last year," Mr Butler said.

"Nevertheless, these are still a punchy set of numbers and provide further support to our no-rate move at Thursday's meeting."