Expectations of an interest rate rise have been heightened, after the latest figures showed the largest house price increase for more than a year.

Published on Friday, the statistics from Nationwide revealed a two per cent rise in October, pushing house price inflation to 16.1 per cent.

The average cost of a property has now hit £131,947, up £1,500 since September.

"This latest, relatively rapid rise in prices, combined with a record level of house price approvals in September, indicates that some strength has returned to the housing market," said Nationwide's group economist, Alex Bannister.

"This turnaround appears to have been led by rising equity markets and a recovering corporate sector."

The Treasury's chief economic adviser Ed Balls has given his approval to any rate rise passed by the Bank of England's monetary policy committee.

"We stand ready to back the monetary policy committee in all its decisions," he told the annual dinner of the CBI's North West region on Thursday night.

But his comments were condemned by shadow chancellor Michael Howard.

"These developments are stark reminders of the dangerous imbalances now present in the British economy," he said.

"The rise in house prices reflects recent figures showing mortgage lending has risen again. And while personal debt is at record levels, government borrowing has also soared.

"Much of the blame for Britain's unbalanced economy lies directly at the feet of the chancellor. His policies have discouraged saving and encouraged borrowing.

"And if interest rates now start to rise, households across the country will pay the price for these imbalances."

Liberal Democrats urged the government to take action against "irresponsible lending".

"This is further proof that there is an unsustainable bubble in the housing market," said the party's Treasury spokesman Vince Cable.

"Soaring house prices are a headache for Gordon Brown and make an interest rate rise all the more likely.

"People who are borrowing at the edge of their means may get clobbered in the next few years, if rate begin to rise steadily."