Homeowners should be braced for an imminent increase in interest rates following the publication of the minutes of the last meeting of the Bank of England's monetary policy committee.

The report, released on Wednesday, revealed that nearly half of the committee's members backed a quarter point increase at this month's meeting.

Rates are currently at a 48 year low of 3.5 per cent and the committee fears consumers are cashing in on cheap debt at unsustainable levels.

Four out of the nine-strong committee backed the increase - pointing to the likelihood of future increases.

Deputy governor Andrew Large joined with Paul Tucker, Kate Barker and Stephen Nickell in backing the increase.

But the move was narrowly rejected as "premature", with fears that it could have negative consequences for business.

Manufacturing leaders have welcomed recent rate cuts and would oppose any upwards shift.

The MPC minutes signalled that the bank believes it must act to temper consumers' excess.

"The committee agreed that house prices, housing market activity and mortgage borrowing all suggested that consumption growth would not moderate as quickly as previously expected," said the minutes.

The City appears to have priced in a 25 point increase in rates later this year and expects rates to stabilise around five per cent by 2005.

Other members also believed the rise would be necessary if the 2.5 per cent inflation target was to be met next year.

The Liberal Democrats said the report underlined the need for ministers to act on consumer borrowing and "irresponsible lending".

"The house price bubble is fuelling consumption and keeping the economy going, but even the Bank of England accepts house prices are based on irrational speculation," said Vince Cable.

"The only source of comfort is that people can afford to pay the interest on these debts because rates are so low.

"The Bank of England is terrified of raising interest rates, but risks extending the boom to even more dangerous levels."