Hardly anyone expects the Bank of England to raise interest rates this week but markets are still on heightened alert after the central bank caught them on the hop with a quarter point hike in August.

Most analysts expect the central bank's Monetary Policy Committee will keep borrowing costs pegged at 4.75 percent for the second month on Thursday but then raise them to 5.0 percent in November in order to keep price pressures down.

New figures on Wednesday showing house prices jumped another one percent last month and the service sector grew faster than expected only increased nervousness about another surprise move.

Futures markets are pricing in a one in three chance of rates moving up a quarter point when the MPC back to full nine member strength for the first time since March delivers its verdict at 12:00 p.m. on Thursday.

An interest rate hike cannot be completely ruled out this Thursday, although we think it is more likely that the Bank will act in November, said Howard Archer, economist at Global Insight.

But market jitters over an early move aside, many economists are less confident the central bank will raise interest rates next month on growing worries the giant U.S. economy is turning down, which could hurt Britain and the rest of the world.

Euro zone economic growth has also probably peaked and the European Central Bank looks nearly certain to raise interest rates 45 minutes after Thursday's BoE decision.

We are now less confident that base rates will rise again in November to 5.0 percent. Although this remains our central view, we think it is becoming a closer call, said Philip Shaw, chief economist at Investec.


Sure, BoE deputy governor John Gieve said last week that he even considered voting for a rise last month but fellow MPC member David Blanchflower appeared more concerned the economy was slowing down.

He may be right.

Service sector output, which makes up three quarters of the national total, fell 0.3 percent in July, the sharpest decline in nearly three years. British Q2 GDP growth, meanwhile, was revised down to roughly its trend rate.

The statistics office had also massively overstated the extent of price pressures in the economy and a big fall in gas prices bodes well for inflation coming down if utility companies pass on their savings as quickly as they passed on higher costs.

But some influential academics have been sounding the alarm over the amount of cash sloshing around the economy. M4 money supply growth rose to 13.7 percent in August, its fastest rate since 1990.

High monetary growth is invariably associated, in the medium and longer terms, with inflation, the academics said in a letter to a newspaper last week. Signatories included former MPC member Charles Goodhart.

And while the latest fall in energy prices may depress inflation further ahead, the CPI is currently running half a point above its 2.0 percent target and set to rise more on higher university tuition fees and pre announced utility bill hikes.

BoE Governor Mervyn King said in August there was a 50 50 chance it could exceed three percent in the coming months a level that would force him to write an explanatory letter to Chancellor Gordon Brown.