The International Monetary Fund warned that higher borrowing costs may be needed to bring the UK housing market under control, adding weight to the widely held belief that interest rates are set to rise again. Daily Telegraph

In its World Economic Outlook, the IMF warned that rising inflation and stronger-than-expected house price inflation were risks to the UK economy.

It said: ‘Domestic demand may turn out stronger than forecast despite recent monetary tightening, given the acceleration in house prices. Buoyant demand and the pass-through of higher global energy prices to domestic utilities prices has pushed inflation to its highest level in five years.’

Urging chancellor Gordon Brown to make further spending cuts in an effort to bring the public finances back under control, it said: ‘The combination of higher-than-targeted inflation and diminishing economic slack has prompted rate increases and inflation is expected to come down to the target by yearend. However, some further tightening may be needed.’

Nevertheless, the IMF said the global economy was heading for its best stretch since the 1960s, as the emerging powerhouses of the east would help to make up for weakness in US.