The Bank of England has begun a two day meeting to determine its next move on interest rates.

The monetary policy committee's discussions come amid mixed signals on house prices.

With the latest Halifax data pointing to a 1.3 per cent increase in July, the Bank is expected to continue its recent trend of quarter point rises in interest rates.

But some economists have called on the MPC to increase rates by 0.5 per cent in order to show it is acting to halt a period of high house price rises.

And Bank governor Mervyn King has repeatedly warned that the current rate of growth is unsustainable.

Cautious approach

King has also sounded alarm bells over the record mountain of personal debt in the UK – which now exceeds the country's annual gross domestic product.

Following two recent quarter point increases the Bank voted unanimously to leave rates on hold last month.

However King and other senior members of the MPC have indicated that further rate rises are likely.

Meanwhile business leaders said they expected the bank to adopt a cautious approach tomorrow but could face a difficult decision in future months.

Graeme Leach, chief economist at the IoD, said: "The MPC is caught between a rock and a hard place. Does it choose the cautious or the clobber option?

"We think the Bank of England will proceed with a cautious quarter point interest rate rise, but the case for a half point increase will undoubtedly need to be discussed."