Anyone who thought interest rates had peaked will have had the dream shattered yesterday as both Mervyn King and Charles Bean spoke out about consumer spending concerns.

On the day Nationwide building society said house prices had not dropped but increased yet another 1% in November, Mervyn King, governor of the Bank of England, told a parliamentary committee the economy appeared to be showing signs of picking up again.

Denying that the Bank's Monetary Policy Committee had slowed the economy too much by raising rates too far, too fast over the past year, King said the "softer patch" in the autumn had now recovered and the momentum in the economy had strengthened.

"So far, the figures for the fourth quarter, particularly the surveys, look if anything a little stronger than the third quarter. In other words, this softer patch does not look to be portending a real slowdown," Mervyn King said.

BoE chief economist, Charles Bean, also speaking to a parliamentary Select Committee suggested that interest rates could still rise even if house prices started to fall sharply.

Mr. Bean said consumer spending is not shrinking as much as feared despite growing concerns of a slide in house prices.

Last week, Charles Bean told a town partnership meeting in Essex that talk of interest rates having peaked makes no sense while there were considerable uncertainties surrounding the economic outlook.

At the same meeting Bean warned there was considerable uncertainty about the extent and duration in the slowing of house price inflation and also the strength of the connection with consumer demand.