Euro-zone business borrowing has grown faster than at any time since the launch of the euro in 1999, the European Central Bank (ECB) said yesterday as it prepares to revise upwards its growth forecasts.

Lending to business in the 12-country region grew at an annual rate of 11.8 per cent last month, reflecting merger and acquisition activity, including debt-financed private equity deals.

At the ECB's interest rate setting meeting on Thursday, financial markets expect Jean-Claude Trichet, the central bank president, to signal a rate rise in early October to head off inflationary dangers.

Mr Trichet is also expected to raise the ECB's forecast for euro-zone growth this year after unexpectedly strong German and French second-quarter growth. Previously, it had expected growth in a range with a mid-point of 2.1 per cent.

The bank may also revise up its forecast for 2007 growth - and for euro-zone inflation - reflecting high oil prices. It has warned that the annual inflation rate is likely to remain above its target of "below but close" to 2 per cent this year and next.

At the same time the ECB will take comfort from a slowdown in the growth rate of M3, the broad money supply measure that it regards as indicating longer-term inflation trends.

Annual M3 growth fell to 7.8 in July, from 8.5 per cent in the previous month, according to yesterday's data.

Hungary's central bank yesterday raised its key interest rate by half a percentage point while warning of a "significant slowdown" of the economy and sharply higher inflation next year.

In its third increase since June 20th, the bank lifted the base rate to 7.25 per cent.

But Zsigmond Jarai, the bank's governor, also told a press conference that the monetary council was now split over future rate rises.

Because of tax increases connected to a budget austerity package, rising energy prices and a weaker Hungarian forint, the bank now projects inflation to rise from 3.8 per cent this year to 7 per cent in 2007.

That is significantly higher than the 6.2 per cent forecast the government will include in a "euro convergence plan" it will submit to Brussels on Friday.

The bank noted that the austerity package announced in June would "contribute significantly to a sustainable macro-economic path" if fully implemented.

However, deficit reduction measures would slow economic growth to 2.4 per cent next year, according to the bank, in contrast with the government forecast of 2.1 per cent.