Interest rates rise

The Bank of England has today raised interest rates by a quarter of a point to 4.25 per cent.

12:03 06 May 2004

The Bank of England has today raised interest rates by a quarter of a point to 4.25 per cent.

The interest-rate-setting Monetary Policy Committee (MPC) announced its decision at lunchtime.

This rise in interest rates makes many mortgages and loans more expensive, but benefits savers.

The rapidly inflating housing market coupled with spiralling consumer debt is seen by many as a reason to raise rates even further.

By increasing the cost of borrowing by a quarter-point consumers will hopefully think more about spending and mortgages - heading off a widely predicted house-price crash.

The Bank was widely tipped to raise rates, as record mortgage lending, surging retail sales, and a recovering manufacturing sector all pointed to higher rates.

"This is no surprise" said Ian McCafferty, chief economist for the Confederation of British Industry.

"I expect that we will see rates rise to around five per cent within a year's time," he added.

The Bank said it has raised rates as: "The global economic upswing has been maintained. In the United Kingdom, output growth has been at or above trend and business surveys are consistent with further strengthening.

It further explained: "Retail spending continues to be robust, underpinned by income growth and unexpectedly strong house price inflation. Investment prospects have improved."