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UK interest rates increased to 5% |
| Thursday, 9th November 2006 |
The Bank of England has increased UK interest rates to a five-year high of 5% |
Its one quarter of a percentage point rise was widely expected by analysts.
The move is a bid to cool inflation which, led by higher utility bills, is currently running at 2.4% - more than the government's 2% target.
While the rise will be bad news for some mortgage-holders and borrowers, who will see their monthly repayments rise, it will be welcomed by savers.
This move was widely expected, but the key question is whether we see another rise early next year," said Vicky Redwood, UK economist at Capital Economics.
"Either way, with interest rates 50 basis points higher than six months ago, it could be a contributing factor to deterring people from entering the housing market over the next few months."
The Bank has the difficult task of weighing up the effects of a possible slowdown in consumer spending caused by higher interest rates and people finding it harder to repay their debts, against its remit of reining in inflation.
There are increasing signs that consumer debt levels are becoming overstretched, with the latest government figures showing a record number of people in England and Wales became insolvent between July and September.
Further rise?
Milan Khatri, chief economist at the Royal Institution of Chartered Surveyors, welcomed the Bank's latest rate rise.
"By acting in a timely manner, the modest rise in interest rates will help to cool the housing market but at the same time promote wider economic stability and prevent inflation pressures building," he said.
A majority of analysts expect the Bank's rate-setting Monetary Policy Committee to increase rates again in the New Year.
Yet others think the Bank will decide it has now gone far enough.
"Although some commentators are already looking ahead to the next rise, our forecasts suggest that a further increase should not be needed," said Ian McCafferty, chief economic advisor at the Confederation of British Industry.
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