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Interest rate to rise again in June

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17/05/2007

Interest rates look almost certain to rise again to 5.75% in June, pushing up the cost of borrowing for the fifth time since last August.

In its latest quarterly inflation report, the Bank of England, which is responsible for setting interest rates, said that it would have to increase the Base rate again in order to get inflation down towards its target rate of 2% and keep it there over the next two years.

Bank Governor Mervyn King said that is “is determined to meet the 2% target, and will take whatever action required to do that.”

Legal & General has accused the bank of being too timid in its approach to interest rates, and claims that it should have acted more swiftly and decisively to increase the Base rate. L&G investment strategist James Carrick said: “The slower the MPC acts, the higher interest rates might ultimately need to peak.”

L&G suggested that rates may need to go to 6% this year.

The rising cost of borrowing is bad news for the UK’s homeowners with mortgages. The monthly repayment on a £200,000 mortgage has already increased by £120 since August.

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