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Interest rate rises to 5.5%

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10/05/2007

The Monetary Policy Committee of the Bank of England has voted to increase the Bank Base Rate from 5.25% to 5.5%.The increase was widely anticipated as a necessary measure to control inflation, which broke the target maximum 3% mark in April.

Some analysts had suggested that the rate could be increased by 0.5%, but the MPC deceided against this.

A 0.5% hike in one month would have represented the largest jump in interest rates since the MPC was given responsibility for setting rates in 1997, and could have sent shockwaves through the market.

However, with the economy continuing to expand and house prices still increasing, inflation continues to pose a threat. As a result, many financial experts are speculating that we may see another rate increase in 2007, possibly as early as next month.

As a result of this month’s increase, the cost of borrowing is already at its highest level for six years.

Mortgage borrowers on variable rate deals have seen their monthly repayments increase four times since last August. Uncertainty over the interest rate environment has caused a surge in the popularity of fixed rate deals, with over 75% of mortgages taken out this year arranged on a fixed rate basis.

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