Bank raises interest rate to 5.25%
Published On 12 January 2007
The Bank of England yesterday increased interest rates to 5.25 per cent, in a shock move that took many by surprise.With inflation ahead of target at 2.7 per cent an interest rate rise had been expected in the coming months but few had predicted that monetary policy committee (MPC) would act so soon.
The quarter point hike is the third upward move in four months and brings interest rates 0.75 per cent higher than this time last year.
Although analysts have warned that borrowers and homeowners may struggle following the rise, it was judged necessary to stem rising consumer price inflation (CPI); many analysts speculate that next week's figures will show CPI has broken through the three per cent barrier.
CPI is far above the government's two per cent target, with prices rising at their fastest rate in more than a decade.
Louise Cumming from Moneysupermarket was one of the many commentators expressing surprise at the rate hike.
She said: "This increase has taken the market by surprise and will have a significant impact on savers and borrowers alike.
"This will be a real blow to many homeowners who may not have factored in an additional base rate rise – indeed, many commentators failed to see it coming - so it is likely that some homeowners will have been caught short."
Monthly repayments for a £100,000 mortgage are predicted to rise by £16. However, savers could benefit from the hike.
