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Posted - 06 July 2007 : 11:04:32
UK interest rates raised to 5.75%
The Bank of England has raised UK interest rates from 5.5% to 5.75%, its fifth rate rise since last August.
Its Monetary Policy Committee (MPC) warned that inflation remains a danger, saying "most indicators of pricing pressure remain elevated".
Some analysts have taken that to mean there may be a further rise this year.
The higher rates will add between £15 and £20 a month to an average £100,000 repayment mortgage, but may be good for savers who should earn higher interest.
Charities have expressed concern that higher mortgage costs will leave many borrowers facing difficulties.
"We're seeing more and more people coming in for help with mortgage or secured loan arrears," said Sue Edwards from Citizens Advice.
"People are really stretching themselves to the limit to buy a house and take on a mortgage," she told the BBC.
"A small increase in interest rates could just tip them over the edge."
More to come
This rate rise may not be the last one, with Ross Walker at Royal Bank of Scotland warning that the statement from the MPC could herald more bad news for borrowers.
"The content of the statement is very similar to what was published in May when they last raised rates," he said.
Graph of UK interest rates
"The markets will take this as a sign that there's probably more to come," he concluded.
But Trevor Williams from Lloyds TSB Corporate Markets said another rate rise would be too much.
"The effects of the earlier increases haven't yet come through," he said.
"We are at a very delicate stage and the danger now is that they overdo it," he added.
'Step too far'
The British Chambers of Commerce agreed that the Bank of England should take its time.
"It should allow more time for previous interest rate increases to have their effect before rushing to raise interest rates further, thus inflicting lasting damage on the economy," said the BCC's economic adviser David Kern.
Business groups say that the Consumer Prices Index (CPI) was likely to return to the 2% target by the end of the year even without this increase.
The CPI slowed to 2.5% in May from 2.8% in April.
Firms are worried that rising interest rates will continue to increase the strength of the pound against the US dollar, thus making life more difficult for exporters.
The pound is currently trading near a 26-year high against the dollar, and is unlikely to weaken significantly while rates are set to go higher, analysts said.
According to some observers, including the Royal Institution of Chartered Surveyors (RICS), the rate rise will depress the housing market.
"This latest increase in UK interest rates will further dampen housing demand going forward as first time buyers find their borrowing constrained," said RICS senior economist David Stubbs.
Source: bbc.co.uk
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