Bank rates hit 5.5 per cent

The Bank of England has raised rates as expected by a quarter of a per cent

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Thursday, 10, May 2007 12:03

The Bank of England has today raised the benchmark rate of borrowing in the UK to 5.5 per cent.

Today's quarter-of-a-per-cent increase had been widely predicted by economists, with borrowers breathing a sigh of relief that the rise was not 0.5 per cent as had been suggested by some analysts.

Interest rates are now at their highest level for more than six years following quarter of a per cent rises in August and November last year, as well as January 2007.

The Bank's monetary policy committee (MPC) had previously held rates unchanged for three successive months following January's hike.

But as the committee marks the tenth anniversary since the responsibility of setting rates was handed over to the Bank, rising inflation has forced it to up base rates.

Official data revealed last month that consumer price index (CPI) inflation reached 3.1 per cent in March, the fastest pace experienced for ten years.

Oxford University macroeconomics professor Gavin Cameron commented that with energy bills and inflation set to subside during the summer, interest rates will "remain stable for the rest of the year".

"However, if inflation does persist and wage pressures do start to develop, it is likely that the consumer will have to bear the brunt of the adjustment," he cautioned.

Global Insight's chief European and UK economist Howard Archer added that today's quarter of a point rise had been "inevitable".

The analyst concluded that while he could not rule out interest rates reaching six per cent, he expects 5.75 per cent to mark a peak in 2007.

"We believe that modestly softer growth over the coming months, only marginally higher wage increases and the strong pound will help to contain underlying inflation pressures and dilute the need for further rate hikes beyond 5.75 per cent," Mr Archer said.