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Another interest rate rise from the Bank of England

Last week the predictions of many experts and analysts were proven correct, as the Bank of England raised interest rates for the fourth time in nine months, pushing up the rate by a further 0.25%.

The interest rate was hiked up from 4.5% to 4.75% in August last year, and then from 4.75% to 5% in November last year. A surprise interest rate rise in January of this year pushed the rate up by a further 0.25% to 5.25%, and this week the latest interest rate rise pushed up the rate to 5.5%.

The latest rate rise means that borrowing is at its highest in six years, but officials state that the rise was necessary in order to try and curb inflation. The target rate for inflation is 2%, as set by the government, but it has currently broken through the 3% barrier. Many experts state that interest rates will have to continue rising perhaps as high as 7.5% or beyond in order to try and bring inflation under control.

Although borrowers will now have to deal with larger mortgage repayments, there were some predictions that the Bank of England might raise interest rates by 0.5%, so the news is not all bad and for most came as no surprise.

Those on a variable rate mortgage will see repayments on their mortgage go up, with those with a £100,000 mortgage paying an additional £16 per month. Another interest rate rise is expected later this year, with industry professionals predicting that the interest rate will hit at least 5.75% before the year is out.

Howard Archer from Global Insight stated: 'We do not think the Bank of England's job is done yet. Unless data over the next few weeks shows a clear easing in price pressures ... we expect the MPC to raise interest rates by a further 25 basis points to 5.75% by August. Indeed, we would not rule out another 25 basis point hike as soon as June.'

Tom Smith
23rd May 2007


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