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Inflation continues to affect interest rates in UK

Officials from the Bank of England's Monetary Policy Committee have warned that inflation continues to pile on pressure with regards to interest rate rises.

Last week interest rates in the UK were pushed up by another 0.25% - the fifth quarter point rise since last August - taking the base rate to 5.75%, its highest in the last six years.

Homeowners and borrowers on variable rate loans have therefore seen repayments rise yet again, and many feel that there will now be another sway towards fixed rates by those that are nervous about further interest rate rises that could result in crippling repayments.

Referring to the danger posed by inflation at present, the Monetary Policy Committee stated "most indicators of pricing pressure remain elevated". According to some industry professionals and analysts this is a sure sign that interest rates will rise further still this year.

Although the interest rate hikes mean that those with savings will earn additional interest on some accounts, it also means that homeowners with a mortgage of £100,000 will now see their repayments rise by up to £20 a month.

With many homeowners already struggling to meet monthly mortgage repayments, and with the threat of further interest rate rises to come, consumers debt charities have expressed concern with regards to how some homeowners will cope with the effects of these rises.

One spokesperson from the Citizen's Advice Bureau stated: "We're seeing more and more people coming in for help with mortgage or secured loan arrears ."

She added: "People are really stretching themselves to the limit to buy a house and take on a mortgage. A small increase in interest rates could just tip them over the edge."

One banking official said that further rate rises seemed likely given the content of the MPC report. He said: "The content of the statement is very similar to what was published in May when they last raised rates. The markets will take this as a sign that there's probably more to come."

Tom Smith
13th July 2007

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