Thu, 09 Nov 06
Despite calls from housing industry experts and business leaders to hold interest rate steady, the Bank of England’s Monetary Policy Committee today raised rates by 0.25% to 5%.
Mortgage holders are mostly braced for the impact, but many will now see Christmas as a bleaker prospect. Homeowners with an £80K mortgage can expect to see their monthly repayments increase by around £13.
And the already financially-stretched band of credit loving consumers will also begin to feel the pinch as next month’s increased credit card charges appear on their bills.
The rise comes as cooling inflation and high street spending figures have shown August’s increase may have taken hold.
However the MPC is clearly becoming jittery about the continued above-target inflation figures since early summer. Their report said:
“The UK economy has recorded its fourth consecutive quarter of firm growth. Household spending has been volatile, but the underlying picture appears to be one of moderate expansion. The recovery in business investment has been maintained. The outlook for growth in the United Kingdom’s main export markets remains positive. Credit and broad money growth remain rapid, and asset prices have continued to rise.
Although unemployment has continued to edge up, the margin of spare capacity within businesses appears limited. Oil prices have dropped back, but there are signs that other pricing pressures have picked up. CPI inflation was 2.4% in September. It is likely that inflation will rise further above the target in the near term, but then fall back as energy and import price inflation abate.
Against that background, the Committee judged that an increase in Bank Rate of 0.25 percentage points to 5.0% was necessary to bring CPI inflation back to the target in the medium term.”
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