Home Economy UK interest rates rise for fifth time in less than year

UK interest rates rise for fifth time in less than year


London : The Bank of England has raised interest rate by a further 0.25 percent Thursday for the fifth time in less than a year.

The rate has been raised in increments to 5.75 percent compared with 4.5 percent in August 2006. The latest rise increases concern that borrowers may face difficulties in meeting repayments with a further Pnds 16 being added to an average Pnds 100,000 mortgage.

"We're seeing more and more people coming in for help with mortgage or secured loan arrears," Sue Edwards from Citizens Advice told BBC.

With the continuing rise in the price of properties, Edwards said that people are "really stretching themselves to the limit to buy a house and take on a mortgage, so a small increase in interest rates could just tip them over the edge."
Business groups have predicted that the inflation rate recorded in the Consumer Prices Index (CPI) was likely to return to the government's 2 percent target by the end of the year even without this increase, after slowing down from 2.8 to 2.5 percent in May.

But the Bank of England's Monetary Policy Committee warned when putting interest rates up Thursday that inflation remains a danger in that "most indicators of pricing pressure remain elevated".

Ross Walker at Royal Bank of Scotland also suggested that the warning meant that this month's increase rate rise may not be the last one.

"The content of the statement is very similar to the one they made in May when they last raised rates. The markets will take this as a sign that there are more increases to come," Walker said.

But economic adviser at the British Chambers of Commerce, David Kern, said the committee, which acts independently from the government, should allow more time for previous interest rate increases to have their effect before rushing for more.

Firms were also said to be worried that rising interest rates will continue to increase the strength of the pound against the US dollar and making it more difficult for exporters, with the exchange rate already close to a 26 year high.