Money News
The Bank of England's interest rate setting committee has confirmed that base rate is to go up to 5.75% - a 6-year high.
For a borrower with a 100K mortgage the rate hike will mean another £16 a month. For savers, however, the increase will be good news - assuming it is passed on.
News of the increase should come as no great surprise. Indeed, last week, 56 of 70 economists polled by Reuters were plumping for a rate hike - the fifth such increase since last August.
Also worth noting is that 4 policymakers, including Governor Mervyn King, wanted to raise rates in June. However, they were outvoted by the 5 remaining members on the committee - doves opting to keep rates on hold for fear of surprising the financial markets - an argument that has since largely been booted into touch.
Despite the series of rate hikes since last August policymakers remain worried about inflation, although the ongoing strength of Sterling will have helped reduce some of the underlying pressure on prices, where evident.
In fact, there has been tentative evidence that the medicine has begun to work - inflation having fallen by 0.3% to 2.5% in May. Factor in recent evidence of a slowdown in house price growth - coupled with faltering retail sales - and the latest increase may yet prove to be the last for some time.
Meanwhile, for borrowers with fixed rate mortgages the recent medicine may prove to be very painful - many homeowners having taken out 2-year deals when base rate was as low as 4.5% and now finding their deals about to expire.
05 July 2007 © Moneyextra.com
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