Borrowers face further rate rise - too little too late?

The UK population face a further hike in the cost of borrowing following the Bank of England (BoE) raising interest rates for the fourth time in seven months.

The increase of 0.25% to the official base rate came after an equal rise last month, the first month on month increase since 2000.

The decision to put up rates by 0.25 per cent to 4.5 per cent will push up the monthly cost of a £150,000 mortgage by more than £20 a month if lenders pass on the rise in full.

The Conservatives sought to exploit the increase as a sign of economic vulnerability. Oliver Letwin, the Shadow Chancellor, blamed it on Gordon Brown's spending plans.

"For reasons that have to do with politics rather than economics, the Chancellor has engineered a pre-election spending spree. This is taking an unnecessary risk with the economy, and the Bank of England is quite properly responding by raising interest rates," he said.

"I think it means more frequent, more aggressive rate moves from now on", commented John Butler of HSBC.
Mr Butler and other City economists now believe interest rates will climb to 5 per cent or above by December.

Roger Bootle, of Capital Economics and the chief economic adviser to accountancy firm Deloitte, said the rise should be seen as the "completion of unfinished business" from last month's MPC meeting, when the committee considered raising rates by 0.5% before opting for a quarter- point hike.

"In raising interest rates for the second month in a row, the MPC has sent its strongest signal yet that it wants to bring an end to the consumer and housing market booms," Mr Bootle said.

 

11th June 2004

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