Shock as interest rates rise to 5.25%

11 January 2007

There’s a nasty surprise for many homeowners – the Bank of England has raised interest rates to 5.25% from 5%.

This is the third time the base rate has gone up in five months.  The Bank’s Monetary Policy Committee took the decision in a bid to curb inflation, which is currently running at 2.7%.  This is well above the target of 2% and is the highest level in more than a decade.

Analysts had been expecting a rate rise in the near future, although most were expecting the Bank to wait until next month – after the latest inflation figures are published.

Ross Walker, who’s UK economist with the Royal Bank of Scotland, said: “The timing is a surprise.  What this perhaps tells us is that we have a nasty inflation number coming next week and they wanted to act pre-emptively.”

News of this latest rate rise will come as an unwelcome surprise to many homeowners.  It will add £16 to the monthly payments of those with a £100,000 repayment mortgage.  

Several analysts say rates could go up again – possibly as soon as next month.  The Council of Mortgage Lenders has warned that people with variable-rate mortgages should factor the possibility of another rise into their budgets.