Bank voted 6-1 for interest rates increase

16 August 2006

It’s emerged that the Bank of England committee which sets interest rates – the MPC – voted 6-1 in favour of raising interest rates earlier this month.

The MPC put up the base rate by a quarter of a percentage point to 4.75%; the first time that UK rates have been raised for two years.

Minutes from the MPC’s meeting show that members were near-unanimous that the cost of borrowing would have to rise to keep inflation in check. Last week, the Bank’s quarterly inflation report hinted that rates may have to rise further, to keep inflation in line with the Government’s target of 2%. Inflation is currently running at 2.4%.

Many people with mortgages will see their monthly payments rise in line with the rates hike. Each quarter of a percentage point rise adds around £20 to the monthly repayment on a £100,000 variable rate repayment mortgage. Of course, the large number of people with fixed-rate mortgages will be unaffected by the Bank’s rise.

Analysts say that people with large variable rate mortgages shouldn’t panic. Philip Shaw, who’s an economist at Investec, thinks the minutes of the MPC meeting don’t give the impression that they’re looking towards an aggressive series of interest rates increases. He said: “Our best guess is that we’ll see another tightening in November, based on the concerns raised in the inflation report.”