Interest rates increased to 5%

9 November 2006

Bad news for many people with mortgages, but good news for savers - the Bank of England has increased interest rates by a quarter of a percentage point to 5%. This five-year high was prompted by concerns about inflation.

Analysts had widely predicted the move, which is in a bid to cool inflation. Higher utility bills have helped to push inflation up to 2.4%; that figure is somewhat higher than the Government's 2% target.

Now economists are turning their attentions to the Bank's next move, with some experts predicting another rise in interest rates early next year. Vicky Redwood, who's UK economist at Capital Economics, said: "Either way, with interest rates 50 basis points higher than six months ago, it could be a contributing factor to deterring people from entering the housing market over the next few months."

The Bank of England's rate-setting committee now has to weigh up the effects of a possible slowdown in consumer spending caused by higher interest rates and people finding it harder to repay their debts - against its remit of keeping inflation in check.