Another rate rise on the way

23 May 2007

There’s been a further indication that another interest rate rise – and thus higher mortgage repayments for many – is on the way.  Two weeks ago, the Bank of England’s rates-setting committee, the MPC, increased rates by a quarter per cent – to 5.5%.  But the minutes of their meeting, just published, show that members debated a rise of a half per cent.  In the end, the MPC agreed to wait.

But the minutes show that the committee’s decision to raise interest rates by 0.25% was unanimous, because of lingering inflation risks.  That decision takes the cost of borrowing to a six-year high this month. 

The Bank hasn’t raised interest rates by more than 0.25% at a time since 1995.  Analysts say that to do so would have been like “hitting the panic button”. 

Market experts are now certain than another rise in interest rates is on the way, possibly as soon as next month – and could peak at 6%. 

One analyst, David Brown, said:  “We think the risk is evenly split between the June and July meetings, as it would be too late to leave the next hike until August.”