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10/05/07 - UK Interest
Rates Rise Again |
The Bank of England has voted to raise
interest rates by a quarter of a percentage point to 5.5%...
The increase, the first since February, takes the cost of borrowing to its
highest level since 2001, reports the BBC.
Analysts had widely expected the rise as the bank battles to rein in
inflation and cool consumer spending.
Business and employers groups accepted that the latest rise was "necessary",
but added caution was needed in future so as not to slow UK growth too much.
"The MPC (Monetary Policy Committee) has to be firm. But it is important not
to overreact to transitory developments," the British Chambers of Commerce
said.
Inflation targeted
It added that the nine-member committee should take a wait-and-see approach
on inflation, as the bank itself expects it to fall later this year.
The bank is due to release its quarterly inflation report next week.
"There is a danger that concern over recent events would generate pressures
on the MPC to go over the top and would result in damaging monetary
overkill," it added.
"UK disposable incomes are being squeezed, spending is set to decelerate and
growth will inevitably slow."
Rise ‘good news for savers’
While the rise will be good news for savers, it could mean higher bills for
homeowners, as it will add an extra £16 a month - on average - to a £100,000
mortgage.
Nicholas Leeming, Director of Propertyfinder.com commented:
“The property boom is not unstoppable. There are already early signs that
the housing market is slowing down – price growth and demand for mortgages
are both moderating.
With four rate hikes since the summer to contend with, home buyers are
facing much higher mortgage costs and inevitably that will reduce appetite
to buy a home.
Someone buying a home today will now pay over £140 more in monthly mortgage
payments than a year ago. That’s a crippling 19% increase. Today’s move may
prove a step too far.”
Bank’s short term view could ‘damage economy’
Stuart Law, Managing Director of Assetz, commented:
"It is disappointing that the Bank of England has reacted to short term data
on inflation, contrary to the best interests of the economy and certainly
against its stated intention of managing the economy on a long term basis.
“First time buyers, however, will suffer further and are increasingly being
priced out of the market and forced to rent whilst the Bank is helping buy
to let investors expand their portfolios through this increased rental
demand. Investors are increasingly bullish about rental demand and expect
rents to increase and this will offset these interest rate increases.
“Most commentators, including Mervyn King himself, acknowledge that
inflation is likely to fall sharply at the end of the year. Raising rates at
a time when international trade and UK economic growth are in a sensitive
state may be seen with hindsight to have been a rash decision by the MPC.”
BoE decision an ‘irresponsible and grave misjudgement’
David Bexon, Managing Director of SmartNewHomes.com, observed:
“This latest decision to hike interest rates once again is irresponsible and
a grave misjudgment. Higher interest rates affect all homeowners with a
mortgage to pay, discouraging those with young families trying to move up
the ladder and knocking back others trying to get on.
“First-time-buyers can no longer keep up with rising house prices, higher
interest rates and the extortionate arrangement fees charged by some
lenders. The absence of this group of buyers will not only drastically
affect the market but also have a detrimental effect on people’s future
prosperity.
“The decision to raise interest rates to 5.5% will immediately put the
brakes on an already uncertain market, fuelling the likelihood of a dramatic
slowdown over the coming months.”
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