The Bank of England's Monetary Policy Committee has increased the UK base interest rate to 4.25%, as anticipated by the City.
Given the continuing rise of house prices and consumer spending, it was expected the MPC would be forced to increase the base rate from 4% to 4.25%, in an attempt to try and curb growing levels of consumer debt compared with manufacturing.
Prior to the MPC announcement, some commentators had questioned whether the MPC might consider raising interest rates by at least 50 basis points, as a 25 basis point rise looks minimal compared with the increase in month-on-month residential property prices.
The Council of Mortgage Lenders says a rate rise was "a necessary evil" to slow the growth of the housing market.
CML director general Michael Coogan comments:
"Nearly two years ago we said that a modest rise in rates was needed to reduce the risk of worse pain later. The same message is equally true now, and so we expected the MPC to act today. Although never welcome, higher interest rates are now a necessary evil to encourage a gentle slowdown in the housing market," says Coogan.
"The small rises so far have had only a limited impact on consumer behaviour. We continue to anticipate further staged rate rises through 2004 as the MPC seeks to fine tune monetary policy. The cumulative impact will become more apparent as the year progresses - a one per cent rise in mortgage rates equates to around £60 a month for a typical £100,000 mortgage. Borrowers on variable rate loans should plan for higher mortgage costs and prepare accordingly,"adds Coogan.IFAonline
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