Scottish businesses have reacted angrily to the Bank of England's decision to raise interest rates by another quarter of a point to 5.75%.

The bank is concerned about the economy overheating and rising house prices, especially in the south-east of England.

But business leaders say the decision is a blow for industry north of the border.

Lex Gold of the Scottish Chambers of Commerce said: "The manufacturing sector is beginning to recover, and that is the good news, but it's far from a boom.

"Retailing is struggling, there are no pay pressures, the property price pressures are low, so there is generally no inflationary pressure here."

The decision means higher borrowing costs for homebuyers and businesses, but also higher income for savers.

Although the UK economy is relatively free from inflation at the moment, members of the Bank of England's Monetary Policy Committee (MPC) have been concerned about rising housing prices, consumer spending and wages.

It fears that if the economy is left to grow unchecked, higher inflation will follow.

The MPC said it had raised rates for the third time in five months because the outlook for growth in the UK and the world economy had strengthened.

Growth fears

"Prospective growth in domestic demand remains strong - increases in wealth, labour income and household borrowing all suggest that consumer spending will continue to grow robustly," it said.

The MPC's role is to set interest rates at a level which keeps inflation as close as possible to 2.5%.

Inflation currently stands at 2.2% but the process is complicated by the assumption that interest rates take about two years to have an effect.

In simple terms, the committee raises interest rates if it believes it needs to reduce inflation.

Union dismay

The Bank of England raised rates twice towards the end of last year by a quarter of a point in what it described as pre-emptive steps to cool the economy.

But the latest figures have shown that consumer spending raced ahead in December and that the housing market picked up speed after the two rises.

Unemployment is also at its lowest level for nearly two decades, which is seen as leading to increased wages as employers aim to recruit and retain workers.

Union leaders attacked the interest rate rise, warning that firms will find it more difficult to expand and export.

TUC general secretary John Monks said the bank had reacted too soon. "The inflation target is not under threat but manufacturing jobs are. Industry and home owners are paying the price for a south-east property boom fuelled by excessive city bonuses."