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Last Updated: Thursday, 6 November, 2003, 13:49 GMT
Bank raises UK rates to 3.75%
The Bank of England has raised interest rates to 3.75% - the first rise in almost four years.

The move was widely expected and follows concerns that consumer debt and house prices were rising to dangerously high levels.

Raising rates will put a heavier burden on borrowers, with the average mortgage of 60,000 set to rise by about 9 a month.

And manufacturers are concerned that increasing the cost of borrowing will stifle their attempts to recover from tough times.

But it is good news for savers, who can expect to see marginally better returns on their cash savings.

Damaging?

The previous rate of 3.5% was the lowest for 48 years.

HOW WILL IT AFFECT YOU?
The payment on a 100,000 mortgage will rise by 14 a month. Find out more

The rise is unlikely to have any immediate effect on house prices, but an upward trend would slow them down, the Royal Institution of Chartered Surveyors said.

Its chief economist Milan Khatri said: "Highly-mortgaged homeowners will swallow today's small rise, but the Bank of England cannot afford to take it too far, too quickly."

The Nationwide Building Society was the first to announce it would be raising its base mortgage rate by 0.35% to 4.89% for new and existing borrowers.

The rest of the big lenders said they were currently reviewing their rates.

Meanwhile, Derek Simpson, general secretary of the Amicus union, warned: "For every quarter point increase in rates, 50,000 jobs will be lost in manufacturing."

Caution

The decision was given a cautious welcome by the British Chambers of Commerce, which said it was "acceptable when... viewed as a reversal of July's precautionary cut of 0.25 points".

Cash

But it warned: "This initial rate rise should not turn into a trend of rising rates."

It added that if the decision does lead to a succession of rises "it will endanger the upturn in the manufacturing sector recovery, which has been such a long time in coming".

Meanwhile, Graeme Leach of the Institute of Directors said: "The Bank of England has finally run out of patience with UK consumers.

More to come?

"Having waited patiently for UK households to bring their borrowing under control, it has finally decided to intervene. The price of doing nothing was deemed to be too great."

Ken Wattret, an economist at BNP Paribas bank, agreed. "The hike is a shot across the bows for the consumer sector," he said.

"There are concerns... that rates are so low that this is encouraging borrowing. The [Bank] wants to slow consumer growth but does not want to slam on the brakes."

In a statement, the Bank said a "modest increase" was necessary to keep inflation in line with the government's target of 2.5%.

Economists have warned that more interest rate increases are likely over the next year.

Some are forecasting that rates will be as high as 5-5.5% by the end of next year.


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