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Last Updated: Thursday, 6 May, 2004, 11:52 GMT 12:52 UK
Bank ups interest rates to 4.25%
The Bank of England has raised UK interest rates by a quarter percentage point to 4.25%.

The move had been widely expected by economists and comes as the Bank tries to cool soaring property prices and consumer debt.

The increase is the third quarter-point rise the Bank has made in the past seven months.

It will leave homeowners repaying 15 a month more on a 100,000 mortgage with a previous interest rate of 5.75%.

Many analysts now believe the cost of borrowing could reach 5% by the end of the year.

Housing market

Recent figures have shown that consumers are still borrowing and spending enthusiastically.

Companies will be pleased that the Bank has continued its well-signalled, gradual approach
CBI chief economic adviser, Ian McCafferty

And the housing market is still charging ahead.

On Wednesday, the Halifax, the UK's biggest mortgage lender, said house prices rose by 1.8% in April - with prices up 19.1% on last year.

Manufacturing is also showing signs of picking up, despite the strength of sterling.

The Engineering Employers' Federation accepted that the rise could bring long-term benefits.

Why penalise those who have already carefully budgeted?
Simon, Southport

'Gradual approach'

EEF chief economist Steve Radley said: "While higher rates are not particularly welcome at such an early stage in recovery, manufacturers understand that this rise may help to preserve economic stability in the longer run."

And business group, the CBI, broadly welcomed the Bank's decision.


Its chief economic adviser, Ian McCafferty, said: "Business recognises that interest rates will need to rise to a more neutral level over the next 12 months, so this rise is no surprise.

"Companies will be pleased that the Bank has continued its well-signalled, gradual approach."

However, he added: "With inflation well under control, firms would have serious concerns if this move were to herald the start of a series of more rapid rises."

UK inflation - which currently stands at 1.1% - is expected to rise above the Treasury's 2% target over the next two years.

The BBC's Jenny Scott
"Nice for savers but not so nice if you've got a mortgage"

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