Bank raises rates to 4.25%

BBC Radio 4's Money Box was broadcast on Saturday, 8 May, 2004, at 1204 BST.

The programme was repeated on Sunday, 9 May 2004, at 2102 BST.

The Bank of England has raised interest rates by 0.25% to 4.25%, a move which had been widely predicted by analysts.

But with inflation below its target, many economists had questioned the need for a rate rise at all. In a statement however, the Bank insisted that "inflationary pressures are likely to build" in the medium term.

MONEY BOX LIVE Will your savings be affected? Will your investments? Send us your question

Other analysts meanwhile had hoped for more. They felt a higher rise was needed to cool the housing market and the threat it poses to the economy. A quarter per cent they argued, would not be enough to do that.

So why did the Bank come to this decision? What effect will it have on the economy and you? And will there be further rises soon?

We put these questions to Michael Hughes, Chief Investment Officer at Baring Asset Management.

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Property and pensions

Many experts have said the rate rise is unlikely to have much impact on house prices, which it is thought could rise substantially when changes to the rules on pensions come into force in 2005.

For the first time people will be able to invest in residential property as part of their pension.

To discuss these changes we were joined by Mike Warburton, Senior Tax Partner at Grant Thornton and Managing Director of Chase De Vere Mortgage Management Simon Tyler.

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Mortgage round-up

Some mortgage lenders told the programme within seconds of the announcement that they were raising rates in response to the Bank's 0.25% rise. Louise Greenwood reported.

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Producer: Louise Greenwood
Presenter: Chris A'Court
Reporter: Jessica Dunbar
Web Producer: Nathalie Knowles