Bank of England raises interest rates unexpectedly

12-Jan-2007

First time buyers and repeat purchasers may face higher monthly mortgage payments after the Bank of England's monetary policy committee (MPC) decided to increase interest rates.

Yesterday's surprise increase to 5.25 per cent has surprised market experts, who expected an interest rate increase no earlier than February and may cause first time buyers to worry about financing their house purchase.

In a recent survey by Reuters, out of a total of 50 economists, only one economist predicted yesterday's move by the MPC.

"This was a tough but wise decision," said Graeme Leach, chief economist at the Institute of Directors.

"The MPC needed to stamp down on inflation given the upside risk at present," he added.

Indeed, the MPC has confirmed its expectation that inflation will rise above the current rate of 2.7 per cent.

In related news, the Confederation of British Industry (CBI) announced that it was disappointed by yesterday's decision as it expects the current rate of inflation to fall later in the year.

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