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| Shock as UK rates rise to 5.25% | Shock as UK rates rise to 5.25% |
| (30 minutes later) | |
| The Bank of England has raised UK interest rates to 5.25% from 5% in an effort to curb inflation. | The Bank of England has raised UK interest rates to 5.25% from 5% in an effort to curb inflation. |
| Analysts had been anticipating a rate rise in the near future, although they expected policymakers to wait until next month to take action. | Analysts had been anticipating a rate rise in the near future, although they expected policymakers to wait until next month to take action. |
| Consumer price inflation has recently risen to 2.7%, the highest level in more than a decade. | Consumer price inflation has recently risen to 2.7%, the highest level in more than a decade. |
| The rise is the third in five months, as part of an effort by policymakers to stem inflationary pressures. | |
| The news will come as an unwelcome surprise to many homeowners. It will add £16 to the monthly payments of those with a £100,000 repayment mortgage. | The news will come as an unwelcome surprise to many homeowners. It will add £16 to the monthly payments of those with a £100,000 repayment mortgage. |
| But the rise will be welcomed by savers if banks and building societies pass on the increase to their savings rates. | But the rise will be welcomed by savers if banks and building societies pass on the increase to their savings rates. |
| 'Surprise' | 'Surprise' |
| In a statement announcing its decision, the Bank of England said it expected consumer inflation to rise further in the near future. | In a statement announcing its decision, the Bank of England said it expected consumer inflation to rise further in the near future. |
| The rise will not be received well by many homeowners | The rise will not be received well by many homeowners |
| Inflation is already well above the government's 2% target and some analysts believe it will exceed 3% when the latest figures are published this month. | Inflation is already well above the government's 2% target and some analysts believe it will exceed 3% when the latest figures are published this month. |
| "The timing is a surprise," said Ross Walker, UK economist with the Royal Bank of Scotland. | "The timing is a surprise," said Ross Walker, UK economist with the Royal Bank of Scotland. |
| "What this perhaps tells us is that we have a nasty inflation number coming next week and they wanted to act pre-emptively." | "What this perhaps tells us is that we have a nasty inflation number coming next week and they wanted to act pre-emptively." |
| Employer groups expressed disappointment at the move, saying it could harm already struggling businesses. | Employer groups expressed disappointment at the move, saying it could harm already struggling businesses. |
| "If part of the intention was to dampen wage increases, it is doubtful a rate rise will have the desired effect," said Ian McCafferty, the CBI's chief economic adviser. | "If part of the intention was to dampen wage increases, it is doubtful a rate rise will have the desired effect," said Ian McCafferty, the CBI's chief economic adviser. |
| Shares fall | Shares fall |
| The FTSE 100 fell on the news amid concerns that the rate rise could constrain companies' growth and slow the housing market. | The FTSE 100 fell on the news amid concerns that the rate rise could constrain companies' growth and slow the housing market. |
| The Bank of England has, in the past, announced rate rises in the same month as it published quarterly inflation figures but this time decided to make its move a month earlier. | |
| The MPC could have afforded to wait until trends in the labour market became clearer href="/1/hi/business/6252051.stm" class="">More reaction to the rate rise href="http://newsforums.bbc.co.uk/nol/thread.jspa?threadID=5222&edition=1" class="">Send us your comments href="/1/hi/business/6252049.stm" class="">What the rate rise means for borrowers and savers | |
| Experts thought it would wait for further evidence of how recent rate rises had affected this year's public sector pay agreements, and consumer spending over the festive period. | |
| In other reaction, the TUC said the move "smacked of panic" but the Institute of Directors described it as "tough but wise". | In other reaction, the TUC said the move "smacked of panic" but the Institute of Directors described it as "tough but wise". |
| "Inflation is well above target," said Graeme Leach, its chief economist. "The Bank of England's pre-emptive strike looks sensible." | "Inflation is well above target," said Graeme Leach, its chief economist. "The Bank of England's pre-emptive strike looks sensible." |
| Several analysts said that rates could still rise further, possibly as soon as next month. | |
| The Council of Mortgage Lenders said those with variable-rate mortgages should factor the possibility of another rise into their future calculations. | |
| The Royal Institution of Chartered Surveyors said the rise, on top of others last year, was likely to dampen housing demand. | |
| In a separate move, the European Central Bank held its main eurozone base rate at 3.5%. | In a separate move, the European Central Bank held its main eurozone base rate at 3.5%. |