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6 July 2007

A further hike in interest rates

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by Elaine Frei

A further hike in interest rates

The interest rate is now at its highest level since March 2001, the Bank of England raised the base rate by a further 0.25% to 5.75%.

Some economists have warned that rates could rise again towards the end of the year – to 6%.

The Bank announced that the further increase was required to meet the 2% target for CPI inflation in the medium term. However, the increase is certain to cause concern for borrowers as they will have to pay an extra £16 per month on a mortgage of £100,000.

Interest rates have risen 4 times since last August and have already added approximately £64 to a £100,000 loan, causing concern that families could suffer financially.
This week the Citizens Advice Bureau has been inundated with people looking for help over mortgage debts.

The British Chambers of Commerce warned that continued increases of the base rate could damage Britain’s businesses and are worried about the long-term consequences. British businesses have been strong so far but the anguish will set in rapidly.

But the rise in the cost of living is showing signs of slowing down, with Consumer Prices Index (used as the official measure of inflation) falling back to 2.5% in May. Research is showing that the flurry in interest rate rises is seeing consumers cut back on spending which as a result is putting a strain on firms to manage price increases.

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