This made it only a matter of time before the cost of home loans goes up again, although stiff competition between mortgage lenders meant that not all of them passed on the increase to home-buyers immediately.
Abbey National, with1.6 million borrowers, raised its mortgage rate by 0.25 per cent, adding more than pounds 7 to the monthly payments on an average pounds 50,000 repayment mortgage. The Cheltenham & Gloucester and TSB, with a million borrowers, are expected to announce the same increase this morning. Others, including the Halifax, Nationwide and Woolwich, were still reviewing their position last night.
In the face of criticism of both the interest rate move and the shortcomings of last week's Budget, the Chancellor and the Bank of England expressed their mutual support yesterday.
Business groups said rising interest rates were boosting the value of the pound and harming their export prospects.
The Confederation of British Industry said the Budget earlier this month should have been tougher on consumer spending, to reduce the need for the Bank to tighten interest rate policy. "Last week's Budget did not do enough to offset the immediate inflation pressure," said Adair Turner, the CBI director general.
But Gordon Brown blamed the need for a third-rate increase on the failure of the previous government to act fast enough to control the economy.
"I believe that the measures I have taken and the measures taken by the Bank of England are necessary measures to restore balance to an economy that was in danger of becoming seriously out of balance as a result of the mistakes of the previous government, which failed to take the action that was necessary," he told the Commons.
Another Treasury minister yesterday suggested that the Government was concerned to see a reduction in the value of the pound. Helen Liddell, the Economic Secretary, told the Commons that the strength of the pound was the fault of the Tories' loose monetary policy. "We are very conscious of the impact of the failure to act on the part of the previous government on the strength of the pound," she said, "and indeed we are very conscious of the impact that has on exports."
Norman Lamont, the former Tory Chancellor who lost his seat in the May election, also defended the Bank's move. "The whole point of independence is to remove these decisions from politicians, because they normally duck them," he said.
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