Abbey and Halifax pass on rate rise to borrowers
Tuesday 09 November 1999
Other lenders are expected to follow the banks' lead, but Nationwide, the UK's largest building society, was keeping the position under review.
Both banks are raising their variable rate to 7.24 per cent from today for new borrowers and from 1 December from existing customers. Abbey said the increase would add pounds 2.74 a week for a borrower with a pounds 60,000 interest-only mortgage.
The Bank of England's Monetary Policy Committee last week raised its base rate by a quarter point to 5.5 per cent. Analysts said recent figures showing house prices rising at the fastest rate since 1988 would have been a major factor.
Andrew Pople, Abbey's retail managing director, said: "The MPC has again signalled its concern over an overheating housing market by increasing its base rate by 0.25 per cent. Abbey National has responded to that move."
Both banks said they would increase their savings rates from 1 December, but gave no details.
The hike in mortgage rates is unlikely to be the last in the short term. Economists believe that base rates will have to rise again in the new year to dampen down inflationary pressures that are feeding through as the economic recovery gathers speed.
Figures published yesterday showed that prices charged by manufacturers were continuing to rise. Prices of goods leaving the factory gate were up by 1.9 per cent on a year ago - the highest annual rate of increase for almost three years. The cost of raw materials and wages rose by 6.3 per cent in the year to October, up from 5.8 per cent on the previous month and the highest since 1995.
Economist Richard Iley of ABN Amro said forecasts that inflation would continue to fall now looked doubtful. "With pressure building on manufacturers' total costs, output prices are edging higher," he said. "These nascent cost pressures are one reason behind last week's rate hike."
The Bank is known to be concerned about rising global commodity prices, and this is likely to feature in the quarterly inflation report it publishes tomorrow.
But Jonathan Loynes of HSBC said the wider inflation environment in industry was benign. "The future path of interest rates will depend more heavily on price pressures in the services sector and housing market," he said.
Meanwhile, confidence among small- and medium-sized manufacturers has risen for the first time in more than two years, a survey shows.
The Confederation of British Industry said the change of mood reflected the fact that companies believed, for the first time in two years, that orders would rise over the next four months .
The high street also showed signs of recovery, with the value of sales rising by 4.7 per cent in the year to October, the highest rise since March and the third consecutive increase. The British Retail Consortium described sales growth as "subdued" and said last week's rate hike was "unnecessary".
House price boom, page 18
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