Interest rates rise for second month in row

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The Independent Online

Homeowners were facing the prospect of higher mortgage bills yesterday after the Bank of England raised interest rates for the second month in a row.

Homeowners were facing the prospect of higher mortgage bills yesterday after the Bank of England raised interest rates for the second month in a row.

The Bank's monetary policy committee (MPC) increased the base rate by a quarter-point to 4.5 per cent to curb inflationary pressures from house prices, consumer spending and wage rises.

But there was more positive news for consumers when the supermarket chain Asda slashed petrol prices by two pence to 79.9p a litre, triggering a price war as rivals Tesco, Sainsbury's and BP followed suit. Asda attributed its price cut to the decision taken by oil-producing companies last week to increase production in order to avert a global crisis.

It is the first time that the Bank has raised rates for two successive months for more than four years, and triggered speculation that rates could rise as high as 6 per cent.

Abbey became the first major lender to respond to the decision, raising its standard variable rate from 6.25 to 6.5 per cent from Monday.

If other lenders follow its lead it will mean a borrower with a £100,000 mortgage will see their mortgage payments rise by £15 a month.

The Bank has raised rates four times since November, adding £60 a month - or £720 a year - to mortgage bills.

Economists said the move signalled the end of the Bank's "gradual" approach of raising rates every three months to slow consumer spending without sending shock waves through Britain's highly indebted households.

Roger Bootle, chief economic adviser to the accountancy firm Deloitte, said the MPC had "seen the light" after realising their previous rate hikes had done little to curb consumer behaviour. Annual house price inflation has risen from 14 per cent in November, when the Bank ordered its first rate hike for four years, to 20 per cent last month, according to the Halifax.

Household debt has risen to almost £1 trillion as consumers took advantage of the lowest interest rates for 50 years to take out cheap mortgages, fuelling a surge in house prices.

Yesterday, opposition politicians said the Bank's switch of policy was a warning to the Government to take action to curb debt and rein in its own borrowing plans.

Vincent Cable, a Liberal Democrats' spokesman, said: "Gordon Brown must urgently address the failures that have allowed banks to lend irresponsibly and fuel unsustainable levels of debt."

Asda said its new fuel price would apply to unleaded and diesel at its 150 petrol stations nationwide. The drop in prices comes at a critical time for fuel providers. A rise in petrol prices and the Government's 2p-a-litre tax hike has resulted in the risk of disruptive protests. Four years ago, fuel protesters caused chaos when petrol prices reached 85.32p a litre.

Supermarkets are currently about 1p a litre cheaper than the average price for unleaded petrol of 82.77p, according to the AA. The average price for diesel is currently 83.72p a litre.