Row over rates erupts as City welcomes rise

The City yesterday broadly welcomed the 0.5 percentage point rise in base rates to 6.75 per cent but the increase was condemned by some business groups and mortgage lenders.

Gilts and share prices rallied after the announcement just before noon. But the FT-SE 100 index closed off its highs but up 17.4 points at 3034.7. Gilts ended weaker, following international bond markets, while sterling was barely changed.

Interest rates have returned to their highest level for more than two years. Kenneth Clarke, Chancellor of the Exchequer, said: "I judge that, on the balance of risks, a further increase in interest rates now will help to keep inflation under control. That is the best way to ensure healthy economic growth, leading to a continuing rise in secure jobs and higher living standards." He and Eddie George, Governor of the Bank of England, agreed to yesterday's increase at their regular monthly meeting at the Treasury.

The Treasury and the Bank hope that the series of base rate rises since September will enable them to prevent a return to the traditional pattern of boom and bust in the economy. Mr George has said he does not expect interest rates to return to the peak levels of previous business cycles.

The announcement did not come as a surprise, especially after Wednesday's half-point interest rate increase in the US. Economic statistics published last month showed that inflation had risen at the end of last year while economic growth slowed down onlya little. Almost all City analysts expected an interest rate move either this month or next. One of the most influential indicators was a recently-published Confederation of British Industry survey showing that industry had record order books while manyfirms were planning to increase prices in the next four months.

The Treasury's monthly monetary report, published yesterday, said that economic indicators since the previous meeting were mixed. Some pointed to a moderation in the pace of growth; others showed a more buoyant picture.The Bank's next quarterly inflationreport, assessing inflation prospects, will be published on Wednesday.

Mr Clarke said he had not been pushed into the move by Mr George, although he had recently said interest rate expectations were exaggerated.

Although they judged that action was needed, many in the business world criticised yesterday's rate rise. Richard Brown of the British Chambers of Commerce said: "We are seriously disappointed." He said many firms were struggling to stay in business. IanHandford of the Federation of Small Businesses said: "Expansion and investment are once again threatened by the Government's total failure to create economic stability and confidence."

The construction industry condemned the increase. The Federation of Civil Engineering Contractors reported yesterday that there were already signs of a downturn in the sector.

Mortgage lenders were also disappointed. A spokesman for Bradford & Bingley building society said: "This is another blow to a housing market that is struggling to recover. There is no spark of confidence."

The CBI's response was more measured. Howard Davies, director-general, said: "Conditions did not require a further rise." But he said there was no doubt the recovery would continue. The Institute of Directors welcomed the move, saying it was necessary tocontrol inflation - "public enemy number one" according to its director-general, Tim Melville-Ross.

Outlook, page 33

Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?