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
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
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

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Day In a Page

General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence
Public relations as 'art'? Surely not

Confessions of a former PR man

The 'art' of public relations is being celebrated by the V&A museum, triggering some happy memories for DJ Taylor
Bill Granger recipes: Our chef succumbs to his sugar cravings with super-luxurious sweet treats

Bill Granger's luxurious sweet treats

Our chef loves to stop for 30 minutes to catch up on the day's gossip, while nibbling on something sweet
London Marathon 2015: Paula Radcliffe and the mother of all goodbyes

The mother of all goodbyes

Paula Radcliffe's farewell to the London Marathon will be a family affair
Everton vs Manchester United: Steven Naismith demands 'better' if Toffees are to upset the odds against United

Steven Naismith: 'We know we must do better'

The Everton forward explains the reasons behind club's decline this season
Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

Michael Calvin's Last Word

Praise to Wenger for having the courage of his convictions