Inflation fears lead to interest rate rise

INTEREST RATES went up yesterday for the second time in three months. The Monetary Policy Committee's announcement of a quarter point rise to 5.5 per cent is likely to be followed by mortgage rate increases in the next few days.

The move was no surprise in the wake of recent figures showing faster pay growth and a big jump in house prices, although the committee's members are split over inflation prospects. The MPC divide is likely to be highlighted in next week's quarterly inflation report from the Bank of England.

The Bank's announcement came against a background of wider inflationary pressures; it was followed by an increase of half a point in European interest rates, to 3 per cent, by the European Central Bank. City experts say there will be further rate rises, but not before the New Year.

There were complaints about yesterday's move from unions and businesses. Sir Ken Jackson, of the AEEU engineering union, said: "It is almost as if the MPC disregards manufacturing when they make their decision."

Others were more understanding. Ruth Lea, head of policy at the Institute of Directors, said: "Whilst not welcoming the interest rate increase, it is probably necessary."

Stiff mortgage competition is making lenders hesitant, but some rate increases are expected and will add pounds 7 to pounds 8 a month on typical repayment mortgages. Repayments still remain low by past standards. The Nationwide's variable rate of 6.45 per cent compares with 8.2 per cent a year ago, meaning the monthly repayment of pounds 325.28 on a pounds 50,000 loan is pounds 52.46 less than last November.

The North-South

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