Employers' organisations and trade unions spoke with one voice in condemning the Bank's move, saying that high interest rates were keeping the pound too strong and damaging industry.
"This is the last thing Britain's exporters and their suppliers need at this time," said Ian Peters, of the British Chambers of Commerce, describing the decision as a "body blow".
The foreign exchange and stock markets, however, responded positively to a strong hint in the statement from the Monetary Policy Committee that there would be no more interest rate rises in the near future. They fell sharply on the foreign exchanges, leading to a 10 pfennig drop against the German mark in two days.
The financial markets were delighted that the Bank had managed to trim the exchange rate, sending share prices leaping to another new record yesterday. The FTSE 100 index climbed 61 points to 5,086.8, and has gained 14 per cent since the election. "The Bank of England is to be commended for some pretty nifty footwork here," said Roger Bootle, chief economist at City of London bank HSBC Markets.
The Bank's statement yesterday said: "Upward pressure on the exchange rate should be reduced by the perception that interest rates have reached a level consistent with the inflation target."
It acknowledged that the strong pound had put exporters under "severe pressure". The unexpectedly clear signal led some City experts to predict that interest rates will not need to climb any higher unless there was new evidence of the consumer boom picking up more steam.
Despite the success of the Bank's efforts to weaken the pound, it came in for harsh criticism. Kate Barker, chief economist of the Confederation of British Industry, said: "The CBI is unhappy about this fourth successive interest rate increase."
Brendan Barber, deputy general secretary of the TUC, said: "Higher interest rates will do nothing to encourage industry to invest in skills and new capacity."
The Chancellor of the Exchequer did not escape attack. His shadow, Peter Lilley, said: "This fourth rate rise in 100 days is the inevitable result of Chancellor Gordon Brown's botched Budget." He said Mr Brown had "left the Bank with no option but to push interest rates higher."
Malcolm Bruce, Treasury spokesman for the Liberal Democrats, joined him in criticising the Budget. "Today's interest rate rise was probably necessary to avoid a damaging consumer boom followed by the usual bust, but it was also a sign that Gordon Brown got his Budget wrong," he said.
A Labour backbencher, Austin Mitchell, urged the Chancellor to reverse his "premature" decision to allow the Bank of England to set interest rates. He said its Monetary Policy Committee had "turned a complacent blind eye to Britain's slide into the third recession since 1979".
Interest rates have now risen by 1 per cent since 1 May. The Cheltenham & Gloucester, the fourth biggest lender, raised its mortgage rates straight away. Other big lenders, including the Halifax, Woolwich, Abbey National, Alliance & Leicester and Nationwide, said they would review the situation.
The Britannia increased its savings rates, but said its mortgage rates would not rise.
City delight, page 19
The cost to mortgages
Increases in repayments on a variable rate mortgage since the general election.
Mortgage 1 May today
pounds 50,000 pounds 338.46 pounds 373.77
pounds 100,000 pounds 704.10 pounds 779.21
pounds 150,000 pounds 1069.73 pounds 1184.65
pounds 200,000 pounds 1435.36 pounds 1590.09Reuse content