Analysts Shocked By Interest Rate Rise
The Bank of England's decision to raise interest rates from 5% to 5.25% has taken analysts by surprise. The rise is aimed at curbing inflation, which has risen to 2.7%, its highest level for over ten years.
With economists predicting interest rates to rise further, to 3%, the Bank of England said in a statement: "It is likely that inflation will rise further above the target in the near term."
So what does this all mean for the average Briton? Well, the rise means that Britons should expect to see their bills rise further as their mortgages, car loans and credit cards will be subject to higher interest rates.
Peter Tutton of the Citizens advice Bureau, said: "We are already seeing a rapidly growing number of people falling behind with mortgage payments and in some cases threatened with repossession, and we know some people are taking on mortgages that stretch the to the absolute limit."
Whilst a rise in interest rates was widely expected in the UK, it was thought this wouldn't happen till at least next month. The rise is the third in five months, and will increase the cost of borrowing, with UK homeowners likely to feel the strain on their finances as their mortgage repayments increase. If lenders pass on the full increase, a £100,000 mortgage will see a further £200 a year added to repayments.
With household bills rising in cost in the UK and with consumers in more debt than ever, the rise comes at a time of the year when most UK household budgets are already stretched after the costs of Christmas.
Karen Darby, chief executive of online comparison site Simplyswitch.com, said: "It has been a year of financial misery for millions of families who have been bled dry.
"Energy companies have put their prices up twice or in some cases three times, mortgage repayments have soared and utility bills have gone through the roof."
Alisdair Milton
15th January 2007
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