Mixed reaction to rate rise

10 June 2004
The Bank of England's decision to further increase interest rates by a quarter per cent has been met with a mixed reaction by industry experts.

The Council of Mortgage Lenders (CML) said that the quarter per cent rise in rates was in line with expectations.

CML head of research, Bob Pannell, said: "The Bank has been clearly signalling that more rate rises were likely, so today's decision has largely been anticipated by the markets.

"But it is still noteworthy, as it is the first time the MPC has announced a back-to-back monthly increase since early 2000.

"This confirms the Bank is taking a more aggressive approach than in the recent past, in the light of growing inflationary pressures."

The Confederation of British Industry gave its cautious backing to the BoE's decision, saying that business will accept it as long as the motive is to ensure that interest rates peak at the lowest possible level.

However, it warned: "Consecutive rises do mark a shift from the gradualist, well signalled Monetary Policy Committee (MPC) policy of the past and will do little to control house prices, rising due mainly to lack of supply in the housing market, or the inflationary effect of wage increases evident in the public sector."

Meanwhile, previous research indicates that today's base rate rise will signal a spate of remortgaging.

According to The MarketPlace at Bradford & Bingley, one in two homeowners said they would remortgage when rates rose by one per cent. Since then, rates have risen from their historic low of 3.5 per cent to today's figure of 4.5 per cent.

Elliot Nathan, mortgage development manager for The MarketPlace, said: "Today's quarter point rise is the fourth in 8 months and with further rises expected in the coming months now really is the time for borrowers to act.

"Our research revealed that apathy would rule until rates rose by 1 per cent and we are now there.

"Although people should not be overly concerned as Base Rate is still, in historic terms, low, the recent rises do provide them with a reason to look at lowering the cost of their borrowing."