Interest rates rise for first time in two years

News Article - 04 August 2006
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The Bank of England has raised interest rates for the first time in 24 months in a move that has surprised many analysts.

The bank's monetary policy committee (MPC) decided to up the rate by a quarter of one per cent to 4.75 per cent.

Rising levels of inflation were behind the Bank's decision, which have been driven by higher energy prices. Inflation increased to 2.5 per cent in June, with the bank expecting it to remain above its 2.0 per cent target "for some while".

Some have already disputed the bank's decision, however.

Kevin Hawkins, director general of the British Retail Consortium (BRC), said that the Bank had "overreacted" in its apparent concern over inflation.

"The MPC has taken a very selective view of the economy," he said.

"Consumer confidence is negative, consumer borrowing at its lowest level for twelve years, shop prices barely increasing and higher energy costs damaging consumers' ability to spend.

"Higher interest rates will make consumers even more pessimistic while doing nothing to combat the inflationary impact of global energy prices beyond our control," he argued.

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