Mixed Reaction To Rates Rise
There's been a mixed reaction to the Chancellor's decision to raise interest rates and to put future rate moves in the hands of a newly-independent Bank of England.
The increase had been widely expected in the City, and will be welcomed as a sign of the Chancellor's determination to take no risks with inflation.
The decision to give the Bank its independence took the City by surprise, however. The Chancellor, Gordon Brown, said it was the Bank's "most radical internal reform" since it was established in 1694.
The idea was to demonstrate that the Labour Government would not use interest-rate policy for political ends.
The rate rise will be less welcomed by many businesses and homeowners. The Confederation of British Industry had warned the Chancellor that higher rates will hurt exporters, who are already suffering from the strength of the pound.
For borrowers, it will mean more expensive mortgages. Moments after the Chancellor's decision, the Halifax, Britain's largest mortgage lender, announced it was increasing its standard variable mortgage rate by a third of one per cent.
A Halifax borrower with a £60,000 interest-only mortgage will have to pay around £16 a month extra.
A spokesman for the Nationwide, which has a million mortgage holders, said that if interest rates increased generally across the market "we will reflect that".
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Halifax increases mortgage rate
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The Royal Institution of Chartered Surveyors said the interest rate rise would do little to harm the housing market recovery, but said it believed further rate rises were "likely".
Any further rises, especially if coupled with the abolition of MIRAS (mortgage interest tax relief), "would leave thousands of homeowners worse off and widen the north/south divide", claimed a spokesman.
The Institute of Directors has supported the new Chancellor's interest rate rise as well as Mr Brown's decision to make the Bank of England independent.
"We support this increase in interest rates and indeed have been recommending a rise since the beginning of the year," said Ruth Lea, head of the Institute's Policy Unit.
"There are clearly inflationary pressures building up in the services sector and it is right to restrain these pressures as soon as possible," she added.
The TUC General Secretary, John Monks, said the "Trade unions will understand why the Chancellor has had to act quickly, but like many business leaders the TUC is concerned about the impact the interest rate rise will have on jobs, particularly in firms which export goods and services, and on mortgages."
Ken Jackson, general secretary of the Amalgamated Engineering and Electrical Union said, "Gordon Brown's announcement shows us that he will be a strong Chancellor. Our only reservation would be the effect a rise will have on the pound, whose strength is already affecting our manufacturing sales."
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