The Bank of England -- rates up again

Bank Increases Interest Rate Again

The Cheltenham and Gloucester building society has become the first major lender to respond to the rise and increased the cost of its mortgages. Other lenders are reviewing the situation before deciding whether to pass the increase on to people with mortgages.

The Bank's Monetary Policy Committee said rates had now reached a level consistent with the economy hitting the Government's inflation target - a suggestion that rates could now be kept on hold. The committee also said the current strength of the pound was mostly because of factors outside the Bank's control.

The City, which had been expecting the 0.25% rise, reacted with relief. The stock market, which had been down earlier, immediately shot back to be ahead of Wednesday's record close.

Gavin Davies Chief International Economist at Goldman Sachs -- and one of former Chancellor Ken Clarke's 'seven wise men' -- said the increase was justified, otherwise the Government risked missing its inflation target. But he said that the Bank should have acted much sooner to remove inflation from the system.

Gavin Davies of Goldman Sachs interviewed on The One O'Clock News

But City analysts are divided over the implications on interest rates of recent economic data, with some saying a freeze is called for, and others suggesting a 0.25% rise.

The rise and rise of the Pound against the Deutschmark

The British Chambers of Commerce said it "regretted" the bank's decision to raise the base rate as a "body blow" for exporters. Dr Ian Peters, the BCC's Deputy Director General, said: "This is the last thing that Britain's exporters and their suppliers need at this time."

There was a similar reaction from the Institute of Directors (IOD). Dr Ruth Lea, head of policy at the IOD, said the rise was inevitable because the Budget had not done enough to cool down domestic demand. "We don't welcome it but, given that the consumer sector is still very strong and wasn't hit by the Budget, I'm afraid it was necessary," she said.

The TUC is opposed to the rise because it believes that job prospects will take a turn for the worse. The TUC's Deputy General Secretary Brendan Barber said that further tightening was unnecessary. The rise would, he said, overvalue the Pound even more.

The shadow Chancellor Peter Lilley attacked the Government over the interest rate rise. "This fourth rate rise in 100 days is the inevitable result of Gordon Brown's botched Budget," he said.

City opinion divided over interest rates

"It's bad news for homeowners, businesses and especially exporters," he insisted. "By using his Budget speech to talk up a consumer boom, but then piling the bulk of his tax rises on pension funds and businesses and doing nothing to persuade people to save their building society windfalls, Gordon Brown left the bank with no option but to push interest rates higher."

For the Liberal Democrats, Treasury Spokesman Malcolm Bruce attacked both the Labour Government and the previous Tory administration over the rise. "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 and did too little to rebalance the economy," he said.

"The country is paying a high price for the politically inspired decisions of Ken Clarke - in stoking up the economy before the election - and Gordon Brown, in ruling out a rise in consumer taxes," continued Mr Bruce.

Recent figures have shown that high street spending is surging - to record levels for some goods such as electrical and household items - while the £35 billion building society conversion windfalls could cause a second surge. In addition the domestic manufacturing economy is enjoying a strong period.

The problem is that a strong pound, buoyed by recent rate rises, is making life hard for exporters and is creating an unbalanced economy. This rise could make that even worse.

Only last week, the former Bank Deputy Governor Howard Davies said that rates needed to rise as a sign the Bank will take no risk with inflation even if exporters suffer.