Bank of England raises rates to 5.75%
Bank of England raises rates to 5.75%
LONDON - THE Bank of England (BOE) raised interest rates by a quarter percentage point to a six-year high of 5.75 per cent yesterday, the fifth increase since last August.
Most economists had predicted the increase as four members of the central bank's nine-strong monetary policy committee, including governor Mervyn King, had wanted to raise borrowing costs last month because of concerns about rising price pressures.
The financial markets have priced in further interest rate increases, but some policymakers such as BOE deputy governor Rachel Lomax have warned about the dangers of an overreaction as consumers' disposable incomes are already falling.
More than a million home owners may soon face significantly higher mortgage payments as two-year fixed-rate deals, taken out in 2005 when borrowing costs were at 4.5 per cent, come to an end.
The sterling was trading close to a 26-year high against the US dollar after the BOE decision.
'The pace of expansion of the world economy remains robust,' according to the BOE's statement. 'The margin of spare capacity in businesses appears limited, and most indicators of pricing pressure remain elevated. The balance of risks to the outlook for inflation in the medium term continues to be on the upside.'
Meanwhile, the European Central Bank (ECB) held its key interest rates steady as expected on Thursday, but ECB watchers were betting on a further rise in euro-zone borrowing costs in the coming months, most likely in September.
The ECB announced that it was holding its benchmark 'refi', or refinancing, rate steady at 4 per cent after raising it by a quarter of a percentage point last month.
The bank, known as the guardian of the euro, also held its two other key rates - the deposit rate and the marginal lending rate - unchanged at 3 per cent and 5 per cent respectively.
But no rate changes had been expected from the ECB this week, just a month after it tightened monetary conditions in the euro zone.
'The medium-term outlook for price stability remains subject to upside risks.
'Given the positive economic environment in the euro area, our monetary policy is still on the accommodative side with overall financing conditions favourable, money and credit growth vigorous and liquidity in the euro area ample,' said ECB president Jean-Claude Trichet.
'Looking ahead, acting in a firm and timely manner to ensure price stability in the medium run remains warranted.'
REUTERS, BLOOMBERG NEWS, AGENCE FRANCE-PRESSE
LONDON - THE Bank of England (BOE) raised interest rates by a quarter percentage point to a six-year high of 5.75 per cent yesterday, the fifth increase since last August.
Most economists had predicted the increase as four members of the central bank's nine-strong monetary policy committee, including governor Mervyn King, had wanted to raise borrowing costs last month because of concerns about rising price pressures.
The financial markets have priced in further interest rate increases, but some policymakers such as BOE deputy governor Rachel Lomax have warned about the dangers of an overreaction as consumers' disposable incomes are already falling.
More than a million home owners may soon face significantly higher mortgage payments as two-year fixed-rate deals, taken out in 2005 when borrowing costs were at 4.5 per cent, come to an end.
The sterling was trading close to a 26-year high against the US dollar after the BOE decision.
'The pace of expansion of the world economy remains robust,' according to the BOE's statement. 'The margin of spare capacity in businesses appears limited, and most indicators of pricing pressure remain elevated. The balance of risks to the outlook for inflation in the medium term continues to be on the upside.'
Meanwhile, the European Central Bank (ECB) held its key interest rates steady as expected on Thursday, but ECB watchers were betting on a further rise in euro-zone borrowing costs in the coming months, most likely in September.
The ECB announced that it was holding its benchmark 'refi', or refinancing, rate steady at 4 per cent after raising it by a quarter of a percentage point last month.
The bank, known as the guardian of the euro, also held its two other key rates - the deposit rate and the marginal lending rate - unchanged at 3 per cent and 5 per cent respectively.
But no rate changes had been expected from the ECB this week, just a month after it tightened monetary conditions in the euro zone.
'The medium-term outlook for price stability remains subject to upside risks.
'Given the positive economic environment in the euro area, our monetary policy is still on the accommodative side with overall financing conditions favourable, money and credit growth vigorous and liquidity in the euro area ample,' said ECB president Jean-Claude Trichet.
'Looking ahead, acting in a firm and timely manner to ensure price stability in the medium run remains warranted.'
REUTERS, BLOOMBERG NEWS, AGENCE FRANCE-PRESSE
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