Forum Brief: Interest rates

Allan Wilén, economics director at the Construction Products Association, said: "We appreciate the monetary policy committee's concerns over the strength of consumer borrowing, which underlies its decision to raise rates. However we would urge the Bank to take a cautious approach to any further rate rises.

"The resurgence in house price inflation and equity withdrawal since the New Year is clearly heightening the Bank of England's concerns over future inflationary pressures. Consumer borrowing, and in particular re-mortgaging activity, has grown rapidly over the last three years and has been a key factor in sustaining UK economic growth.

"Higher rates could also hamper the hesitant recovery in UK manufacturing by adding to investment costs and undermining overseas trade by putting further upward pressure on Sterling against an already weak US dollar."

Forum Response: Council of Mortgage Lenders

CML director general Michael Coogan commented: "Nearly two years ago we said that a modest rise in rates was needed to reduce the risk of worse pain later. The same message is equally true now, and so we expected the MPC to act today.    Although never welcome, higher interest rates are now a necessary evil to encourage a gentle slowdown in the housing market.

"The small rises so far have had only a limited impact on consumer behaviour.  We continue to anticipate further staged rate rises through 2004 as the MPC seeks to fine tune monetary policy.  The cumulative impact will become more apparent as the year progresses - a one per cent rise in mortgage rates equates to around £60 a month for a typical £100,000 mortgage.  Borrowers on variable rate loans should plan for higher mortgage costs and prepare accordingly."

Forum Response: National Consumer Council

Ed Mayo, chief executive of the National Consumer Council, said: "This third successive hike in borrowing rates is the writing on the wall for the UK's biggest ever credit binge.

"With interest rates likely to continue on their upward path, it's a warning to borrowers to think long and hard before taking on further debt. It's also a timely reminder to the credit industry that it must curb irresponsible lending practices.