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Bank opts for cautious rate rise
The Bank of England has announced a quarter point increase in interest rates.
Rates now stand at 4.75 per cent - with many mortgages set to rise as a result.
The monetary policy committee's discussions come amid mixed signals on house prices.
With the latest Halifax data pointing to a 1.3 per cent increase in July, the Bank had been widely expected to continue its recent trend of quarter point rises in interest rates.
"Although the housing market remains buoyant, there are now signs that it is starting to ease, and the growth of consumption may be moderating," noted the MPC.
The move came despite some calls for the committee to adopt a more aggressive approach.
Commenting on the increase the TUC's assistant general secretary, Kay Carberry, said the Bank was right to ignore the "siren voices" pushing for a full half point rise.
"This could well have sent manufacturing over the edge," she said.
"Even this rise threatens some very shallow signs of recent improvement. Industry has warned that manufacturing profits have been declining for 19 successive quarters and job losses have been consistent.
"House price rises are slowing, and the oil price increases threaten further difficulties. This is a not a run-away boom."
Meanwhile Michael Coogan of the Council for Mortgage Lenders said consumers should expect more rises to come.
"The monetary policy committee members have recently made a point of emphasising that it is not in the business of 'clobbering consumers'," he said.
"Equally, we all recognise that it needs to address inflationary pressures as it sees them. So the rate rise is no surprise.
"We continue to think there will be further rate rises to come, and that consumers should organise their finances to be able to cope with them."
David Frost, director general of the British Chambers of Commerce, said he was not surprised by the latest move.
"Business accepts that moderate rate rises may be necessary as inflationary pressures grow," he said.
"But we call on the MPC to resist the clamour for a rapid tightening of monetary policy."
Frost added that "interest rate overkill" would have damaging consequences for the rest of the economy, especially the manufacturing sector.
The CBI said the bank was adopting "steady strategy" of gradual, well-signalled rises.
"The UK economy is running at close to full capacity, with five consecutive quarters of strong growth," said chief economic adviser Ian McCafferty.
"This means that rates are likely to have to rise further in coming months to reach a neutral interest rate of around five per cent.
"The continuation of the MPC's steady approach provides the economic stability that firms need and is the best way to ensure that interest rates peak at the lowest possible level."
But trade unions warned that the rate rise could lead to further job losses.
Kevin Curran, general secretary of the GMB, said: "No doubt this rise is necessary. But it will not help Britain's manufacturing sector, which is already haemorrhaging jobs and lagging behind in the global economy.
"My members will want this fifth rise to be the very last before the next election."
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Published: Thu, 5 Aug 2004 12:00:00 GMT+01
"No doubt this rise is necessary. But it will not help Britain's manufacturing sector, which is already haemorrhaging jobs and lagging behind in the global economy. My members will want this fifth rise to be the very last before the next election."
Kevin Curran
The Bank's statement
"The Bank of England's monetary policy committee today voted to raise the Bank's repo rate by 0.25 percentage points.
"Output growth has been robust and business surveys point to continued expansion.
"Although the housing market remains buoyant, there are now signs that it is starting to ease, and the growth of consumption may be moderating.
"Investment and public sector consumption have both grown strongly and demand in UK export markets continues to pick up.
"CPI inflation reached 1.6 per cent in June. It is likely to fall back in the near term, but underlying cost pressures have risen.
"With demand already high relative to the supply capacity of the economy, continued strong growth is likely to lead to rising inflationary pressures.
"Against that background, the committee judged that an increase of 0.25 percentage points in the repo rate to 4.75 per cent was necessary to keep CPI inflation on track to meet the two per cent target in the medium term."
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