Forum Brief: Interest rates

The Bank of England has raised interest rates by 0.25 per cent.

The monetary policy committee announced a quarter point increase taking headline rates of borrowing to four per cent.

Party Response: Conservative

Shadow chancellor Oliver Letwin said: “The logic of the independence of the Bank of England demands that Treasury ministers and their advisers do not apply any pressure on the Bank of England in relation to interest rates.

“It would be wise for all of us involved in politics and policy-making to follow that rule.”

Party Response: Liberal Democrats

Vince Cable, Liberal Democrat Treasury spokesman, said: "People want to know that their homes are secure in uncertain times. This rate rise is going to cost an average first time buyer £250 extra a year on their mortgage.

"The Bank is desperate for a soft landing in the housing market and a reduction in personal borrowing, without crushing manufacturing.

"Gordon Brown must urgently address the failures that have allowed banks to lend irresponsibly and fuel unsustainable levels of debt."

Forum Response: Council of Mortgage Lenders

CML head of research and analysis Bob Pannell said: "If lenders raise rates by 0.25 per cent, this will add around £14.50 a month to the cost of a typical £100,000 mortgage.

"Most households should have no difficulty absorbing this level of modest increase. But this is likely to be the first of several rate rises this year, and we expect rates to end the year at 4.5 per cent.

"Borrowers should therefore allow in their finances for higher debt servicing costs as the year progresses. And people with high levels of unsecured credit as well as a mortgage should pay particular attention to their total increase in costs, not just the mortgage."

Forum Response: Construction Products Association

Allan Wilén, economics director at the Construction Products Association, said: "Whilst we understand the decision taken today by the Monetary Policy Committee to raise rates, we would caution against any further increase in the near term.

"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.

"Despite the recent spike in house price inflation there are clear signs that households are becoming increasingly cautious of taking on further borrowing. Too rapid a rise in interest rates could prompt a sharp deterioration in consumer confidence, the housing market and economic growth.

"Furthermore higher rates would hamper the recovery in UK manufacturing by adding to investment costs and putting further upward pressure on Sterling."

Forum Response: Consumers' Association

Melanie Green, principal researcher at Which?, said: "Don't take this rate rise lying down. If you're paying the standard variable rate, you can switch cheaply and easily and save hundreds of pounds rather than putting up with paying even more to your lender.

"There are lots of lenders out there who want your business and many will prove it by waiving some or all of the costs of switching.

"Many people are put off switching because they can’t work out whether they’d pay more to switch than they’d save with a new deal. Which? Mortgage Search helps you quickly see how much you can really expect to save by including the cost of switching in the calculations."