In a surprise move to many, the Bank of England has raised interest rates to 4.75%.
The Bank’s Monetary Policy Committee (MPC) has voted to increase the cost of borrowing a quarter of a percentage point from 4.5% to 4. 75% in the first change to the base rate in 11 months.
While some analysts had predicted an increase, most said they expected the MPC to hold rates for another month. It is thought that today’s decision was aimed at restraining inflation, which rose 2.5% in June, above the Treasury’s target of 2%.
Business leaders have condemned the vote.
“The MPC has done nothing to support the UK's economic recovery by increasing rates,” said David Frost, director general of the British Chambers of Commerce (BCC).
“We believe the GDP growth of 0.8% in Q2 gives a misleading picture of the recovery; moreover the rise in inflation to 2.5% reflects soaring energy bills which are more likely to weaken consumer spending than lead to an inflationary spiral of higher wages and prices.”
Frost added that the correct decision would have been to keep interest rates on hold and said this increase could damage an already frail business confidence.
“In the face of heightened global uncertainties, we strongly urge the MPC to maintain a flexible stance and reject calls for further interest rate increases,” he said.
