Interest rates upped to 4.75 per cent

The Banks decision, widely predicted by analysts, follows further evidence of economic growth and strong consumer spending.

Although business groups expected the latest rise, lobbyists have warned that the recovery of UK businesses should not be hampered by sky-high interest rates.

Business leaders have urged the Bank to adopt a ‘softly-softly, catchee monkey’ approach to interest rates, to give firms an opportunity to grow. There is also concern that manufacturing companies would be damaged by continued rises.

Ian McCafferty, of the Confederation of British Industry (CBI), said that the Bank’s steady strategy avoids unnecessary shocks.

“The UK economy is running at close to full capacity, with five consecutive quarters of strong growth. This means that rates are likely to rise further in coming months to reach a neutral interest rate of around five per cent,” he said.

Dr John Philpott, of the Chartered Institute of Personnel and Development (CIPD), said that the Banks’ decision was “sensible.”

“The latest quarter point rise signals the Monetary Policy Committee’s determination to combat rising cost pressures.

“However, while this demonstrates to employers the importance of keeping firm control of wage costs, staff will be seeking pay rises to compensate for the higher cost of borrowing and mortgages,” he said.

However, Tony Woodley, of the TGWU union, said that that manufacturing recovery risks being stalled by the decision.

“The Bank of England needs to give equal consideration to the concerns of industry, unions and retailers, who have warned against further rises, as they do to the assessments of City economists,” he said.