Barry Naisbitt, chief economist at Abbey said: "The decision to raise base rates again by 0.25% to 5.75% was widely expected. The split vote of the Monetary Policy Committee last month clearly influenced the views of commentators in financial markets to expect a rate rise a little earlier than they had previously factored in. Concerns about the prospects for sustainably restoring inflation to its 2 per cent target level into the medium-term, the robust pace of economic activity and the relatively rapid pace of monetary growth, are all likely to have played a part in today's decision.
"The key issues going forward will be how strong the economic data is over the coming months and how the MPC will view them in the light of its expectations for inflation into the medium term. The June inflation figure will be published soon and economists are expecting a further reduction from May's 2.5%, which the Bank of England would welcome after the inflation figures earlier this year."
CML director general Michael Coogan said: "The rate rise is unsurprising and has been factored in to market expectations. With increasing concern that the Bank of England will not meet their 2 per cent target for inflation, today's rate change will contribute to a gradual slow down in the housing market and help offset growth in other parts of the economy.
"At present four out of five new borrowers are taking out a fixed-rate mortgage and will be protected from the immediate effects of today's rise. But this is the fifth interest rate rise since 2006, and two million borrowers will be coming off a fixed-rate deal in the next 18 months on to higher mortgage payments.
"Inevitably this will leave more households financially stretched. While this may be a necessary evil to get inflation back under control, it does mean that many home-owners will need to adjust their finances to prevent falling behind on their mortgage payments. If in doubt, our advice to borrowers is to discuss potential financial difficulties with their lender at the earliest opportunity."
Peter Bolton King, chief executive at the NAEA, comments: “Naturally, most people were fully aware that this rise was likely to happen. However, it is disappointing that this rise has occurred given that there were signs in many parts of the country that the property market was starting to level out, the exception being London. The problem in London however is not going to be resolved by increasing interest rates as the pricing problem in that region is down to the lack of supply. We urge the Bank of England to seriously consider the potentially adverse effect of any further interest rate changes and the consequences that this will have on the housing market, especially bearing in mind how vital this sector is to the UK economy.”
