An increase was widely expected for February, but the MPC decision marks the second increase in three months.
Commenting on the decision, Mehrdad Yousefi, head of intermediary mortgages at Alliance & Leicester, said: “A rate rise to 5.25 per cent at the start of the year has caught the market by surprise, particularly following a period of heavy consumer spending during the festive season. This rise comes a month or two earlier than widely expected as many were anticipating a rise in the first quarter of 2007, but not as early as this."
Colin Bell, operations director at InterBay, admitted that the economic conditions had pointed to an early rate rise in 2007. “This months rate rise quickly became necessary due to excessive activity in the service sector at the end of 2006 into this month. The economy is over heating at present and the rate rise decision by the MPC is designed to try and slow this down,” he argued.
John Goodfellow, chief executive of Skipton Building Society agreed that the MPC’s decision was to be expected. He said: “The strength of economic data released during December - especially the high inflation numbers for both consumer price inflation and average earnings - and strong housing market indicators, meant that the announcement came as no surprise.”
