Bank of England raises rates to 4.5%

The Bank of England (BoE) has increased interest rates by 0.25 per cent to 4.5 per cent.

The Bank of England (BoE) has increased interest rates by 0.25 per cent to 4.5 per cent.

The  rise signifies a quickening in the pace of the BoE's monetary tightening.  It has lifted rates a quarter point three times, at three-monthly intervals, since November, with the last rise coming in May.

The bank has made much of having a gradualist and predictable approach to monetary policy. But consistently strong data in the past month will have added to the rate-setting Monetary Policy Committee's (MPC) concerns that inflation will rise above its 2 per cent target at the BoE's two-year horizon.

Futures markets are pricing in interest rates of 5.5 per cent by the end of the year.

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Many economists also suspect booming house prices - rising at an annual rate of around 20 per cent according to some surveys - may also encourage the MPC to act.

A potential housing market crash has been highlighted by economists and international organisations such as the IMF and OECD as one of the biggest risks facing the economy.

Home buyers have ignored the last three rate increases and some commentators said sharper rate rises are needed to cool the market.