UK interest rate rises 0.25%

The Bank of England has announced a quarter-of-one-per cent rise in the UK base lending rate.

The first upward movement in interest rates take the UK rate to 3.75% as the Bank's Monetary Policy Committee (MPC) seek to cool the housing sector without placing pressure on beleagured manufacturers.

However, as revealed in the latest data, the fall in manufacturing output for the second consecutive month, has surprised many analysts who were predicting a sustained if slow recovery in the manufacturing sector.

When considering today's rate rise the MPC are likely to been concerned about the fragility of the manufacturing sector in the UK, despite an apparent recovery in the US.

Chancellor Gordon Brown speaking on the BBC's Breakfast programme this morning flagged his backing for a rise in the rate against the current climate of a strengthening economy.

There was widespread concern that if the MPC had announced a 0.5% rise it will be too aggressive for the prevailing conditions.

The Office for National Statistics report revealed that the UK's manufacturing output dipped by 0.2% in the August-September period. This was exacerbated by a poor performance in the electrical and optical equipment sectors that showed a 2.2% fall in output.

Conversely, the housing sector continues to be unexpectedly buoyant. The FT house price index revealed that house prices had risen by an average of 1.9% in October. This represented the largest monthly increase since March this year and was 0.7% higher that the increase in August.

The increase in the rate will hit those with large mortgages and substantial credit card borrowing hardest.

(SP)