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UK interest rates rise to 5.5%

The Bank of England has voted to raise interest rates to 5.5%. The increase, which has not come as a surprise, is the first since February 2007.

The increase sees rates their highest in six years and followed a housing report that shows prices up 1.1% in April.

Analysts have been predicting the rise as the Bank battles to rein in inflation and cool consumer spending. Business and employers groups have commented that the latest rise was "necessary".

"Big cuts in gas and electricity prices are now coming through and we can be confident that CPI inflation will fall back towards the 2% target. That will give the bank some breathing space," commented Peter Spencer, chief economic advisor to the Ernst & Young ITEM Club.

While some predict rates will rise at least as high as 5.75% in coming months, others believe the latest increase will remain steady. The Bank of England is due to release its quarterly inflation report next week.

The rise will be good news for savers, but it could bring higher bills for homeowners, as it will add an extra £16 a month to a £100,000 mortgage.

On a positive note UK consumer confidence was up at its highest in six months in April, indicating that recent interest rate hikes are failing to dampen spirits.