Interest rates rise - more expected

Homeowners are counting the cost of the first increase in interest rates in almost four years.

Amid concern about spiralling levels of consumer debt, the Bank of England acted as expected to increase its base rate by 0.25% to 3.75%.

That will put around £15 a month on a £100,000 mortgage, although most lenders have yet to revise their rates.

Analysts said further rises were likely to follow next year with a base rate of 4.5% expected by the end of 2004.

The move by the Bank's Monetary Policy Committee (MPC) - following nine cuts since early 2001 - comes after a clutch of economic figures over the last month signalled an economic revival was underway.

However, figures also confirmed the re-acceleration of the housing market as borrowers lap up the best mortgage rates in almost half a century.

Announcing the rate rise, the MPC warned: "Neither household spending nor the housing market have slowed by as much as the committee expected."

It added that a "moderate increase" was needed to keep inflation on track.

Industry leaders offered a mixed reaction to the rate rise with TGWU general secretary Tony Woodley attacking the hike as "unwanted and unnecessary".

He said the MPC should have protected the "fragile" manufacturing recovery.

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