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Thursday, July 5, 2007

Bank of England Raises Rate.

" Bank of England policy makers raised interest rates for the fifth time since August and said they're concerned inflation will stay above target, adding to investor speculation that at least one more increase is likely this year.

The nine-member Monetary Policy Committee increased the bank rate by a quarter-point to 5.75 percent, the highest since April 2001, the central bank said today in London. The panel, led by Governor Mervyn King, said in a statement that "the balance of risks'' to price stability still "lie to the upside.'' "

What does this mean for the average person?

" Higher rates will add to pressure on consumers shouldering a record 1.3 trillion pounds ($2.6 trillion) of debt. Chancellor of the Exchequer Alistair Darling said in a Financial Times interview yesterday he's concerned Britons who took out two-year fixed rate mortgages in 2005, when the bank rate dropped to 4.5 percent, will now be faced with higher repayment costs. "

The UK embraced subprime and other exotic mortgages with almost as much enthusiasm as the US and will face the same consequences... eventually...

" For consumers with variable-rate mortgages, each quarter- point rate increase adds about 30 pounds a month to repayments on an average 25-year mortgage of 200,000 pounds, according to the Council of Mortgage Lenders. Payments on a loan of that size will be about 150 pounds more each month than they were a year ago. "

With the pound hitting one record after another consumers and businesses are starting to get squeezed from both sides.

" "Rates are now at a level that will prove painful for hundreds of thousands of homeowners and manufacturing,'' said Adam Lent, head of economic affairs for the Trades Union Congress, which represents more than 7 million workers."

Source: Bank of England Raises Key Rate a Fifth Time to 5.75% (Update4) (http://www.bloomberg.com/apps/news?pid=20601068&sid=abLV1BnGzIpE&refer=economy)