British interest rates have gone up for the fifth time in less than year as the policymakers at the Bank of England continue to worry about inflation in the medium term. Borrowing costs for UK businesses and homeowners have now risen by a total of 1.25% since August last year. Economists expect a sixth 0.25% increase soon.
The UK rate is now 5.75% – the most in six years. That makes it the highest among G7 countries and accounts for the strength of the pound which remains near 26-year peaks versus the dollar.
The higher rates have pushed personal bankruptcies to record levels and retailers are complaining purchasing power has been hit.
In Frankfurt, European Central Bank President Jean-Claude Trichet said euro zone rates will stay at 4% but added they are still low enough to support economic growth, implying more hikes to come.
“The Governing Council will continue to monitor closely all developments to ensure that risks to price stability over the medium term do not materialise and medium to longer-term inflation expectations in the euro area remain solidly anchored at levels consistent with price stability,” he said.
Trichet did not however say that they would monitor developments “very closely” and analysts interpreted that as meaning the next rise would probably be in October rather than September. There is no ECB meeting in August.
Focused on fighting inflation the central bank has increased euro zone rates eight times since late 2005 taking them to a six year high.