Interest rates go up

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The Bank of England's Monetary Policy Committee has voted to raise interest rates to 5.75 per cent in July.

In an effort to try and curb inflationary pressure and reduce spending, the MPC announced that rates would increase by 0.25 per cent from their prior level of 5.5 per cent.

Despite the fact that the consumer price index (CPI) fell to 2.5 per cent in June, the Bank of England felt that another interest rate rise was necessary.

"Although pay pressures remain muted, the margin of spare capacity in businesses appears limited and most indicators of pricing pressure remain elevated," a statement from the MPC read.

"Against that background, it further judged that an increase in Bank Rate of 0.25 percentage points to 5.75 per cent was necessary to meet the two per cent target for CPI inflation in the medium term."

Trevor Williams, chief economist at Lloyds TSB Corporate Markets, said that decision must have been a "close call".

"Some MPC members probably wanted to hold out for more proof that another rate hike was really necessary, but there are others who believe the MPC has been too slow to raise rates. On balance they've made the right move in opting for a rise now.

"It's true that the economy is showing some tentative signs of a slowdown. But at the same time, house prices surged again last month, money supply growth continues to accelerate and the services sector remains robust."

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