All hands went up for rate rise

The Bank of England's rate-setting committee voted unanimously to raise interest rates earlier this month, partly to encourage a more prudent approach towards debt, Bank minutes revealed today.

This month's quarter-point increase was the first time since early 2000 that the Bank's monetary policy committee (MPC) had raised the cost of borrowing two months running.

The move followed a spate of strong data on retail sales and house prices. All nine members voted for the quarter-point rise, the fourth since November.

Bank minutes showed the MPC decided on back-to-back rises as it felt it would have been justified in raising borrowing costs by 50 basis points in May. It was reluctant to do so at the time as that might have been mistaken for a change in the Bank's strategy, the minutes disclosed.

Since May, however, the MPC had had the chance to explain the change in economic conditions and prepare the ground for another move in June because of the more "robust outlook".

The minutes showed that the MPC thought the balance of risks pointed to higher inflation with a tightening in the labour market and continued world recovery. Members were also concerned at the build-up in personal debt.

"A further increase in interest rates now might encourage a more prudent approach towards incurring higher levels of ... debt servicing, so helping to contain the vulnerability of demand to consumer shocks," the minutes said.

Regarding housing, where rising property prices have led to fears of a slump, the Bank said there were signs of a slow-down.

"While house price inflation was stronger than the committee had envisaged in May, there were tentative indications that housing market activity might be easing," the minutes said.

The Halifax, the UK's biggest mortgage bank, yesterday said the housing market had peaked and would slow gradually this year and next as interest rates rose but would not crash.

In its biannual forecasts for the economy and housing market, Halifax revised its prediction of house price growth upwards this year, to 16%, from 8% in December. The bank's chief economist, Martin Ellis, said the rise was due to a stronger-than-expected market in the spring, which brought annual house price inflation to 20% in May, a figure he expects to drift lower in the second half of the year.

Mervyn King, the Bank of England governor, last week caused a stir when he warned that there was an increasing danger that house prices, which have more than doubled in the past five years, could fall.

Unlike at the May meeting, there was no discussion of a half-point rate hike. That development points to a decision to leave interest rates at 4.5% in July; the preference is for an August move, when the MPC will be armed with the central bank's latest quarterly economic forecasts.

The MPC's job is to keep inflation at 2% on a two-year horizon. The central bank's last inflation report forecast inflation picking up above the target within two years even if borrowing costs rise as the market predicts. In May, inflation stood at 1.5%.