Do you want the good news or the bad?

It would have been more of a shock if the monetary policy committee (MPC) had decided not to raise interest rates. The decision last month was finely balanced - with five to four members in favour of keeping the rate unchanged at 3.5%.

Consumer debt, however, is rising and debt counselling charities, banks, and building societies - including HSBC and Nationwide -have been voicing concerns about the extent of personal borrowing. There are signs that consumer debt is getting out of control, with large numbers of people taking on credit card debt, personal loans and remortgaging their homes. The charities National Debtline and the Consumer Credit Counselling Service have both expressed fears that increasing numbers of people are facing bankruptcy and serious debt.

Against this background, the MPC has been under pressure to bring both consumer spending and raging house price inflation under control. There is also the matter of the confusion over the level of growth in the UK. The last time the MPC lowered interest rates by 0.25%, it did so because output figures showed that the economy was weakening. In fact, there had been a miscalculation, and the true picture was one of much stronger growth than had been anticipated. It is unlikely that the MPC would have cut interest rates had they been fully aware of the data at the time.

The effect on the stock market is likely to be mixed. Firstly, traders buy and sell based on what they believe will happen in the future, rather than what has just happened. So although a small rise in the Bank of England base rate will not affect shares much in the short-term, it does signal a new upward direction in rates after years of steady reductions.

The shares of companies in the technology sector, service industries, media and telecoms probably will not suffer much from today's increase. Shares in utility companies, which pay large dividends, may be affected.

With savings rates so low, many investors have bought shares in water and electricity companies because the dividend payment is much larger than the savings rate they were receiving on their cash. Once cash - which is risk free - starts to pay a comparable or higher rate than company dividends, there is no incentive to hold these types of stocks.

In general terms, if you can get as good a rate on deposit as you can by holding a company and receiving its dividends, most investors prefer cash because they are not exposed to the risk of a company going bust or its share price falling.

The good news is that foreign travel could be cheaper, since rising interest rates tend to push up the value of the pound, although manufacturers who export goods abroad will find their customers have to pay more for their wares, which will make them less competitive in the world market.

Bond holders may also feel some pain, since the interest rate rise is likely to be bad news for bond prices over the short to medium term. This is because people hold bonds for similar reasons to utility companies - for the yield they provide. If you can get a comparable amount in a high interest deposit account, why would you take the risk on corporate bonds or companies?

While the decision is good news for savers, it will not be welcomed by borrowers. We have all become accustomed to low interest rates, and today's news suggests that this is the start of a trend towards a climate of higher and increasing interest rates.

Those with fixed rate mortgages will not see any effects for months or even years, but they may find that they come out of their fixed rate period into an environment of high rates. Those on standard variable or discounted rates will start to feel the effects soon, as lenders adjust their rates. The market had already anticipated a rise last month and the gap between the average fixed rate and the average variable rate is now around 1%. This gives an indication of what is to come, with some economists suggesting that the Bank of England base rate could be 5% by the end of next year.

For the average mortgage borrower with an ?80,000 loan outstanding, the net effect of a 0.25% rise will be the equivalent of an extra ?17 on their monthly mortgage payments. But if rates rose by 1.5% by December 2004, as is predicted, they would have to find an extra ?100 a month out of their after-tax income to fund their mortgage - that is ?1,200 a year.

Most people will find this quite hard to adjust to - which is why it may dampen consumer spending and drive us all out of the shops.

This will spell bad news for the retail sector, travel firms and holiday companies, as we will all be keeping our wallets tightly shut.

It could also have a negative effect on banks, since they are the ones who will have to deal with customers falling into bad debt and defaulting on loans.

And it could be bad news for house builders and the housing market, since a rise in rate will make property less affordable and take homes right out of the reach of first-time buyers.

Higher rates also mean that property will begin to look less attractive as an investment. Over the past three years people have moved their money out of the stock market, which has been falling, and into property.

The health of the housing market has encouraged many to become private landlords and invest in buy-to-let properties, all of which has helped to push up the price of homes, particularly for first-time buyers. Add to that the widespread remortgaging, which has allowed homeowners to release equity from their property, and a large proportion of the British public is heavily exposed to the property market, and to interest rate rises.

The MPC will have to tread carefully in its policy from now on to ensure that subsequent interest rate rises do not precipitate a housing market crash.