Interest rates up 0.25%

The Bank of England's monetary policy committee has raised interest rates by 0.25% to 5.75%, the first rise since November.

Some financial experts had speculated that the bank would raise the base rate to 6% to cool the consumer spending boom. However, it concluded that an increase of 0.25% would be enough to meet the underlying inflation target of 2.5% in the medium term. The committee anticipates that the underlying rate (which excludes mortgage payments), currently at 2.2%, will rise in the longer term.

The committee predicted that the domestic economy would continue to grow "robustly" and described the world economic outlook as "strengthened".

The rate rise is a blow to millions of homeowners who can expect their mortgage interest payments to go up on the back of the MPC's decision. It comes against the background of a continuing house market boom, accelerated growth in average earnings and falling unemployment, all stoking fears of rising inflation.

Union leaders criticised the interest rate rise, which they said would make expansion and exports harder.

Sir Ken Jackson, general secretary of the Amalgamated Engineering and Electrical Union, said: "Some manufacturing sectors are beginning to expand but this will undermine confidence. The strength of sterling is already wiping out productivity gains and efficiency increases."

Roger Lyons, general secretary of the Manufacturing Science and Finance union, described the rise as "a disaster for manufacturing, particularly for jobs in the North".

The director-general of the Confederation of British Industry, Digby Jones, described the MPC's decision as "unsurprising but still disappointing" after recent positive economic data.

Useful links:
More about house prices
Larry Elliott on the rate rise
Graphic guide
How the bank decides