Interest rates increase to 5.75%

The Bank of England has increased interest rates to 5.75%, the highest level for six and a half years.

This means monthly repayments on a typical £100,000 mortgage will increase by £16.

The interest rate rise is the fifth in the last year, as the Bank of England’s Monetary Policy Committee tries to meet the government’s 2% inflation target. Inflation currently stands at around 2.5%.

Annual property inflation remains above 10%, according to figures released by the Halifax. In parts of London, house prices had increased by almost 20%.

However, the figures also showed that rises in interest rates were beginning to affect the housing market. In June, prices rose by 0.4%, the second month in a row to see an increase on less than 0.5%.

Some analysts believe interest rates will increase to 6% later in the year. Howard Archer of Global Insight said: "We suspect that if interest rates of 6.00% by the end of the year are to be avoided, the Bank of England will need to see sustained evidence over the coming months that the rise in interest rates enacted since August 2006 is feeding through to contain underlying inflationary pressures."

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