Interest rates rise to 5%, November 09 2006

Today the Bank of England increased interest rates to 5%. This is a move to cool UK inflation, which currently sits at 2.4%. The governments target is 2.0%.

The current inflation measure of 2.4% has been largely due to recent oil prices. The utility companies increasing their rates significantly have passed these high oil prices to the consumer.

Whilst savers will welcome these higher interest rates, borrowers will face a lower disposable income as their interest repayments are increased. This will affect consumer spending and The Bank of England will certainly be monitoring the net effect. The balance is ensuring that growth remains healthy, yet inflation remains on target.

This latest rise in interest rates may well affect property prices and the number of bankruptcies and individual voluntary arrangements (IVA's).

The latest insolvency statistics showed that there was an increase of 26.6% in the number of bankruptcies compared to the same period one year ago. There was a 117.9% increase in the number of IVA's. Both bankruptcy and IVA's are solutions to serious debt problems. With less disposable income following this recent rise, more people are likely to join these statistics.

Property prices may also be affected. An increase in borrowing costs may well deter people from entering the market. First time buyers are already struggling to get on the ladder due to the inflated cost of houses.

Questions now exist over another increase. The media is reporting that many analysts expect another increase next year. Others are contending the idea that the two rises this year is enough. Time will tell.