4 August 2006
The Bank of England (BoE) has decided to up the base rate of interest for the first time in two years.
The bank's monetary policy committee (MPC) voted to raise the official bank rate paid by 0.25 percentage points to 4.75%.
Few had been expecting the interest rate rise, which has already had an impact on the rate of interest of many financial products.
In a statement, the BoE said that the decision had been taken as the pace of economic activity had "quickened in the past few months".
"Household spending appears to have recovered from its post-Christmas dip. Business investment growth and investment intentions have also picked up," it said.
Inflation is also running above the 2% target, which also prompted the MPC's decision. Higher energy prices have led to greater inflationary pressures, the bank said.
It expects the increase of 0.25 percentage points in the official bank rate to bring inflation back to the target in the medium term.
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