BoE hikes rates to 6 pc

The MPC targets underlying inflation, which excludes homeloan costs, of 2.5 percent. This measure, known as RPIX, is currently at just 2.2 percent but the MPC fears it will bust up through the target in two years’ time, its favoured time horizon.

Bank of England Governor Eddie George has said several Timesrecently that domestic demand would have to moderate and this latest move shows the Bank is determined to make that happen. The MPC made no statement to explain its latest move, however.

The economy is currently growing at an annualised rate ofnearly 3.5 percent, well above what economists say is its "sustainable", or non-inflationary, rate which is widely agreed to be well under 3.0 percent.

Economists expect a further rise or two in coming months butmost say rates are likely to peak at around 6.25 or 6.50 percent this year, below the 7.50 peak of 1998 and a world away from the double-digit rates of the early 1990s.

The Bank’s recent rate rises have been greeted withscepticism by industry leaders who argue that they have been prompted by signs of boom in the prosperous South of the country but will inflict harm on manufacturers, who tend to be clustered in the North and who are only just emerging from recession.

The British Chambers of Commerce was swift to attack themove.

"This fourth rate rise in six months will inflict severepressure on UK busines…with intense competition and an overvalued pound keeping inflation at bay, now is not the time to slam on the brakes," said Ian Peters, the BCC’s deputy director-general.

Financial markets generally took the action in their stride,especially as 29 of 34 economists polled by Reuters last Friday predicted the quarter-point increase.

The pound, which hit 14-year highs on the foreign exchangeslast week, dropped slightly against the dollar to $1.6072 but was steady against the euro at 61.4 pence. The FTSE 100 share index nudged lower, to be over 80 points down on the day, compared with 60 points before the annoucement.