Mixed opinions greeted the Bank of England's almost universally expected move yesterday to raise its official interest rates by another quarter point to five per cent, the highest for five years, accompanied by fears that there could be more to come as early as February.
The Bank itself issued an unusually long statement spelling out the background for its decision, which was generally interpreted as moderate and reassuring. The pound eased back against both the dollar and the euro reflecting a sense that a New Year increase is less likely than it has recently seemed.
It noted that household spending had been volatile and the underlying picture was one of "moderate" expansion.
It concluded: "It is likely that inflation will be further above (Chancellor Gordon Brown's two per cent) target in the near term, but then fall back as energy and import price inflation abate."
The Bank's move, though, coincided with house price numbers from Halifax, the biggest mortgage lender, indicating an even sharper monthly increase for October.
Halifax said house price rose by 1.7 per cent between September and October and by 8.6 per cent year on year, up from 8.0 per cent in September. Despite that, Martin Ellis, Halifax's chief economist highlighted "indications of a weakening in activity at earlier stages of the house-buying process, suggesting that house price inflation may soon begin to slow". The Royal Institution of Chartered Surveyors was among those who welcomed the Bank's move.
"By acting in a timely manner, the modest rise in interest rates will help to cool the housing market but at the same time promote wider economic stability and prevent inflation pressures building," said the chief economist Milan Khatri. The EEF, though denounced the increase as premature and not to be repeated. The British Retail Consortium was equally trenchant.
At the British Chambers of Commerce, David Kern, economic adviser, accepted the reasoning, but insisted: "There is certainly no case for a further increase."
The economy was certainly not over-heating with unemployment at a six-year high, he stressed.
"The main aim now is to minimise future damage and to create circumstances that would enable wealth-creating businesses to continue growing."
The CBI's response was similar, but more cautious.
"A further increase should not be needed," said Ian McCafferty, chief economic adviser. "Consumer appetite for debt is falling rapidly, the economy is showing some signs of a modest slowdown and the benefits of recent falls in oil prices will help keep inflation under control into the medium term.
"The Bank may face some difficult decisions in coming months as shorter term risks to inflation remain. But it must also be mindful of the slower growth that a further rise could create."
The TUC's head of economic and social affairs, Adam Lent, commented: "No one will have been surprised by the rise, but if it is the start of an upwards trend, then there is cause for concern that this will damage the competitive economic climate that UK industry needs."
