UK interest rates rise to 5%

The Bank of England has raised interest rates a quarter point today, as widely expected, raising fears of a slowdown in the housing market.

Interest rates increased from 0.25% to 5%. The last rate rise was in August to 4.75%.

Marén Balduaf, an economist at the Construction Products Association, said: "There has been a moderate pickup in consumer confidence and this rise could dampen that. It may also end the recent strengthening gin the housing market.”

“Any firms that are directly or indirectly dependent on consumers will feel the impact of this rise.”

David Bexon, managing director of SmartNewHomes.com, said: “The 0.25% rise was a dangerous decision and could prove extremely detrimental to the market. The Bank of England would have been well advised to listen to recent calls from industry and hold rates, at least until the end of 2006.

“The new homes market has slowly started to show signs of growth over recent months, with the average price of a new home up (0.7%) in October, for the first time since May. A rise in interest rates now could seriously damage buyer confidence at a time when recent growth has been predominately restricted to London and the south east. “

However Philip Davies, chief executive of Linden Homes, disagreed with the doomsayers: "Today's interest rate rise was widely expected and the majority of homeowners had already priced it in, so I do not expect it to have a significant impact on the housing market.

"A further rise in December or January, however, would have a detrimental effect on consumer confidence, so I await the minutes of today's MPC meeting with anticipation to see how the committee members voted.”