Bank of England all set to increase interst rates

The Bank of England is all set to increase the interest rates by 0.25 percent later today following a lunchtime meeting between its executives. Interest rates are expected to rise to 5 percent, for the first time in five years.

Analysts were predicting the increase from the present rate of 4.75 percent for the past few months. Many believe that such a step would be taken in order to counter inflation, which at the moment is at 2.4 percent, higher than the government target of 2 percent, along with rising utility bills and university fees.

The rise in interest rates will not be good news for home owners and borrowers who will face increases in mortgages, credit cards and loan payments following the interest rate rise. Economists had asked the Bank of England not to raise the rates for the time being until the economic situation would ease down.

Last week a government report had shown that increasing number of people in England and Wales are filing for insolvency due to their inability to meet personal debt levels. According to the report the number of people filing for bankruptcy or entering into Individual Voluntary Arrangements (IVAs) increased to 27,644, a 55 percent rise from the same period last year.

However with the economic situation in UK changing for better, analysts believe that the Bank's Monetary Policy Committee (MPC) will go for an increase in the rates. Even though high energy prices have lifted the inflation above the government target, a growing economy coupled with strong house prices mean that the MPC will look for an increase.

Says Howard Archer, chief UK economist at Global Insight, "A 25 basis points interest rate hike to a five-year high of 5.0 percent on Thursday looks mightily like a done deal to us." Policymakers fear that unless rising inflation is reigned in, it may continue to rise to unacceptable levels.

In August when the rate was hiked by a quarter point many analysts had predicted a slowdown in the housing market. However figures for September and October show that the gloomy prediction has not panned out.