The bank of England today voted to increase interest rates to 5.5 per cent as widely anticipated.

The increase is the first since February and takes the cost of borrowing to its highest level since 2001.

The rise will be good news for savers but could mean higher bills for home owners. It is estimated that the rise will add an average £16 per month on a mortgage of £100,000.

However businesses were well prepared for the rise.

Andrew Palmer of the Confederation of British Industry (CBI) said: "Today's decision was widely expected. There have been underlying inflationary pressures creeping up on the back of ongoing strength in consumer spending and improved pricing power by firms as they repair their battered profit margins.

"However, it is encouraging that wage increases appear to be restrained despite earlier fears. While we fully accept the need for today's rate rise, we see no reason for a further increase at present, as the impact of the one per cent increase in rates since last August should be sufficient to keep inflation pressures into 2008 under control."

Sandy Needham, chief executive of Bradford Chamber of Commerce, said: "It is disappointing that we have seen another increase but there is not a great deal of surprise. Businesses want stability. The increase means a rise in costs which is another pressure on business.

"This has been a trend, so was anticipated and people are taking a cautious view of what they will spend. They will put things on hold.

"For example if someone was planning to borrow to expand their business they will probably put that back and wait and see what happens and until things settle down."

The Yorkshire office of the EEF manufacturing group also anticipated the increase.

The group's chief economist Steve Radley said: "Industry accepts that a rate rise this week is necessary to control inflation and to anchor expectations around the 2 per cent target.

"However, it is premature to be talking about stronger medicine at this stage when the effects of previous rises are still working their way through.

"Given the strength of the currency and the prospects for inflation falling sharply in the coming months, companies will be looking to the bank to move with caution."

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