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Bank's bad news for variable-raters

People with a variable-rate mortgage will be under increasing pressure to make their monthly repayments as the Bank of England's monetary policy committee (MPC) has voted to increase the interest rate to 5.75 per cent.The latest quarter point rise marks the fifth time that the bank has hiked up the rate in a year and brings interest rates to the highest level since March 2001.Yet the move was not unexpected as the MPC increased the interest rate by only a quarter per cent in May and voted to freeze it in June, an outcome which surprised many, including the governor, Mervyn King, who on that occasion was outvoted in his plan to raise the rate again.In light of the rate of inflation slipping to 2.5 per cent in May, but still not on the government's long-term target, the MPC decided that the medium-term solution would be to raise the rate by just a quarter point in order to ease inflation back down to its two per cent long-term goal. This target should be assisted by lower gas and electricity prices.A full explanation of the thinking behind the bank's decision will be known when the minutes of the MPC's meeting are published on July 18th. Meanwhile, mortgage-lenders are more likely to see homebuyers opting for fixed-rate rather than variable deals.

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