The Bank of England yesterday raised its benchmark interest rate for a second consecutive month, by a quarter point to 4.5 percent, to prevent record consumer borrowing and surging house prices from fueling inflation.

　　The decision takes the rate to its highest since October 2001 and marks the first back-to-back increase since the beginning of 2000. It widens the gap with borrowing costs in the US, Japan and the 12 nations sharing the euro.

　　Policy makers led by central bank Governor Mervyn King said "inflationary pressures" are building in Europe's second-biggest economy, citing rising household and government spending as well as a "buoyant" housing market. House prices rose an annual 20.4 percent in the quarter through May, according to HBOS Plc, and Britons have piled up debt of 985 billion pounds (US$1.8 trillion), almost equal to the nation's gross domestic product.

　　"The main risk to their inflation projection must have been that we're borrowing beyond our means," said Andrew Clare, a former Bank of England analyst who's now chief economist at Legal & General Asset Management. "They're trying to rein back consumers' appetite for debt. There's been no response at all from the consumer" to three previous rate increases.

　　The pound stayed near its highest in eight weeks against the euro after the decision. It traded at 65.93 pence per euro at noon in London from 66.02 late yesterday. Two-year notes extended declines, with the 8 1/2 percent gilt due December 2005 shedding 0.07, or 70 pence per 1,000 pounds face amount, to 104.95, according to Dresdner Kleinwort Wasserstein.

　　The Bank of England was the first of the world's four top central banks to begin lifting rates since recessions in the United States, Germany and Japan in 2001 and 2002. The central bank of Japan cut rates to almost zero in March 2001.

　　The US Federal Reserve and the European Central Bank haven't lifted rates since 2000, though the Fed is expected to at least double its 1 percent target rate by year-end, according to a Bloomberg survey of economists at 23 primary US government securities dealers.

　　The UK central bank began increasing borrowing costs from a 48-year low in November and until this month followed a pattern of quarterly moves at three-month intervals. In last month's meeting of the Monetary Policy Committee, members said it may be necessary to raise rates faster than investors expect to contain inflation, which the bank expects will exceed its 2 percent target in two years.

　　Consumer prices rose an annual 1.2 percent in April from 1.1 percent the previous month.

　　Economic reports since then have suggested consumers are shrugging off higher interest rates, and yesterday's decision shows that policy makers have stepped back from their previous policy of keeping to "gradual" changes in rates, economists said.

　　(Bloomberg News)