The MPC’s decision to raise the base rate by 25bps to 4.75% was not such a surprise as it would have been two or three months ago. The rise in consumer price inflation in June to 2.5% will have raised the MPC’s fears that control over inflation is not as tight as desired. The Minutes of the July MPC meeting had also pointed to the risk that inflation in the medium term was likely to be higher than previously estimated. How rapidly demand responds to the higher cost of borrowing is unclear. But further growth in the mortgage market over the second half of the year now looks less likely.

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