Homeowners, businesses and other borrowers were today facing the highest interest rates since the beginning of February 2001 after the Bank of England ordered the fifth increase in borrowing costs in a year.

The noon decision to lift base rates to a six-year high of 5.75 per cent was widely expected by the City.

But it still marks a victory for hawks on the Bank’s rate-setting Monetary Policy Committee (MPC), whose demands for an increase were defeated last month in a tight 5-4 vote despite Mervyn King, the Governor of the Bank, casting his own vote for a rise.

The new rate rise will mean an extra £16 a month for homebuyers with a typical variable-rate £100,000 mortgage.

City economists sounded immediate warnings that borrowing costs remain likely to rise further.

Gavin Redknap, of Standard Chartered, said: “It is a pretty clear indication that they are minded to raise rates further. The Bank's signals point perfectly clearly to the risk of higher rates still."

Roger Bootle, economic adviser to Deloitte, the accounting group, predicted that interest rates could climb beyond 6 per cent.

“It might not be too long before the Monetary Policy Committee follows up today's interest rate rise to 5.75 per cent with another increase. And even interest rates of 6 per cent might not be enough to secure the continuation of the UK's low inflation environment.

“With the UK's low inflation environment currently more at threat than anytime in the last ten years, I would not rule out interest rates rising beyond 6 per cent.”

Business groups were split over the Bank's move.

The Institute of Directors welcomed the MPC's verdict as necessary, but it came under fire from the British Chambers of Commerce (BCC), while the CBI gave warning that any further increase would be "overkill" and called for "a long pause" in rates.

David Kern, the BCC's economic adviser, said that it was concerned over the combined effect of higher rates and a strong pound on business.

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