Interest rates rise 0.25% to 5.75%

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The cost of borrowing rose from 5.5% to 5.75%, hitting a level not seen since March 2001, after a quick-fire series of rate rises from the Bank's Monetary Policy Committee (MPC).

But economists warned rates may rise again before the end of the year - to 6% - as the Bank seeks to bring inflation under control.

Rate setters at the Bank said they remained concerned about hitting the Government's 2% target for inflation, after the Consumer Price Index peaked earlier this year at 3.1%, its highest level for at least 10 years. While inflation has eased back since March, inflationary pressures remain strong, according to the Bank.

The increase is certain to be passed on by lenders, meaning homeowners will fork out an extra £16 a month on average on a typical mortgage of £100,000.

The four hikes in interest rates since last August have already added about £64 to a £100,000 home loan, fuelling concerns that more families could be tipped over the edge financially.

Citizens Advice said the MPC's decision could "spell disaster" for many, with its bureaux reporting that more people are falling behind with repayments and being threatened with repossession in some cases.

But the rise was widely expected, as borrowers came within a whisker of a hike last month after the MPC voted by the narrowest of margins to keep rates on hold in June.

ING economist Rob Carnell said rates were likely to hit 6% in the last three months of the year, but would peak after one more rise.

"Before too long, the current spell of tightening will begin to bite and cool housing and in turn consumer spending, perhaps quite abruptly," he said. "Following this, a return to easier policy rates might not be too far away."