The Bank of England increases the cost of borrowing to the highest level since 2001

The Bank of England has increased interest rates by a quarter of a percentage point to 5.5%

The change means that the cost of borrowing is at its highest since 2001.

Business and employers groups accepted that the latest rise was "necessary". The British Chambers of Commerce said: "The MPC (Monetary Policy Committee) has to be firm. But it is important not to overreact to transitory developments."

The BCC added "There is a danger that concern over recent events would generate pressures on the MPC to go over the top and would result in damaging monetary overkill."

Some experts predict rates will rise at least as high as 5.75% in coming months, while others believe the latest increase is "enough for now".

Peter Spencer, chief economic advisor to the Ernst & Young ITEM Club said: "Big cuts in gas and electricity prices are now coming through and we can be confident that CPI inflation will fall back towards the 2% target. That will give the bank some breathing space."