UK interest rate rises to 5%

UK interest rates have been raised more than expected by the Bank of England as it battles to control stubbornly high price rises.The move will lead to a rise in repayments for many mortgage holders who are already facing soaring borrowing costs.It comes after official data on Wednesday showed that inflation, the annual rate at which prices go up, was stuck at 8.7% in May - much higher than expected.

In a letter to Chancellor Jeremy Hunt, the Bank's governor Andrew Bailey said that overall inflation was still set fall "significantly" during the course of the year as energy prices come down. However, the process also drags on the UK economy, which is struggling to grow. It is also forcing mortgage lenders - who are affected by the Bank's base rate - to put up their own rates.

Influential think tank the Institute for Fiscal Studies has warned higher rates could result in a drop of more than 20% in disposable income for 1.4 million mortgage holders.

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