Business leaders and unions have condemned the latest rise in interest rates.

The 0.25 per cent increase to six per cent will damage the country's competitiveness and hamper our already hard pressed exporters, claims the Confederation of British Industry.

Kate Barker, chief economic advisor at the CBI, said: "This is more bad news for manufacturers, who have had precious little to cheer about as sterling has hit record highs against the euro.

"Companies are working hard to cope with the exchange rate, but this rise in interest rates will be an additional handicap. It will be a

setback to fragile confidence as firms try to take advantage of growth in global markets."

The Federation of Small Business also joined the attack on the rate rise decision, saying it would threaten the recovery of small firms, particularly in manufacturing. Brendan Burns, chairman of the FSB's policy unit, said: "We had hoped the the Monetary Policy Committee would have shown restraint and waited for recent increases in interest rates to bed down."

The Institute of Directors gave a sympathetic response to the MPC decision, saying it understood the reasons for the rise. Ruth Lea, head of the IoD's policy unit, said: "While we recognise the real burdens placed on business by higher interest rates, we accept they need to rise in order to maintain the low inflation stability which is essential for business to thrive. The alternative, tighter fiscal policy, has clearly been ruled out by the Government."

The Amalgamated Engineering and Electrical Union warned the rate rise would "choke" exports. General secretary Sir Ken Jackson said: "The strong pound is already squeezing exporters. Another rise is like pouring petrol on to the fire. House prices in the South are driving up interest rates but each rise hits exporters throughout the regions."

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