The Bank of England's decision to increase interest rates by a quarter-point to 4.75 per cent received a mixed reaction from business.

While homeowners may have winced at the fifth rise in the base rate since November, business failed to agree on the logic of it.

Sussex Enterprise, the county's chamber of commerce, attacked the rise and said it would harm the region's chances of attracting key workers.

Director Steven Gauge said: "Interest rates are a highly unreliable tool for curtailing house price inflation and the knock-on effects for exporters and manufacturing can be disastrous.

"There are signs the housing market may be cooling off at last.

"That said, if the Government really wants to put an end to spiralling prices, the solution is to build cheap, affordable housing.

"In Sussex, a lack of housing of this type is forcing prices up and businesses are already complaining about not being able to attract key skilled workers into the county."

However, the Confederation of British Industry (CBI) said the hike continued a strategy of "gradual, well-signalled rises" which avoided "unnecessary shocks".

CBI chief economic adviser Ian McCafferty said: "The UK economy is running at close to full capacity, with five consecutive quarters of strong growth. This means that rates are likely to have to rise further in coming months to reach a neutral interest rate of about five per cent."

Nick Goulding, Forum of Private Business chief executive, said: "It is hoped the current rise will have the desired effect of preventing the consumer economy from overheating and causing significant problems for the economy as a whole.

"The cautious approach taken by the Bank of England will hopefully prevent further, more damaging rises in the near future."

TUC assistant general secretary Kay Carberry said: "The bank was right to ignore the siren voices pushing for a full half-point rise. This could well have sent manufacturing over the edge.

"Even this rise threatens some very shallow signs of recent improvement. Industry has warned manufacturing profits have been declining for 19 successive quarters and job losses have been consistent.

"House price rises are slowing, and the oil price increases threaten further difficulties. This is a not a runaway boom."

Friday August 06, 2004