MORTGAGE borrowers could be spared further hikes in interest rates after Thursday's 0.25 per cent rise.

Raising the base rate to 4.75 per cent now may obviate the need for further increases to keep inflation under control, it is predicted.

Yesterday's hike is likely to cost homeowners with an average £80,000 mortgage just over £12 a month. They are already facing higher gas, electricity and petrol prices.

It comes in the week that major high street banks reported increasing provisions to cover bad debt levels mainly on personal loans.

The rise the first time rates have moved in a year surprised many City analysts.

The Bank of England said it increased rates because economic activity had quickened in recent months: "Household spending appears to have recovered from its post-Christmas dip."

A hike was necessary to bring inflation back to its 2.0 per cent target in the medium term.

Investec chief economist Philip Shaw said: "Our view is that the Bank has made an early move which should prevent interest rates from being raised again soon, if at all."

In June, soaring gas and electricity bills drove inflation to its highest rate since Labour came to power in 1997.

Consumer Prices Index (CPI) inflation leapt to 2.5 per cent up from 2.2 per cent in May and well over the Bank's government-set target of 2.0 per cent.

Dorset Business chief executive Peter Scott said the rise "may well damage business confidence.

"Soaring energy bills are hitting both industrial and domestic users, there are signs of weakened consumer spending, and unemployment has risen to above 1.65 million. I appreciate that the MPC (Bank of England monetary policy committee) must make difficult decisions.

"But at a time of heightened global tensions, my feeling is that they will need to take a harder stance going forward, and be cool towards calls for further interest rate hikes."