BUSINESSES in Southampton were unsurprised by yesterday's interest rate rise and the chamber of commerce said the quarter point hike had been on the cards.

However chamber of commerce director general Mike Heath said that even a small rise was bad news for the region's exporters.

"Our main concern is the impact it will have on exporters who are struggling with an already overvalued pound,'' he said.

"The rise was understandable given the warning signals on inflation but businesses will be disappointed.''

Experts believe the quarter point rate rise to 5.5 per cent does little to change the long-term outlook for inflation in Britain.

Domestic demand is roaring away, the labour market is getting tighter each month and anecdotal evidence suggests inflationary pressures are building.

With that backdrop, most economists had expected the rise and said rates are still 75 basis points lower than they were at the beginning of the year when economic growth was flat. The latest figures for the third quarter showed growth running at 0.9 per cent, its fastest rate for two years and well above the trend, or average rate in recent years.

Mark Miller, economist at Morgan Stanley, said: "The risks to inflation in two years' time posed by an acceleration in domestic demand growth and unit wage cost growth make further policy tightening likely throughout next year.''

As for when the next move will come, analysts say millennium concerns are likely to rule out further tightening for the next few months.

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