The Bank of England has voted to increase interest rates to 5.5%.

The widely-expected quarter of a percentage point raise, which takes borrowing to its highest level since 2001, comes as the bank attempts to cool inflation and consumer spending.

The rate of inflation jumped to 3.1% last month, more than one percentage point above the government’s target.

Business groups said the rise was a “necessary decision”, but warned the bank against making further increases.

Paul Spencer, head of the Agricultural Mortgage Corporation, said the latest rise meant the agricultural industry was paying £45 million more in interest payments than it was paying six months ago.

“This follows good news yesterday when the Bank of England a reduction in farming debt,” he said.

The March 2007 figure represents the lowest quarterly bank lending figure since the end of September 2005. Deposits by the farming sector had increased by 22% over the last year. 

“Our advice remains the same,” Mr Spencer said.

“Farmers wanting to cut their financial costs and considering fixing their interest rates should speak to their financial advisors, as well as AMC, to discuss how to mitigate the effects of interest rate movement.”