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UPDATE 1-BoE raises U.K. rates, inflation risks on upside

(adds reaction, statement

LONDON, July 5 (Reuters) - The Bank of England raised interest rates by a quarter percentage point to a six-year high of 5.75 percent on Thursday -- the fifth increase since last August -- as risks to inflation are still on the upside.

Most economists had predicted the rise as four members of the central bank’s nine-strong Monetary Policy Committee, including Governor Mervyn King, had wanted to raise borrowing costs last month.

Explaining its decision, the BoE said that even though inflation was expected to dip in the short term thanks to lower utility bills, many businesses were working at close to full capacity and most indicators of price pressures remain elevated.

Markets showed little reaction and are pricing in further rises in borrowing costs.

“The Bank of England’s hike to 5.75 percent is unlikely to be the last rate hike this cycle. UK consumers will probably be slammed by a further rise to 6 percent before the end of the year,” said David Brown, economist at Bear Stearns.

But some policymakers, such as Deputy Governor Rachel Lomax, have warned about the dangers of an overreaction as consumers’ disposable incomes are already falling.

More than a million homeowners may soon face significantly higher mortgage payments as two-year fixed-rate deals, taken out in 2005 when borrowing costs were at 4.5 percent, come to an end.

Economists speculated the vote for higher rates is unlikely to have been unanimous.

((Reporting by Sumeet Desai; editing by David Stamp; Reuters messaging: sumeet.desai.reuters.com@reuters.net; +4420 7542 7708)) Keywords: BRITAIN BANK/RATES Keywords: BRITAIN BANK/RATES

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