Mumbai: The Bank of England has announced a 0.25 percentage point hike in interest rate to a six-year high of 5.75 per cent - the fifth since August last - even as the European Central Bank left its benchmark refinancing rate unchanged at a six-year high of 4 per cent.

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

Markets, however, showed little reaction and are pricing in further rises in borrowing costs. Many economists expect the central bank''s monetary policy committee to raise interest rates further to 6 per cent before the end of the year.

The hike in base interest rate will affect over a million homeowners who will have to make higher mortgage payments as two-year fixed-rate deals, taken out in 2005 when borrowing costs were at 4.5 per cent, come to an end.

The European Central Bank (ECB), meanwhile, left its benchmark refinancing rate unchanged at a six-year high of 4 per cent as previously expected.

The decision was made by ECB''s 19-member rate-setting council at its meeting in Frankfurt. ECB president Jean-ClaudeTrichet will explain the decision later at a press conference.

The ECB has increased rates eight times since December 2005 with the latest increase on June 6. Trichet had then hinted that the interest rates in the 13-member euro zone had not yet peaked due to "prevailing upside risks" to inflation.

Analysts expect the ECB to raise the benchmark rate to 4.25 per cent in September.

The European economy is steaming ahead at an above-trend growth rate around 2.6 per cent due to robust global demand. Unemployment has fallen to record lows of 7 per cent and lending is rising at double-digit rates.

Solid economic growth is fast using up spare capacity in factories and labour markets, heightening the danger that inflation will accelerate. While the inflation rate has held below the ECB''s ceiling of 2 per cent for 10 months ECB policymakers doubt this can last.