Money news: Markets caught off guard as Bank strikes early on interest rates

The Bank of England took the surprise decision to raise interest rates by a quarter point to 5.25 per cent last week - its third rate hike in six months.

Few industry and City analysts had predicted the move, with most expecting the Bank to wait at least another month so it could judge the effect of the previous two rises (in August and November), along with figures for wage growth and consumer spending.

In a statement, the Bank said that despite falling oil prices, the UK economy was heating up and that there was little room to grow without forcing up prices.

In other words, inflation - at 2.7 per cent, already running at its highest level since the late 1990s - was in danger of racing away.

Michael Coogan of the Council of Mortgage Lenders said that while it had been forecasting higher rates, this latest rise was "sooner than expected".

"Inflationary pressure appears to be more pronounced - not least because of the prospect of higher wage growth," said Mr Coogan.

But there are concerns the rise will strain the finances of those households that are on a tight budget and don't have a fixed-rate mortgage.

For a homeowner with a £100,000 loan on an average standard variable rate, the rise will add an extra £17 a month.

"This could hit some homeowners hard," said Peter Tutton from Citizens Advice. "We advise people taking on a new mortgage to check whether they can afford further rises like this."

However, mortgage borrowers concerned about affordability can still choose from a wide range of attractive fixed-rate deals. And while the rise is bad news for borrowers on a variable rate, it is good for savers, who should see their returns rise.

It is widely anticipated that interest rates will not rise above 5.5 per cent this year. Some say they may have already peaked.

British Gas fined over helpline

British Gas was last week fined £5,000 for keeping customers on hold for too long on an expensive phone helpline number.

It was also reprimanded by Icstis, the regulator for premium-rate numbers, for failing to inform customers of the true cost of these calls and not actually having a licence to offer the service.

The fine was levied after a customer phoned for details about Click Energy, the supplier's online billing service. She was put on hold at 75p a minute - a cost that was not made clear to her.

An investigation by Icstis found that although "it appeared highly unlikely there was any wilful attempt to mislead or cause consumer harm", the service "did not have permission". On top of this, callers were kept "on hold for an unreasonable amount of time".

On being questioned, Icstis revealed, British Gas call centre operators "suggested that the cost was either 3p or 60p per minute - neither of which was correct".

British Gas apologised for the mistakes and said it would no longer operate a premium-rate service for Click Energy.

Cable & Wireless, the company that supplied the number, was also criticised for failing to alert British Gas to the high cost of the calls.

The advisers who aren't up to the job

Only a third of mortgage advisers have adequate practices in place to give suitable advice to homebuyers, according to a survey by the Financial Services Authority (FSA).

The City watchdog called on all firms giving mortgage advice to improve their processes following a "mystery shopping" exercise at 252 firms of various sizes between June and October last year.

Among the poorer areas, the FSA stressed, was the assessment of customer needs - including affordability, staff training and competence, systems and controls, and record keeping.

"We found significant failings in advice-giving processes in a number of mortgage firms," said FSA spokesman Clive Briault. "It is essential firms have robust processes in place so they treat their customers fairly and provide suitable advice. It is crucial that customer needs are assessed properly."

More than three-quarters of small mortgage networks and advisers did not have strong processes - leading to the risk of inappropriate advice.

The regulator said it had "referred several to enforcement", but would not name names.

The consumer body Which? said it was "shocking" that such a large proportion of the mortgage industry was demonstrating failings on this scale.

"This is simply unacceptable," said spokeswoman Teresa Fritz. "The FSA's reticence to name and shame firms in its mystery shopping exercise leaves people unsure whether they are receiving the correct advice when dealing with complicated financial products.

"The FSA needs to become a more formidable force to reckon with - sending a strong message to the industry to buck up its ideas."