Economists fear some Scots will be worse off after the rise

Unions and employers' organisations said they feared the rise would damage business and leave many homeowners struggling to pay their bills.

Meanwhile, housing charity Shelter Scotland warned it could "push more Scots towards poverty."

The Royal Bank of Scotland said it believed interest rates had now peaked.

The Monetary Policy Committee decision to increase interest rates by a quarter of a percentage point to 5.5% took the cost of borrowing to its highest level since 2001.

Housing is becoming increasingly unaffordable for ordinary families Archie Stoddard Shelter Scotland Rise 'will squeeze borrowers'

Liz Cameron, executive director of the Scottish Chambers of Commerce, said she accepted the rise had been "inevitable" given the MPC's strategy to combat inflation.

But she said she was concerned as to how effective the policy was proving to be, and called for more consideration to be given to the knock-on effect for businesses.

Mrs Cameron said: "The steady rise in the rate over recent months has had no discernible effect in curbing the inflation rate, however desirable that objective may be."

She said "serious consideration" needed to be given to the negative impact of rate rises.

"They cause instant rises in operating costs for companies, amplifying the inflationary effects of fuel price rises over the last year.," she said.

"They also add inflationary pressure to wage demands as mortgage and other living costs rise for individuals.

"The last thing we want to see now is further pressure on our export capability, especially in the manufacturing sector, with the pound riding high against the dollar and such strong markets."

'Upward trend'

Grahame Smith, general secretary of the Scottish Trade Unions Congress, said he was not surprised by the MPC decision, which he claimed was a "blow" to Scottish industry.

Mr Smith said: "The strong pound represents good news for those flying off on shopping trips to the States but very bad news for Scottish companies trying to export goods and services.

"The upward trend in interest rates is widely expected to continue with another rise predicted as early as June. Rising interest rates are seriously detrimental to the competitiveness of Scottish manufacturing, which currently provides 70% of all Scottish exports.

"It is vital that the new Scottish Executive does everything in its power to support manufacturing industry. A good start would be to increase the resources available to the Scottish Manufacturing Advisory Service, which is delivering real improvements in productivity in workplaces across Scotland."

The rising cost of borrowing could price people out of the housing market

Archie Stoddart, director of Shelter Scotland, said he believed increased rates made housing unaffordable for many families.

He said: "We must see a commitment from our newly elected politicians to find ways to give people real choices about how and where they live.

"Housing is central to our nation's health, wellbeing and economic future."

Royal Bank of Scotland economist Ross Walker said he was looking for rates to peak at 5.5%, but would review his forecast in the wake of next week's inflation report.

He added: "CPI inflation has almost certainly peaked and there are legitimate grounds for expecting a moderation in consumer demand in the second half of the year."

Ed Monaghan, managing director of the Glasgow-based housebuilder Mactaggart & Mickel, said he expected interest rates to fall again in the second half of the year.

"In terms of its impact on the new homes sector I do not believe this rise on its own will impact significantly on sales given the current demand in the sector," he said.