Market tense over rate rise

Julian Harris
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MARKETS are nervously awaiting the results of the Bank of England’s latest meeting on interest rates.

“We expect a considerable degree of market tension ahead of Thursday’s monetary policy committee (MPC) announcement,” said Investec’s Philip Shaw.

Sterling rose last week after MPC members Andrew Sentance and Charles Bean gave interviews which suggested a leaning towards monetary tightening.

Bean noted global commodity price inflation, admitting that the committee “may well have to respond to that by keeping domestically generated inflation lower.”

Consumer price inflation reached 3.7 per cent in December, and Andrew Sentance’s call for a modest rate rise was finally joined by another MPC voter last month. Martin Weale also voted for a 0.25 per cent increase.

Yet Shaw expects rates to remain at their historical low. A rate hike “could have the ‘avoid at all costs effect’ of derailing the planned fiscal consolidation,” he said.

And the British Chambers of Commerce yesterday called for the Bank to keep rates on hold. “Avoiding a new setback must remain a key policy priority,” commented BCC economist David Kern.