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ECB raises interest rates to 3.5%, whilst the BOE keeps rates on hold at 5%

Interest-Rates / Strategic News Dec 07, 2006 - 10:46 AM

In widely expected interest rates moves, the European Central bank raised interest rates to 3.5% (a 5 year high) and the Bank of England kept rates on hold at 5%.

The ECB's rate rise to 3.5% marked the 6th rise since started tightening monetary policy last December, to keep rising inflation in check, which at 1.8% remains below the ECB target of 2%. Though inflation is expected to pick up as the euro zones growth rate rises to 2.7%. Further interest rates are expected during 2007, though of the the dollar and US economy continue to weaken then this would impact on eurozone growth and make future rate hikes more measured or may even result in a pause at current levels.

The BoE kept rates at 5%, the next move in interest rates is expected in Feb / March 07, with the inflation rate at 2.4% well ahead of the 2% target, and house prices continuing to accelerate, and wage growth also expected to rise in the new year pay deals, it is highly likely that the Bank will raise interest rates again in Feb or March 2007, despite signs of a slowing economy and the effects of the weakening dollar.

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