Bank of England Minutes of Monetary Policy Committee (MPC) decision to raise rates

By: Sarah_Jones

The latest MPC minutes show that the decision to raise interest rates from 5% to 5.25% was carried by just one vote. This implies that the decision for future rises will be more balanced than what the market initially perceived after the last rate rise.

With 5 voting for a rise and 4 against, this makes a February rate rise highly unlikely. Though it is premature to conclude that further rate rises will not happen. The Market Oracles forecast on UK interest as of Nov 06 UK Interest Rates could rise to 5.75% in 2007 . With the CPI at 3%, this is still on target for around September this year. So at least one more rate rise can be expected, possibly in April or May 2007.

Strong growth figures released yesterday showing the economy grew at its fastest pace in two and a half years during the last three months of 2006, recording a 0.8% surge in GDP, with annualised GDP rising to 3%, above Gordon Browns target of 2.75%. The growth is being driven by record bonuses for the one million people working in the City (Britain's financial services industry) as a result of the surge in Mergers and Acquisitions business. This also supports the viewpoint that another rise is highly probable.

Sterling reached a peak of 1.9916 just prior to the release of the minutes on anticipation of further tightening implications. However the tight decision led to a fall in sterling to below 197. Now settling at just above 1.97 Whilst a break above $2 maybe now unlikely in the near future. However the given at least one more rise in interest rates. At some point the Pound will attempt and likely break above $2 this year.

Minutes of the meeting held on 10 & 11 January 2007

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