#1835 Feb 5, 2007
From today's BBC online financial news is the following article. My
understanding is that rising interest rates in Europe will push the Pound
higher with respect to the U.S. dollar, aiding the I-Fund.
'Strong chance' of UK rates rise
The Bank of England's rate rise in January came as a surprise
There is a "strong possibility" that interest rates in the UK will rise in
February, according to a report.
Research by BDO Stoy Hayward, which unites the UK's main business surveys,
shows that inflation expectations have "shot to a two-year high".
The Bank of England's Monetary Policy Committee (MPC) can up rates to
tackle inflation or use a risky "wait and see" stance, BDO said.
The report comes after January's unexpected rate rise from 5% to 5.25%.
A rate rise in February "while the economy is able to absorb it, is the
likely option", said BDO.
Despite economic growth being tipped to increase by 3% in the first six
months of 2007, the report also showed a less positive outlook by firms.
"Worries over further interest rate rises are starting to dent business
confidence", said BDO.
The rise in inflation has been especially obvious in the service sector.
Higher pay demands at the start of the year, as well as the impact of
rising oil prices on travel costs and heating, have fuelled the rise.
"The economic news over Christmas and New Year pointed to strong activity
in the UK", said Douglas McWilliams, chief executive of the Centre for
Economics and Business Research (CEBR), a consultancy which prepares
research for BDO.
The report concluded that "while inflationary pressures remain, more rate
hikes are likely this quarter".
Recent figures from the Office for National Statistics (ONS) showed the UK
economy grew at its fastest pace in two-and-a-half years for the last
three months of 2006, spurred by demand for services.
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