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Shadow Mpc Votes 7-2 For No Change

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It's a no-brainer, really. They aren't going to rock the boat before Xmas, so no change till Feb/March, I reckon...

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It's a no-brainer, really. They aren't going to rock the boat before Xmas, so no change till Feb/March, I reckon...

Lets hope the ons can substitute enough goods to keep inflation below 3%!

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I see some Banks at least are starting to think that the next interest rate move (in early 2006) may be up! (although the currency markets show an implied rate of around 4.55 for most 2006)


"UK base rates 'to stay unchanged'

The Bank of England's rate setting committee is expected to keep the cost of borrowing unchanged at 4.5% when it makes its announcement later Thursday.

Only a few weeks ago analysts predicted a rate cut in November, but that was before figures showed inflation rose to an eight-year high in September.

Inflation hit 2.5%, well above its 2.0% target, due to high oil prices. [No - disinformation - not ALL due to high all prices - it had been rising on a trend for a long time]

Keeping a lid on inflation is a top priority for the BoE, despite pressure for a rate cut from business leaders.

Next week, the Bank of England will publish its Quarterly Inflation Report, which will give a clue as to its long-term thinking.

"We believe the MPC will adjust interest rates higher in the New Year"

Alan Clarke, economist, BNP Paribas

"Discussion at the meeting is likely to have been heavily influenced by the forthcoming inflation report," said Simon Rubinsohn, chief economist at Barclays.

Waiting game

Another reason to keep rates unchanged this month will be official figures showing a better-than-expected 0.7% rise in retail sales in September.

Consumer demand appears to be stabilising despite ongoing complaints from retailers that the High Street is still a tough place to do business.

And there are signs of revival in the housing market after the sharp slowdown this year.

Inflation is likely to pre-occupy the nine-member committee

However, the manufacturing sector is still struggling - despite signs of greater demand in the euro zone - leading to pressure from industry leaders for an early rate cut.

The nine-member Monetary Policy Committee (MPC) voted unanimously to keep base rates on hold at 4.5% in October, according to minutes of last month's meeting.

Although most economists now believe that rates will be kept on hold until next year, they are divided on when the Bank will make another move.

"As the data continue to firm and upside risks to inflation build, we believe the MPC will adjust interest rates higher in the New Year," said Alan Clarke, economist at BNP Paribas.

NB the BoE will (obviously) have advance knowledge of the broad contents of their Quarterly Inflation Report of next week - we and the market can read into the rate decision some idea of the forthcoming inflation figures/trend. The analysts at the banks etc do not have this information.

For my part I do not see inflation dipping back below 2.5% anytime soon - a rate cut would indicate a big dip back in inflation to my mind. More likely is a static inflation figure or even a small rise to 2.6/2.7 which could be still contained within a "no change" rate decision (which could be addressed firmly at the next meeting or post-xmas if it proved persistent). An upward move in rates would have to imply a leap in inflation to 2.8/2.9 towards the 3% "letter to GB" threshold and I don't see that being likely until into next year.

Not sure where ES has got to, but ES if you are around, what do you make of these "experts" at investment banks who think rates are going up soon? A potential rate of 4.75% in Feb is a long way from the "certain" 4.00% being touted several months ago by the "market".

EDIT: I looked up one of Mervyn's speeches at the BOE from 2001 when he was deputy guvnor on the effects of exchange rates on inflation. Excerpt here:

"So what has the Monetary Policy Committee done? Over the past three years, interest rates have moved both up and down in response to changing economic circumstances. Since September, the Monetary Policy Committee has raised interest rates from 5% to 6% in four separate moves. Those moves were pre-emptive. They took place at a time when inflation was marginally below its target of 2.5%. Looking ahead, beyond the time when the temporary downward pressures on inflation resulting from the rise in sterling begin to wear off, some action was required to reduce the pace of domestic demand growth. That was necessary to bring nominal demand into line with the value of potential supply of the economy at the target inflation rate.

To borrow a phrase, the MPC is pre-emptive for a purpose. Only by keeping inflation close to the target, and maintaining confidence among businesses and wage bargainers that inflation will indeed stay close to the target, can we hope to achieve overall macroeconomic stability. "

I think Merv is minded to be more pre-emptive than some on the MPC. This snippet shows I think (and hope) that if inflation is at 2.6% or above by Jan/Feb (implying that it is not a volatile, solely oil induced spike) that there will be a push from the hawks within the MPC to raise rates.

Amateur that I am, I think the market is only just waking up to this.

Edited by Tempest

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Is it possble to let me know where you get the information on the currency markets or info on the larger banks wider rate view please?

I am no trader although some on this site are and may have access to far more sources or professional tools - I just use FX street www.fxstreet.com/ , www.dailyfx.com , Yahoo http://biz.yahoo.com/n/z/z0006.html and places like Bloomberg, Reuters, FT.com etc etc. Google News can be helpful if you are looking for something.

As for interest rates specfically, world is your oyster - the above sources plus a plethora of websources - best bet is for you to use Google News to find out stories on interest rates and that should after a time lead you to your prefered sources of info.

Best advice - have a broad outlook and you will find nuggets in the most unlikely places.

Edited by Tempest

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