The latest MPC minutes show that the decision to keep interest rates on hold at 5.25% was tighter than expected, with two members (Tim Besley and Andrew Sentance) voting to raise interest. And 7 electing to adopt a wait and see attitude following the last rise, and better the inflation figures for January. This implies that a future rate rise is still on the cards.

The Interest rate trend is on target for the Market Oracle forecast for UK Interest Rates could rise to 5.75% in 2007 (Nov 06) or 2 further rises in interest rates this year. The timing of the next hike will depend on the inflation figures for February, though a hike in March 07 is now less likely.

Sterling has weakened recently against most major currencies including the dollar, falling to below $1.95, partially due to less likely hood of a rate hike in the near future, as March LIBOR fell to 5.64. Sterling reached a peak of 1.9916 just prior to the release of the January minutes on anticipation of further tightening implications. However since sterling has adopted a weaker tone.

Minutes of the meeting held on 7 & 8 February 2007

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By Shahla Walayat

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