Friday, 8 September 2006

BoE keeps rates unchanged

The Bank of England kept interest rates unchanged yesterday. Reuters reports:

The Bank of England left interest rates unchanged on Thursday but analysts say growing inflationary pressures mean higher borrowing costs are likely before the end of the year.

The decision to leave rates at 4.75 percent was widely predicted after last month's surprise rate hike and prompted little reaction from markets...

Money markets show investors fully expect rates to rise to 5 percent in November when the bank issues new forecasts on growth and inflation...

Halifax data showed house prices rose a punchy 1.0 percent last month alone...

The European Central Bank may raise rates soon. AFP reports:

The European Central Bank has reinforced market expectations of a pending rise in eurozone interest rates in October, stressing the need to remain vigilant with regard to inflationary risks in the single currency area.

"It is essential that inflation expectations remain firmly anchored at levels consistent with price stability," the ECB wrote in its September monthly bulletin Thursday.

"Accordingly, strong vigilance is warranted in order to ensure that risks to price stability are contained."

There was some economic news yesterday to support a hawkish view. From Bloomberg:

Industrial production in Germany, Europe's largest economy, rose more than economists forecast in July, led by spending on household appliances and construction.

Production expanded 1.2 percent from June, when it declined 0.4 percent, the Economy and Technology Ministry in Berlin said in a faxed statement today. Economists expected an increase of 0.5 percent, the median of 45 forecasts in a Bloomberg News survey showed. From a year earlier, output jumped 4.7 percent.

In Asia, South Korea also left interest rates unchanged yesterday, while in Japan, the index of leading economic indicators fell in July to 40.0 from a revised 58.3 in June.

Meanwhile, Reuters reports that the number of Americans submitting new claims for state unemployment benefits dropped by 9,000 last week while stockpiles of wholesale durable goods in the US rose for the 35th straight month.

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