Wednesday June 7, 2006 - 10:54:31 GMT
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INVESTICA Ltd - www.investica.co.uk
Tough call for Bank of England
The Bank of England monthly interest rate meeting will start on Wednesday with the decision due to be announced on Thursday.
After the split decision in May, the bank will face another tough decision this month. There will be further concerns over inflationary pressures, especially with energy prices still running at high levels, and there is a clear risk that inflation expectations will start to creep higher. Money supply growth remains strong and the bank is keen to prevent a fresh round of speculative house-price inflation. The price indices in the latest CIPS indicators were also running at 12-month highs.
The domestic growth indicators have remained generally firm, but the second-quarter increase in house prices may now be fading and consumer confidence edged lower in June and consumer spending levels are likely to remain fragile. With equity markets weakening sharply over the past few weeks, the bank will be wary of disrupting financial markets.
In this environment, there will be strong advantages in policy transparency and the bank will consider warning markets that interest rates may need to rise in the minutes which will be released in mid June. In this context, rates are likely to be left at 4.50% this week, although with around a 15% of an increase to 4.75%.
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