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One more and done One more and done
by Tony Butcher
2006-10-07 10:47:13
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There was no surprise from either the European Central Bank or the UK's Monetary Policy Committee on Thursday as both fulfilled market expectations. Jean-Claude Trichet, Head of the ECB, presided over a quarter-point rise in interest rates and signalled that rates can be expected to be moved to 3.5% in December 2006, the last meeting of the year.

In the United Kingdom, Mervyn King and the committee had the chance to slightly surprise the markets by pushing through another 25 basis point increase to follow August. The likelihood is that the MPC will use the minutes from this meeting to signal a forthcoming rise in rates to 5% in November.

I agree with the markets in predicting this will signal the peak in UK interest rates, oil prices should continue to fall as supplies and stock levels are increased over the medium term. This will reduce the pressure on inflation, which currently sits 0.5% above the Bank of England target of 2%.

So what does this mean for the individual? It's a difficult question to answer because most will not see any difference at all. The actual effects take time to filter into the economy. Oil price fluctuations and the planned VAT increase in Germany have more immediate effects on the individual, while for homeowners it depends upon how much of the costs are passed onto mortgage payers by their banks.

Now the markets will begin to look forward to the 3rd quarter data which will be published soon. Inflation projections and growth for the rest of 2006 will be of particular importance in predicting interest rate expectations. The global stock markets, mainly the FTSE 100 and Dow Jones, are nudging 2006 highs but I think there will be a step back of around 3-4% during the first weeks in October. However, expect to see the highs challenged again between 23rd October and 11th November.

This may even see us strongly into the year-end. Historically December is a good month for equity performance.


  
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Thanos2006-10-08 11:30:10
Don’t you think that this will have to do with loans especially loans for houses?


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