UK interest rates rise? No chance!

We have just seen the release of the minutes from the latest MPC meeting amidst speculation that one of the two members who have been voting for a rate rise will have rejoined the group in opting for no change. UK interest rates rise? No chance!In fact, both Martin Weale and Spencer Dale moved their votes leaving the committee unanimous in keeping rates unchanged for the coming month.

Sterling dropped as a result with it now very obvious that the MPC are much more concerned and united in their views over weak recovery prospects rather than problems arising from the current high inflation numbers.

Adam Posen remained the only member of the committee arguing and voting for an increase from the current level of Quantitative Easing.

Yesterday’s summit meeting between Sarkozy and Merkel produced nothing of real substance.

There was talk about harmonizing fiscal policy across the region- an absolute must if the Euro is to have a viable long-term future, but this is not essentially what the market wanted to hear.

Traders were hoping for was a cunning plan on how the two power houses of Europe were going to stabilise the current debt situation in the Eurozone.

The sentiment in the run up was that the concept of Eurozone bonds would be furthered and in support of this, the first steps to expanding the size of the EFSF would be outlined.

Instead, the duo explicitly denied the need for a bigger EFSF or a Euro-bond and it soon dawned that there was no plan to deal with the current market pressure.

The one measure they did propose was a financial transaction tax although this will meet great resistance from European banks and looks unworkable if the measures are restricted to just Eurozone countries.

The likelihood of the ‘Tobin’ tax proposal making it through into law looks very slim.

Italian and Spanish bonds started negatively again, pushing yields up, equities fell and flows moved back into the safe haven investments like gold and Swiss Francs.

The Swiss National Bank has been in the market again today to try and alleviate demand for their currency.

The Euro itself has held up reasonably well, especially given the weak GDP data released yesterday morning.

It still looks only a matter of time before the weight of negative sentiment has an effect.

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