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Tuesday 18th of January 2011
August 3, 2006    

Interest rates up in UK, Eurozone

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by Elaine Frei

Both the Bank of England and the European Central Bank raised interest rates on Wednesday. The move by the ECB was expected, but the Bank of England’s Monetary Policy Committee surprised almost everyone by hiking UK interest rates. Both hikes took interest rates a quarter of a percent higher, to 4.75 percent in the UK and to 3 percent in the Eurozone.

The Bank of England said that it had made the decision to raise rates now because higher energy prices have increased inflationary pressures. While a few analysts had predicted the move, the majority had expressed the belief that interest rates would not rise until next year. The Bank seems to have been convinced to raise rates by a rise to 2.5 percent in the consumer price index as well as gains in the service and manufacturing sectors.

Meanwhile, the move by the ECB to raise Eurozone rates has lent credence to the speculation by some analysts that rates there could go up as much as twice more by the end of the year, with predictions that the next rise could come in October. Factors playing into the ECB’s decision included a rise in producer price inflation, growth in the money supply, and a slightly lower unemployment rate.

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