HOW HIGH will they fly? Interest rates, that is. Now the Monetary Policy Committee has nudged them up, the Square Mile is not asking whether there will be another increase, but when.

Few people believed the MPC would act. In part this was because of "give growth a chance" comments ahead of the meeting. The principal reason for the hike - the buoyant state of the property market - is very much a London and South East phenomenon. Ask home owners in Huddersfield or Huyton about runaway house prices and you are likely to get blank stares.

Previously, interest rates rose in leaps and bounds as government chased the market, rather than leading it. But the quarter point rise we have just seen actually anticipates problems - unheard of a few years ago.

There are winners from higher rates as well as losers. Those who rely upon deposit account interest for part of their income will welcome the rise. But financial institutions are cautious about how much to pass on because they do not know how far rates will go, although more rises should be expected.

Does it matter if house prices rise? If people do what they did in the Eighties and spend some of the value they perceive to be locked up in bricks and mortar it matters a great deal. At that time, the ending of a tax break, signalled well in advance, sent people piling into the housing market. No one should make that mistake again. But if a quarter point rise is a measured, anticipatory move, why did the stockmarket dive?

Actually, the MPC is only partly to blame for the shenanigans last Wednesday, which showed the shortcomings of the electronic age as rogue trades in Vodafone Telecom, the second largest component of the FTSE 100 Index, drove its share price down by 250p. This is not the only example we have seen of somebody pressing the wrong electronic button, but it was dramatic and demonstrated how the index can be moved by the performance of a small number of major companies.

The European Union is agonising over this at present. Index trackers want the rules relaxed on how much money in a collective fund can be committed to a single share. At present, 10 per cent is the limit but BP Amoco will be more than 10 per cent of the FTSE 100 Index once the Atlantic Richfield deal goes through. In other countries the situation can be even more dramatic. More than half Finland's stockmarket capitalisation is accounted for by telecoms giant Nokia.

Whatever your view, the message is plain. Volatility is more likely to increase - except perhaps in the way interest rate policies are pursued. For the record, I think the next move in rates will be up and that 6 per cent is possible. But we will get there in bite-size, quarter point chunks thank heavens.

Brian Tora is Chairman of the Greig Middleton Investment Strategy Committee