Rate rise fear grows

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The Independent Online

Fears were today rising of an interest rate hike this week, although most economists expect rates to stay on hold. Recent data has pointed to a tricky decision when the Monetary Policy Committee (MPC) meets on Wednesday for it's monthly rates decision.

Fears were today rising of an interest rate hike this week, although most economists expect rates to stay on hold. Recent data has pointed to a tricky decision when the Monetary Policy Committee (MPC) meets on Wednesday for it's monthly rates decision.

A survey by the Chartered Institute of Purchasing and Supply on Friday showed a booming service sector with levels of activity rocketing to heights not seen since June 1997.

The figures puts pressure on the Bank of England to raise rates again from the current per cent. A continuing buoyant housing market also adds weight to a rates hike decision, as the MPC will raise rates if it fears a return to the late 80s boom and bust. But leading economists thought the odds were in favour of a hold before Christmas.

Chief economist at Lloyds TSB, Patrick Foley, said: "I think it will be very finely balanced, we forecast it wonÿt move but it will be a very finely balanced decision."Mr Foley cited earnings growth and the strong housing market, along with a high stock market as pointers to a buoyant economy, giving rise to a difficult decision.

David Kern, chief economist at NatWest also forecast a hold: "I think there is an 80 per cent chance there will be no change," he said.

The euro's fall-which saw it slip below parity with the dollar on Friday - is not thought to have any major effects on the MPC's decision.

If it is taken into account, the drop in the currency's value would add weight to the argument not to hike up interest rates.

Economists also thought the euro, which has fallen 16 per cent since its launch in January, would slip further this week.

Mr Foley said he would not be surprised if it dropped further as trading was very thin ahead of the end of the year end, although he forecast in the long term it would recover.Mr Kern also said: "I wouldn't exclude further falls," but forecast in the long term it would edge up.

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