The European Central Bank is poised to raise interest rates next month for the first time in five years, the president of its governing council indicated yesterday.
In a speech that triggered a surge in the currency and bond markets, Jean-Claude Trichet said the ECB was ready "to moderately augment the present level of interest rates". He told a banking conference in Frankfurt: "We will remove some of the accommodation which is in the present monetary policy stance."
The euro jumped to $1.1750 from $1.1670 against the dollar, while the yield on the German government bond - a market measure of rate forecasts - soared 11 basis points, or 0.11 percentage points, to 2.80 per cent as traders bet that the ECB will order a quarter-point rate cut next month.
Although it was the latest hint by ECB officials that they were preparing to raise rates at some point, the directness of his statement took analysts by surprise.
Nick Stamenkovic, senior economist at RIA Capital Markets, said: "The ECB is on the verge of raising rates. A consensus [on the council] has been achieved and the differences have been ironed out, and it will be a hike in December."
In contrast, Mervyn King, the Governor of the Bank of England, warned that Christmas was likely to be tough for struggling retailers. Mr King said consumers had a "little bit" more money this year. "There's nothing terribly exciting going on, so it's not going to be a boom Christmas," he said. "But we are beginning to see some slow, steady pick-up in retail sales."Reuse content