Share shock likely to leave rates on hold

Interest rates are unlikely to rise on either side of the Atlantic before the new year, following last week's sharp drop in share prices. But analysts predicted at the weekend that stock markets were likely to remain unsettled for the rest of this year.

Kenneth Clarke, Chancellor of the Exchequer, is due to reply to MPs' questions on the Budget today, ahead of his monthly meeting on Wednesday with Eddie George, Governor of the Bank of England.

Although the two men will have preliminary figures for November retail prices, expected to show another increase in the annual inflation rate, remarks the Governor made last week suggested he will not be pressing for the next base rate increase so soon after the Budget.

The Bank has said that the strength of demand points to the need for higher interest rates at some stage, but Mr George played down financial market fears about the pressures.

Similarly, the US Federal Reserve is not expected to increase US interest rates at the 17 December meeting of its policy committee, even though the US economy will probably be showing fresh signs of strength.

Fed chairman Alan Greenspan provoked Friday's share sell-off by referring to the stock market's "irrational exuberance", in a speech which most Fed-watchers interpreted as a deliberate bid to cool Wall Street's high temperature.

"Unless the economy roars into the new year, the Fed is unlikely to tighten policy. The jitters in the financial markets will probably blow over fairly quickly," said Mark Cliffe of HSBC Markets.

Steven Bell, chief economist at Deutsche Morgan Grenfell, said: "The history of sell-offs like Friday's is that they get reversed. Even so, there will be further falls. When we get evidence of stronger growth and higher interest rates, that will happen."

Even without new economic evidence, Wall Street and the US bond market are likely to be hit by year-end profit-taking by the giant mutual funds.

These are sitting on enormous paper profits, and Friday's dive will encourage them to lock in their results before the Christmas holiday.

In addition, most funds change their portfolio positions by taking big positions in the futures markets around new year. This too could lead to more upsets during the next few weeks, according to Goldman Sachs equity strategist Abby Cohen.

The US economy has so far combined steady growth with low inflation. Figures on Friday showed a smaller-than-expected rise in the number of new jobs last month but a sharp increase in hourly earnings. This week's consumer price figures are likely to show inflation picking up above 3 per cent. Economists expect figures on Thursday to show the UK's annual headline rate of inflation remaining above 3 per cent.

A survey published this morning by the Engineering Employers' Federation shows that pay settlements in the industry have remained steady at an average of 3 per cent.

David Yeandle, head of employment affairs, welcomed this prudence, saying: "We are encouraged to see that pay settlements in the industry are stable."

On the other hand, the signs of the consumer spree continue to build up. A survey by property consultants Healey & Baker, also released this morning, estimates that consumers will spend pounds 23.5bn on Christmas this year, a pounds 700m increase over last year.

News
Ian Thorpe had Rio 2016 in his sights
people
Sport
Jonathan de Guzman of the Netherlands and Willian of Brazil compete for the ball
world cup 2014LIVE BLOG: Hosts Brazil take on the Netherlands in third-place play-off
News
Tommy Ramone performing at The Old Waldorf Nightclub in 1978 in San Francisco, California.
peopleDrummer Tommy was last surviving member of seminal band
Life and Style
Swimsuit, £245, by Agent Provocateur
fashion

Diving in at the deep end is no excuse for shirking the style stakes

PROMOTED VIDEO
Life and Style
Several male celebrities have confessed to being on a diet, including, from left to right, Hugh Grant, Benedict Cumberbatch and Ryan Reynolds
life...and the weight loss industry is rubbing its hands in glee
Voices
Spectators photograph the Tour de France riders as they make their way through the Yorkshire countryside
voicesHoward Jacobson: Line the streets for a cycling race? You might just as well watch a swarm of wasps
Life and Style
lifeHere's one answer to an inquisitive Reddit user's question
Arts and Entertainment
'Eminem's recovery from substance abuse has made him a more potent performer, with physical charisma and energy he never had before'
arts + entsReview: Wembley Stadium ***
Sport
Joe Root and James Anderson celebrate their record-beaking partnership
cricketEngland's last-wicket stand against India rewrites the history books
News
peopleDave Legeno, the actor who played werewolf Fenrir Greyback in the Harry Potter films, has died
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Information Security Manager (ISO 27001, Accreditation, ITIL)

£70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

Biztalk - outstanding opportunity

£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

Trade Desk Specialist (FIX, Linux, Windows, Network Security)

£60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

£35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

Day In a Page

A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

Why did we stop eating whelks?

Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice