View from City Road: Sweden breaks cover on rate front

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A little local difficulty or something rather more serious? The former, markets decided yesterday as reassuringly flat US inflation figures helped to dampen speculation of an upward shift worldwide in interest rates. The coincidental rise in Swedish and Italian rates is nevertheless worrying enough, even though this appears to have been triggered entirely by local domestic considerations. If nothing else they have symbolic significance, signalling what everyone already knows but still doesn't want to admit: the interest rate cycle, which has already turned in the US, is about to do so in Europe too.

Italy's assault on interest rates is unlikely in itself to prompt action by other central bankers; the country is in a state of deep financial and political crisis, with the lira, bonds and share prices in free fall. But the Swedish rise is undoubtedly a harbinger of things to come. With the economy only just beginning to ease out of its most serious recession in more than 50 years, an upward move in Swedish interest rates could hardly have been more unexpected.

Determined to nip any inflationary pressures in the bud, the Swedish authorities decided to take pre-emptive action and move early. Eddie George, the Governor of the Bank of England, would feel a lot more comfortable if we were doing the same thing in Britain, but so far other voices have prevailed.

Increasingly, however, it looks like an attempt to hold back the tide. With the Federal Reserve's open markets committee meeting next week to decide on a further rise in US interest rates, the time for action has arrived.