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ECB signals further rate rise as BoE holds firm again

The BoE and the European Central Bank have both kept their headline rates of interest on hold.

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ECB president Jean-Claude Trichet said in a press conference this afternoon that the bank was exercising “strong vigilance” in its battle with inflation – a signal to markets that rates will rise next month.

The same phrase was used by Trichet earlier this year as a preface to the ECB’s first hike for two years, which took rates to 1.25%. Today’s conference also saw the president warn of the dangers of a wage/price spiral taking hold in Europe.

The Bank of England, meanwhile, caused few ripples with its decision to leave rates on hold at 0.5% for the 27th consecutive month. Expectations of a rate hike were pushed further out over the course of Q2 as economic data showed signs of softening.

“With this being the first meeting since the end of Andrew Sentance’s term on the committee, there will be greater attention paid to the split of the vote,” suggested Newton IM global strategist Peter Hensman. The details of the vote will not be made public until later this month.

“Given that Mr Sentance was consistently the most hawkish member of the MPC, there is little chance that this change will shift the market belief that rate rises are increasingly unlikely in 2011 despite the persistence of the overshoot of the inflation target,” Hensman added.

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