Bank expert hints at rate rise

THE City prepared itself for another rise in interest rates after one of the monetary policy committee's most cautious members hinted that borrowing costs have not yet hit their peak.

Kate Barker from the Bank of England's rate- setting committee acknowledged that there is a strong argument for a rise because inflation is running above the MPC's target.

She said that interest rates may rise by another quarter point or so, but argued that they would still be at a historically low level.

'Inflation is clearly above the target. The main reason we didn't put rates up last time is uncertainty about short-term trends in the economy.'

She said the biggest of those short-term concerns was the consumer, with the High Street suffering one of its worst Christmases.

There are worries about currencies and oil, which has surged again to a three-month high. The Nymex measure of crude peaked at $52.50 overnight - before closing up $2.75 at $51.10.

Traders said the cold snap in the US and Europe is pushing up the price of heating oil. There are also fears that oil cartel the Organisation of Petroleum Exporting Countries (Opec) will cut production targets at its forthcoming meeting.

Volatile oil prices were another concern highlighted by the Bank of England's chief economist Charlie Bean in a largely academic speech in Oxford.

But oil and other commodities should make excellent investments, according to an influential report published by Barclays Capital. Its 50th Equity Gilt study said investors should look for alternative investments, including commodities and even fine art.

The study found that British Government bonds outperformed UK stocks over the past 10 years, although equities bounced back faster last year. Gilts had a 6.5% increase over the past decade, while equities rose by only 5%.