City bets on August rate rise

PINSTRIPED punters are putting their money on another interest rate rise from the Bank of England this summer, but most of them think the move will come in August rather than at the monetary policy committee's next opportunity on Thursday.

Spread bookmaker IG Index is quoting a price of 451-455 (4.51% to 4.55%) for the British interest rate after this week's MPC meeting, only fractionally above the current 4.5%. IG's price suggests the chance of a quarter-point rise this week is about one in 10.

This is despite the news last week that British economic growth in the year to the first quarter of 2004 had been faster, at 3.4%, than the 3% figure previously published.

This is the kind of information that tends to make Bank Governor Mervyn King and his colleagues more hawkish about rates.

Will Armitage at IG said: 'Our interest rate spread for July has in fact come down in recent days. It appears that people think the next rate rise will come in August rather than this month.'

IG's spread for the interest rate at the end of the 5 August MPC meeting was yesterday at 468-472 (4.68% to 4.72%), suggesting around an eight-in-10 chance of a quarter-point rate rise by that date.

Bookies are still pricing in several more rises in US rates this year. Cantor Index is quoting 223-227 (2.23% to

2.27%) for the US interest rate at the end of the year, a full percentage point above the current 1.25%.