Interest rate betting frenzy

THE Bank of England's monetary policy committee often claims its decisions are 'finely balanced', but frenzied trading by City gamblers suggests its interest rate debate tomorrow and Thursday will be a real cliff-hanger.

Bets over recent days have been heavily in favour of a rate rise, and this has forced spread betting bookmakers to change radically their quotes for the MPC decision.

A week ago, bookies were quoting 402-405 (4.02% to 4.05%) for the interest rate after the MPC meeting. Since the rate is currently 4%, this price implied there was only about a one-in-five to one-in10 chance of a quarter-point rise.

Now, however, spreads have shot up to 410-414 at IG Index, and 412-415 at Cantor Index and Financial Spreads. That implies that the chances of a rise to 4.25% are almost exactly 50-50.

Will Armitage, a dealer at IG Index, said: 'This is certainly one of the most exciting interest rate decisions we have seen for many a month. People betting on a rise have outnumbered those betting on no change by about three to one - although yesterday's disappointing figures on UK manufacturing caused some to hesitate a bit.'

Paul Hare, at City Index, said: 'Punters are very long of UK interest rates and I have even had two people talking to me about the chance of a half-point rise this week.'

Bookies have ended up with a sizeable exposure to the decision. Because most bets are on a rate rise, their books are short and they would greet a no-change decision with relief.