Brownian motion

22 October 2003

The UK always looked to be the first major economy to raise interest rates. The latest MPC minutes make that a certainty. That is bad news for British bonds especially given the UK government s plans to deluge the market with gilts this year.

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Four out of nine Bank of England policy makers voted to raise interest rates earlier this month, fuelling expectations that it will be the first of the four biggest central banks to raise rates.

Governor Meryvn King used his vote to keep the benchmark lending rate at a 48year low of 3.5%, according to the minutes of the October 8th9th meeting. Last week, King said UK interest rates would need to rise at some point to ensure that inflation meets the bank's target.

This year, the UK government is expected to issue a record amount of gilts, some £55bn, to help fund spending plans.

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