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ECB May Raise Interest Rates In The Short Term

While the Bank of England confirmed what the majority of observers had forecast, no change in the UK base rate, it seems that the ECB may have different plans. As the City was digesting the no change announcement by the Bank of England the ECB were talking about the increased threat of inflation and a possible rise in European interest rates over the short to medium term.

Even though the ECB announced that rates would remain at 4% for the moment, the blunt wording of the announcement about the threat of inflation caught many by surprise. As a consequence there has been a major shift in the European bond markets with traders already pricing in at least two ECB interest rate hikes over the next few months.

The move in the bond market has not received universal backing with many observers of the impressions that the ECB are trying fend off the possible threat of inflation by making governments throughout the region acutely aware of the issue. Whether this tactic will be enough to see off the threat of rising prices remains to be seen, but the ECB have made their position clear should the situation worsen.

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