To: Chispas who wrote (54237 ) 8/3/2006 3:26:40 PM From: mishedlo Respond to of 116555 DJ Bank Of England Raises Bank Rate To 4.75% From 4.50% LONDON (Dow Jones)--The Bank of England raised its official bank rate to 4.75% from 4.50% Thursday following a two-day monthly meeting of its Monetary Policy Committee. The decision to raise rates was largely unexpected. A Dow Jones Newswires survey last week found that 24 of 30 economists who were polled expected the MPC to leave rates at 4.50%. DJ Bank Of England Raises Bank Rate To 4.75% From 4.50% -2- The bank said it expected headline inflation as measured by the consumer price index to remain above the 2% target for "some while." "Against the background of firm growth, limited spare capacity, rapid growth of broad money and credit, and with inflation likely to remain above the target for some while, the Committee judged an increase of 0.25 percentage points in the official bank rate to 4.75% was necessary to bring CPI inflation back to the target in the medium term," a statement accompanying the minutes said. The statement said the pace of economic activity has picked up in recent months, with household spending have recovered from its post-Christmas dip and business investment and investment intentions also having picked up. DJ Bank Of England Raises Bank Rate To 4.75% From 4.50% -3- The statement pointed to the fact that CPI inflation hit 2.5% in June, the highest mark in 10 years, and that it was likely to remain above target. This has largely been due to higher energy prices which have added to inflationary pressures. "Although the path of energy prices is extremely uncertain, energy price inflation is expected to moderate in the medium term. But some recovery in profit margins and pay growth is likely to mean that consumer price inflation will move only gradually back to target," the statement said. With gross domestic product growth running above its long-run average in the last few quarters and business surveys pointing to continued firm growth, the "margin for spare capacity in the economy appears to be small," the statement said. Unusually, the statement also referred to the rapid growth in money supply as a justification for hiking rates now. Using the supply of broad money to determine the path of interest rates is largely out of favor in the U.K., unlike the euro zone, where it is still heavily relied upon. The surprise decision by the MPC leaves the market's attention focused on next week's quarterly inflation report and the minutes from this week's interest rate meeting due Aug. 16 to see what the bank's thinking is on future rate movements. The MPC wasn't at its full strength Thursday, with two of the external member slots empty, meaning the five-member internal members' majority was more heightened than usual. It is generally the internal members who vote for rate hikes first, reflecting their bias towards higher rates.