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As I See It

Interest rates will go up, and here’s when

Terry beardUS interest rates will rise on 16 December and there will probably be four more next year. UK interest rates will be hiked in May and again next November.

Bold statement? Yes, of course. But one based on comments gleaned from conversations and reports with leading analysts over recent weeks.

The latest job figures from America should have put paid to any lingering doubts that the Federal Reserve will impose a rate rise this month.

Non- farm payrolls increased 211,000 last month, and there was a revision of earlier figures to show 35,000 more jobs created than previously reported.

Janet Yellen, chairman of the Fed, told a US hearing that the central bank had largely met the criteria for its first rate hike since June 2006.

Yellen said the economy needs to create just under 100,000 jobs a month to keep up with growth in the working age population and it is well ahead of target.

David Lamb, head of dealing at the foreign exchange specialists Fexco reckons the odds of a US interest rate rise have been akin to those of Russian roulette. “When the Fed’s rate setting committee meets in December, it’ll be playing with a bullet in every chamber,” he says. “The Fed is running out of reasons not to raise rates this month.”

Robert Craig, private client investment manager at MB Capital says: “With both the jobs and the momentum there, a rate hike in December is increasingly looking like a formality – both in terms of its likelihood and the impact on the markets.”

Earlier this week I was chatting to Bill O’Neill of UBS, who was in Edinburgh for a series of meetings, and he was quite unequivocal about the pattern of rate rises.

“There will be a rate rise in the US on 16 December and the UK next May, followed by another in November.”

Expect two quarter point rises, taking the base rate to a still extremely low 1%.

As for the oil price, O’Neill reckons it will rise to around $63 a barrel, not quite at the critical $70 level that would likely encourage significant investment, but enough to maintain a viable level of activity.

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