Markets dismiss Chinese hike

China has caused the world to splutter this week by implementing a third interest rate hike since October, when it suddenly raised rates to 6.06% from 5.81%.

The reaction in the equity markets has been dismissive. These hikes are losing their shock value and recovery elsewhere in the world is considered to be robust enough to outweigh any slowdown in Chinese growth.
 
As you read this the Bank of England will have announced its interest rate decision. The rise of VAT, coupled with ever-increasing oil and food prices and sterling’s suicidal drop after the crunch in 2007, are all partly to blame for the inflationary pressures. The question is whether a change in monetary policy will have any impact at all on these or future strains.
 
It might be a good moment for the UK to break out its "own-brand" vodka, following news that the trade balance has also widened with imports outstripping exports; however this could be down to the bad weather.
 
The net deficit fell to £9.2 billion which was much more than expected. The Confederation of British Industry said on Wednesday that it expects growth in 2011 to expand over the year at about 1.8% which is down slightly from December’s forecast. The risk of a double-dip recession still remains low, but 2011 will be a tough year, especially with inflation.

Jeremy Cook, chief economist at World First foreign exchange, 11.02.2011