The prospect of higher interest rates in Europe came closer yesterday when the European Central Bank's president Jean-Claude Trichet signalled its readiness for another increase.
Speaking after the ECB decided to keep its key rate unchanged at 2.25 per cent - very much as expected - he highlighted rising inflationary risks and repeated his opinion that present rates remain historically low.
The Bank of England's interest-setting Monetary Policy Committee meets next Wednesday and Thursday to decide whether to move its official rate from 4.5 per cent where it has been since last August.
The ECB said inflation risks are now on the upside and that the European economy is expanding comfortably, with strong and ample money supply and credit growth.
"Against this background, we will exercise vigilance so as to ensure the solid anchoring of long-term inflation expectations at levels in line with price stability," Mr Trichet said.
The need for vigilance over inflationary risks occurred three times in the statement - taken as an indicating that the ECB is becoming more confident about the strength of the eurozone's economic recovery.
Financial markets saw this as confirmation of their view that the ECB will raise its rates in March, following a quarter-point rise in December, its first in five years.
Fears of another potentially inflationary surge in the price of oil towards $70 a barrel abated yesterday.
Brent crude eased to less than $64 a barrel while the New York contract dipped below $66. The change of direction was attributed to an unexpectedly strong rise in US gasoline stocks rather than any optimism about yesterday's emergency meeting of the International Atomic Energy Authority over Iran.
The price of gold - often seen as the ultimate hedge against future inflation, or a currency crisis - also went back into reverse after hitting a new 25-year high of $573 per troy ounce overnight in New York. At last night's final "fixing" in London the price was back at $563.75.
Gold has now risen by 37 per cent in six months. There is no sign, though, that this is in any way due to demand for gold jewellery in Britain.
The number of gold items hall-marked by the four British assay offices fell by 17.7 per cent between 2004 and 2005.
