The ECB is likely to hike rates again in 2006, but, unless sterling plunges or equities soar, the MPC probably will cut again.

We expect the ECB to hike rates this week. These are good levels to re-establish long positions in the euro.

Some of the risks associated with rate cuts have dissipated for sterling. We expect rates to remain on hold as the economic picture in the U.K. stabilizes.

The upshot of all this is that the next move in rates is still likely to be up, but not until the data give the go ahead.

Although we don't expect the MPC to cut rates this month, it is likely that we will see a cut to 4.25 per cent by the end of the year which will put more money into people's pockets and please UK businesses.

This is going to cement the case to hike interest rates. The numbers do nothing to alter the stance now developing in the market that the next move in interest rates will be up. The consumption side of the economy needs to be slowed.