FTSE falls again on Libya woes – sterling rallies as three MPC members vote for rate hike

<p>Investors continued to sell out of UK equities today on continued fears over the unrest in Libya and the Middle East. The speech from Colonel […]</p>

Investors continued to sell out of UK equities today on continued fears over the unrest in Libya and the Middle East.

The speech from Colonel Gaddafi yesterday highlighted his motivation to maintain his grip on power and with protestors refusing to back down and violence continuing, there appears to be no end in sight to the instability of the region. As such, crude oil prices continue to gain and trader appetite for risk has taken a back seat.

Crude oil prices being at a two-and-a-half year highs is a cause for concern but there is some optimism that the price rallies have been driven by short term uncertainty and trader opportunism. With OPEC stating yesterday that it would intervene should a shortage of supplies emerge, there is a hope that the moves we are seeing in crude oil could be short term. That said, with the situation in the Middle East seemingly changing on a daily basis, this could be a hard one to call.

MPC minutes see three votes for rate hikesThe pound sterling received a further boost this morning after minutes from the last Bank of England policy meeting showed that three committee members voted for a rate hike. Weale was joined by Spencer Dale in voting for a hike of 25bp, with Sentence calling for a stricter 50bp hike.  It’s another vote in favour of a rate hike and so it would seem that the potential for a rate hike in May is growing.

The vote has swung from 7-2 to 6-3 in favour of freezing rates which increases the potential for a rate hike. Should inflationary pressures continue to escalate, as they have done recently, one can quickly see more members siding with the Andrew Sentence camp and calling for a rate hike.

One aspect that may cause alarm is the growing split of opinion within the MPC. On one side you have Adam Posen calling for an additional £50 billion increase in QE, whilst on the other you have Dale and Weale calling for a 25bp hike and Sentence calling for a 50bp. Right in the middle of this you have the rest of the committee members sitting on their hands. There is seemingly a growing split within the camp and this does not give great confidence to market participants that the BoE is united in knowing what to do.

Barclays rallies on Judge rulingWe have seen investor sentiment in Barclays rise somewhat after US Federal judge James Peck ruled that the 2008 deal to buy the US operations of Lehman Brothers was fair and legal. There had been fears that should the decision go against Barclays, Lehman Brothers would be due an $11 billion windfall but the decision appears to have quashed that fear.

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