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Broad money figures prompt rate rise fears

Annual UK broad money growth at the end of 2006 shot up to 14% – the highest since 1990 – prompting fears of further interest rate rises to combat inflation.

Broad money is money in the public domain being spent with non-financial companies. The higher the broad money percentage, the cheaper money becomes and so inflation is created. The Bank of England combats this by raising the base rate.

In its December meeting, the BoE’s Monetary Policy Committee commented on broad money levels, which are the highest since 1990. Members discussed the prospect of inflation with some “placing weight on the risks of money growth” which “poses a risk of inflation”. This would signal further rate rises by the MPC in 2007.

Andrew Hagger, a member of Moneyfacts.co.uk’s expert panel created to make predictions, says: “There is no way around this situation so rate rises seem inevitable.”

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