The Bank of England reduced interest rates to 4.5 per cent at the start of the month. The move was entirely anticipated, and would only have been a shock if it had not have happened.

The expectation until last week, was that this would be the first of several reductions into the spring of next year.

Mervyn King, the Bank's Governor, has since poured cold water on the hopes for further cuts.

The consensus opinion amongst economists was that November would see a further 0.25 per cent reduction, with another one early next year.

Mr King's comments accompanied the quarterly inflation report.

High oil prices are expected to push inflation above the two per cent target later this year, before falling back later next year.

As we know, unfortunately, high oil prices are here to stay until supply problems ease in Saudi Arabia, Iran and Iraq.

This news was taken in its stride by the market, however, which has continued its strong rally. Two obvious beneficiaries of high oil prices are BP and Shell, the latter now known as Royal Dutch Shell 'B' shares.

As these companies are the two biggest components of the FTSE 100, accounting for in excess of 20 per cent of the market, it is no surprise that the FTSE has been steaming ahead.

Another large component of the market is HSBC.

The Far East is performing very well at the moment, as confirmed by Standard Chartered's recent good results, so HSBC, as the third biggest UK company doing well, is also supporting the FTSE's onwards charge.

With big international dollar earners thriving due to a stronger dollar exchange rate, it is all going horribly right at the moment.

So, what could upset the positive sentiment? Not a lot at the moment.

The only real concern would be if markets had gone too far, too fast.

On historical grounds, the markets are still fairly valued, so optimism is in abundance.

In scraping the barrel, looking for negatives, one area of concern is Europe.

There is a slim possibility of Italy withdrawing from the single currency, threatening the creditability of the euro as a major unit of account.

Silvio Berlusconi may consider wielding the subject of withdrawal as a popularist policy in the run up to Italian elections.

He is able to blame the economic woes of the country on the single currency strait jacket, entered into by the previous government of Romano Prodi.

The subject comes hard on the heels of the no vote to the referenda on the EU Constitution.

After the French and Dutch 'Non' and 'Nee' votes, the speculation on the robustness of the single currency was widely debated.

Most observers conclude that it will be unthinkable for Italy to withdraw from the euro.

The most compelling reason cited being that to do so would invoke an almost immediate home currency devaluation, which in turn means that the value of the country's external debt would mushroom.

Back to this country, and the Bank of England. Tomorrow sees the release of the much anticipated minutes of the meeting held on 3 and 4 August.

This will show how many of the nine members voted for a rate cut, but perhaps more importantly which members held out, if any, for a no change policy, and if they intend to continue to do so.

* For investment advice contact Anthony Platts on 01642 608855.

Published: 16/08/2005