Markets jittery as Bank of England set to hold rates

LONDON - The Bank of England looks set to hold interest rates steady later on Thursday but markets are still on heightened alert after the central bank caught them on the hop with a quarter-point hike in August.

Most analysts expect the central bank's Monetary Policy Committee to keep borrowing costs pegged at 4.75 percent for the second month on Thursday but then raise them to 5.0 percent in November in order to keep price pressures down.

New figures on Wednesday showing house prices jumped another one percent last month and the service sector grew faster than expected only increased nervousness about another surprise move.

Futures markets are pricing in a one in three chance of rates moving up a quarter-point when the MPC, back to full nine-member strength for the first time since March, delivers its verdict at 1100 GMT on Thursday.

"The MPC could easily make the case for hiking interest rates at today's meeting. Top of the list of reasons to hike is that October is not an Inflation Report month. While we wouldn't rule out a hike in October, our preference is for a November hike," said Alan Clarke, economist at BNP Paribas.

But market jitters over an early move aside, many economists are not so sure the central bank will even raise interest rates next month on growing worries the giant US economy is turning down, which could hurt Britain and the rest of the world.

Euro zone economic growth has also probably peaked and the European Central Bank looks nearly certain to raise interest rates 45 minutes after Thursday's BoE decision.

"We are now less confident that base rates will rise again in November to 5.0 percent. Although this remains our central view, we think it is becoming a closer call," said Philip Shaw, chief economist at Investec.

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