Barely have we had time to digest our Christmas pudding and already the interest rate circus has gone into overdrive, with predictions of an early rate cut, assertions that any reduction is highly unlikely and suggestions that this year will reverse the trend of last year and see 1.5 percentage points added to base rates in the next 12 months.

The general consensus of opinion seemed to be that the MPC would refrain from taking any action at it's meeting this week, despite several reports showing that the wallets were out in force during the crucial Christmas retail trading period.

However, few were predicting the strength of the Christmas sales, which according to some reports saw consumer spending double in comparison to last year, with many retailers enjoying the best seasonal results for over a decade. Some analysts are now predicting that this will mark the beginning of a turnaround in the wider economy.

As a result, speculators in the city are now predicting that the committee may move to dampen the spending 'boom' by adding a quarter point to the base rate, currently at 4 percent. A poll by Bloomberg News revealed that not a single one of 27 economist interviewed were expecting a rate cut, with many of the sample believing that rises were imminent. Meanwhile in the city, bonds declined for a second consecutive day and March interest rate futures rose - sure signs that professional investors believe an interest rate rise is likely.

Homeowners won't be too pleased to read the predictions of one major city investment bank. Merrill Lynch believes that rates could find their way all the way back up to 5.5% over the course of this year - increases that would eliminate most of the savings that last years series of cuts effected on monthly mortgage repayments.