Financial markets are convinced British interest rates will soon rise but recent sharp falls in global equity and commodity markets suggest such a move is probably still a long way off.

The argument for a rise from 4.5 percent, where UK rates have remained since last August, has always been a close call, but with a wave of risk aversion gripping markets the case for imminent action appears even less persuasive.

The stock market’s tumble is surely not welcome but Bank of England Governor Mervyn King may be taking comfort in evidence that his Maradona theory of interest rates works.

A rally in the pound and a spike in bond yields may have worked for policy much as how the famous Argentine footballer ran 60 yards from his own half, beat five players and scored a goal against England.

Maradona was able to go straight on, King’s theory goes, because the players expected him to move either left or right. Recent worries about future inflation and how the BoE might respond means that more likely than not, it will do nothing.

Yields have backed up about half a percent since the start of the year and interest rate futures are pricing in two quarter point rate hikes by early 2007. The ensuing rise in mortgage rates could take some steam out of the property market.

The sterling trade-weighted index was at 101.7 on Tuesday compared with the 98.9 starting point assumed in the BoE’s May quarterly forecasts. That rise in the pound should temper import price inflation but also dent an export market recovery.

<B> Ross FINLEY</B>