Iceland rate rise to 15% sparks worries
Fears about the state of Iceland - a big investor in Britain's retail and financial services industries - rose today as its central bank hoisted interest rates to 15%.
The massive 1.25 percentage points rise in base rates caught the City on the hop and triggered renewed concerns about businesses ranging from Hamleys and House of Fraser to stockbroker Singer & Friedlander, all owned by Icelandic companies.
It was an emergency rise which the central bank said was aimed at countering the recent weakness of the fragile local currency, the crown.
Icelandic banks have had millions of dollars wiped off their share prices recently and Kaupthing, the biggest lender there, has been the subject of nationalisation rumours.
The bank's assets in the UK include Icesave and Kaupthing Edge, two online savings accounts which regularly top the best buy tables.
Moody's, the credit rating agency, recently downgraded the financial strength of Kaupthing, Landsbanki and Glitnir - the three main banks.
Julian Jessop, international economist at Capital Economics, today stressed the banks raised most of their financing in lower-rated EU countries or London and New York, rather than in Iceland's capital, Reykjavik.
