The old adage says that markets hate surprise, but that is exactly what we got towards the end of last week, as fears of interest rate rises spooked the market.

When the US market catches a cold, markets elsewhere start sneezing. This comes in a week when the MPC meets to decide UK interest rates for February.

Last Wednesday, the US Federal Reserve opted to hold US rates at one per cent - no surprise there. The spook, however, came with the accompanying statement, warning that a move upwards was a distinct possibility before long. This contrasts with the previous statement of interest rates set to stay low for some considerable time.

Before this US factor, the implications of adopting the harmonised inflation rate meant that UK rates were likely to stay low, but this is now all up in the air. We will find out on Thursday.

A CBI survey last week, giving the green light to a second 0.25 per cent rise in interest rates came as a surprise to many. The CBI declared that the long recession in British manufacturing was now over. This was based on reports of a sharp rebound in orders, output and optimism over the three months to January. If economic activity is picking up, then the scare to the market of higher interest rates may not seem so strong.

The Stock Market is currently looking for direction, with the FTSE trapped between the 4400 and 4500 range. A stimulus is hoped to be the bank reporting season. Northern Rock kicked off first, last week, with the Geordies putting in a solid performance. The premier league will be reporting next week, and some of the numbers involved, when profits are announced, will resemble telephone numbers.

Tomorrow sees British Airways announce details of January traffic numbers. For most of the past few years, British Airways has been taking a whipping at the hands of budget airlines easyJet and Ryanair, but perhaps the tide has turned. British Airways shares have more than doubled over the past few months on the back of aggressive cost-cutting, and good news on passenger numbers.

On the other hand, Ryanair has already issued a disastrous warning about a sharp fall in profits so far in this year, and also faces a threat from the EU to stop many of its European destination airports giving it subsidies. One might think that easyJet is, so to speak, in the same boat. Its January passenger numbers on Friday will show whether that is the case.

Another controversial company in the headlines is Shell. The oil company will publicise full year numbers on Thursday. They will need to be good, otherwise Shell will remain in the City doghouse.

The daddy of them all, ICI - the former stock market bellwether - reports full year results on the same day. It will be interesting to see if its starch business faces the same adverse conditions that forced Tate & Lyle into a profits warning last week. The shares have more than doubled from their 90p low in April last year. Most brokers are sitting on the fence as to future prospects, but providing they can avoid any banana skins, the shares are still a recovery play.

Once, ICI employed 20,000 on Teesside. That number is thought to be nearer 300 now. The focus for many, therefore, may be on the state of the ICI pension fund.

- For investment advice contact Anthony Platts on 01642 608855.

Published: 03/02/2004