There were plenty of fireworks in the night sky last week, but sparks were also flying in the financial markets, as November began with the FTSE 100 rallying to its highest close for 14 months.

To no surprise, the Bank of England raised interest rates by 0.25 per cent to 3.75 per cent, its first hike since February 2000. Jim Wood-Smith of Gerrard, the fund manager, said: “[The rate rise] was so utterly predictable that the market would have been stunned if it had not happened.” Investors see this increase as the first of many, with analysts forecasting rates of 4.5 per cent by the end of 2004. Meanwhile, the European Central Bank kept rates on hold at 2 per cent.

In the corporate world, the big news was Sony and Bertelsmann announcing that they planned to merge their music businesses to create the world’s second- biggest record company. The new group, Sony BMG, will be a close rival to the industry leader, Universal, bringing together artists such as Beyonce Knowles and Britney Spears. The deal will come under scrutiny from competition authorities but it is likely to be bad news for EMI, which is trying to merge with Warner, owned by US media giant Time Warner. Regulators are unlikely to approve two mergers, let alone one. EMI shares ended the week unchanged.

There was progress at last in the takeover talks for Canary Wharf, as the developer of London’s Docklands received a 255p per share offer from a consortium led by US investment bank Morgan Stanley. The pounds 1.5bn bid needs approval from shareholders including Branscan, the Canadian property group which holds a 9 per cent stake, and Paul Reichmann, Canary Wharf’s chairman, who owns 8 per cent. Branscan said it wouldn’t be accepting the bid. Canary Wharf shares closed 4.2 per cent higher at 244p.

There was further consolidation in the pub sector as Punch Taverns said it was buying the privately owned Pubmaster for pounds 1.2bn to become the UK’s biggest landlord. The deal follows last month’s pounds 2.5bn sale of Scottish & Newcastle’s pub estate to Spirit Amber, the venture capital-backed operator. Punch shares jumped 16.7 per cent to 396p.

In terms of company results, there wasn’t much to shout about as Marks & Spencer reported modest progress. Food sales showed good growth, but the clothing business continued to struggle. Financial services and home furnishings have been highlighted as growth areas, but investors aren’t so sure. The shares shed 3.75p to finish at 284p.

Boots failed to impress the market after it warned that margins would be under pressure due to price discounts. New chief executive Richard Baker was scathing about the retailer’s problems, but the stock finished unchanged.

There was positive news from Carphone Warehouse, which benefited from strong sales of mobile phones. Christmas trading is expected to be buoyant as mobile operators offer greater handset subsidies and cheaper tariffs.

But there was disappointment at MFI as sales over the summer months slowed more than expected, sending the shares down 3.5 per cent to 156.5p.

The picture was brighter at BAA, the airports group, which said that trading was improving with rising passenger numbers and more spending in its shops. The operator of Heathrow is aiming for 4 per cent traffic growth.

Shire Pharmaceuticals reported good results driven by Adderall XR, its new hyperactivity drug, and said it was on track to meet its forecasts of mid to high teens sales growth and high single to low double digit earnings increase. The shares added 26.75p to 473.25p.

Man Group, the hedge fund specialist, reported excellent growth boosted by strong demand for its products, sending the stock 1.4 per cent higher. But shares in Amvescap, the Anglo-American investment firm, fell 49p to 417.5p on concerns about regulatory intervention in the US mutual fund market. Eliot Spitzer, the New York State attorney general, and the Securities and Exchange Commission, the financial watchdog, are investigating the illegal practice of after- hours trading.

There was an encouraging statement from 3i, the venture capital group, which said the outlook was positive due to improving business confidence, rising stock markets and increased corporate activity.

There were solid results from the electricity companies Scottish Power and Scottish & Southern Energy. Rather than pursuing acquisitions, both firms plan to invest pounds 1bn in their existing operations, with an emphasis on renewable energy.