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BoE: New mortgage commitments up 6.1% in Q1

The first quarter of 2020 saw a 6.1% year-on-year increase in the value of new mortgage commitments (lending agreed to be advanced in the coming months) to £67.6bn, according to the latest figures from the Bank of England.

The BoE’s data also revealed that the outstanding value of all residential mortgages loans was £1,509bn at the end of 2020 Q1, 3.9% higher than a year earlier.

Overall the value of gross mortgage advances in 2020 Q1 was £65.8bn, 3.8% higher than in 2019 Q1.

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Tomer Aboody, director of property lender MT Finance, said: “Overall, and as expected, the lending market enjoyed a great first quarter with plenty of confidence, more lending done and higher loan-to-values offered by the banks, along with cheaper mortgage rates compared with the same period a year ago.

“This was set to be the trend for the year ahead after years of uncertainty created by Brexit.

“Then the pandemic hit and the picture in the second quarter will be very different. But what it ultimately shows is that the fundamentals are there.

“Lenders are keen to lend and now, as we wait for lockdown to end, we need some stimulus from the government to give the housing market the boost it needs.”

By Ryan Fowler

Source: Mortgage Introducer

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BoE not remotely close to decision on negative rates, says chief economist

The Bank of England’s chief economist has said the bank is not remotely close to any decision on taking interest rates below zero to cope with the pandemic.

Andy Haldane said the key factors for the BoE to consider were the consequences of negative rates for banks and lenders, which would squeeze margins.

“Those are the aspects that we’ll look at,” Haldane said during an online discussion organised by the Confederation of British Industry on Tuesday.

“To be clear, reviewing and doing are different things and currently we are in the review phase and have not reached a view remotely yet on the doing.”

Since the start of the coronavirus outbreak, the bank has slashed its main rate to a record low of 0.1 per cent, prompting questions about whether it will cut into negative territory to stimulate the economy further.

It would mean banks are charged a small amount for keeping their money with their country’s central bank. The European Central Bank’s (ECB) deposit rate is currently minus 0.5 per cent.

Last week, BoE governor Andrew Bailey said it would be “foolish” to rule out negative interest rates. He has previously argued against them but admitted he had changed his position.

He was keen to highlight that the Bank is not saying it will cut rates further: “We’re not ruling it in but we’re not ruling it out.”

Haldane also said the recent economic data was coming in a “shade better” than a scenario published by the bank earlier this month.

“This is perhaps still a V but perhaps a fairly lop-sided V,” he said, referring to the shape of the economy’s downturn and recovery.

“The risks to that probably…lie to the downside rather than the up and as I say, a rather more protracted recovery even than the one that I have mentioned.”

By Angharad Carrick

Source: City AM

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Bank of England ‘not contemplating’ negative interest rates, says governor Andrew Bailey

Bank of England governor Andrew Bailey has said Threadneedle Street is not considering cutting interest rates to below zero.

The governor said that it would be unwise to rule anything out, “particularly in these circumstances,” in an online question and answer session with the Financial Times.

Yet he said: “It is not something we are currently planning for or contemplating.”

His comments come after deputy governor Ben Broadbent said the Bank was open-minded about its next steps. He said of negative interest rates: “These are the balanced questions the committee has to think about.”

Although once unimaginable, negative interest rates have been put in place in various central banks around the world over the last decade. The European Central Bank (ECB), for example, charges banks to hold money with it in an effort to force them to lend.

Negative rates come with pros and cons. They help spur lending by penalising banks for sitting on money. But they also limit the profits banks can make through lending and the interest on savers’ deposits.

The Bank of England slashed its main interest rate to 0.1 per cent, its lowest ever level, in March.

Bailey said that one of the main obstacles to cutting interest rates into negative territory would be the optics of the complex move.

“I think from a communications point of view, and therefore from a reaction and expectations point of view, it is a very big step.”

He said it must be realised that negative interest rates cause banks problems. The Eurozone’s biggest banks have long complained that the policy hurts their profits.

Should the Bank decide to unleash more stimulus, most analysts think it will ramp up its £645 billion quantitative easing (QE) programme. Under QE, the Bank creates digital money and uses it to buy bonds – mainly government Gilts – in the secondary market.

The BoE stopped short of launching more bond-buying at its last meeting but could do so in June.

By Harry Robertson

Source: City AM

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Bank of England holds base rate at 0.1% and warns of sharp recession

The Bank of England has held its base rate at 0.1% but warned it expects a sharp recession in the first half of the year as a result of the coronavirus restrictions.

In its May monetary policy report, the bank noted that the spread of Covid-19 and the measures to contain it were having a significant impact on the United Kingdom and many countries.

“Activity has fallen sharply since the beginning of the year and unemployment has risen markedly. Economic data have continued to be consistent with a sudden and very marked drop in global activity,” it stated.

However, the Bank of England also highlighted that there were some “tentative signs of recovery” in countries that were starting to relax restrictions and that financial markets had recovered in part.

And indicators of UK demand have generally stabilised, albeit at very low levels, in recent weeks after “unprecedented falls” during late March and early April.

Banking stability

The central bank believes the core banking system has “more than sufficient” capital to absorb expected losses and that there will be capacity to provide credit to support the UK economy.

In its scenario, it is anticipating that overall economic activity (GDP) will fall 14% in 2020 but rebound by a similar amount in 2021, although it will not reach its pre-coronavirus size until the middle of next year.

Household spending is expected to follow a similar pattern to GDP, but consumer savings is anticipated to rise sharply this year but then fall back in the next two years.

This will have an impact on inflation, as will falls in oil prices, with inflation potentially hitting 0.6% over 2020 as a whole and reaching zero at the end of the year.

Unemployment is predicted to double to around 8% in 2020 but return to around the pre-coronavirus position in 2022.

The scenario also assumes the UK will complete an orderly free trade agreement with the European Union at the end of the year, however this is not certain and disagreements during negotiations have been public from both sides so far.

Kevin Brown, savings specialist at Scottish Friendly, said: “The Bank of England’s report on the economy makes for bleak reading, but it is still holding out hope for a reversal of much of the economic misfortune the country is suffering thanks to coronavirus, by the middle of next year.

“Markets have largely responded to the crisis already and much of this fresh economic data is already priced in. It is impossible to predict a bottom, but one thing’s for sure, savers won’t find succour in a savings account paying 0.5% interest.

“It’s a tough time for savers out there and many are being caught out by the speed at which rates on cash accounts are changing. The signals given out by the Bank of England suggest the base rate is going nowhere and this should be a catalyst to anyone with a savings pot to make sure they’re getting the best out of it, by considering ways to maximise their potential returns.

“Many high street banks, building societies and challenger banks are cutting rates but there can still be ways to generate above inflation returns by exploring alternatives such as regular savings accounts, longer fixed-rate ISAs and stocks and shares.”

Written by: Owain Thomas

Source: Your Money

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Bank of England brings forward release time of May 7 rate decision

The Bank of England said on Friday it will release the result of its next Monetary Policy Committee meeting at 7 a.m. (0600 GMT) on May 7, rather than at the usual release time of 12 p.m.

“This is to accommodate the joint publication with the interim Financial Stability Report,” the BoE said.

As well as the MPC’s decisions on interest rates and bond-buying and its new economic forecasts in a quarterly Monetary Policy Report, the BoE has brought forward a meeting of its Financial Policy Committee to assess the impact of the coronavirus pandemic on the finance industry.

BoE Governor Andrew Bailey will brief reporters after the decision, and the contents of the briefing will be made public at 0900 GMT.

The BoE cut rates twice in March to a new low of 0.1% and ramped up its government bond-buying by a record 200 billion pounds. It is expected to hold off on fresh monetary policy action next week, according to a Reuters poll of economists.

Reporting by David Milliken; Editing by William Schomberg

Source: UK Reuters

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British pound soars as BOE rules out printing of money

  • British pound rose on reports that Boris Johnson was in the Intensive Care Unit (ICU)
  • The pound rose even as the number of Coronavirus cases increased and Debenhams went into administration.
  • The pound rose after Andrew Bailey, BOE Governor, ruled out printing of money

The British pound rose against the euro and the US dollar as the market ignored news that Boris Johnson’s health was deteriorating. The prime minister, who was diagnosed with Coronavirus two weeks ago, is in an intensive care unit of a London hospital.

While he is alert, government business is being carried out by Dominic Raab, the Foreign Secretary. The British pound index, which measures the strength of the pound against other currencies rose by more than 1%.

More bad news from the UK

The pound rose in a day that the UK received significant bad news. The number of Coronavirus cases continued to rise. According to World of Meters, the UK has confirmed more than 53k cases and more than 5,000 deaths. The number of infections is rising, albeit at a slower rate.

Meanwhile, more UK companies are getting into trouble. Yesterday, Debenhams, the famed retailer, announced that it would move into administration. The company, which has more than 22,000 employees said that it hoped that the action would help it remain afloat. This announcement came a week after BrightHouse and Carluccio’s moved into administration.

Experts believe that many retailers will be forced to go out of business unless the government intervenes. This is because while most of them are not doing any business, they are continuing to accrue costs like insurance and rent. In fact, some retailers like JD Sports, Primark, and Burger King have said that they won’t pay rent. If the cycle continues, it could affect the banking sector, and possibly lead to a bigger financial crisis.

Why the British pound is rising

The reason why the British pound is rising is that Andrew Bailey has committed not to print money to support the economy. Andrew is the new Bank of England governor.

In an opinion piece in the Financial Times yesterday, the governor said that it would not be beneficial for the bank to print money. He argued that this would increase inflation, which would go against the mandate in which the central bank was created. He said:

“Some MPC actions result in the creation of central bank reserves. These reserves are not being created with the aim of paying for the government deficit, as under monetary financing. They are a consequence of independent central bank policy actions to deliver monetary and financial stability.“

A number of central banks, including the Federal Reserve, have been criticised for printing money to support the economy. Two weeks ago, the Fed launched its open-ended QE program. The new program has seen the bank expand its balance sheet by more than $2 trillion. In contrast, the central bank increased its balance sheet by just above $4 trillion in the past financial crisis.

Some quarters in British press and academia criticized this position. The Financial Times dedicated its editorial page arguing that printing money was a valid reason for the bank to print money. The paper argued that while printing money would stir inflation, the bank had tools to lower it. They said:

“If trends restraining inflation go into reverse, central bankers have tools to combat rising prices. They can achieve this by raising interest rates or unwinding QE.“

This thinking was supported by Sir Charles Bean, of the London School of Economics, who argued that printing of money would help prevent large-scale unemployment. He also argued that the plan would not lead to significant inflation since the BOE, unlike the Bank of Zimbabwe, is an independent organization.

Lord King, the former BOE governor, also supported printing of money. He said that that the problem with inflation would happen if the government determined the amount of money to be printed and how it should be used.

By Crispus Nyaga

Source: Invezz

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BoE: Outstanding value of residential mortgage loans up 3.8%

The outstanding value of all residential mortgage loans was £1.499bn at the end of 2019, which is a year-on-year increase of 3.8% according to the latest Bank of England Mortgage Lenders and Administrators Statistics.

The value of gross mortgage advances was £73.4bn which remains broadly unchanged in comparison to Q4 2018.

New mortgage commitments, or lending agreed to be advanced in the coming months, was 4% higher than in 2018 at £70.6bn.

The share of mortgages advanced in Q4 2019 with LTV ratios exceeding 90% reached 5.7%, which is a rise on figures recorded the year previously.

The share of gross mortgage lending for buy-to-let purposes was 12.4%.

The value of outstanding balances with ‘some’ arrears fell by 2.1% over the quarter to £13.4bn, and now accounts for 0.89% of outstanding mortgage balances.

Mark Pilling, corporate sales managing director at Spicerhaart, said: “The Q4 arrears figures from the Bank of England are broadly positive, showing another fall on the back of previous quarters.

“There was also a small drop in high LTV mortgages and high loan-to-income ratios – although single-income borrowers with an LTI ratio above four actually rose slightly, which could be a cause for concern.

“With the coronavirus Covid-19 already beginning to cause real disruption to businesses and people’s livelihoods, it remains important that lenders have a flexible attitude and continue to seek outcomes that are right for customers.

“There is a strong likelihood that arrears will rise as a result of the virus, and the measures imposed to slow down its spread.

“Lenders need to be ready for a situation where people are facing real financial difficulties through no fault of their own.”

By Jessica Nangle

Source: Mortgage Introducer

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UK inflation rate jumps to 1.8 per cent in January

UK inflation rose to a six-month high of 1.8 per cent in January, a significant increase from December’s rate of 1.3 per cent, according to official data released today.

The rate remains below the Bank of England’s (BoE) target of two per cent. The bump comes as a surprise to analysts, who had forecast the rate to rise half as much to 1.6 per cent.

The rise was seen as a vindication of the BoE’s decision not to cut rates at its January meeting of the Monetary Policy Committee (MPC), despite fears of a potential recession.

Craig Erlam, senior market analyst at Oanda, said: “The MPC can now reflect positively on their decision to not jump the gun in January, on the back of some poor end of 2019 readings.

“There were too many one-off factors to explain the weakness and the level-headed approach appears to have paid off”.

Sterling initially rose 0.2 per cent against the dollar on the back of the news, breaking through $1.30, before paring its gains.

Activtrades senior analyst Ricardo Evangelista said that the boost showed the British economy continues to give signs of vitality “against all odds”.

The Office of National Statistics said the main drivers of the increase in inflation were increases in the housing and household services – gas and energy bills – as well as transport, which rose 0.2 per cent on rising fuel pump prices.

Recovering energy prices, which had taken a hit on the back of Ofgem’s introduction of the initial price cap last year, recovered after last year’s fall.

The retail and hospitality sectors also recorded rises, with the main contribution coming from women’s clothing. Despite evidence of increased discounting in December, the data showed little reduction in the number of items on sale.

Restaurants and hotels helped push the index as prices for overnight hotel accommodation fell by 3.9 per cent between December 2019 and January 2020, compared with a fall of 9.1 per cent between December 2018 and January 2019.

In a reversal from last month’s results, food and non-alcoholic beverages contributed a small negative contribution as December saw prices fall.

Ayush Ansal, investment chief at Crimson Black Capital, said that few would have seen this “curveball coming”:

“A rise was priced in but for inflation to surge by so much in just one month will have caught pound watchers by surprise. In just a month the doves at the Bank of England have gone from driving seat to back seat.

“With the chances of an interest rate cut now negligible, the pound will inevitably benefit”.

Robert Alster, head of investment services at Close Brothers Asset Management, said: “Inflation is ticking upwards, driven by greater consumer confidence, but does remain below target.

“However, despite this greater economic optimism, the UK is not yet out of the Brexit fog and the 31 December cliff-edge is only getting closer. The Bank of England will be trepidatious about bold monetary decisions until the scale of this post-EU disruption is known”.

By Edward Thicknesse

Source: City AM

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BoE: Mortgage borrowing holds steady in December

Net mortgage borrowing reached £4.6bn in December, above the £4.2bn average seen over the previous six months, the Bank of England’s Money and Credit statistics found.

The number of approvals rose to 67,200, above the six-month average of 65,900, highlighting that the market still performed steadily amidst the uncertainty of the general election.

Kevin Roberts, director, Legal & General Mortgage Club, said: “These lending figures from the Bank of England provide further indication that the mortgage market remained steady and resilient in the final months of 2019, even in the lead up to a General Election.

“At Legal & General Mortgage Club, we also saw a strong end to the year with a record number of completions for December, and with a reduction in political uncertainty we anticipate the wider mortgage market will enjoy further growth in the early part of 2020.

“Consumers across the country are still clearly reaping the benefits of a highly competitive mortgage market, whether they are taking their first step onto the ladder or locking into a competitive fixed rate when remortgaging.

“In many instances, these borrowers are drawing on the expertise of an independent adviser to help them find the right mortgage to make their housing plans a reality.”

BY RYAN BEMBRIDGE

Source: Property Wire

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Carney says BoE could cut interest rates if weakness persists

Bank of England Governor Mark Carney said on Thursday that the central bank could cut interest rates if it looks like weakness in the economy will persist.

His comments sent sterling to a near two-week low against the U.S. dollar as he outlined a debate on the Monetary Policy Committee about whether interest rates needed to be cut now.

Last month and in November, two of the nine policymakers on the BoE’s interest rate-setting committee voted to cut interest rates to 0.5% from 0.75%, though Carney himself backed keeping rates on hold.

Britain’s economy grew at its joint-weakest annual rate since 2012 late last year, and many indicators of the economy remain downbeat despite signs of optimism among businesses and consumers following Prime Minister Boris Johnson’s landslide election win last month.

While Carney also described reasons for optimism, investors honed in on the comments about a possible rate cut, which he linked directly to the current economic outlook — whereas previously he talked about cuts more as a contingency.

“With the relatively limited space to cut Bank Rate, if evidence builds that the weakness in activity could persist, risk management considerations would favour a relatively prompt response,” Carney said in a speech at a BoE event on inflation targeting.

Similar language was used in the most recent MPC minutes by Michael Saunders and Jonathan Haskel, who both voted for a rate cut.

Combining possible interest rate cuts and the prospect of more asset purchases, Carney said the BoE’s current armoury was the equivalent of cutting Bank Rate by 2.5 percentage points.

Money markets now price in a roughly 14% chance of a rate cut at the BoE’s Jan. 30 meeting, Carney’s last before he hands over the reins to Financial Conduct Authority chief executive Andrew Bailey, who takes over on March 16.

Markets price in a roughly 50% chance of a rate cut by the middle of the year.

“While this shouldn’t come as a huge surprise given that there has been a couple of MPC dissenters calling for lower rates at the past two policy meetings, it is the strongest hint yet for a rate cut in the not too distant future,” currency strategist David Cheetham of brokerage XTB said.

On asset purchases, Carney said there was room to “at least double” the BoE’s 60 billion pound stimulus package of August 2016, a sum that will increase further as more government bonds are issued over time.

Carney also gave reasons why the BoE might not cut interest rates, citing “tentative” signs that global growth was stabilising and ongoing tightness in Britain’s labour market.

He also said there were early indicators that there had been some reduction in business uncertainty since Johnson’s sweeping Dec. 12 election win.

The rest of his speech focused on possible changes to the BoE’s inflation targeting framework, which he said had served Britain well.

Carney said raising the inflation target, as advocated by some economists as a way to spur growth and escape from years of low interest rates, worked better in theory than in practice.

He also pushed back against those who think the BoE should use its quantitative easing stimulus to directly fund infrastructure or environmental spending.

“In my view, these should be resisted,” Carney said. “While carefully circumscribed independence is highly effective in delivering price and financial stability, it cannot deliver lasting prosperity and it cannot address broader societal challenges.”

Reporting by Andy Bruce

Source: UK Reuters