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BoE’s Saunders does not expect UK rates to rise ‘far or fast’

The Bank of England is unlikely to raise interest rates far or fast, even if the economy picks up following a smooth Brexit, Monetary Policy Committee member Michael Saunders said in an interview published on Thursday.

Business investment would probably strengthen following a smooth Brexit but a series of “cliff edges” could cause it to continue to stagnate, Saunders told the Northern Echo newspaper during a visit to northeast England.

“I would expect interest rates will go a bit higher over time, but it won’t be far or fast,” he said.

A ‘neutral’ level for interest rates, which would neither stimulate nor slow the economy, was probably around 2 percent, compared to 5 percent before the 2008 financial crisis, Saunders added.

The Bank of England last raised interest rates in August, increasing them by a quarter of a percentage point to 0.75 percent. Financial markets see little chance of a rates rising this year while it remains unclear on what terms Britain will leave the European Union.

The BoE has long said interest rate rises will most likely be limited and gradual, but last week Governor Mark Carney said markets had gone too far in assuming rates would rise just once over the next three years.

However, on Tuesday the BoE’s chief economist, Andy Haldane, stressed the ongoing uncertainty over Brexit and said it would be “deeply arrogant” to say markets were wrong about the outlook for interest rates or the economy more broadly.

Saunders, the first BoE policymaker to vote for interest rates to rise last year, said Britain had missed out on two to three years of business investment growth since June 2016’s referendum decision to leave the EU.

A smooth Brexit transition to a trading relationship with the EU that was closer than Canada’s, but more distant than Norway’s, “probably wouldn’t be as bad as many businesses fear,” Saunders said.

“No-deal Brexit would be off the table, business investment would recover a bit, the economy would continue to grow steadily and the jobless rate would probably fall,” he added.

By contrast, a no-deal Brexit would most likely cause sterling to fall and push up inflation, as well as causing business investment to fall further.

“That would be painful,” he said.

Reporting by David Milliken, editing by Andy Bruce; Editing by Toby Chopra

Source: UK Reuters

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BoE’s Haldane: ‘Deeply arrogant’ to assume markets wrong on rates

Policymakers would be “deeply arrogant” to assume financial markets or other forecasters are definitely wrong about the outlook for interest rates or the broader economy, Bank of England chief economist Andy Haldane said on Tuesday.

Last week BoE Governor Mark Carney said investors were underestimating how much interest rates could rise, even as the British central bank kept borrowing costs on hold due to Brexit uncertainty.

Haldane said in a question and answer session after a lecture at the University of Sheffield that due to unusually high economic uncertainty related to Brexit, it was reasonable for others to take a different view on the outlook to the bank.

“I think such is the uncertainty right now – for all sorts of reasons, all sorts of obvious reasons about the future course of the economy, it’s not in anyone’s interests to say the markets are wrong and we are right. That would be deeply arrogant,” he said.

“It’s implausible that anyone has a crystal ball on how the economy will evolve. Last week we gave the Bank of England’s view on the economy, having made some assumptions about, for example, how Brexit might play out. Time will tell whether that view comes to pass,” Haldane added.

Reporting by David Milliken, editing by James Davey

Source: UK Reuters

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Rates to be held at 0.75% as Brexit ‘fog’ overshadows growth spurt

The Bank of England’s latest rates decision comes amid signs that Brexit stockpiling has boosted recent economic growth figures.

Bank of England policymakers are set to hold interest rates at 0.75% on Thursday as Brexit uncertainty overshadows a strong start to the year for the economy.

The Bank’s latest rates decision – which will be accompanied by its quarterly Inflation Report forecasts – comes amid signs that Brexit stockpiling has boosted recent economic growth figures.

Data suggests the economy may have expanded by at least 0.4% in the first quarter, up from 0.2% in the final three months of 2018.

But this was largely due to “no deal” precautionary stockbuilding ahead of the original March 29 Brexit deadline and relatively mild weather, which experts believe will unwind in the April to June quarter.

The MPC may see the extension of Brexit as prolonging the uncertainties facing the UK economy and increasing downside risks

Howard Archer, EY Item Club

The latest manufacturing sector survey figures suggest this has already started, with a slowdown in activity seen in April after a surprisingly buoyant March.

Given the six-month EU departure delay, the “fog” of Brexit – as Bank Governor Mark Carney put it earlier this year – is unlikely to lift for some time and policymakers are seen remaining firmly in wait-and-see mode.

Howard Archer, chief economic adviser to the EY Item Club, said: “The MPC (Monetary Policy Committee) is likely to hold off from hiking interest rates until the Brexit situation becomes clearer and it can see how the economy is responding.

“Indeed, the MPC may see the extension of Brexit as prolonging the uncertainties facing the UK economy and increasing downside risks.”

Investec economist Philip Shaw said worries over the state of the global economy have also increased in recent months, which is “likely to provide the main argument for keeping rates steady this time”.

But economists are increasingly expecting pressure building for the MPC to consider raising rates later in 2019.

Investec believes one member – Michael Saunders – may even vote for a hike on Thursday.

The Bank is expected to nudge its 2019 growth forecasts higher in the accompanying inflation report thanks to the stockpile-boosted first quarter.

It slashed its growth forecast to 1.2% in the February report, which would mark the weakest expansion since 2009, when the economy was in a recession following the financial crisis.

The Bank may also up its inflation outlook, despite the Consumer Prices Index remaining steady at 1.9% in March, with rising oil costs and the recent increase in Ofgem’s energy price cap set to have an effect.

“The MPC will find a case for higher rates increasingly compelling as the year draws on,” said Mr Shaw.

He is pencilling in a hike to 1% in November, although this is based on a Brexit deal being reached, while Mr Archer said the odds favour rates being held throughout 2019.

The Bank’s rates announcement also comes after the Treasury announced last week that it had kicked off the search for Mr Carney’s successor.

It is using a headhunter for the first time to look for a replacement ahead of his departure next January.

Source: Express and Star

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Bank of England set to leave interest rates unchanged – but hint at a summer rise

Economists expect the Bank of England to leave the UK interest rate unchanged this week but flag a rate rise later this year.

This week is ‘Super Thursday’ for the Bank of England — the central bank will publish the latest decision of its interest rate-setting Monetary Policy Committee (MPC), the minutes from the MPC’s latest meeting, and the latest inflation report.

Bank governor Mark Carney will also give a press conference after the documents are published at 12pm UK time.

Economists expect the MPC to leave the headline interest rate unchanged at 0.75%.

However, a combination of better-than-expected economic growth, rising inflation risks, and reduced no-deal Brexit risks means forecasters expect the Bank of England to hint that rates could rise later this year.

Better-than-expected growth
“The very strong labour market continues to generate high numbers of jobs and increasingly positive real earnings, and though the MPC will remain patient for now, it may warn that a rate hike is likely to come much sooner than currently priced in unless the labour market starts to lose momentum,” UBS’ John Wraith wrote in a note to clients.

Higher earnings typically lead to inflation as people flush with cash spend the money and push up prices. Raising interest rates is a way to control inflation, by encouraging people to put money into savings accounts rather than spending it.

As well as a strong labour market, global growth is performing better than expected and this could also increase inflationary pressure. February UK GDP came in at 0.2%, compared to forecasts of no growth, while first quarter GDP growth in the US smashed forecasts at 3.2%.

“The MPC cut GDP forecasts for the Eurozone, US, and China in Q1 in the last iteration of its forecasts in February (and cut the US estimate again March),” Wraith wrote. “All now look too low, and are likely to be pushed higher. In addition, financial conditions are noticeably looser, and that will further boost economic prospects.”

The risks of a no-deal Brexit are also receding after the exit date was delayed until the end of October.

“The downside risks to the economic outlook posed by Brexit arguably have eased since February,” Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, wrote in a note to clients.

“Both the U.K. government and E.U. member states have demonstrated that they prefer delaying the U.K.’s departure from the E.U. to enduring the political and economic consequences of no-deal. MPs have shown that an effective majority exists to thwart any future attempts at a no-deal departure.”

Brexit risks have largely kept a lid on rate rises up until now and the receding risks could make it easier for the MPC to act.

Hints at a summer rise
Economists think these factors are not strong enough to force a rates rise this week, but mean Bank of England governor Mark Carney could hint rates will rise later in the year as pressures build.

“While we anticipate a unanimous vote this week, we think there is some scope for Thursday’s Inflation Report and governor Carney’s press conference to be marginally hawkish,” Deutsche Bank economists Sanjay Raja and Oliver Harvey wrote in a note to clients this week.

In central banking, a “hawk” is someone who favours high interest rates, while a “dove” is someone who favours lower interest rates.

Economists and investors watch central banks minutes and press conferences closely for any “hawkish” and “dovish” wording to ensure their portfolios are positioned correctly ahead of any rises. Central bankers also like to flag changes before they happen to prevent any market shocks.

“The MPC needs to ensure it can hike Bank Rate without undue disruption in the second half of this year, if the recent favourable run of economic data continues,” wrote Tombs.

Deutsche Bank is forecasting an August rates rise, while Pantheon Macroeconomics said there is a 50% chance of a rates rise in August. Nomura expects the Bank to hike rates in November.

Financial markets are currently predicting only a 30% chance of interest rates rising this year.

Any interest rate hike is likely to be by 0.25%, taking the headline rate of interest in the UK to 1%.

By Oscar Williams-Grut

Source: Yahoo Finance UK

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Bank of England set to freeze interest rates amid Brexit ‘fog’

BANK of England policymakers are set to hold rates firmly at 0.75% next week as the “fog” of Brexit continues after the six-month EU departure delay.

The bank’s latest rates decision – which will be accompanied by its quarterly Inflation Report forecasts – comes amid signs that Brexit stockpiling has boosted recent economic growth figures.

Data suggests the economy may have expanded by 0.4% in the first quarter, up from 0.2% in the final three months of 2018.

But this was largely due to “no deal” precautionary stockbuilding ahead of the original March 29 Brexit deadline and relatively mild weather, which experts believe will unwind in the April to June quarter.

Until the “fog” of Brexit – as Bank governor Mark Carney put it earlier this year – is lifted, policymakers are seen as remaining in wait-and-see mode for some time yet.

Investec economist Philip Shaw said: “The committee as a whole is likely to remain fretful over downside risks to the economic outlook.”

He added: “The committee’s immediate concerns over a disorderly Brexit could be eased somewhat by the new 31 October exit date.

“However its worries over the global economic background seem set to remain.

“Indeed it is probably this latter point which is likely to provide the main argument for keeping rates steady this time.”

But economists are increasingly expecting pressure building for the MPC to consider raising rates later in 2019.

Investec believes one member – Michael Saunders – may vote for a hike on Thursday.

The bank is expected to nudge its 2019 growth forecasts higher in the accompanying inflation report, up from the 1.2% predicted in February thanks to the stockpile-boosted first quarter.

It may also up its inflation outlook due to energy prices, despite the Consumer Prices Index remaining steady at 1.9% in March.

“The MPC will find a case for higher rates increasingly compelling as the year draws on,” said Shaw.

He is pencilling in a hike to 1% in November, although this is based on a Brexit deal being reached.

The bank’s rates announcement also comes after the Treasury announced it had kicked off the hunt to find a replacement for Carney.

Source: The National

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Bank of England to refrain from rate hike until August 2020 – NIESR

The Bank of England is likely to keep interest rates on hold until August 2020 because of a slower global economy and prolonged uncertainty about Brexit, a leading think tank said on Thursday.

The National Institute of Economic and Social Research pushed back by a year its previous forecast of a BoE rate hike which it made as recently as February.

NIESR economist Garry Young said a weaker global economy, and its knock-in impact on oil prices and other imports, was impacting monetary policy around the world, while in Britain uncertainty about Brexit has also kept the BoE on the sidelines.

“Now we expect the first increase in Bank Rate to be next August rather than this August,” he said.

The weakness in prices of imports would help offset inflation pressure from rising wages at home, Young said.

Britain is facing more uncertainty about its future relationship with the European Union after a deadline for Brexit was delayed from April 12 until the end of October this month.

Last week, a Reuters poll showed most economists now expect the BoE to raise borrowing costs early next year.

The British central bank has raised rates twice to 0.75 percent from an all-time low of 0.25 percent but Governor Mark Carney said the outlook for the economy is now shrouded in the “fog of Brexit.”

NIESR trimmed its expectation for British economic growth this year to 1.4 percent from its February forecast of 1.5 percent. It expected growth to pick up to 1.6 percent in 2020.

The forecast was based on the assumption of a “soft” Brexit which avoids disruption at the Irish border and maintains a high degree of access to EU markets.

The growth outlook would be slower if Britain ends up in a customs union with the EU, as favoured by the opposition Labour Party, or if the country leaves the EU without a transition deal, NIESR said.

Writing by William Schomberg

Source: UK Reuters

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Bank of England survey of attitudes to inflation and interest rates

This news release describes the results of the Bank of England’s latest quarterly survey of public attitudes to inflation, undertaken between 8 and 9 February 2019.

Q: When asked about the future path of interest rates, 22% said rates might stay about the same over the next twelve months, compared with 19% in November. 47% of respondents expected rates to rise over the next 12 months, down from 53% in November.

Q: Asked what would be ‘best for the economy’ – higher interest rates, lower rates or no change – 17% thought rates should ‘go up’, down from 19% in November. 17% of respondents thought that interest rates should ‘go down’, down from 19% in November. 37% thought interest rates should ‘stay where they are’, up from 34% in November.

Q: When asked what would be ‘best for you personally’, 22% of respondents said interest rates should ‘go up’, up from 21% in November. 28% of respondents said it would be better for them if interest rates were to ‘go down’, down from 31% in November.

Q: Median expectations of the rate of inflation over the coming year were 3.2%, remaining the same as in November.

Q: Asked about expected inflation in the twelve months after that, respondents gave a median answer of 2.9%, up from 2.8% in November.

Q: Asked about expectations of inflation in the longer term, say in five years’ time, respondents gave a median answer of 3.4%, down from 3.5% in November.

Q: By a margin of 56% to 6%, survey respondents believed that the economy would end up weaker rather than stronger if prices started to rise faster, compared with 53% to 9% in November.

Q: 49% of respondents thought the inflation target was ‘about right’, remaining the same as in November, while the proportions saying the target was ‘too high’ or ‘too low’ were 22% and 13% respectively.

Click here for the full report and statistics.

Source: Property118

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Jump in UK labor costs add to sign of growing inflation pressure

A key measure of employers’ labor costs in Britain rose by the most in five years in late 2018, adding to inflation pressures that the Bank of England has said will need to be offset by higher interest rates.

Unit labor costs rose by an annual 3.1 percent in the final three months of 2018, the Office for National Statistics said, up from 2.9 percent in the previous three-month period and the biggest increase since late 2013.

British employers have been increasing their pay for workers at the fastest pace in a decade as they try to hire and retain staff with the unemployment rate at its lowest since the 1970s.

While the strong jobs market is helping households recover some of the spending power they lost after the global financial crisis, the hiring surge has aggravated Britain’s weak growth in productivity which is key for higher pay over the long term.

The ONS said output-per-hour, a measure of productivity, rose by only 0.5 percent in 2018 as a whole, well below the annual average of 2 percent before the financial crisis and half its rate in 2017.

“Our latest figures show a continuation of a decade of weak growth, often referred to as the ‘productivity puzzle’, with labor productivity growth lower over the last decade than at any time in the 20th century,” ONS economist Richard Heys said.

“It has taken the UK a decade to deliver 2 percent growth, which historically was achieved in a single year.”

The BoE has said Britain’s slow productivity growth is likely to add to the case for gradual increases in interest rates, although it has held off from raising borrowing costs while it waits to see if Brexit deals a shock to the economy.

British finance minister Philip Hammond has said Britain’s planned exit from the European Union, which is expected to exert a drag on overall economic growth, underscores the need to tackle the country’s productivity problem.

Reporting by William Schomberg, editing by David Milliken

Source: UK Reuters

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BoE Unanimous In Keeping Interest Rates Unchanged

As was widely expected the rate-setters for the BoE have voted unanimously to keep the base rate on hold at 0.75%. It’s not surprising the bank have decided to remain in wait-and-see mode given the major political uncertainty at present, and don’t expect anything drastic from them until there’s greater clarity on Brexit.

The market reaction has been pretty quiet with the GBP/USD rate remaining near its lowest level of the day at $1.32.

UK retail sales add to recent strong data streak

Given the calamitous state of UK politics with it now being over 1000 days since the Brexit referendum and we’re still none the wiser as to what our exit from the EU will look like – let alone the relationship going forward – it is truly remarkable how solid, the economic data remains.

The latest figures reveal a pleasing strength in consumer confidence, as retail sales numbers topped estimates with the 3.7% increase for the 3 months to February representing the largest year-on-year rise since January 2017.

Economic surprise indices for the UK are about as positive as they’ve been for a couple of years, but for the foreseeable future Brexit remains the only game in town as far as currency traders are concerned and the uncertainty is weighing on sterling.

Dovish Fed weighs on USD but stocks fail to rally

The US central bank confirmed their policy U-turn with the announcement last night that rate-setters see no interest rate hikes this year, and only a token 1 in 2020. The market has been expecting this for a while since Chair Powell’s speech at the start of the year, with no 2019 hikes already priced-in before the latest meeting, but the Fedwent above and beyond what most expected by also announcing a slowing of its balance sheet reduction – also known as Quantitative Tightening (QT) beginning in May.

This dovish move caused an immediate drop in the buck, which depreciated across the board while stock and treasuries rallied.

No Powell Put?

What’s important to note is the reaction function of different markets to this change in tack, with equities already seemingly heavily discounting the move, whereas FX markets have been slower to price it in.

For instance, the large gains seen for US stock markets this year have been arguably driven by this shift in Fed policy more than any other factor, while the US dollar still remains higher than it did at the start of the year (according to a trade-weighted index of the buck.) Why this is crucial to note is what it means going forward, with the scope for a sustained move lower in the US dollar now seemingly far greater than a sustained rally in stocks – if we look purely based on Fed policy.

Indeed after an initial move higher as the news broke, US stocks gave up most of the gains, with both the S&P 500 and Dow Jones Industrial Average ending the day in the red.

A failure to extend the year-to-date rally on what is essentially good news could prove ominous and those who still believe in a “Powell Put” should be aware that the S&P500 has only managed to post a gain on 1 of the 9 days of a Fed rate decision since his tenure began.

By David Cheetham

Source: Investing

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Bank to ‘sit tight’ on interest rates amid Brexit ‘fog’

The Bank of England is expected to hold interest rates at 0.75% once more on Thursday as Brexit uncertainties reach their peak.

With still no clear sight of the Brexit outcome just over a week before the planned March 29 EU exit date, members of the Bank’s nine-strong Monetary Policy Committee (MPC) are set to vote unanimously to leave rates unchanged.

Experts believe policymakers will remain firmly in wait-and-see mode for some time until there is greater clarity.

There looks to be zero prospect that the Bank of England is going to act on interest rates until the Brexit situation is resolved and it can see how the economy is being affected

Howard Archer, EY Item Club

But the decision comes after a better-than-expected set of employment and wages data on Tuesday, which some economists have said bolsters the case for a rate rise later in the year, should there be a lengthy Brexit delay or if a deal is eventually struck.

Yet with inflation still below target at 1.9% in February and economic growth set to remain weak in the first quarter of 2019, there is little chance the Bank will look to make any moves until some of the damaging uncertainty over Brexit is lifted.

Or, as Bank Governor Mark Carney recently put it, the “fog” of Brexit, which is weighing heavily on growth.

Howard Archer, chief economic adviser to the EY Item Club, said: “Despite robust employment growth and firm pay, there looks to be zero prospect that the Bank of England is going to act on interest rates until the Brexit situation is resolved and it can see how the economy is being affected.

“With Brexit now looking most likely to be delayed until at least 30 June – and very possibly significantly later still – and the economy looking soft overall in the first quarter, we believe that it is ever more likely that the Bank of England will sit tight on interest rates through 2019 – assuming that the UK ultimately leaves the EU with a ‘deal’.”

Bank of England
Bank of England Governor Mark Carney has said the ‘fog’ of Brexit is hurting the economy (Kirsty O’Connor/PA)

The rates outlook would alter dramatically should there be a no-deal scenario, with most economists expecting a cut despite the Bank’s repeated warnings that policy could move in “either direction”.

Recent data has pointed to economic growth stalling at 0.2% in the first quarter, unchanged on the previous three months as Brexit uncertainty has seen sharp falls in business investment.

The recent official data revealed a 0.5% month-on-month rise in January in a rebound after a 0.4% fall in December, but growth edged just 0.2% higher overall in the three months to January.

Closely-watched purchasing managers’ index surveys have also signalled growth easing back to just 0.1% between January and March, while the latest manufacturing poll from the CBI on Wednesday showed the weakest activity since last May.

It also showed that a quarter of manufacturers were actively stock-building in preparation for a possible no-deal.

If the Government gets a long Brexit extension, a Bank of England rate hike is clearly on the table for the summer

James Knightley, ING

The Bank and independent forecasters at the Office for Budget Responsibility have both downgraded the growth outlook to the weakest for a decade in 2019, at 1.2% this year.

There is some hope of a marginal bounce-back should a Brexit deal be struck and business investment recovers, but Mr Carney and many other economists have been quick to warn that uncertainty will remain for some time yet even if an agreement is secured.

James Knightley, an economist at ING, is less gloomy on the prospects.

He said the better-than-expected 222,000 rise in employment in the recent data, the 3.4% rise in wage growth, and the fact that the UK’s jobless rate has fallen below 4% for the first time since 1975 cannot be ignored.

He said: “The UK labour data looks astonishingly strong for an economy that is supposedly slowing on most other measures.

“If the Government gets a long Brexit extension, a Bank of England rate hike is clearly on the table for the summer.”

Source: Shropshire Star