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The annual rate of inflation rose from 3. 9% in November to 4% in December, reversing a recent downward trend and reducing the likelihood of a decline in loan prices in the coming months, writes Andrew Michael.
Today’s Consumer Price Index (CPI), released through the Office for National Statistics (ONS), shows that the CPI rose by 0. 4% last month, the same pace of accumulation as in December 2022.
The core CPI, which omits volatile energy and food data, rose 5. 2% on the year in December, the same speed as in November.
CPI including owner-occupiers’ costs (CPIH) rose by 4.2% in the 12 months to December 2023, the same figure as a month earlier.
The ONS said the biggest upward impact on CPI and CPI adjustments was due to higher alcohol and tobacco prices, which were offset by lower food and non-alcoholic drink prices.
Grant Fitzner, lead economist at the ONS, said: “The rate of inflation accelerated in December, with tobacco costs rising due to recently introduced tariff increases. These were partially offset by a decline in food inflation, the costs of which continued to rise, albeit at a much slower pace than at the same time last year.
“Prices for products coming out of factories have changed little in recent months, while raw material prices are still lower than they were a year ago. “
Before Christmas, the Bank of England, tasked through the government with keeping long-term inflation in the UK at 2%, left interest rates unchanged at 5. 25%, their highest point in 15 years. The next announcement on bank rates will come on February 1 as commentators are skeptical about the likelihood of an interest rate cut.
After a downward trajectory in recent months, the current inflation figure is double the Bank’s target and is higher than the figures for the United States (3. 4%) or the euro (2. 9%).
Richard Carter, head of constant interest rate research at Quilter Cheviot, said: “While today’s increase particularly boosts the figure, it shows that the UK’s war on inflation is still over and the scenario remains precarious.
“Not only has the headline rate of inflation seen an unwanted uptick, but core CPI still remains relatively high. Core inflation has been falling much more gradually than the headline figure and progress here is likely to be slow. So the Bank of England may resist making rate cuts until it returns to a more palatable level.”
Dean Butler, managing director of direct retail at Standard Life, said: “With the joy of January and shortages, the effect of inflation moving further away from the Bank of England’s 2% target will be a severe blow to suffering households. “.
“It appeared that the pressure on people’s finances had eased slightly, with lower inflation expectations and one of the UK’s biggest lenders yesterday cutting lending rates in anticipation of an imaginable early base rate cut via the Bank of England. However, it may take a little longer for the tension to ease.
“Hopefully, this month’s figure is a failure and we will soon see the expected decrease in inflation. For those who want to save, this is still a great time to look for the most advantageous accounts.
U. S. headline inflation The U. S. economy rose more than expected to 3. 4% for the year to December 2023, up from 3. 1% in the previous month, giving the Federal Reserve an explanation for why it should keep borrowing prices at their current 22-year high when it shows its next interest. interest rate decision by the end of this month,” writes Andrew Michael.
The U. S. Bureau of Labor Statistics reported that the consumer price index (CPI) for all urban consumers rose 0. 3% last month, following a drop of 0. 1 percentage point in November 2023.
In explaining today’s figures, the Bureau attributed more than a portion of the increase in the monthly CPI figure to emerging housing rates. Electricity and fuel rates also increased in December, more than offsetting the decline in natural gas rates.
According to the Bureau, the core CPI, which excludes volatile food and energy prices, rose by 0. 3% in December 2023, the same increase as the previous month.
Over the year to December, the Bureau said that core CPI, which is regarded as a reliable gauge for longer-term inflation trends, rose by 3.9%, compared with 4% in the 12 months to November. Economists had expected a core CPI figure of 3.8% and a headline CPI figure of 3.2%.
The Federal Reserve, the subsidiary of the Bank of England, has a mandate to keep inflation at 2% in the medium and long term. Last month, it left loan prices unchanged at a 22-year high at a range of 5. 25% to 5. 5. %.
One of the key questions being asked by the markets globally is how soon the Fed, responsible for the borrowing costs of the world’s largest economy, would start to reduce interest rates having adopted an aggressive stance on monetary policy over the past two years to tackle sustained and elevated levels of inflation.
Market watchers had expected the Federal Reserve to begin reducing loan prices as early as the spring, but the current rise in inflation numbers could derail that possibility.
Richard Flynn, managing director of Charles Schwab UK, said: “Today’s figures show an increase in the rate of inflation, an increase that is likely to be interpreted by the market as unwanted, albeit surprising.
“The recent larger-than-expected earnings expansion has been a wake-up call for many investors expecting lower interest rates. While strong activity in the labor market is a sign of a healthy economy and is smart for workers, it can also be a contributing factor. something to inflation, which has likely influenced the price increases seen today.
“Inflation numbers over the past few months have been promising, and a single figure is not a trend. But if today’s report marks the beginning of an uptrend, there’s a good chance the Fed will delay rate cuts later than expected. It looks like the market has taken the lead by announcing up to six rate cuts by the Federal Reserve in 2024. “
The Federal Reserve’s interest rate ruling will be announced on Jan. 31. The Bank of England’s latest bank rate announcement will be made on February 1 (the current rate is 5. 25%).
The annual inflation rate plunged more than expected to 3. 9% in November this year, according to official figures, raising hopes that interest rates may start falling faster than expected in 2024, writes Andrew Michael.
Today’s Consumer Prices Index (CPI), from the Office for National Statistics (ONS), fell more abruptly than economists’ predictions of 4.3%. and stands at its lowest level for more than two years.
The ONS added that, on a monthly basis, CPI rose by 0.2% month-on-month to November, compared with a rise of 0.4% 12 months ago.
Core CPI, which excludes volatile energy and food data, rose 5. 1% year-to-date last November, up from 5. 7% in the previous month.
The CPI adding owner occupancy prices (CPI) rose by 0. 1% in the year to November 2023, down from 0. 4% recorded 12 months earlier.
The ONS said that the largest downward contributions to the change in both the CPI and CPIH annual rates came from transport, recreation and culture, and food and non-alcoholic drinks.
Grant Fitzner, lead economist at the ONS, said: “Inflation has slowed to its lowest annual rate in more than two years, but costs remain particularly higher than before the invasion of Ukraine.
“The biggest driver for this month’s fall was a decrease in fuel prices after an increase at the same time last year. Food prices also pulled down inflation, as they rose much more slowly than this time last year. There was also a price drop for a range of household goods and the cost of second-hand cars.”
Last week, the Bank of England, which the government is requiring to keep the UK’s long-term inflation at 2%, left loan prices unchanged at a 15-year high of 5. 25% for the third month in a row (see article below). .
Although today’s inflation figure remains almost twice the size of its target level, commentators were increasingly hopeful that the Bank would be able to meet its mandate without causing a hard economic landing in the process.
Yesterday (Tuesday), the Eurozone annual CPI inflation figure came in at 2.4%, its slowest rate in two years. Core inflation, for the trading bloc covering the 20 countries whose common currency is the euro, fell to 3.6%
Richard Carter, head of constant interest rate research at Quilter Cheviot, said: “Compared to last year, a sense of cautious optimism has hung in the air recently and this morning’s 3. 9% inflation figure adds to that. The Bank of England now faces a less daunting task: bringing inflation back to its 2% target next year, without requiring a deep recession.
“This further slowdown in the speed of value increases offers a ray of relief for families suffering with the new burden of life. “
James McManus, chief investment officer at Nutmeg, said: “While energy prices are well below last year’s levels, food prices, which have slowed according to today’s data, are still 9% higher than a year ago. So, food inflation, perhaps one we all feel most acutely in our weekly shops or eating out bills, still needs to come down dramatically.
“Together with the wages picture, there is plenty for the Bank of England to chew over on the inflation front.”
The Bank of England kept its bank interest rate at 5. 25% for the third time in a row, writes Andrew Michael. It reached this point in August 2023.
In a widely expected move that echoed yesterday’s decision by the US Federal Reserve to keep rates on hold (see story below), the Bank’s Monetary Policy Committee (MPC), voted by six votes to three to maintain the influential rate at a 15-year high of 5.25%.
Each of the three dissenting voices in the MPC voted to increase the rate through percentage issuances from 0. 25 to 5. 5%.
Explaining its decision, the Bank said: “Since the MPC’s previous decision, Customer Value Index inflation has declined as expected, while there has been negative news in the expansion of the personal sector’s normal average weekly earnings.
“However, key indicators of UK inflation persistence remain elevated. Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target in the medium term, in line with the Committee’s remit.”
Inflation stood at 4.6% in October, according to the Office for National Statistics. The November figure will be published next week.
The next official announcement of the fee will be made on February 1, 2024.
Today’s announcement through the Bank of England, its latest interest rate-setting resolution of 2023, will provide partial relief to millions of loan consumers and other borrowers who benefit from adjustable-rate and tracker-based loans.
This has been a challenging year for current and potential borrowers, facing affordability pressures from emerging interest rates and the ongoing cost of living crisis, as well as asset costs still at peak levels relative to income.
Between December 2021 and August this year, the Bank, in the face of rising inflation, raised loan prices 14 times in a row in a bid to curb emerging prices, which peaked at an annual rate of 11. 1% in October 2022 before falling to 11. 1%. % in October of 2022. su current level.
The Bank’s resolution also means that savers can get a “genuine” return on money held in bank accounts and loan companies, as long as they look for the deals. A genuine refund is received when the interest rate paid is higher than the prevailing inflation figure. .
Despite the welcome drop in inflation, the UK figure remains the highest compared to official data from the US and the eurozone, where prices are rising annually by up to 3. 1% and 2 . 4% respectively. UK inflation is also more than double the long-term target of 2% followed by central banks around the world.
As domestic interest rates stabilize and inflation risks recede, the next resolution for financial policymakers will be how long they will keep loan prices at existing rates and what is the opportunity, if any, to start reducing them.
In explaining his resolve to keep interest rates unchanged, Federal Reserve Chairman Jay Powell gave markets the clearest signal yet that a prolonged era of financial tightening was over.
Global markets responded to his comments by reaching multi-year highs. But Bank of England Governor Andrew Bailey has warned that it is too early to think about a rate cut.
Rob Morgan, chief investment analyst at Charles Stanley, said: “While inflation pressures are showing clear signs of easing and the UK economy is on the brink of recession, the Bank is keen to control the situation by keeping rates at restrictive territory.
“The Bank is aware that it is going too far by raising rates and causing more damage to the economy than necessary, but at the end of the day, its task is to bring inflation back to the target. Just as it is more difficult to extract it in recent years remains of toothpaste in the tube, it can be difficult to extract the remains of unwanted inflation from the system, which will therefore have to maintain restrictive interest rates for some time.
Karen Noye, mortgage expert at Quilter, said: “The Bank of England’s decision to maintain the interest rate at 5.25% is a significant move with multi-faceted implications for the UK economy. But, by and large, it should spell good news for mortgages and the housing market.
“For the housing market, this pause in interest rate hikes may boost confidence. More certainty over mortgage costs breeds higher buyer confidence and property market activity. More potential buyers should start to feel confident about entering the market, potentially sustaining or even boosting housing prices.
“The latest space value indices have shown that, due to the limited housing stock, the value has increased slightly. “
The European Central Bank (ECB), in line with the Fed and the Bank of England, has also left its three key interest rates on hold.
Borrowing prices for its main refinancing option, marginal lending and deposit services, remained unchanged at 4. 5%, 4. 75% and 4%, respectively.
Explaining its decision, the ECB said: “Underlying inflation has eased further. But domestic price pressures remain elevated, primarily owing to strong growth in unit labour costs.”
The ECB added that inflation is expected to ease over the next year, before approaching its 2% target in 2025.
The U. S. Federal Reserve kept loan prices unchanged at their highest level in 22 years, as expected, while noting that it remains “very vigilant” to inflation hazards and would be willing to adjust its stance and increase its hikes if the economic outlook changed. Andrés Miguel.
Today’s announcement through the Federal Open Market Committee (FOMC), its most recent 2023 rate-setting resolution, that the Fed’s benchmark target interest rates remain at a range of 5. 25% to 5. 5%.
The Bank of England will announce its resolution on the bank rate on December 14 at 12 noon. The rate is expected to remain at 5. 25%. The European Central Bank will also publish its new rate resolution on the same day.
Earlier in the day, the latest economic data showed that U. S. manufacturers’ price inflation, which tracks the values companies get for their goods and services, slowed more than expected in November, supporting the FOMC’s resolution to leave interest rates unchanged.
The FOMC, whose members voted unanimously to keep rates at current levels, said: “Recent signs that the expansion of economic activity has slowed from the strong speed of the third quarter. Job creation has slowed since the beginning of the year but remains strong. and the unemployment rate has remained low. Inflation has declined over the past year but remains high.
The Fed’s resolution on interest rates follows official figures released through the U. S. Bureau of Labor Statistics, which showed that headline inflation in the U. S. It fell to 3. 1% in November from 3. 2% the previous month.
As with other major central banks worldwide, the Fed is mandated to maintain inflation at 2% over the medium to long-term. Its next rate-setting announcement will be made on 31 January 2024.
Lindsay James, investment strategist at Quilter Investors, said: “The U. S. economy continues to defy expectations, task expansion remains remarkably steady, and the economy continues to expand.
“However, even though annual headline inflation fell to 3. 1% in November, it is still well above the 2% target and core inflation rose in monthly figures, suggesting that price pressures have not yet “This may allow the Federal Reserve to maintain its increased position for an extended period through 2024. “
Headline inflation in the U. S. U. S. borrowing fell as expected to 3. 1% for the year to November from 3. 2% the previous month, all but ensuring that borrowing prices will remain at existing levels when the Federal Reserve unveils its new 2023 interest rate resolution on Wednesday. Andrew Michael writes.
The Bank of England and European Central Bank announcements will follow on Thursday – both are expected to keep their respective lending rates unchanged.
The U. S. Bureau of Labor Statistics The U. S. Department of Agriculture reported today that the Consumer Price Index (CPI) for all urban consumers fell 0. 1 percentage points in November 2023, after holding steady a month earlier. In light of these figures, the Office indicated that rental prices continued to rise in November. , offsetting the drop in fuel prices.
According to the Bureau, core CPI, which excludes volatile food and energy prices, rose 0. 3% in November, following a 0. 2% increase a month earlier. In the year through November, the Bureau said core CPI, a long-term indicator of inflation developments, rose 4%, the same point as in October.
The Federal Reserve, like the Bank of England, is mandated to keep inflation at 2% in the medium to long term. Last month, it left borrowing prices unchanged at a 22-year high of 5. 25% to 5. 5%.
Following today’s release, commentators expect that the Federal Reserve will likely keep interest rates at grade one when it makes its final decision on the issue of borrowing tomorrow.
The Bank of England’s banking rate has been at 5. 25% since August.
Tom Hopkins, senior portfolio manager at BRI Wealth Management, said: “U. S. headline inflation is rising. UU. se stood at 3. 1% year-on-year in November 2023, in line with consensus expectations and the figure. at least in five months. More importantly, core inflation remained at 4% in November 2023, unchanged from last month but still at its lowest level since September 2021, matching market forecasts.
‘’Today’s reading should be taken positively by the market as it bolsters arguments for the Federal Reserve to keep interest rates at current levels when they meet for the final time this year tomorrow.
“Over the past few weeks, we’ve noticed that the market has started to assess the anticipation of a policy change early next year, and lately the market has priced in a 40% chance of a rate cut starting in March 2024, which is optimistic. The market has consistently mispredicted the Fed’s direction over the past two years and the risk is that it could happen again.
Ryan Brandham, Head of Global Capital Markets for North America at Validus Risk Management, said: “The US Consumer Price Index figures are in high quality. U. S. sales were largely in line with expectations, with a higher monthly figure.
“The market is already pricing in more than four interest rate cuts in 2024. However, with core CPI holding at 4%, there is a threat that those declines will not occur as temporarily as the market expects.
“The Fed wants to see a sustained decline in inflation before taking any meaningful action. Even though today’s release is very much in line with expectations, the market’s reaction would possibly be muted today as it moves into tomorrow’s next rate-setting meeting.
Inflation in the 20-nation bloc (the euro) is expected to reach 2. 4% for the year to November, up from 2. 9% in October.
The European Central Bank, like central banks like the Bank of England, is tasked with keeping inflation at 2%. Annual inflation in the UK in October fell to 4. 6% from 6. 7% last month.
The November figure for the eurozone – a flash estimate from the EU’s statistical office, Eurostat – is below general expectations, and suggests that an interest rate cut might be in the offing to forestall the threat of recession in the trading bloc.
The inflation rate fell in the food, alcohol and tobacco sectors (from 7. 4% to 6. 9%), (from 4. 6% to 4%) and non-energy commercial goods (from 3. 5% to 2. 9%). with an inflation rate of -11. 5% compared to -11. 2% in October.
Forecasts for wholesale energy prices suggest that they might rise in the coming weeks, especially if the weather proves particularly cold and demand rises as a result. Any uptick in retail energy prices could therefore reduce the rate at which inflation is falling.
The UK energy price cap, which limits the amount suppliers can qualify for per unit of energy and at constant prices, will increase to 5%, from £1,834 to £1,928 per year for an average family from 1 January 2023.
The euro domain includes Belgium, Germany, Estonia, Ireland, Greece, Spain, France, Croatia, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland.
The annual inflation rate fell sharply, according to official figures, to 4. 6% in October this year, from 6. 7% the previous month, reducing the threat of a rise in Bank of England loan prices before the end of 2023, writes Andrew Michael. .
Today’s Customer Value Index (CPI) from the Office for National Statistics (ONS) fell to the lowest rate in just two years. On a monthly basis, the rate was unchanged in October 2023, compared with a 2% increase for the same month last year, largely attributed to higher energy costs.
The ONS reported that the “core” CPI, which omits volatile energy and food data, rose by 5. 7% in the 12 months to October this year, up from 6. 1% in September.
The CPI adding owner-occupied home prices (CPIH) rose 4. 7% in the year to October, up from 6. 3% in the previous month.
Today’s announcement means that Prime Minister Rishi Sunak’s aim of halving inflation before the end of 2023 has been achieved.
Grant Fitzner, lead economist at the ONS, said: “Inflation eased particularly during the month as last year’s sharp rise in energy prices followed a slight increase in the energy value cap [a cap on how much UK households can qualify energy suppliers] this year. “
“Food costs barely recovered during the month, after rising at the same time last year, while hotel costs fell, helping to push inflation to its lowest level in two years.
“The cost of goods coming out of factories increased during the month. However, the annual expansion was slightly negative, driven by oil and steel commodities.
The Bank of England, which is obligated through the government to keep long-term British inflation at 2%, will assess today’s news, as well as yesterday’s official figures which showed that wages, at 7. 7%, have continued to grow at one of the lowest rates. faster rates saved, before deciding what to do next with the rate.
The rate has recently stood at 5. 25%, its 15-year level, and affects both borrowers and savers. The Bank’s next resolution will be announced on 14 December.
All eyes will turn next to the Autumn Statement on 22 November where rumours have been swirling for several days about potential changes to the UK’s regime on individual savings accounts (ISAs) and inheritance tax.
Lindsay James, investment strategist at Quilter Investors, said: “The Prime Minister is going to breathe a deep sigh of relief today, especially given the political occasions of the last few days. Halving inflation is intended to be the simplest to achieve among its five priority targets, as this is a year-over-year comparison, and in 2022 inflation rose sharply.
While things have gotten a little closer, the sharp drop in inflation now to 4. 6% is a positive step on the long road to target levels. However, this is basically due to points that do not seem to be repeated in the coming months. .
“Energy costs are the main contributor to the drop. While the great knowledge is good news for the Bank of England’s interest-rate-setting financial policy committee, it will need to see more evidence of an economy-wide inflation slowdown, which comes mainly from fluctuations in foreign energy markets.
“With a slower decline in core CPI, now at 5. 7% from 6. 1% in September, it is clear that progress towards the 2% target is most likely to be slow. “
Headline US inflation fell to 3.2% in the year to October 2023 from 3.7% a month earlier, reducing the likelihood of an interest rate hike by the Federal Reserve at its final meeting of the year on 13 December, writes Andrew Michael.
The U. S. Bureau of Labor Statistics reported that the Consumer Price Index (CPI) for all urban consumers was unchanged in October, after expanding 0. 4 percentage points in September from this year.
Explaining the most recent figures, the Bureau said housing costs continued in October, offsetting a decline in fuel costs “so the seasonally adjusted index remained unchanged during the month. “
According to the Bureau, core CPI, which excludes volatile food and energy prices, rose by 0. 2% in October this year, following a 0. 3% increase last month. However, in the year to October 2023, the Bureau reported that core CPI rose 4%, the smallest 12-month cumulative since September 2021.
The Federal Reserve, the subsidiary of the Bank of England, left borrowing rates untouched earlier this month, at a 22-year high ranging from 5. 25% to 5. 5%.
Last week, Federal Reserve Chair Jay Powell under pressure for policymakers not to be “fooled by a few smart months of data. “He warned that the central bank could simply raise rates again, even as officials have been reluctant to raise borrowing levels from existing levels. Degrees.
Like other central banks, the Federal Reserve is mandated to keep long-term inflation at a level of 2%. Following today’s US figures, the focus will be on the most recent UK inflation figure, released tomorrow. Last month, the Office for National Statistics announced an annual inflation rate of 6. 7% through September 2023, unchanged from last month.
Lindsay James, investment strategist at Quilter Investors, said: “Current insights into US inflationsignal that the Federal Reserve’s work on interest rates is likely over, even if official indications leave raising rates this year on the table. Even though core inflation is slowly falling lately, signs are developing that this trend will increase in early 2024 in a slowing economic environment. “
Richard Flynn, managing director of Charles Schwab UK, said: “The decline in inflation suggests that recent financial policy has done its job. This smart news increases the likelihood that central bankers will refrain from any further rate hikes this cycle.
The Bank of England has left loan prices unchanged for the second time in a row as financial policymakers around the world pause their fight against inflation, writes Andrew Michael.
In a widely expected decision, the Bank’s Monetary Policy Committee (MPC) voted 6-3 to keep the bank rate at a 15-year high of 5. 25%. The three minority shareholders voted to increase the rate to 5. 5%.
Today’s announcement repeats September’s decision, which brought to an end a run of 14 consecutive interest rate rises that stretched back to December 2021.
The news will provide relief to more than a million borrowers with variable rate and tracker mortgages who, until last month, had been battered by a series of rising home loan costs lasting nearly two years.
Explaining the move, which follows actions taken by the U. S. Federal Reserve, the U. S. Federal Reserve has been a key factor in the development of the U. S. Federal Reserve. In a statement by the US and the European Central Bank (see articles below), the Bank said: “Since the MPC’s last resolution [in September 2023], there has been little news related to key indicators. patience of inflation in the UK.
“There have continued to be signs of some impact of tighter monetary policy on the labour market and on momentum in the real economy more generally.”
Interest rate makers will need to know how long they are willing to keep a cap on borrowing costs, whether raising rates further will be mandatory, or whether recent decisions will mark a tipping point that will lead to a rate cut.
The UK’s annual inflation rate remained unchanged at 6. 7% in September, significantly higher than the comparable figure of 3. 7% in the US, or yesterday’s initial estimate for the eurozone, which showed costs rose by just 2. 9% across the eurozone’s trading bloc in September of the year to October 2023.
Although UK inflation has fallen since peaking at 11. 1% in October last year, the most recent figure is still well above the long-term target of 2%. The Bank says it expects inflation to continue to decline this year, to around 4. 5%, before proceeding to decline in 2024.
The next resolution on bank rates will be adopted on 14 December. Before that, on 22 November, Chancellor Jeremy Hunt will deliver his autumn statement.
Rob Morgan, lead investment analyst at Charles Stanley, said: “They have given the impression of cracks in the economy and labour market, and many signs of inflation are subsiding as expected, so the Bank can rightly take a wait-and-see stance. “this stage. indicate.
“With inflation well above the 2% target and wage expansion still high, a further rate hike is ruled out in the coming months, but the likely peak situation is that we have already peaked in interest rates and a long stagnation lies ahead. before the top. The descent begins.
Emma Mogford, fund manager at Premier Miton Monthly Income Fund, said: “I am increasingly convinced that we are now at peak rates. The immediate rise in interest rates over the next year will continue to reduce the demand for intelligence and facilities and thus inflation, which the Bank of England hopes to reduce to 2% in two years. If inflation can come down while the economy is resilient, that would be smart for UK stocks.
Dean Butler, managing director for retail direct at Standard Life, said: “The Bank of England’s decision to hold the base rate again will come as welcome relief to people facing another difficult winter. Households approaching the end of a fixed mortgage term will be particularly glad of the respite.
“There’s also good news for those who can save. It looks like rates might be peaking, but there’s no sign that they’re going to start coming down anytime soon, and Best Buy’s fixed-rate savings accounts are between 5. 5% and 6% lately. With inflation expected to fall to around 5% through 2023, liquid savings could start to outpace value increases for the first time in a long time.
The US Federal Reserve has, as expected, held borrowing costs untouched at a 22-year high while retaining the potential for future increases in its ongoing fight against inflation, writes Andrew Michael.
Today’s announcement through the Federal Open Market Committee (FOMC) that the Federal Reserve’s benchmark interest rates remain at a range of 5. 25% to 5. 5%.
The Bank of England, the British equivalent of the Federal Reserve, will release its latest resolution on rate cuts (Thursday). It is also expected to keep UK loan prices at their current rate of 5. 25%, which would be the third time in a row at this level.
The FOMC, whose members voted unanimously to keep rates unchanged, said: “Recent signs that economic activity expanded at a strong pace in the third quarter. Job creation has slowed since the beginning of the year but remains strong, and the unemployment rate has remained low. Inflation remains high.
“In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of income information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge.”
The Fed’s resolution on interest rates follows recent official data showing that US inflation stood at 3. 7% for the year to September 2023.
This is particularly lower than the UK’s recent peak figure of 6. 7%, but higher than yesterday’s initial estimate that costs rose by just 2. 9% across the eurozone trading bloc in the year to October 2023. Each of the respective central banks has an inflation target of 2%.
With ongoing tensions in the Middle East threatening to send the oil price spiralling and reignite inflationary pressures, market watchers say rate-setters remain cautious about future decisions involving borrowing costs.
Richard Carter, head of constant interest rate research at Quilter Cheviot, said: “Today’s decision by the Federal Reserve to hold interest rates on hold underscores the complexity of the current U. S. economic landscape. Even as the economy defies expectations with strong task expansion and economic expansion, the inflation rate remains well above its 2% target. Analysts will be keeping an eye on each new release of information for clues about the long-term direction of the Federal Reserve.
“With giant customers like McDonald’s and Amazon beating earnings expectations and still missing about $1 trillion in pandemic-era savings to stimulate consumption, inflationary pressure remains palpable. “
As expected, the European Central Bank (ECB) has halted a series of 10 consecutive interest rate hikes in the eurozone without altering loan prices, writes Andrew Michael.
Today’s announcement that the central bank’s main refinancing rate remains at 4. 5%. Its marginal credit facility remains at 4. 75%, with a deposit rate at 4%.
Explaining its decision, the ECB said inflation “fell sharply in September. . . and that peak core inflation measures have continued to ease. “
It added that its financial adjustment program initiated last year “continues to have a strong impact on financing conditions” and that “this is increasingly dampening demand and thus helping to reduce inflation. “
Consumption in the 20 countries that make up the euro area rose by 4. 3% in September 2023, up from 5. 2% in the previous month, and the slowest rate of expansion recorded across the trading bloc since October 2021.
Like other central banks, such as the Bank of England and the US Federal Reserve, the ECB must keep inflation at 2% in the medium and long term.
The Bank and the Federal Reserve will announce their latest interest rate decisions next week. Both have to keep loan prices at current levels at their recent rate-setting meetings, and markets expect this to remain the case when their respective announcements are made.
The resolution to keep the UK bank rate at 5. 25% has encouraged many lenders to set their own rates, injecting festival into the market. The Federal Reserve will release its resolution on Nov. 1 and the Bank will abide by it the next day.
Marcus Brookes, of Quilter Investors, said: “After the most competitive series of rate hikes in its history, the ECB has joined with the Federal Reserve and the Bank of England to hit the pause button and accurately assess the effect of their moves to date. Inflation in the euro area has fallen particularly and is expected to moderate further, although it is still far from its target.
“A number of dangers remain that could keep inflation elevated, adding to emerging wage expansion and uncertainty in the Middle East, which is driving up energy prices. Going forward, like other central banks, the ECB will say that the market will be expecting higher interest rates for longer, with the door open if we see a further rise in inflation.
Goldman Sachs Asset Management’s Gurpreet Gill said: “The ECB’s interest rate hike cycle is over and we expect today’s resolution to keep rates unchanged to continue into 2024. Higher energy costs pose a new upside threat to headline inflation, but a moderate expansion and cooling of core inflation will likely save it from additional rate hikes.
“Our expectation is for a rate cut from the third quarter next year, though a sharp slowdown in the economy or a larger-than-expected deterioration in the labour market could prompt an earlier shift towards policy easing.”
The annual rate of inflation remained unchanged at 6.7% in September this year according to official figures, keeping up the pressure on the Bank of England to stay firm in its fight to bring down inflation, writes Andrew Michael.
The Consumer Price Index (CPI) released today via the Office for National Statistics (ONS) beat market expectations and followed yesterday’s figures which showed UK wage expansion slowing to 7. 8% in the three months until August.
The ONS said the “core” CPI, which excludes volatile energy and food data, fell to 6. 1% in the year to September, from 6. 2% in August. However, this was offset in the headline figure through increased petrol and diesel at the pump.
The CPI adding owner-occupied home prices (CPIH) rose 6. 3% in the year to September, unchanged from the previous month.
Grant Fitzner, lead economist at the ONS, said: “After last month’s drop, annual inflation was unchanged in September. Prices for food and non-alcoholic beverages fell across a variety of items, and prices for appliances and airfare also fell this month. These were offset by higher fuel charges and hotel stays.
“The annual rate of core inflation has slowed again this month, driven by a slowdown in the cost of many goods, though services prices did rise a little this month.”
The Bank of England, tasked through the government with keeping long-term inflation at 2%, will assess the latest insights into wage expansion and inflation before deciding what to do about the bank rate, which affects borrowers and savers.
The Bank’s next interest rate announcement is expected on November 2.
Last month, in a historic move, the Bank left loan prices unchanged for the first time in just two years, leaving them at a 15-year high of 5. 25%. In recent weeks, central banks around the world have warned that loan prices may simply remain at higher levels until next year to maintain inflationary pressures.
Rising geo-political tensions in the Middle East threaten to send the oil price soaring, adding to the potential for increased inflationary pressures worldwide.
Today’s CPI announcement also completes the final part of the government’s so-called pensions ‘triple lock’ equation, the adjustment applied to next April’s state pension rise that is conditional on one of three economic factors.
The triple lock’s aim is to protect the state pension from inflation, ensuring it rises by a real amount each year. The measure applied is the highest figure between inflation as measured by September’s CPI measure; wage growth as measured between May and July; and a minimum uplift of 2.5%
Subject to conceivable changes, the pay rise figure announced last month will lead to an 8. 5% increase in state pensions from next year.
Marcus Brookes, chief investment officer at Quilter Investors, said: “UK inflation’s march back down to target can very much be described as ‘slow and steady’, with CPI refusing to budge in September at 6.7%. Clearly the UK is not winning any races with this trajectory as inflation still remains incredibly elevated, and much more so than its peers.
“With geopolitical tensions rising, energy and oil costs are on the rise again and inflationary pressures are very likely to hit an economy that has gone through a painful cost-of-living crisis. For now, the rhetoric about higher and longer interest rates will continue to persist.
Patrick Thomson, head of research and policy at Phoenix Insights, said: “12. 6 million people are recently receiving the state pension, so any last-minute adjustments to the triple lock will have a dramatic effect on everyday life. other people, including those for whom the state pension is the only source of income.
“More than a third of adults over 66 who are still in work expect the state pension to be their main source of income in retirement.”
Annual wage expansion in the UK slowed in the three months to August this year but remained near record levels, according to information from the Office for National Statistics released today, writes Andrew Michael.
The ONS said annual growth in regular pay, excluding bonuses, rose by 7.8% between June and August 2023. The figure was down marginally from the 7.9% registered for the three months to July this year, but remains one of the highest rates since comparable records began in 2001.
The annual expansion of global average employee pay, including bonuses, stood at 8. 1% between June and August, compared to 8. 5% in the previous month. The ONS said the figure was affected by one-off bills to civil servants and NHS staff over the summer. .
The most recent wage figures do little to the fact that hard labour market pressures are easing, posing a challenge for policymakers at the Bank of England at its next meeting on 2 November.
Today’s news may also affect the triple lock, the adjustment that will be implemented next year in the amount of the state pension and that is conditional on one of three economic factors.
Last month, the Bank left loan prices unchanged for the first time in just two years after better-than-expected insights showed that inflationary heat had begun to recede from the UK economy.
Although inflation has eased since peaking at 11. 1% in October last year, the current figure of 6. 7% is still well above the Bank’s long-term target of 2%, set through the government.
Currently, the inflation figure, which will be revised (Wednesday), is lower than the current wage expansion figures, which creates a challenge for those who are about to set the bank rate, which lately stands at 5. 25%.
Alice Haine, private finance analyst at Bestinvest, said: “The expansion of high wages can ease monetary pressure on families, [but] it risks fueling inflation if corporations shift that burden to consumers by increasing the value “This would put additional pressure on household finances at a time when energy stocks are threatened by geopolitical tensions and emerging demand amid colder climates. “
Samuel Tombs, lead UK economist at Pantheon Macronomics, said: “Wage expansion is slowing fast enough that the Bank of England’s financial policy committee, which is guilty of setting interest rates, will keep the bank rate at 5. 25% next month. “
Helen Morrissey, head of pensions research at Hargreaves Lansdown, said: “This pay insight may be how the government envisages the triple lock. Average pay growth, adding bonuses, was 8. 1%, below increase from last month’s 8. 5%. This 8. 5% figure is the one that deserves to be used for the calculation of the triple lock on state pensions and, as inflation is falling, deserves to give pensioners their second big increase consecutive.
“However, given that those figures have been inflated due to the effect of one-off bills on civil servants and NHS staff over the summer, we may see the Government looking to take a slightly different path. Excluding bonuses they remain at 7. 8% and, if the government were to adopt this figure, it could also save on the state pension bill and at the same time provide what would deserve to be an anti-inflationary boost for pensioners. “
Headline inflation in the United States stood at 3. 7% for the year of September 2023, unchanged from last month, writes Andrew Michael.
The US Bureau of Labor Statistics reported today that the Consumer Price Index (CPI) for All Urban Consumers rose month-on-month by 0.4% on a seasonally adjusted basis in September, having risen by 0.6% in August. The Bureau blamed housing for over half of the September increase, adding that an increase in fuel was also a “major contributor” to a rise in the ‘all items’ inflation figure.
As expected, core CPI, which excludes volatile food and energy prices, rose 0. 3% in September, bringing the 12-month annual report to 4. 1%, up from 4. 3% in August.
The Federal Reserve, the US bank of the Bank of England, left loan prices unchanged last month at a range of 5. 25% to 5. 5%, after an 18-month era dominated by consecutive episodes of financial adjustment aimed at stubbornly limiting a crisis. Strong economy. Inflation.
As with other central banks worldwide, the Fed is required to maintain long-term inflation at a level of 2%.
The Federal Open Market Committee (FOMC), which sets rates, will release its next resolution on Nov. 1.
Today’s figures follow last week’s announcement of a sharp increase in job creation, with the U. S. economy filling 336,000 job openings in September, up to an expected 170,000 jobs.
Seema Shah, Chief Global Strategist at Principal Asset Management, said: “After the surprise and astonishment caused by last week’s jobs report, today’s CPI numbers are unfolding without incident, which is reassuring. With core CPI in line with expectations and broadening the disinflation narrative, there is nothing in the inflation report that tilts the Fed one way or the other.
“Indeed, although inflation is slowly receding, the strength of the hard labor market means that the risk of a resurgence in inflation cannot be ignored, keeping the Federal Reserve on its toes. Whether or not there will be an increase in interest rates remains unanswered. “
Daniel Casali, chief investment strategist at Evelyn Partners, said: “The ongoing slowdown in core inflation could go some way to counteracting the jobs report last week if the FOMC is to keep interest rates on hold when it next meets on 1 November.
“Moreover, policymakers will most likely price in the recent sharp rise in long-term government yields, which reduces the need for the Fed to tighten rates further, as markets have really done their job in place. The FOMC will also be mindful of the expansion effect of auto sector measures and a potential U. S. government shutdown starting in mid-November. “
Neil Birrell, chief investment officer at Premier Miton Investors, said: “The last US inflation report before the Fed’s meeting later this month shouldn’t give them too much of a headache. The core rate for September came in as expected and this will allow the Fed to proceed carefully from here.
“Overall, the economy remains physically powerful despite tighter policy, supported by the labor market. Those looking for a comfortable [economic] landing probably won’t be disappointed with this figure, but they probably wouldn’t need to see it rise any further. “
Marcus Brookes, chief investment officer at Quilter Investors, said that, despite the refusal of headline inflation to budge following the latest official figures, “the US remains in a much better place in the battle against inflation compared to other developed economies, and it is from this position of strength that its economy has been able to resist any recessionary prediction to date.
“However, just as markets were concerned when inflation spiked last year, they will be equally concerned about the future path of inflation and what happens next. As inflation has come down, it has become incredibly stubborn once again and is not likely to reach its target for some time.
“This, once back, puts the Fed in a tricky position. It needs inflation to reach its target again, but given that it will most likely persist above this point for some time, what can it do?One of the features being discussed is to act now. and raise interest rates again this year, but under the threat of an exaggerated correction. Or can it wait and continue its “higher for longer” message that has spooked markets in recent weeks but threatens to move too slowly?
The Bank of England left loan prices unchanged for the first time in just two years after yesterday’s better-than-expected figures showed that inflationary heat continues to flow out of the UK economy, writes Andrew Michael.
Today’s decisive resolution through the Bank’s Monetary Policy Committee (MPC), which voted 5-4 in favor of the resolution, leaves the bank rate at a 15-year high of 5. 25%. This follows a series of 14 consecutive increases dating back to December. 2021 and could mark the peak of borrowing prices in the current cycle.
The move comes a day after official UK inflation figures fell to 6. 7% for the year to August 2023, from 6. 8% the previous month (see article below).
Although inflation has fallen steadily since peaking at 11.1% in October last year, the 6.7% figure remains well above the long-term 2% target set for the Bank of England by the government.
The OAG said: “The OAG will continue to closely monitor signs of persistent inflationary pressures and resilience in the economy as a whole, adding tighter situations in the labor market and the behavior of wage expansion and price inflation.
“Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee’s remit. Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures.”
The next resolution on the tariff will take position on November 2, 2023.
Rob Morgan, lead investment analyst at Charles Stanley, said: “Rapid wage growth, more than 8% year-on-year, is a fear for the Bank, meaning consumers are more likely to keep up with emerging prices. . to inflation of additional fuel.
“In addition to the resurgence in oil prices, which can no longer be considered a downward component of inflation, the Bank still has work to do to bring inflation back to its target. “
Today’s news will bring relief to more than one million borrowers with adjustable-rate and follow-on mortgages who have been impacted by a series of mortgage lending increases dating back to December 2021.
Jeremy Batstone-Carr, European strategist at Raymond James Investment Services, said: “The Bank of England’s Monetary Policy Committee has delivered some relief to hard-pressed households by maintaining the base rate of interest at 5.25%.
“Undoubtedly, the reason for the Bank’s resolution was the fall in the UK inflation rate in August, i. e. the sharp fall in underlying price pressures, meaning that previous rate hikes are starting to bear fruit. “
Hussain Mehdi, HSBC Asset Management, said: “This is a very difficult decision for the MPC, which is reflected in the 5-4 split of votes. The wonderful drop in inflation in August and the symptoms that the UK economy is collapsing under pressure from emerging interest rates have likely triggered a more “accommodative” trend among policymakers.
“There is now a good chance that the bank rate has peaked, a view that on a percentage basis applies to the policy rates of the US Federal Reserve and the European Central Bank. While the most recent wage expansion figures of the UK are worrying, labor market insight is lagging. Signs appear to suggest that the UK economy is already flirting with recession, in a context consistent with a slowdown in wage expansion and a shift in policy. »
The Federal Reserve, the US bank of the Bank of England, has, as expected, left loan prices unchanged after an 18-month era dominated by repeated bouts of financial tightening to stubbornly curb peak inflation, writes Andrew Michael.
Today’s announcement means that the Federal Reserve’s benchmark target interest rates remain at a range of 5. 25% to 5. 5%. The Bank of England announces its latest resolution on rate cuts (Thursday). The current rate in the UK is 5. 25%.
With a comfortable landing likely on the hunt for the U. S. economy, the Federal Open Market Committee (FOMC) today voted unanimously to keep rates at their highest level in 22 years.
Alastair Borthwick, Bank of America’s chief monetary officer, previously said it was “hard” to believe a U. S. recession as spending by emerging customers drives the U. S. economy.
The FOMC said: “Recent signs that economic activity has expanded at a steady pace. Job creation has slowed in recent months but remains strong, and the unemployment rate has remained low. Inflation remains high.
“The U. S. banking formula is strong and resilient. Tighter credit conditions for households and businesses are likely to affect economic activity, hiring, and inflation. The magnitude of these effects remains unclear. The Committee remains closely attentive to inflationary risks. “
The decision to hold echoed the Fed’s actions in June this year when it also maintained borrowing costs at prevailing rates. This contrasted with a month later when a quarter point hike propelled rates to their present level.
Like other central banks, such as the Bank of England and the European Central Bank (ECB), the Fed is mandated through the government to keep inflation at a long-term average of 2%. Between March 2022 and May 2023, the Fed increased the charge of borrowing 10 times in a row.
Official figures showed U. S. inflation rose to 3. 7% in the year ending in August, the second straight month of growth in the country after a year-long downward trend.
Despite the recent upwards move in inflation levels over the summer, caused by a surge in energy costs following Russia and Saudi Arabia’s decision to cut supplies and prop up oil prices, analysts’ expectations that the Fed would maintain borrowing costs at their present level proved correct.
The possibility remains, however, that the Fed will hike rates for a final time in the current cycle later this year, even though “one more boost is unlikely to trouble the market,” according to Richard Flynn, UK managing director at Charles Schwab UK.
Fiona Cincotta, senior financial markets analyst at City Index, said: “With inflation still above the Federal Reserve’s 2% target, recent data highlighting resilience in the US economy, and oil prices aiming for $100 a barrel, the Fed will want to keep the door open for another potential hike in November or December.”
Richard Carter, head of interest rate research at Quilter Cheviot, said: “With today’s pause, we are now in a waiting game with the Federal Reserve to see if its actions so far are enough to achieve the coveted and comfortable landing in the United States. The insights released from now on will be scrutinized and analyzed for an indication of whether the Fed will raise rates again or when, in fact, it’s time to start cutting them.
“At the end of the day, given the continued strength of the economy and labor market, we will most likely wait some time before cutting rates. However, having been slow to raise rates in the face of rising inflation, Federal Reserve Chair Jerome Powell won’t have to make the same mistake by going back to the cut-off and inadvertently correcting without doing anything.
The annual rate of inflation was 6.7% in August this year, down from 6.8% a month earlier, confounding expectations of a first uptick in rising prices since February, writes Andrew Michael.Today’s Consumer Prices Index (CPI) from the Office for National Statistics leaves tomorrow’s Bank Rate decision from the Bank of England in the balance.
A drop in the annual inflation rate in August would likely have triggered a 15th consecutive increase in credit. Market expectations were for a quarter-percentage-point increase, from 5. 25% to 5. 5%.
But today’s announcement, which also showed that ‘core’ CPI, which strips out volatile data relating to energy and food, dipped to 6.2%% in the 12 months to August (down from 6.9% in July), is another economic indicator that may lead the Bank to pause, for now at least, from hiking the cost of borrowing further.
CPI including owner occupiers’ housing costs (CPIH) rose by 6.3% in the year to August, down from 6.4% a month earlier.
Grant Fitzner, lead economist at the ONS, said: “The inflation rate eased slightly this month, due to erratic falls in accommodation and airfare rates, as well as emerging food fares rising less than in the same period last year.
“This was partially offset by an increase in the value of petrol and diesel compared to a sharp drop in the same period last year, following the record values seen in July 2022. “
Mr Fitzner added: “Core inflation has slowed this month by more than the headline rate, driven by lower service prices.”
The Bank of England, which has set a long-term inflation target of 2%, imposed through the government, will assess the latest inflation knowledge before deciding what to do about the bank rate.
Although UK inflation has continued its overall downward trend since February, recent ONS data on accelerating wage expansion suggest that the spectre of inflation has disappeared.
Yesterday, the Paris-based Organisation for Economic Co-operation and Development (OECD) predicted that the UK economy would revel in the rate of inflation among the world’s richest countries this year. The OECD has said it expects the inflation rate in the UK to reach average. 7. 2% in 2023.
Richard Carter, head of constant interest rate research at Quilter Cheviot, said: “The ONS figures reveal an unforeseen drop in inflation to 6. 7% in the 12 months to August 2023, despite emerging costs at the pump. The final results were more positive than the increase expected by many economists, largely due to a significant drop in food costs, while core inflation also declined from 6. 9% to 6. 2%.
“While this fall in inflation relieves some of the pressure on the Bank of England to raise rates once again, it is still in a position to push through another 25 basis point interest rate hike tomorrow. If this turns out to be the case , many will wonder when enough will be enough. The Bank of England has had a tough task in its fight against inflation, and this morning’s figures suggest it may have a real impact after all.
Neil Birrell, chief investment officer at Premier Miton Investors, said: “Better-than-expected inflation knowledge this morning would possibly provide some relief to the Bank of England. While this would arguably not be enough to salvage the rate hike, core inflation, which is well below expectations, is good news.
“Last month there was some smart news on UK inflation and UK monetary assets, which are more sensitive to interest rates, saw a strong rally, which looks like there are buyers waiting for a catalyst. It will be interesting to see if the same reaction occurs this time.
The European Central Bank (ECB) is raising interest rates to an all-time high in a bid to curb rising prices in the eurozone, writes Andrew Michael.
The ECB announced that it will expand its main refinancing option through 25 core issues to 4. 5%. The quarter-percentage-point increase expected by monetary analysts will also apply to its deposit rate, which rises to 4%, and its marginal lending facility, which rises to 4. 75%.
Explaining its decision, the tenth time in a row it has raised rates, the ECB warned that inflation “will most likely remain too high for too long. “
Like other central banks, such as the Bank of England and the US Federal Reserve, the ECB must keep inflation at 2% over the medium term.
The further increases in borrowing rates, which will take effect on Sept. 20, forecast that inflation across the trading bloc will average 5. 6% in 2023.
Today’s ruling raises the ECB’s deposit rate above the record high reached in 2001, when authorities raised rates to breathe life into the price of the newly introduced euro.
But the ECB hinted that today’s hike could be just the last of the existing cycle: “The Governing Council considers that key ECB interest rates have reached levels that, if sustained for a sufficiently long period, will make a really important contribution to the good timed return. From inflation to targeting.
The Bank of England and the U. S. Federal ReserveThey will announce their final interest rate decisions next week. In line with developments in Europe, markets say that loan prices in the UK will also see a quarter-point rate increase, but that the US will see a quarter-point rate increase. Rates will remain unchanged until at least November.
Investment professionals said the next consideration is how long borrowing costs will remain at record levels.
Robert Scramm-Fuchs, portfolio manager at Janus Henderson Investors, said: “It was probably a close decision, but we got this new ECB interest rate hike that the stock market was mainly waiting for. Judging by the language of the low revisions of medium-term inflation estimates, it appears that the ECB is done with its rate hike cycle and we deserve to expect a prolonged plateau. “
Anna Stupnytska, an economist at Fidelity International, said: “From now on, markets will determine how long rates will remain at those restrictive levels, which of course will have the trail of inflation and expansion from there.
“While the transmission channel of financial policy is obviously working strongly, a recession in the euro’s dominance is looming. As a result, the ECB would possibly want to make an immediate correction in its trajectory in 2024. But for now, their orientation will most likely be by the situation of a longer hike. “
Headline inflation in the United States stood at 3. 7% in August, down from 3. 2% in July, marking the second consecutive month of emerging prices after a year-long downward trend, writes Andrew Michael .
An increase, announced today by the US Bureau of Labor Statistics, had been expected after energy costs soared following a decision by exporters, including Saudi Arabia and Russia, to cut supply in a bid to prop up oil prices.
Despite today’s increase, analysts doubt whether it will be enough to convince the US Federal Reserve to raise the cost of borrowing when the Federal Open Market Committee reveals its next interest rate decision on 20 September.
Today’s data from the Bureau also showed that the Consumer Price Index for All Urban Consumers rose by 0.6 percentage points in August this year, compared with a 0.2pp increase of a month earlier. The Bureau said fuel was the largest contributor to the monthly all items increase, accounting for over half the increase.
Core inflation, which excludes volatile food and energy prices, rose 0. 3 percentage points in August this year, following a 0. 2 percentage point increase in July. But in the 12 months through August, the bureau said core inflation, which is heavily monitored by central authorities. banks—rose 4. 3%, down from 4. 7% in the year to July.
The Federal Reserve’s benchmark interest rates have lately been between 5. 25% and 5. 5%, their highest point since 2001. In July, Federal Reserve Chair Jay Powell said the central bank, the U. S. equivalent of the U. K. ‘s Bank of England, would raise interest rates. meeting by meeting.
Hugh Grieves, manager of the Premier Miton US Opportunities Fund, said: “With the headline inflation rate apparently rising for the second month in a row, the Federal Reserve will be relieved to see core inflation continuing to fall.
“The Federal Reserve will be concerned that emerging energy prices will begin to expand the economy, which would increase the threat of a resurgence in core inflation towards the end of the year and force central banks to start raising rates again. “
Seema Shah, lead global strategist at Principal Asset Management, said: “The rise in headline inflation is not a surprise given the recent rise in energy costs and the Fed will most likely take a look at those numbers, for now.
“Most likely, the inflation numbers won’t be enough to influence the Federal Reserve’s call next week for a rate hike. But they also don’t fully explain the question of a pause in November versus the likelihood of a hike. “
The annual rate of inflation fell sharply from 7. 9% in June to 6. 8% in July, but the good news — the third consecutive monthly drop in the cost of living — is unlikely to deter the Bank of England from raising interest rates next month. Writes. André Michel.
Today’s Consumer Prices Index (CPI) from the Office for National Statistics (ONS) was broadly in line with economists’ expectations, which had predicted inflation dropping as far as 6.7%.
The ONS also reported that core inflation, which excludes volatile food and energy prices, rose by 6. 4% in the 12 months to July 2023, the same rate as the previous month. On a monthly basis, the CPI declined by 0. 4% last month, compared to a 0. 6% increase in July 2022.
The CPI, which aggregates owner-occupied home prices (CPIH), rose 6. 4% in the year to July, up from 7. 3% in June this year.
Matthew Corder, deputy director of securities at the ONS, said: “Inflation has slowed markedly for the second month in a row, driven by lower fuel and electricity prices following the arrival of energy price cap relief.
“While still high, food price inflation has also declined, especially for milk, bread and cereals. Core inflation was unchanged in July, as lower costs of goods were offset by higher prices of services.
Inflation for food and non-alcoholic drinks in July fell to 14.9% from 17.4% in June, meaning that grocery prices are still hurtling upwards, albeit at a slower rate.
The Bank of England, which has a government-mandated long-term inflation target of 2%, will weigh up the latest inflation data carefully as it decides what to do next with the Bank Rate, the UK’s core cost-of-borrowing figure.
It stands at 5. 25%, having been increased by a quarter of a percentage point a fortnight ago. The next announcement of the bank rate is scheduled for September 21 and is expected to increase to 5. 5% in some quarters. be released the day before.
Although inflation has to fall significantly, yesterday’s news from the ONS that wage expansion in the UK hit a record 7. 8% (8. 2% adding bonuses) in the three months to June this year will prompt a wake-up call for the Bank. as higher wages in the colonies may simply drive up inflation.
On its current trajectory, it is now highly likely that wage increases will outpace inflation next month and what is at stake is the extent of the triple pension lock announced in November and set to take effect at the start of the new fiscal year. on April 6, 2024.
Jason Hollands, chief executive of Bestinvest, commented on the fall in inflation in July: “This is encouraging progress and will no doubt be held up by the government as evidence that its fiscal prudence is working in tandem with the effect on interest rates. constant interest rates emerging through the Bank of England.
“However, inflation still has a long way to go before returning to the Bank’s long-term target rate of 2%, so the fight against inflation is still over. “
David Henry, investment manager at Quilter Cheviot, said: “With inflation falling to 6. 8% and yesterday’s knowledge that it looked like wages had risen by almost 8% over the last year, the burden of the crisis is likely to finally start to ease. However, families are still under immense pressure and inflation is not going to fall drastically; However, millions of people will be pleased to see that their take-home pay now seems to be keeping pace with inflation.
“However, headline numbers only tell a fraction of the story. Food costs continue to weigh on consumers, while core inflation refuses to move substantially. With the wonder of expanding earnings and the economy’s resilience in the face of adversity, the Bank of England will most likely need further interest rate hikes to get the job done. “
US inflation rose by 3.2% in the year to July, up from 3% recorded in June, ending a run of 12 consecutive monthly declines in consumer prices, writes Andrew Michael.
Today’s announcement from the U. S. Bureau of Labor StatisticsIt also showed that the separate customer value index for all urban customers rose 0. 2 percentage points in July, the same increase as the previous month. The Bureau reported that housing “was by far the largest contributor to the month’s accumulation across all items. “
Core inflation, which excludes volatile food and energy prices, rose 0. 2% in July, the same as in June. In the 12 months to July, the Bureau said core inflation rose 4. 7%, a slower pace than in the year before June.
Despite the first acceleration in costs for customers in a year, the market continues to bet that the Federal Reserve, the U. S. central bank, will keep borrowing costs at their current level when its rate-setting committee unveils its next resolution in September.
The Federal Reserve’s benchmark interest rates have lately been between 5. 25% and 5. 5%, their highest point since 2001. Last month, Federal Reserve Chair Jay Powell said the central bank would implement additional rate hikes on a meeting-by-meeting basis.
Neil Birrell, chief investment officer at Premier Miton Investors, said: “US inflation was broadly as expected in July, although the year-on-year figure was slightly lower than expected. The August figures will be released before the Federal Reserve’s next meeting in mid-September, but nothing in this suggests that it will do anything other than keep interest rates exactly where they are.
“It increasingly looks like the Fed has done a smart job, at least for now. While we may see a further rise in inflation, markets will be okay with it in the near term.
David Henry, investment manager at Quilter Cheviot, said: “Core inflation remains more persistent and is likely to start falling further in the autumn when seasonal points are expected to rise. ‘mitigate.
“Those expecting cuts at some point this year or early next year may be disappointed. The Fed has stated rates will stay sufficiently high [to control inflation] for the immediate future and it will be desperate not to have a repeat of the 1970s, where we saw inflation spike again as central banks were too early in easing off on monetary tightening.”
As expected, the Bank of England announced a 0. 25 percentage point increase in its bank rate to 5. 25%, its highest level in 15 years.
This is the fourteenth consecutive increase since the bank rate began its upward trajectory in December 2021, when it stood at just 0. 1%, its lowest point on record.
An estimated 1. 4 million borrowers with variable rate and tracking loans will see their prices increase from the next payment. According to the UK’s monetary body, floating-rate borrowers with an average loan balance of £220,000 will face a monthly build-up. of £15, while those with trackers will pay £24 more.
Borrowers with fixed-rate mortgages will feel the effect at the end of their current contract, and many will face massive increases in their monthly payments. The average rate for a two-year fixed rate is now between 6. 5% and 7%, according to Moneyfacts, up to five percentage issues higher than its previous rate.
It is estimated that 800,000 fixed rate transactions will close in the second part of 2023 and another 1. 6 million transactions are expected to close in 2024. There are around seven million fixed rate transactions in total.
The Bank of England is increasing its bank rate as a result of its ongoing fight against inflation. The most recent official figure puts the annual rate at 7. 9% in June, but the bank’s target is 2%.
It had been feared that the Bank would apply a level of 0. 5 percentage points to 5. 5 percentage points, but the fact that inflation fell sharply to its current level, from 8. 7 percentage points in May, appears to have softened its approach.
The Bank expects inflation to fall to five cents per cent through the end of the year, achieving its target of two cents per cent during the second quarter of 2025. She acknowledges the pain associated with bank rate hikes, but says those hikes are to protect the overall fitness of the economy.
The next bank rate announcement will be made on Sept. 21, with additional changes expected in November and December. The next rate move will largely be decided through the July inflation figure, which will be revealed through the Office of National Policy. Statistics as of August 16.
Laura Suter of investment platform AJ Bell commented: “The slowdown in inflation means that interest rates are not expected to rise as much as before; A few months ago we expected rates to peak at 6. 5%, but now expectations are 6% or even 5. 75%.
“This has had the knock-on benefit that banks have reduced rates for mortgage customers. We’ve now seen a raft of big banks trim their rates – not sufficiently to make a dramatic difference to people’s monthly repayments, but homeowners will be breathing a sigh of relief that mortgage rates are headed in the right direction.
“Here the savers are the losers, because it means the end of the successive increases in savings rates that we have seen over the last 18 months. This means that whoever has played the game of waiting before closing a fixed-rate deal would possibly be asked to act temporarily before rates fall further.
The European Central Bank (ECB) is raising interest rates by a quarter of a percentage point, bringing its deposit rate to 3. 75%, while expanding its main refinancing option to 4. 25%, writes Andrew Michael.
Today’s resolution will come into force on August 2, raising the debt burden in the euro domain to the record level last seen in 2001, when the ECB sought to bolster the price of the newly introduced euro.
The move comes as the ECB tries to crack down on persistent peak inflation. Even though the eurozone inflation figure fell to 5. 5% in the 12 months to June this year (from 6. 1% in May), it is still well above the ECB’s medium-term inflation. 2% target.
The interest rate hike (the ninth consecutive hike since last summer) followed a similar move by the U. S. Federal Reserve (see article below).
The ECB said: “Developments since the last meeting mean that inflation is expected to fall further for the rest of the year to remain above target for an extended period.
“While some measures look like signs of easing, core inflation continues to rise overall. Previous rate hikes continue to have a strong impact: funding situations have tightened again and are dampening demand, which is vital to bring inflation back to target. “
Clémence Dachicourt, senior portfolio manager at Morningstar Investment Management, said: “The ECB’s latest 0. 25% hike is not a surprise. However, recent surveys recommend that the economic slowdown is now affecting euro area output and sectors.
“This points towards the ECB nearing the end of its rate-hiking cycle, but the persistence of core inflation also tells us rate cuts are not on the agenda for now.”
The Federal Reserve, i. e. the Bank of England in the United States, raises its benchmark interest rates by a quarter of a percentage point, to a range from 5. 25% to 5. 5%, the highest point since 2001, writes Andrew Michael.
After leaving loan prices unchanged at its June rate-setting meeting, the Federal Open Market Committee (FOMC) voted unanimously in favor of a 25 basis point rate hike, signaling a return to financial tightening, aimed at combating higher levels of inflation.
U. S. inflation stands at 3% annually in June, which compares favorably with the U. K. ‘s 7. 9% annual rate this month.
Investors will now turn to the Federal Reserve for clues as to whether this is the last hike in the current rate-setting cycle and, if so, when U. S. authorities will begin reducing the borrowing burden.
Following the steeper-than-expected fall in US inflation a fortnight ago – from 4% to 3% – the Federal Reserve said today: “Recent signs suggest that economic activity has grown at a moderate pace. Job creation has increased in recent months and the unemployment rate has remained low.
But the Federal Reserve said that “inflation remains elevated. “
Along with other central banks around the world, including the Bank of England and the European Central Bank (ECB), the Federal Reserve has a medium- to long-term mandate to keep inflation at 2%.
All eyes will then turn to the ECB’s rate-setting resolution (Thursday), before the Bank of England does the same next week on August 3.
At its last meeting, the Bank caught commentators on the hop with a larger-than-expected half-percentage point rate rise which took the Bank Rate to 5%.
Gurpreet Gill, global fixed income expert at Goldman Sachs, said: “Paradoxically, today’s Fed meeting was one of the most certain and uncertain of the cycle. An 0.25%pp rate hike was fully priced-in and widely expected by forecasters and investors.
“However, investors remain divided on whether this represents the latest advance in the current tightening campaign.
“Recent insights are consistent with the U. S. policy rate peak in July, while core customer value index inflation slowed sharply in June. “
Inflation fell sharply to 7. 9% from 8. 7% in the year to June this year, beating market expectations and raising hopes that the Bank of England’s long era of financial tightening, is nonetheless starting to curb rising prices, writes Andrew Michael.
The Office for National Statistics’ (ONS) existing Consumer Price Index (CPI) is the lowest rate recorded since 7% recorded in March 2022. By the following month, it had risen to 9% in the wake of Russia’s invasion. of Ukraine.
The ONS also said core inflation, which excludes volatile food and energy prices, rose 6. 9% in the 12 months to June, up from 7. 1% in May. On a monthly basis, the CPI increased by 0. 1% in June, compared to 0. 8% in the same month last year.
The CPI that aggregates owner-occupied home prices (CPIH) rose 7. 3% in the year to June, up from 7. 9% in May.
Grant Fitzner, lead economist at the ONS, said: “Inflation has slowed particularly to its lowest annual rate since March 2022, driven by lower fuel prices. At the same time, core inflation also declined after hitting a 30-year high in May. Food price inflation eased slightly this month and remains at very high levels.
Fitzner added: “While prices facing brands remain high, particularly for construction fabrics and food products, the speed of expansion has slowed over the past year, with the total price of raw fabrics falling for the first time since late 2020. “
The Bank of England, with a medium to long-term inflation mandate of 2%, will take a look at the latest ONS data on what it will do next with the bank rate, which is the UK’s main borrowing rate . It has recently stood at 5%, after having been higher by part of a percentage point in June. The next announcement is expected on August 3.
Until today’s inflation figures were released, market watchers were expecting a half-point hike by the Bank next month. But as price increases decrease more than expected, it would possibly be mandatory to reconsider the situation.
Marcus Brookes, chief investment officer at Quilter Investors, said: “Today’s inflation figures give us a glimmer of light as they finally move ahead of expectations and fall more than expected.
“However, while it is a nice surprise to beat expectations, it still leaves us wondering once again why the UK is such a drastic outlier compared to other developed economies when it comes to inflation. (We are) still far above where the Bank of England wants it to be before it can even consider a pause in the rate hikes we have become accustomed to.
“It is frustrating that, despite beating expectations, core inflation remains stubborn and refuses to move in any meaningful way. Possibly, the well-known delays in the effect of interest rate hikes, however, are starting to take effect, but it’s still very complicated, so it’s too early to start rejoicing. “
Neil Birrell, chief investment officer at Premier Miton Investors, said: “At last some news about lower than expected UK inflation for June and more importantly, the core inflation rate has fallen more than expected.
“While we expect it to continue to fall and be at its lowest point in a year, it continues to rise in absolute terms and the Bank of England wishes to be vigilant and act accordingly until there is a point of certainty that inflation is back under control.
Eurozone inflation fell to 5. 5% in the 12 months to June this year, from 6. 1% in the previous month, according to the most recent official Eurostat figures.
The eurozone is made up of the 20 countries that use the euro as their currency. Eight members of the 28-strong European Union do not use the euro.
Rising food, alcohol and tobacco prices contributed to the figure across the euro zone trading bloc, which is down from 6. 4% in the year to June across the EU.
Average inflation for the EU as a whole contrasts sharply with the rates recorded in each country individually.
Annual stock inflation rose to 1% in June in Luxembourg, while Belgium and Spain recorded a figure of 1. 6%. But over the same period, values increased by 19. 9%, 11. 3% and 11. 2% respectively in Hungary, Slovakia and the Czech Republic.
Together with central banks around the world, plus the Bank of England and the US Federal Reserve, the European Central Bank is tasked with keeping eurozone inflation at 2% over the medium to long term.
The ECB’s next interest rate-setting announcement takes place on 27 July.
The British pound continued its recent uptrend and stock markets around the world also became more complex after a steeper-than-expected drop in US inflation (see article below) and a sell-off in the dollar, writes Andrew Michael.
Sterling rose 0. 5% against the dollar earlier – taking the price of sterling to a 15-month high of $1. 305 – as investors increased their bets on the US Federal Reserve’s lending rate cut early of the next year.
European stocks also rose after overnight gains in Asia and as U. S. stocks hit their highest levels in more than a year. Europe’s Stoxx Six Hundred Index rose 0. 3% earlier in the day, following up 1. 5% in Wednesday’s trading session, its biggest one-day gain. in just two months.
On Wall Street, a few hours earlier, U. S. stocks recovered, so that at the start of trading, the U. S. stock index S
This follows the country’s latest official inflation figures, which show prices rose 3% in the year to June 2023, their slowest rate of expansion since March 2021.
After a series of competitive rate hikes imposed through the Federal Reserve, this means that annual customer-rated inflation in the United States is approaching the central bank’s medium- to long-term target of 2%. The British equivalent of the Federal Reserve, the Bank of England, also has a similar inflation-fixing mandate. But despite thirteen successive interest rate hikes since December 2021, the UK inflation figure remains decidedly fixed at 8. 7%.
The Federal Reserve’s next interest rate ruling is scheduled for July 26, and the Bank of England will unveil its latest announcement a week later.
U. S. inflation stood at 3% in the year through June, up from 4% in the 12 months through May. Lower energy prices (down 16. 7% over the period) contributed to the decline.
Core inflation (energy and food prices based on their short-term volatility) rose month-on-month to 4. 8%, although it was the lowest monthly increase since June 2021.
The overall picture will be seen as positive among economists – and viewed with envy in the UK, where inflation is running at 8. 7% – as it could simply ease pressure on the US Federal Reserve to raise interest rates. interest.
Interest rate hikes, which increase the cost of borrowing and undermine demand for an economy, are seen as one of the few instruments central banks have in their fight against stubbornly high inflation rates.
That said, the Federal Reserve, like the Bank of England and other central banks, has a long-term inflation target of 2%, meaning that further increases in its “target” rates are ruled out.
In June it opted to keep them between 5% and 5. 25%, but the hypothesis circulates that it could increase them at its next assembly on July 25 and 26.
The Bank of England raised interest rates from 4. 5% to 5% in June. It is highly likely that the still-high inflation rate in the UK will lead to a further hike, of up to 5. 25%, when the Bank announces its new resolution in August. 3.
Many UK lenders have already increased the cost of borrowing in anticipation of a rate hike by the Bank of England. Earlier in the day, the Bank said borrowers would face increases of hundreds of pounds a month in their loan prices over the next few years. .
The Bank of England has hiked its Bank Rate today by 0.5 percentage points from 4.5% to 5%, its highest level in 15 years, writes Andrew Michael.
This is the 13th increase in a row since December 2021, with the larger-than-expected rise in interest rates intended to rid the UK economy of stubbornly high inflation. But today’s announcement will have an instant impact on the finances of more than a million UK homeowners whose mortgage costs will be affected by the decision.
Consumers of variable-rate mortgages and lagging offers will experience an instant increase in their payments as lenders pass on the revised borrowing rate.
In addition, it is estimated that more than 500,000 loan holders will terminate their rate contracts for the remainder of 2023. Given the volatility in the lending market, it is inevitable that many will face higher bills when negotiating a new loan. Home loan.
On the other hand, savers deserve – in theory – to gain from the latest interest rate hike, although providers tend to be slower to increase savings rates if they do.
Explaining its decision, the Bank’s nine-member Monetary Policy Committee, which voted 7-2 in favor of the increase, said it was responding to “important news” in recent economic data showing worsening inflationary pressures in the U. S. economy. United Kingdom.
Yesterday, research from the StepChange debt charity showed that nearly seven million mortgage customers had found it difficult keeping up with bills and credit commitments in the past few months.
Earlier this week, the Institute for Fiscal Studies warned that 1. 4 million lenders, some of whom are under the age of 40, could lose more than 20% of their disposable source of income as interest rates continue to rise.
Today’s ruling by the Bank of England follows a long generation of peak inflation driven by a toxic cocktail of global events, from the fallout from the Covid-19 pandemic and consequent supply chain bottlenecks, to the war in Ukraine that has contributed to sustained inflation. inflation, energy costs, and rising food costs.
Official figures showed that UK inflation remained stuck at 8. 7% for the year to May, the same figure that had been recorded a month earlier.
While the Bank’s continued policy of financial tightening has eased the specter of a rise consistent with costs (the annual figure hit a 40-year high of 11. 1 percent last fall), the downward trajectory has been mild compared to other primary economies, many of which consistently have the same trend. Medium-term inflation target of 2 consistent with the penny.
With annual inflation at 4% through May, the US Federal Reserve will keep interest rates unchanged when it released its latest announcement last week. The Federal Reserve’s target budget rate continues to fluctuate between 5% and 5. 25%.
A day later, the European Central Bank raised interest rates by a quarter of a percentage point across the Eurozone trading bloc where inflation stood at 6.1% in the year to May.
Janet Mui, head of market research at RBC Brewin Dolphin, said: “The Bank of England is doubling down on emerging costs following recent inflation data and scorching wages.
“It has faced increased scrutiny and pressure on its ability to bring down inflation as well as doubts around its forecasting credentials. Today’s hike is a desperate move to show markets it is highly committed to its mandate despite the financial pain inflicted.”
Fiona Cincotta, senior money markets analyst at City Index, said: “This is the Bank of England’s first interest rate hike since February and has come despite the market not having priced in just a 40% chance of such a gigantic move.
“After yesterday’s inflationary shock, with core inflation showing that it has not yet peaked [core inflation rose from 6. 8% to 7. 1% in May], the central bank felt it needed to act aggressively to show that it is serious about fighting inflation. I think policymakers were worried that if they didn’t act, the wage-price spiral would get stronger. “
The Bank Rate is scheduled to be announced on August 3, 2023.
Inflation remains stuck at 8. 7% for the second consecutive month through May 2023. The staggering figure (many commentators had hoped for a decline) will deal a blow to the hopes of millions of lenders and other borrowers, who now expect a decline. Interest rates will most likely rise further, writes Andrew Michael.
The Bank of England is widely expected to continue its extended policy of tightening when it unveils its new interest rate resolution tomorrow, with an increase from 4. 5% to 4. 75% or even 5% at stake.
Mortgage lenders have already been raising rates in recent days in anticipation of a Bank Rate hike.
Today’s figure from the Office for National Statistics (ONS) exceeded market expectations and leaves doubts about whether the Bank’s 18-month policy of continuous financial tightening is having enough effect to tame price increases.
On a monthly basis, the UK inflation rate, as measured by the Consumer Price Index (CPI), rose by 0. 7% in May, unchanged from the same month a year earlier.
The ONS also reported that the CPI, adding up owner-occupied housing (CPIH) prices, rose by 7. 9% in the year to May this year, up from 7. 8% in the previous month.
Core CPI, which includes volatile participants such as energy, food and alcohol, rose 7. 1% in the 12 months through May, up from 6. 8% in April.
According to the ONS, emerging products for air travel, recreational goods and used cars were the main participants in the latest CPI figures and CPI inflation.
Grant Fitzner, lead economist at the ONS, said: “Following last month’s slump, annual inflation has replaced little and remains at a traditionally high level.
“The cost of airfare increased more than a year ago and is at a higher point than in May. Rising prices for used cars, concerts and computer games have also helped keep inflation high.
The current inflation figure remains well above the Bank of England’s 2% medium-term target and is particularly higher than in other primary economies. The latest U. S. inflation figures are not expected to be the first to be released from the U. S. U. S. data shows prices rose 4% year-on-year, while the figure for the eurozone trading bloc that covers most of continental Europe rose 6. 1%.
In a week for the UK economy, the Bank of England’s Monetary Policy Committee, which is responsible for setting interest rates, will review the current inflation data from the ONS and assess the way forward, as the bank rate currently stands at 4. 5%, having been raised for a dozen consecutive years since December 2021.
The market was already tilting strongly towards another 25 basis point hike which would apply extra pressure to mortgage customers on variable rate home loans who have already experienced a series of rising costs.
Marcus Brookes, chief investment officer at Quilter Investors: “Today’s inflation figure will be a bitter pill to swallow for consumers, investors and the government. With CPI unchanged and core inflation rising, this confirms that the Bank of England has no choice but to raise interest rates tomorrow.”“The UK really does seem to be suffering from a more unique set of circumstances and this is leaving the Bank of England with little choice, despite consensus that this inflation is driven more by supply issues than demand ones.”
Alice Haine, private finance analyst at Bestinvest, said: “Stubbornly high inflation means consumers are unlikely to see any improvement in their private finances as costs are still rising sharply. “
“The concern is that additional rate hikes could push some families to the breaking point when their fixed-rate loans mature, and they will have to absorb much larger payments. As loan prices account for a gigantic percentage of consumers’ net income to repay, this could have disastrous consequences for the economy, as other people restrict their spending to ensure they can cover household accounts.
The European Central Bank (ECB), as expected, announced that it will raise interest rates by a quarter of a percentage point, raising its deposit rate to 3. 5% while expanding its main refinancing option to 4%, writes Andrew Michael.
The move takes eurozone trading bloc interest rates to their highest level in 22 years as the ECB battles persistently high inflation.
Today’s announcement, the eighth consecutive rate hike since last summer, contradicts yesterday’s resolution taken by the Federal Reserve to leave U. S. borrowing prices unchanged for the first time since early 2022 (see article below).
Explaining its resolve to raise rates, effective June 21, the ECB’s Governing Council warned that inflation, even if it falls, will likely remain too high for too long, adding that it is “determined to bring inflation back to its 2% average. ” -long-term goal at the right time. “
The ECB said that today’s rate increase “reflects the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission.
“Previous rate hikes are strongly transmitted. . . and have a slow effect on the entire economy. “
Eurostat estimates recommend that inflation in the euro stood at 6. 1% in May. The official figure for the month will be released on Friday.
This compares with an official inflation print of 4% in the US for the year to May, announced earlier this week. UK inflation stands at 8.7% – more than double that of the US – but is expected to fall when official figures are released next Wednesday.
A day later, the Bank of England will release its latest interest rate decision, and markets are pricing in a 25 basis point increase. If true, it would bring the UK bank rate to 4. 75%, its point in 15 years.
Joseph Little, lead global strategist at HSBC Asset Management, said: “Today’s increase marks the fastest policy tightening in Europe since the Bundesbank in the 1980s, with 400 issuances of base increases. interest rates over the past 12 months.
“To put this in context, the interest rate for Europe in the medium term is less than 2%. By any measure, this is now a very significant and immediate tightening of European monetary conditions. “
Richard Carter, head of fixed interest research at Quilter Cheviot, said: “The European Central Bank would dream of being in the position of the Federal Reserve in being able to pause the rate hikes to assess their impact. However, that is not the case, and we have another rate rise on the Continent.
“As the Bank of England faces an equally challenging era in terms of inflation and the effect of interest rates, we will see divergences in the evolution of market financial policy. “
Laith Khalaf, head of investment research at AJ Bell, believes that next week’s Bank of England resolution will be tricky: “The Bank is caught between a rock and a hard place, as it needs to be between pushing more borrowers to the brink and letting inflation run out of control.
“The most recent core inflation and wage expansion numbers have been very high, which has spooked the market, sending government bond yields soaring [see story below] and raising expectations for future interest rate hikes.
“The market is now firmly pricing in an interest rate hike at the June Bank meeting and then four more hikes, which will get us to 5. 75%. Even uglier inflation data could simply push those expectations all the way up to 6%.
The Federal Reserve, the US equivalent of the Bank of England, has left its target benchmark interest rate untouched today after rapidly increasing the cost of borrowing since early 2022 in its fight against inflation, writes Andrew Michael.
This means that the Federal Reserve’s target budget rate remains between 5% and 5. 25%, its level since 2007.
While the Federal Reserve’s decision to keep rates on hold rather than raise them was widely expected, it is less transparent whether today’s resolution marks the end, or merely a pause, of the country’s tightening of financial policy.
The move was due, at least in part, to the latest official U. S. inflation figures. US Census Papers released yesterday, which showed a sharp month-on-month drop from 4. 9% to 4% (see article below). However, this means that costs for customers continue to rise. It will increase annually to double the Federal Reserve’s long-term target of 2%, though down from 9. 1% last summer.
With core inflation (where volatile food and energy prices are stripped out of the calculation) ticking up by 0.4% in the month to May, and taking into account recent strong employment figures, there could be more interest rate hikes to come, with one seen as likely in July.
The Federal Reserve said: “In assessing the appropriate financial policy stance, the Federal Open Market Committee will continue to monitor the implications of incoming data on the economic outlook.
“The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals [of maintaining inflation at 2%]. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”
The Bank of England will announce its latest resolution on the UK bank rate on June 22. It is expected to rise from 4. 5% to 4. 75% or even 5% as inflation in the UK remains high.
The Office for National Statistics’ recent peak figure for May for the headline rate is 8. 7%, down from 10. 1% in April, core inflation rose to 6. 8% from 6. 2%.
The ONS will update inflation figures next Wednesday, ahead of the bank rate decision. Earlier in the day, Chancellor of the Exchequer Jeremy Hunt admitted that the UK had “no alternative” to continue raising interest rates to tackle emerging prices.
Tomorrow, the European Central Bank (ECB) will announce its latest interest rate decision, which will affect borrowing prices across the eurozone’s only trading bloc.
The Federal Reserve, the ECB, and the Bank are mandated to maintain long-term inflation of 2% in their respective jurisdictions.
David Henry, investment manager at Quilter Cheviot, said: “For the first time in well over a year, the Federal Reserve has held interest rates at their current level. While not usually a significant event, this one feels especially so. After all the hikes in the last 15 months and the various supply chain shocks, the tide is finally turning in the battle against inflation.”
“But victory is not yet declared. The Federal Reserve has made it clear that it is reacting to this knowledge and that core inflation remains well above target. This pause is largely due to the fact that the Federal Reserve is on hold and watching. Mode: You will wait for your moves so far to take effect on the economy and therefore will not need to brake too hard.
U. S. inflation slowed more than expected to 4% in the year ended May, from 4. 9% the previous month, writes Andrew Michael.
Today’s announcement via the U. S. Bureau of Labor Statisticsincreases the likelihood that the Federal Reserve will leave borrowing prices as they are when it adopts its interest rate ruling tomorrow.
Last month, the Fed raised interest rates for the tenth consecutive time since March 2022. They currently stand in a range between 5% and 5.25%.
But with the Consumer Price Index (CPI) for All Urban Consumers rising by 0.1% in May – or 0.4% when the price of items such as energy and food is stripped out – pressure is likely to remain on the Fed to revisit the case for monetary tightening later this year, potentially in July.
The Bureau said housing is the biggest contributor to month-over-month inflation, with emerging costs for used cars and trucks.
Unlike in the UK, where inflation remains stubbornly high at 8. 7%, the rate of increase in value in the US. It has slowed markedly from the 40-year high of 9. 1% reached last summer. Annual inflation in the EE. UU. se is now at its lowest rate in more than two years.
The European Central Bank (ECB) will announce its latest monetary policy decision, which affects borrowing costs across the eurozone trading bloc, later this week. These are currently in a range of 3.25% to 3.75%. The market consensus expects a rise in borrowing costs of 25 basis points.
The same thinking applies to the Bank of England, which is expected to raise the UK’s Bank Rate (currently 4.5%) for the 13th consecutive time since December 2021 when it meets on 22 June.The Fed, the Bank and the ECB are each mandated to maintain long-term inflation in their respective jurisdictions at 2%.
Richard Carter, head of interest rate research at Quilter Cheviot, said: “The Fed will be pleased to see inflation decline than expected in May, giving it some breathing room to pause rates for the foreseeable future. “
Seema Shah, Lead Global Strategist at Principal Asset Management, said: “With inflation broadly in line with expectations, the strain is easing. Tomorrow will most likely be the first FOMC meeting since March 2022 without a rate hike. However, with annual core inflation in May, and following the very strong jobs report, the July FOMC meeting is already underway.
Gerrit Smit, fund manager at Stonehage Fleming Global Best Ideas Equity, said: “The particularly steep drop in US headline inflation to 4. 0% reinforces confidence that inflation is below and that further tightening by the Federal Reserve may not be necessary.
“With employment numbers still as strong as ever, investors don’t want to worry about an impending deep recession, but rather expect a normalizing economic environment with a mild and short recession, if there is one. “
Inflation fell steeply from 10.1% to 8.7% in the year to April 2023, the first time the figure has been below 10% since August last year, writes Andrew Michael.
The figure released today by the Office for National Statistics (ONS) is the first clear sign that a long series of interest rate hikes dating back to December 2021 should bring some control over price rises. But it remains well above the Bank of England’s 2% target and is significantly higher than the 4. 9% recently recorded in the United States and 7% across the euro area trading bloc.
On a monthly basis, the rate as measured by the Consumer Price Index (CPI) rose by 1.2% in April 2023, compared with 2.5% recorded in the same month last year.
Grant Fitzner, lead economist at the ONS, said: “The inflation rate has fallen markedly, as last year’s sharp increases in energy values were not repeated in April, but were partially offset by the emerging used car and cigarette charge. However, values remain particularly higher than they were at the same time last year, with annual food value inflation near record highs.
The ONS also reported that the CPI including owner occupiers’ housing costs (CPIH) rose by 7.8% in the year to April this year, down from 8.9% a month earlier.The Bank of England will scrutinise the latest ONS data as it weighs up what to do next with the Bank Rate which currently stands at 4.5% having been hiked by a quarter of a point a fortnight ago, its 12th consecutive increase in 18 months.
The announcement of the Bank Rate is scheduled for June 22.
Speaking yesterday to the House of Commons Treasury Select Committee, the Bank’s governor, Andrew Bailey, admitted there are “very big lessons to learn” in setting monetary policy after the UK’s central bank failed to forecast the recent rise and persistence of inflation.
Responding to today’s inflation news, Chancellor of the Exchequer Jeremy Hunt said: “The International Monetary Fund (IMF) said we have acted decisively to tackle inflation, but while it is positive that it is now in the single digits, food costs are still rising too fast.
“As well as helping families with around £3,000 in cost of living this year and last year, we want to resolutely stick to the plan to bring inflation down. “Yesterday, the IMF reversed its previous estimate that the UK would be the worst country. -affected country. in the G7 list of the world’s leading economies. Richard Carter, head of constant interest rate research at Quilter Cheviot, said: “While this decline in inflation shows that things are starting to move in the right direction, we can’t forget the fact that there is an incredibly long way to go. ” Inflation, at 8. 7%, remains incredibly high, with costs rising sharply, and we are unlikely to see such significant slowdowns in the coming months. Instead, we may be waiting for a slower fall.
Jeremy Batstone-Carr, European strategist at Raymond James Investment Services, said: “Let’s not let much of April’s drop be due to accounting measures alone. In April 2022, energy costs increased by as much as 47. 5%. Thanks to the government’s guarantee on energy costs, “This energy increase has disappeared from the equation year after year, leading to a substantial decrease in the comparative inflation rate. “
The Bank of England has raised its borrowing prices for the twelfth time in a row, writes Jo Thornhill.
In a widely expected move in the markets, the Bank’s Monetary Policy Committee (MPC) voted to raise its bank rate from 4. 25% to 4. 5%, its level since 2008.
The Committee, which voted seven to two in favor of today’s increase, raised rates to bring down inflation, which has remained stubbornly high and in double digits for the past seven months.
The MPs who voted against the increase intended to keep the interest rate at 4. 25%.
For the 1. 4 million homeowners with adjustable-rate mortgages, today’s announcement will affect their household budgets.
A borrower with a £150,000 repayment loan who pays a residual interest rate (where the interest rate paid is related to the reduction rate) will see their annual charge increase up to £252, for example.
If the same borrower had enjoyed a variable rate since December 2021, when interest rates rose, they would have noticed their monthly payments rising to almost £370, equating to more than £4,300 a year in additional borrowing costs.
Households with constant-rate loans won’t see a quick replacement in their monthly payments, but most will now face much higher borrowing costs when their current constant rate ends and they’ll have to find a new loan agreement.
On the other hand, savers take advantage of higher interest rates on deposit accounts. But an increase in the bank rate through the Bank of England does not guarantee higher savings rates.
What does the Bank Rate rise mean for mortgage borrowers?What does the Bank Rate rise mean for savers and investors?
Last month, the Financial Conduct Authority said many savers had suffered “financial damage” over the past year due to emerging interest rates, but banks had failed to pass on higher savings rates to customers.
Treasury’s diversity committee this week wrote to several vendors, including Nationwide Building Society, Santander, TSB and Virgin Money, wondering about their higher gains compared to low savings rates and overall capital for customers.
Laura Suter, head of personal finance at AJ Bell, said: “Banks respond to two forces: the Bank Rate and competitors. They will use Bank Rate as a gauge of whether to raise their savings rates, but of much more importance is what their competitors are doing.
“Banks are keen to protect their profits, which comes at a cost to UK households. While mortgage rates have shot up, savings rates haven’t risen by nearly as much and some banks are worse than others for pocketing the difference.”
Marylen Edwards, head of lending at asset lender MT Finance, said: “Given the recent occasions in global money markets, this new rate hike is not unexpected.
“While a bank rate cut would have been good news, it seems that some more preparation is needed to stubbornly fight peak inflation and repair some much-needed stability. Hopefully, this will be the last bull run before we start to see a plateau. “
Adrian Anderson, of property finance specialist Anderson Harris, said: “The never-ending story of interest rate hikes continues, dealing another blow to borrowers. The cost-of-living crisis, coupled with the prospect of higher loan payments, has prompted a growing number of consumers opting for interest-rate loans just to try and mitigate the blow.
“What’s next? Who knows, and that’s part of the problem. Uncertainty can cripple the housing market. High interest rates and high borrowing rates seem to be here to last longer than expected.
Mike Stimpson, of wealth manager Saltus, said: “The interest rate hikes driving up loan rates have already affected the population. Our most recent wealth index report found that 73% of the other 2,000 people surveyed expected monthly loan bills to reach a point that would affect their cash flow.
The next rate announcement will be on June 22.
US inflation eased to 4.9% in the year to April, down from 5% recorded a month earlier, suggesting that the interest rate-hiking policy by the Federal Reserve is having the desired effect of damping down rising prices, writes Andrew Michael.
On a month-over-month basis, however, the customer value index for all urban customers rose 0. 4% in April, compared with a 0. 1% increase in March, according to figures from the U. S. Bureau of Labor Statistics. that housing costs were the highest, contributing to the monthly figure, followed by the highest values of used cars and trucks, as well as fuel. Core inflation, which strips out volatility in energy and food prices, eased to 5. 5% annually. year-on-year, in line with expectations.
Unlike in the UK, where inflation remains stubbornly in double digits at 10. 1%, the rate of increase in value in the US is at 10. 1%. It has slowed markedly from its 40-year high of 9. 1% reached last summer. lowest rate in two years.
The Federal Reserve, the equivalent of the Bank of England, raised interest rates through percentage issues of 0. 25 last week – the tenth consecutive increase since March last year – to between 5% and 5. 25%. The Bank of England is also expected to raise interest rates by a quarter of a percentage point when its rate-setting financial policy committee releases its most recent resolution (May 11).
Richard Carter of Quilter Cheviot said: “The Federal Reserve will breathe a sigh of relief because last week’s hard-working statistics were followed today by a lower-than-expected, albeit lower-than-expected inflation figure. The Fed has everything it wants now to reach “I put the pause button on rate hikes and reassess your stance in the coming months. With U. S. inflation now below 5% for the first time in two years, markets will think there’s something soft at the end of the tunnel, and the worst of this inflation is far in the rearview mirror.
Daniel Casali at Evelyn Partners said: “Although there are pockets of price gains in the CPI report, in used cars for instance, the broad message is that overall inflation is slowing and that should give the Fed grounds to keep interest rates unchanged when it next meets on 14 June.”
The European Central Bank (ECB) raised interest rates by a quarter of a percentage point, bringing its deposit rate to 3. 25%, while the rate on its main refinancing option stands at 3. 75%, writes Andrew Michael.
Today’s announcement reflects yesterday’s resolution by the U. S. Federal Reserve (see article below). The Bank of England will announce the new bank rate on Thursday, May 11: it currently stands at 4. 25% and is expected to rise from 0. 25% to 4. 5%.
The ECB’s ruling means that interest rates in the eurozone have risen seven times in a row since the middle of last year, even though today’s increase is part of the 0. 5% increase announced in March.
Explaining its decision, the ECB said that, while headline inflation has declined over recent months, “underlying price pressures remain strong”.
According to Eurostat, inflation in the euro stood at 7% in April, up from 6. 9% in March, but well below the 8. 5% recorded in February. This is up from 5% reported in the U. S. , but well below the 10. 1%. reported in the UK
The Federal Reserve, the Bank of England’s U. S. bank, raised its benchmark interest rate through 0. 25 percent issuance in what is widely seen as the latest rate-raising move (for now) in its long struggle to tame inflation, writes Andrew Michael.
Today’s decision by the Fed, its tenth rate rise in a row since March 2022, means that its target funds rate now stands in a range between 5% and 5.25%, the highest level since 2007.
The quarter-point increase is the third consecutive increase of this magnitude, following a series of five 50 basis point hikes that began last summer.
Explaining today’s announcement, the Federal Interest Rate Setting Committee (FOMC) reiterated that its goal is to maximize employment while keeping inflation at 2% over the long term.
The FOMC said economic activity grew at a modest pace in the first quarter of this year and called job creation “robust,” while the unemployment rate “remains low. “
He said: “To the extent that further policy tightening might be appropriate to bring inflation down to 2% over time, the Committee will take into account cumulative tightening of economic policy, lags with which economic policy affects economic activity and inflation, and economic and economic developments.
The Federal Reserve’s most recent ruling is arguably the most complicated to date and is something of a balancing act. Inflation currently stands at 5%, down from some of the 10. 1% recorded in the UK in the year to March 2023.
But, despite an aggressive rate-setting policy by the US central bank, rising prices have not slowed down as rapidly as hoped.
The inflation figure also remains offset by a tough job market, low unemployment and a faltering banking formula in light of the recent collapse of Silicon Valley Bank and this week’s sale of troubled First Republic Bank to JP Morgan.
Richard Carter, head of constant interest rate research at Quilter Cheviot, said: “This move would possibly be the last rate hike of the current cycle, but it remains the most competitive rate hike crusade since the 1980s.
“The resolution will have been carefully weighed because, on the one hand, recent economic insights suggest that inflation remains high, especially in the sector, which was expected to slow. But it is vital to note that the US banking formula has been in turmoil. in recent months, with 4 banks bankrupt since the beginning of March. “
Whitney Watson, global co-head and co-head of steady streams of income and liquidity responses at Goldman Sachs Asset Management, said: “Recent insights reflect a dovish but resilient picture of the U. S. economy, so today’s rate hike was broadly anticipated. Inflation is moving in the right direction, but progress has been uneven. A pause in action on rates is appropriate, but further tightening is credible if inflation proves persistent.
Inflation in the UK, as measured by the Consumer Price Index (CPI), rose from 10. 4% to 10. 1% in the year to March 2023, defying expectations by remaining in double digits, writes Andrew Michael.
Today’s figure, published by the Office for National Statistics (ONS), is higher than the 9. 8% predicted by a vote among economists.
On a month-on-month basis through March this year, costs increased by 0. 8% to a figure of 1. 1% recorded in both February 2023 and March last year.
The ONS said the largest downward contributions to today’s figure came from motor fuel, housing and household services, particularly liquid fuels. But these were partially offset by rises in the cost of food – up by a whopping 19.2% – recreation and culture.
Grant Fitzner, ONS chief economist, said: “Inflation eased slightly in March, but remains at a high level. The main drivers of the decline were motor fuel prices and heating oil costs, both of which fell after sharp rises at the same time last year.
“The prices of clothing, furniture and household goods have risen, albeit at a slower pace than a year ago. However, these increases have been partially offset by the food burden, which continues to rise strongly, with a record in bread and cereal loads. “
The ONS reported that the CPI, adding up owner-occupied housing (CPIH) prices, rose by 8. 9% in the year to March 2023, up from 9. 2% in the previous month.
The Bank of England will take an in-depth look at the latest ONS data on how to respond to the bank rate, which has recently stood at 4. 25%. Its next resolution will be announced on May 11.
Despite turbulence in the global banking sector, the UK’s central bank raised interest rates last month for the eleventh time in a row in an attempt to rid the economy of persistent double-digit inflation.
Despite a recent blip, which saw UK inflation rise in February, the overall trajectory has been downward since it reached 11.1% in October last year. But the figure remains stubbornly elevated.
Responding to today’s news, Jeremy Hunt, the Chancellor of the Exchequer, said: “These figures reaffirm exactly why we must continue with our efforts to drive down inflation so we can ease pressure on families and businesses.
“We are on track to do this, with the Office for Budget Responsibility forecasting we will halve inflation this year.”
Ed Monk of Fidelity International said: “The pressure on families is little sign of relief with a new headline inflation reading above 10%.
“That’s not how I intended it to be. Price increases were expected to be much less painful at this time of year, and sharp increases in early 2022 are not comparable to year-over-year comparisons, however, this figure pushes inflation back. at its January level.
“It is now clear that the UK faces a worse and more persistent inflation challenge than in Europe and the US. Price rises are proving harder to neutralize here, and the Bank of England is set to rise by at least another quarter of a percent. point of accumulating borrowing costs. “
Tom Hopkins, portfolio manager at BRI Wealth Management, said: “The slight monthly decline can be attributed to a year-on-year decline in energy costs and some easing of the food shortages we saw in February. However, those declines look like this. This could be offset by a strong labor market, as wage expansion has not slowed as much as economists expected.
“Today’s figure shows that the cost-of-living crisis many Britons find themselves in might not be releasing its grip on families as quickly as first expected. The UK economy is not out of the woods just yet.”
Alice Haine, personal finance analyst at Bestinvest, said: “Softening inflation will come as a relief for households, offering hope that the financial squeeze is well and truly on the retreat, though a headline reading of 10.1% won’t deliver much relief to wallets just yet as prices are still rising at rates that would have seemed extraordinary at the start of last year.”
US inflation fell to 5% in the year to March 2023, down from 6% a month earlier, suggesting the policy of aggressive interest rate hikes by the country’s central bank has started to bring prices under control, writes Andrew Michael.
Despite a larger-than-expected decline, the “all items” consumer price index figure announced today through the U. S. Bureau of Labor Statistics. is high enough to raise the question of whether the U. S. Federal Reserve. You will pause or not pause the increases when you set your next rate. interest rate decision in May.
The Bureau noted that housing is “by far the largest contributor” to the increase in value, more than offsetting the decline in energy value over the past month.
The monthly inflation rate in March rose by 0. 1%, four times less than the 0. 4% recorded in February, the Bureau added.
The current inflation figure that customer costs in the US in total have continued to fall over the past nine months.
By contrast, the UK’s recent annual inflation peak – announced in March – saw a surprising rise to 10. 4% year-on-year from 10. 1% in the previous month, after recording three consecutive monthly declines.
Recently, markets have felt that the Federal Reserve will have to ensure the stability of the monetary formula after last month’s global banking crisis, which led to the collapse of Silicon Valley Bank and the acquisition of Credit Suisse through UBS, a rival Swiss bank.
Along with other central banks such as the Bank of England and the European Central Bank, the Federal Reserve is mandated to keep inflation at 2% over the long term.
Marcus Brookes, chief investment officer at Quilter Investors, said: “US inflation appears to be declining more than expected at the moment, suggesting that the Federal Reserve’s moves to combat inflation are having a positive effect without pushing the economy into a recession. it will remain a key element in the Federal Reserve’s decision-making process, but recent events, such as the collapse of Silicon Valley Bank and other lenders, have begun to influence market sentiment and track potential underlying tensions in the U. S. economy.
“Nonetheless, the Fed will be relieved to see no major unpleasant surprises in this inflation report, which should help stabilise the situation further.”
Daniel Casali, lead investment strategist at Evelyn Partners, said: “What the Fed expects now is that it will overtighten its policy, leading to a currency crisis in the banking sector.
“The Fed is aware that there are pockets of inflation that are out of its control, namely energy costs. OPEC’s recent production cut has pushed up crude oil costs and forced the Federal Reserve to bring inflation down.
“Despite the hawkish rhetoric from some members of its rate-setting committee, the Fed would likely be reluctant to raise rates too much. “
The Bank of England today raised borrowing prices for the eleventh time in a row in a bid to rid the UK economy of double-digit inflation and despite recent turmoil in the global banking sector, writes Andrew Michael.
The Bank’s Monetary Policy Committee (MPC) raised the bank issuance rate from 0. 25 percent to 4. 25 percent, its point in 15 years.
In light of its resolution, which in line with economists’ forecasts, the MPC – which voted 7-2 in favor of the resolution – maintained its position that any further rate hikes would depend on emerging symptoms of inflation.
Today’s announcement will have a swift effect on the finances of approximately 1. 4 million homeowners whose borrowing costs will be affected by the decision.
According to the banking trade body UK Finance, around 640,000 home loan borrowers on tracker products, which rise and fall in line with central rates, will see their payments rise by an average £285 a year.
In addition, a further three-quarters of a million customers, who will benefit from so-called adjustable-rate mortgages, will face £182 in additional fees during the year.
Households with fixed-rate mortgages will not enjoy a monthly increase in their monthly payments, but could face more expensive mortgages once they complete existing transactions.
In contrast, today’s rate increase could generate mixed feelings among the UK’s savers seeking better returns.
An increase in the base rate is good news for consumers with money in savings accounts. But the announcement does not guarantee that suppliers will immediately increase all or part of their returns, nor necessarily that it will apply universally to all products.
Official data released yesterday showed that UK consumer prices rose by 10.4% over the year to February 2023, an unexpected upwards rebound in the inflation print after three months of falling prices.
Last night, the US Federal Reserve – the BoE’s central bank equivalent – raised its target funds rate by a quarter of a point to a range of 4.75% to 5%.
In doing so, the Fed has prioritized fighting inflation out of fear that a rate hike would worsen a feverish era in the global banking sector that in recent days has seen the collapse of several U. S. regional banks, as well as UBS’s acquisition of its Swiss subsidiary. . rival, Credit Suisse.
The Bank of England said today that its Financial Policy Committee has briefed the MPC on recent global banking developments, adding: “The FPC believes that the UK banking formula maintains strong capital and liquidity positions, and is well positioned to continue with the economy to a large extent. . range of economic scenarios.
Both the US Fed – where inflation currently stands at 6% – and the BoE are required to maintain inflation at 2% over the long-term.
Nathaniel Casey, investment strategist at Evelyn Partners, said: “The split vote is indicative of the delicate scenario facing the MPC and other central banks, with committee members having to weigh the fragility of the global banking sector and the need for solutions. Inflation is back on target.
“The recent turmoil in the banking sector, which began with collapse of Silicon Valley Bank (SVB) nearly a fortnight ago, has reminded central banks that things can break when monetary policy is rapidly tightened. Although contagion risks from the tech bank crisis and Credit Suisse look to have receded for the time being, the BoE will need to tread carefully if it decides to further tighten monetary policy from here.”
The Bank Rate announcement is scheduled for May 11.
The United States Federal Reserve last night raised its target federal funds rate to 4.75% to 5% – a quarter point increase.
The news will most likely sway the Bank of England’s thinking as it prepares to unveil its latest bank rate resolution at midday.
The bank rate, which largely determines interest rates across the economy and affects millions of borrowers and savers, has lately been 4%. Ahead of today’s announcement by the Bank of England, many commentators have warned that it would possibly remain unchanged after 10 consecutive hikes. since the end of 2021, starting from an all-time low of 0. 1%.
However, the news from the US, combined with the sharp rise in annual inflation in the UK from 10. 1% to 10. 4% yesterday, makes a figure of at least 0% almost certain. 25 percentage points to 4. 25%.
Adjustable-rate and follow-on mortgages would react to an increase, and fixed-rate transactions would likely be more expensive for those taking out a new loan or remortgage.
Savings rates may also reflect an increase; Account providers have been criticized for being slow to respond to past increases and, in some cases, for not passing on any increases.
Justifying its resolve to impose a quarter-point increase, the Federal Reserve said: “Recent signs point to a modest expansion in spending and output. Job creation has accelerated in recent months and is progressing at a steady pace; The unemployment rate remained low. Inflation remains high.
“The U. S. banking formula is resilient. Recent developments are expected to lead to tighter credit conditions for households and businesses, and weigh on economic activity, hiring and inflation.
“The magnitude of these is uncertain. The Committee remains closely attentive to inflationary risks. “
Analysts have concluded that if inflation stays above target for an extended period, the Federal Reserve will be hesitant to raise interest rates further.
Both the Federal Reserve and the Bank of England follow mandates to keep their national inflation figure at 2%, with interest rate rises being their primary mechanism for achieving this. US inflation is running at 6%.
In the UK, the Office for Budget Responsibility forecast last week that inflation would fall to 2. 9% over the course of 2023. While this figure will remain stubbornly high in the coming months, it is conceivable that the bank rate will remain close to its current level. . level.
Inflation, as measured by the Consumer Price Index (CPI), rose to 10. 4% year-on-year in February, according to figures released through the Office for National Statistics (ONS), writes Kevin Pratt.
The increase, which confounded analysts who expected inflation to fall to 9. 9% after three months of declines from an 11. 1% peak reached in November 2022, is attributed to emerging prices. in the catering, cafeteria, food and clothing sectors.
The ONS states that this has been partially offset by reductions in the costs of recreational and cultural goods (in particular recording media) and motor fuels.
Prices rose 1. 1% month-on-month, compared to a 0. 8% month-over-month increase in February 2022.
Looking at the consumer price index, which includes owner-occupied housing (CPIH) costs, it rose 9. 2% in the 12 months through February 2023, up from 8. 8% in January.
The largest upward contributions to the annual IPCH inflation rate came from housing and household goods (mainly electricity, gasoline and other fuels), as well as food and non-alcoholic beverages.
Rising energy prices are a persistent result of Russia’s invasion of Ukraine in February last year.
On a monthly basis, the CPI increase rose to 1. 0% in February 2023, compared to a 0. 7% increase in February 2022.
The Bank of England will take a close look at the ONS data before deciding what to do about the bank rate, which has recently stood at 4%. Its new rate, which will hugely influence interest rates across the economy, will be announced at noon.
Analysts had expected the bank rate to rise through 0. 25 base issues to 4. 25% due to positive news on inflation, with some even suggesting that it could even remain at its current level. A more powerful increase, up to 4. 5%, is now possible.
Danni Hewson, from investment platform AJ Bell, commented: “Some of the reasons for rising inflation are, and usually, unpredictable.
“Normally, bars and restaurants wouldn’t have been scrambling in January to find tempting deals to recoup some of the cash that consumers hadn’t spent over Christmas. Normally, New Year’s clothing sales would have given way to full-price sales. spring lines before the twinkling lights were put away. But we are in a general moment and shops and hospitality establishments took advantage of the month of February to withdraw.
“There has been good news: the price at the pump has dropped even further and shipping costs have also dropped. And while energy prices are still uncomfortably high compared to last year, at least families don’t have to worry about an increase in the price of electricity. end of the month, which prevent a rise in inflation in April.
“And from what we can read, manufacturers’ prices continue to fall, basically because of the fall in the price of oil. Wholesale fuel prices and the price of other commodities are also falling, but there is a lag and this makes the situation uncomfortable for both businesses and families looking to balance their weekly budgets.
The US Federal Reserve announces its latest interest rate decision later today. Its current target rate is 4.5% to 4.75% – a rise towards 5% looks to be on the cards, even though US inflation is relatively low at 6%.
The Bank of England has reacted to rival UBS’s takeover of crisis-hit bank Credit Suisse with the aim of reassuring UK bank customers and money markets.
After the £2. 5 billion deal was announced on Sunday, the Bank of England said: “We welcome the comprehensive package of measures presented today through the Swiss government for monetary stability.
“We have worked intensively with our foreign counterparts in preparations for today’s announcements and will continue to assist in their implementation.
“The UK’s banking formula is well capitalised and funded, and remains robust. “
Deposits held in UK banks are made through the government-backed Financial Services Compensation Scheme.
The Bank of England also announced coordinated action with the central banks of the United States, Canada, Japan, Switzerland and the eurozone to increase “liquidity” in foreign markets by giving advertising banks a greater relationship with U. S. dollars.
This will involve the creation of dollar “exchange lines” between banks on a daily basis rather than weekly. The measures, taken to calm markets after an era of turmoil in the banking sector in recent weeks, will remain in place until at least the end of April.
The Bank of England said: “The network of switching lines between those central banks is a set of available status comforts and serves as a vital backstop in easing stress in global investment markets, helping to mitigate the effects of such source pressures. families and businesses.
The European Central Bank (ECB) has raised interest rates by half a percentage point in the fight to tame inflation, despite fears a hike of this size could exacerbate a financial crisis following a tumultuous week in the global banking sector, Andrew Michael writes.
The ECB announced that it will increase the interest rate on its main refinancing operations to 3. 5% and its deposit rate to 3%, in line with the guidance it issued in its latest financial policy resolution last month.
Since then, however, the banking sector has been mired in turmoil due to contagion fears similar to the collapse of the tech-oriented U. S. Silicon Valley Bank.
In addition, the Swiss National Bank, Switzerland’s central bank, provided £45 billion in emergency investments to troubled global banking giant Credit Suisse in a bid to avert a global currency crisis.
Against this backdrop, commentators have questioned whether the ECB will continue its policy of raising rates by a fraction of a percentage point, or instead pause or raise borrowing prices by a smaller amount.
Explaining its decision, the ECB – which is mandated to maintain inflation over the long-term at 2% – said rising prices across the eurozone remains the bloc’s main threat, adding that “inflation is projected to remain too high for too long”.
The ECB said it was “monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area”.
Next week, interest rate decisions are due from the US Federal Reserve and the Bank of England.
Richard Carter, head of fixed interest research at Quilter Cheviot, said: “The ECB has taken a look at what is going on in the banking sector and has effectively said it is comfortable with what is happening by raising rates by half a percentage point.
“Credit Suisse turns out to be on the verge of collapse, and the consequences that its collapse may have for the European banking sector are profound. But the ECB still sees inflation as the ultimate vital threat to be faced. And that “may just be a smart signal, because we expect cases like Credit Suisse and Silicon Valley Bank to be isolated incidents with their own circumstances. “
David Goebel, investment strategist at Evelyn Partners, said: “The ECB has been criticised for being behind in the global fight against inflation, being the last of the three major central banks to start its cycle. However, those lagging advances may simply turn this lagging position into an advantage.
“Rates in the eurozone are not as restrictive as in the U. S. , and given the lagged effect of rate hikes, this could leave Europe in a better position if the global economy were to slow from here. “
U. S. inflation fell to 6% in February 2023, up from 6. 4% the previous month, writes Andrew Michael.
That figure remains high enough to complicate the Federal Reserve’s next ruling on its benchmark interest rate, due on March 22, a day earlier than the Bank of England’s forecast on the U. K. bank rate.
In addition to fighting inflation, the Federal Reserve is dealing with three banks in the coming week and broader monetary stability considerations.
Consumer costs rose 0. 4% month-on-month in February this year, according to official figures from the U. S. Bureau of Labor Statistics released today.
The Bureau said housing contributed the most to the increase in monthly value, accounting for nearly three-quarters of the increase. Higher prices on food, recreation and home furnishings also contributed to the increase.
The most recent data indicates that U. S. consumer costs as a whole have continued to decline for the past eight consecutive months. However, the Federal Reserve’s mandate is to keep inflation at 2% over the long term.
While the gauge is falling in small increases, commentators say U. S. inflation has remained decidedly flat, suggesting the Federal Reserve still has a long way to go to rein in costs.
The events of the past few days related to the collapse of Silicon Valley Bank and the voluntary liquidation of crypto-focused lender Silvergate have left U. S. investors wondering what direction the U. S. central bank will take. See the U. S. below.
Richard Carter, head of constant interest rate research at Quilter Cheviot, said: “US inflation continues to fall and suggests that the Federal Reserve’s moves are doing their job by bringing it down, pushing the economy into recession. However, core inflation remains problematic and more stubborn than many would like, leaving additional rate hikes on the table.
“Inflation will continue to be the Fed’s main decision-maker, but the events of the past few days are starting to weigh on market sentiment and there are dangers that the U. S. economy is under pressure in the background. However, we welcome the absence of duels in this inflation report, which helps to calm the situation after a very dubious week.
“With the Silicon Valley Bank fall-out still fresh, a 25-basis points rise in rates appears the most likely scenario for the Fed at its next meeting.”
Oliver Rust of data aggregator Truflation said: “January’s customer value value was higher than expected at 6. 4%, prompting the Fed to hint that it would increase 50 fund issuances at its March 22 meeting, out of the usual 25 “Expected Foundation Issues”.
“However, given the current sensitive environment for US banks, the Federal Reserve is now much more likely to maintain a 25 basis point increase. “If the central bank were to raise 50 basis points, it would most likely surprise already nervous markets. ”
Eurozone inflation fell to 8. 6% in the year to January 2023, above expectations but below 9. 2% in the previous month, writes Andrew Michael.
Eurostat, the statistical agency of the European Union (EU), said that the inflation figure in the eurozone, made up of 20 countries, stood at 5. 6% in January 2022.
Across the 28 EU countries, inflation stood at 10% in January, up from 10. 4% in December, almost double the 5. 6% figure recorded in January 2022.
Eurostat said the main participants in the latest eurozone inflation figure came from emerging prices of food, alcohol and tobacco.
The data compiler added that the euro-dominated countries with annual inflation rates in January were the Baltic states of Latvia (21. 4%), Estonia (18. 6%) and Lithuania (18. 5%).
By contrast, the lowest rates were recorded in Luxembourg (5. 8%), Spain (5. 9%), Cyprus and Malta (both 6. 8%).
In a bid to combat stubbornly high levels of inflation, four times higher than the EU’s 2% inflation target, the European Central Bank (ECB) raised its main borrowing prices through 0. 5 percent issuance across the euro from 8 February.
Coinciding with its latest announcement on inflation, the ECB revealed its target to increase loan prices through 50 core issues in its next interest rate resolution on 16 March.
Explaining its thinking, the ECB said: “Keeping interest rates at restrictive degrees will, over time, reduce inflation by moderating the call to demand and also opposition to the threat of a persistent upward shift in inflation expectations. “
Almost all US Federal Reserve policymakers supported the resolution to further slow the speed of interest rate increases at the US central bank’s latest policy meeting, but also to contain Unacceptably high levels of inflation would be the key to the extent that interest rates could rise. gotten up. We had to let it pass.
According to the minutes of the Federal Reserve’s January rate-setting meeting released last night, policymakers agreed that rates would rise, but that a shift to smaller hikes would allow them to adjust more strongly to new economic data.
The Federal Reserve raised its benchmark target interest rate through issuance from 0. 25 percent in February to 4. 75 percent after delivering five consecutive rate hikes of part of one percentage point or more since the summer of 2022.
UK inflation eased to 10.1% in the year to January 2023, down from 10.5% recorded a month earlier, according to figures from the Office of National Statistics (ONS), writes Andrew Michael.
Despite remaining stubbornly in double digits for the fifth month running, today’s news of a fall in consumer price inflation – the third in three months – will boost hopes that the UK has finally reached a turning point following a year dominated by soaring prices.
The ONS said customer prices fell by 0. 1% on a monthly basis through January this year. The biggest contributor to the drop came from shipping (passenger and fuel transport), as well as restaurants and hotels.
Higher alcohol and tobacco costs counteract this trend.
Grant Fitzner, lead economist at the ONS, said: “Although still at a peak, inflation slowed in January. This is due to declining air and train costs after last month’s sharp increase. Gas costs continue to fall, and the costs of restaurants, cafeterias, and takeout have decreased.
“Other indications are that the costs faced by companies are rising more slowly, due to the decline in crude oil, electric power and oil costs. However, corporate costs remain the highest overall, especially for metal products. “
Today’s figure comes on the heels of the US inflation figure. yesterday, which pointed to a continued downward trend (see article below).
Earlier this month, the Bank of England raised interest rates for the tenth time in just over a year (up to 4%) as it continues its fight against double-digit inflation, which has put monetary pressure on households and Jeremy Hunt, Chancellor of the Exchequer, said: “While any drop in inflation is welcome, the fight is over. “
Rachel Winter, Partner at Killik
“While today’s figures may offer some reassurance at the end of the tunnel, costs remain at their highest level in 40 years and many continue to face a cost-of-living crisis. People are faced with a difficult balancing act: securing enough cash liquidity during an era when we’ve narrowly avoided recession, while also making a smart investment to prevent inflation from eating away at all savings.
Julia Turney, wife of Barnett Waddingham, said: “Inflation is slowing, but the war on the burden of living continues. After hitting a 41-year high of 11. 1% in October, a third consecutive drop in inflation since November to 10. 1% in January suggests that we are making slow but steady progress towards the Bank of England’s 2% inflation target.
“As positive as this news is, we will need to prevent prices from remaining at record levels and it will be a long time before the pressure on households is eased. “
U. S. inflation fell to 6. 4% for the year to January 2023, a higher-than-expected figure but lower than the 6. 5% recorded a month earlier, according to today’s official figures, writes Andrew Michael.
Forecasters had expected the annual customer expansion rate to slow to 6. 2%.
The Consumer Price Index for all items, compiled through the U. S. Bureau of Labor Statistics, is based on the Consumer Price Index. In the U. S. , it represents the smallest 12-month accumulation since October 2021.
Although at their highest level in several decades, the most recent figures mean that consumer costs in the U. S. are at an all-time high. U. S. inflation rates in total have continued to decline for the past seven consecutive months.
But as the clock ticks slightly for the latest update, commentators say U. S. inflation remains decidedly under control and that the Federal Reserve, the U. S. central bank, has more to do to rein in emerging market prices.
Last month, the Federal Reserve raised its benchmark interest rate through 0. 25 percentage points as part of its ongoing fight against inflation.
In the wake of the Federal Reserve’s announcement in January, the Bank of England and the European Central Bank followed suit and raised their key interest rates by a fraction of a percentage point.
All three institutions are mandated to maintain inflation at 2% over the long-term.
The UK’s next inflation update is tomorrow (Wednesday) while official figures for the Eurozone will be released on 23 February.
Commenting on today’s figures, the Bureau said that housing was by far the largest contributor to the monthly all-items increase.
Gerrit Smit, manager of Stonehage Fleming’s Global Best Ideas Equity fund, said: “The headline inflation reading of 6. 4% is above consensus expectations and indicates that the path to the Fed’s 2% target is going to take some time. “As stated above, it still has some work to do, but its new point of 25 basis point hikes stays the course.
Marcus Brookes, chief investment officer at Quilter Investors, said: “As inflation in the US continues to decline from its recent highs, there is no arguing that the homework is already done for the Federal Reserve as the numbers are higher than expected. . . This knowledge shows that markets would do well not to get ahead of the curve. “
The Bank of England has raised interest rates for the tenth time in just over a year, in a bid to free the UK economy from sustained double-digit inflation, writes Andrew Michael.
The Bank’s Monetary Policy Committee (MPC) raised the bank rate through issuances from 0. 5 percent to 4%, its highest point in 15 years. Official data published in January showed costs for customers rose by up to 10. 5% in the UK over the 12 months to December 2022.
Yesterday, the US Federal Reserve – that of the Bank of England – imposed a 0. 25 percentage point increase in its budget rate, bringing it to a variation between 4. 5% and 4. 75%. (see article below).
One of the key mandates of the Bank of England and the Federal Reserve is to keep long-term inflation at 2%.
Today’s announcement by the Bank will lead to an almost immediate increase in loan prices for around two million UK loan consumers with variable rate or tracker loans.
Households with fixed-rate mortgages will not enjoy an increase in their monthly payments, but could face more expensive loans once they complete existing transactions.
The nine-member MPC voted 7 to 2 in favor of today’s decision. Both dissidents are in favor of keeping the bank rate at 3. 5%.
The Bank said that, while global consumer price inflation remains high, it is likely to have peaked across many advanced economies, including the UK. It added: “UK domestic inflationary pressures have been firmer than expected. Both private sector regular pay growth and services CPI [consumer prices index] inflation have been notably higher than forecast in the November Monetary Policy Report.
“Given the delays in the transmission of financial policy, increases in the Bank Rate since December 2021 are expected to have an expansionary effect on the economy in the coming quarters. “
Jeremy Hunt MP, Chancellor of the Exchequer, said: “Inflation is a stealth tax that poses the biggest risk to living standards in a generation. Hence the Bank’s action today to halve inflation this year. “
Brian Murphy, head of lending at the Office of Mortgage Advice, said: “Today’s resolution was of course expected, but not welcome, as the Bank of England decided to continue its war on inflation with further rate hikes, bringing down the base rate. “This will inevitably leave many homeowners stuck and worried about the prospect of an even bigger increase in their borrowing costs.
Mike Stimpson, of wealth adviser Saltus, said: “Today’s rate hike (the third consecutive 0. 5% hike) may have a significant effect on homeowners, many of whom are already struggling to cover their monthly payments.
“For a follow-on loan, currently at 4. 5%, an increase of 0. 5% will add an extra £41 to the monthly payment on a £150,000 loan set over 20 years. Our most recent wealth index report shows that 35% of lenders are already struggling to cover the burden of the last two rate hikes, while 43% admit that any further increase would put them in trouble.
“Of those who believe an increase in additional rates would spell trouble, one in seven (15%) said they would turn their loan into interest just to afford it, one in five (22%) were contemplating cutting their pension contributions. , while one in 30 say they would have touted their wealth to move to a less expensive location.
Thinking about savers, Dan Howe of Janus Henderson Investors said: “The new rate hike is likely to inspire mixed emotions among investors across the country looking for higher yields. While an increase in the base rate is good news for those with money in savings accounts, it doesn’t guarantee that providers will raise their rates for the time being.
“Diversification is a must for those who want to protect their savings from inflation and are in favor of expansion in real terms. A savings account with a smart rate of return has its role, but so does a sensible investment. “
The European Central Bank (ECB) also announced that it will increase its main borrowing burden through 0. 5 percent issuances from 2. 5 percent to 3 percent, starting Feb. 8, in a bid to bring down inflation in the euro area.
Against the backdrop of inflationary pressures across the single currency bloc, the ECB said it also intends to raise the cost of borrowing by another 50 basis points at its next monetary policy meeting in March.
The ECB said it would then evaluate its policy, adding: “Keeping interest rates at restrictive levels will over time reduce inflation by dampening demand and will also guard against the risk of a persistent upward shift in inflation expectations.”
The United States Federal Reserve – the US equivalent of the Bank of England – has raised its target benchmark interest rate by 0.25 percentage points in its ongoing bid to tame inflation, Andrew Michael writes.
The federal budget rate is now between 4. 5% and 4. 75%, a 15-year high, with the possibility of additional increases in 2023.
Today’s announcement invoked a smaller rate hike compared with five previous consecutive increases that began last summer, each of half a percentage point or more.
The Federal Reserve’s decision to taper its latest rate hike comes after it emerged last month that U. S. inflation fell to 6. 5% by December 2022 from 7. 1% a month earlier.
Like the Bank of England, the Federal Reserve is tasked with maintaining 2% inflation.
In announcing its latest decision, the Federal Reserve’s Federal Rate-Setting Committee said it “expects continued increases in target diversity to be appropriate for a sufficiently restrictive financial policy stance to bring inflation down to 2% over time. “
It adds: “In determining the magnitude of long-term increases in the target range, the Committee will take into account cumulative tightening of economic policy, lags in which economic policy affects economic activity and inflation, and economic and economic developments. “
Countries around the world continue to battle inflationary pressures through a damaging cocktail of economic factors. This diversity ranges from rising energy costs (exacerbated by the war in Ukraine) to a series of supply chain bottlenecks resulting from the Covid-19 pandemic.
Tomorrow (Thursday), the Bank of England and European Central Bank are expected to adopt a similar stance to the Fed when each is expected to raise interest rates.
Despite a slight slowdown in months, UK inflation remains in double digits at 10. 5%.
Commenting on today’s resolution in the US, Gerrit Smit, manager of the Stonehage Fleming Global Best Ideas fund, said: “Reducing inflation that hurts the economy too much has tested the Federal Reserve’s abilities, but now they are on the verge of achieving it.
“Smaller increases may occur in the future, but investors can start looking towards a stronger capital market environment in this environment. “
Inflation in the UK eased to 10. 5% in the year to December 2022, up from 10. 7% in the previous month, according to the most recent figures from the Office for National Statistics (ONS) released today, writes Andrew Michael.
The drop – the moment in two months – is in line with economists’ expectations.
A slight but steady drop in the Consumer Price Index (CPI) would raise hopes that a turning point has been reached after a year of rising prices. Hopefully, this will ease the pressure on the Bank of England ahead of its next resolution on bank rates. February 2.
The Bank’s Monetary Policy Committee raised the bank rate, which largely determines interest rates elsewhere in the economy, adding in the housing market, a total of nine times since December 2021, its current point of 3. 5%.
The ONS said that, on a monthly basis, its Index rose by 0.4% in December 2022, compared with a rise of 0.5% for the same month a year earlier.
He added that the biggest contribution to the drop in inflation came from transportation, motor fuels, as well as clothing and footwear, which were offset by higher costs in restaurants and hotels, as well as food and non-alcoholic beverages.
Grant Fitzner, lead economist at the ONS, said: “Inflation eased slightly in December, remains at a very high level, and overall costs rose sharply over the year as a whole.
“Pump prices fell especially in December, although the price of clothing also decreased slightly. However, this increase was offset by increased prices for airline tickets and coaches, as well as hotel accommodation. Food prices continue to rise and are also rising in shops, cafes and restaurants. “
Despite today’s announcement, inflation remains in double digits thanks to a combination of rising energy costs exacerbated by the war in Ukraine and bottlenecks in the global supply chain as a result of the pandemic.
Today’s announcement could have an expensive knock-on effect for mobile phone and broadband customers. Many service providers in this sphere use January’s inflation figure as the basis for their ‘in-contract’ price increases later this spring. Assuming they go ahead, prices for these arrangements could be hiked by as much as 14.5%.
Responding to the current inflation figures, Jeremy Hunt, Chancellor of the Exchequer, said: “High inflation is a nightmare for household budgets, destroys business investment and leads to strikes.
“While any drop in inflation is welcome, we have a plan to pass additional inflation and halve it this year, borrow and grow the economy; However, it is critical that we make difficult decisions and deliver on this plan. “
Hunt will present the spring budget on March 15.
Daniel Casali, lead investment strategist at Evelyn Partners, said the effects of the ONS will inspire confidence that UK inflation has peaked: “Another slowdown in annual inflation, the juncture from the peak of 11, 1% in October, will add to new sense of optimism The UK economy has been boosted by last week’s unusually positive monthly GDP expansion data.
“But these are marginal value slowdowns, inflation remains high, and with a likely negative annual GDP expansion in 2023, this remains a threat to both markets and households. The Bank of England will welcome a slowdown in inflation, but for rate-takers, falling price pressures still have a long way to go before they take their foot off the rate pedal.
Andrew Tully, Canada Life’s technical director, said: “Today’s figures may not offer much comfort. While inflation will likely “decelerate” from last year’s peak, we will see costs of everyday goods and they will continue to rise. , but not as temporarily as they did in 2022.
“Indeed, this is a critical time, as pay deals are being negotiated across the public and private sector, and economic forecasts expect a deep and prolonged fall in our popular living standards. The Bank of England expects inflation to fall sharply since the middle of the year, but we will not reach the 2% objective for two years.
Inflation in the United States fell to 6. 5% in December 2022, from 7. 1% in the previous month. The reduction is in line with expectations, writes Andrew Michael.
The Consumer Price Index figure for all items, compiled through the U. S. Bureau of Labor Statistics, is as follows:The U. S. Presidential Survey released Thursday represents the smallest 12-month accumulation since the fall of 2021.
Although at their highest level in several decades, the most recent figures mean that customer costs in the U. S. are at an all-time high. U. S. inflation rates in total have continued to decline for six consecutive months.
The Office said that lower fuel costs were the main factor contributing to the decline in the overall inflation figure, but this was offset by higher housing and food costs.
In December, the Federal Reserve, an arm of the Bank of England, raised its benchmark interest rates through issuance from 0. 5 percent to a 15-year high of 4. 25 percent to 4. 5 percent.
The move followed four consecutive rate rises of 0.75 percentage points that began last summer and, according to City commentators, the Fed’s tactic appears to be paying off.
Richard Carter, head of interest rate research at Quilter Cheviot, said: “Inflation in the US continues its downward trajectory to reach 6. 5% in December, a figure that will be positive for markets with hopes of that the Federal Reserve stops its rate increases. calendar.
“In fact, this figure is expected to imply an increase of 0. 25 percentage points at the next meeting, versus what has become the not unusual maximum increase of 0. 5 percentage points. “
Gerrit Smit, fund manager at Stonehage Fleming Global Best Ideas Equity, said: “Having further confirmation of the downward trend in US inflation is constructive in further rebuilding overall investor sentiment and confidence that the Federal Reserve will succeed in its task.
“There are other reasons why the Fed’s rate hike procedure is reaching a complex level and that investors may start thinking in terms of opportunities rather than worrying about inflationary threats. “
Fiona Cincotta, senior money markets analyst at City Index, said: “US inflation data showed expectations that customer costs cooled further in December, reinforcing the view that the Federal Reserve could slow of rate hikes in upcoming meetings.
The Bank of England has raised interest rates for the ninth time in a year as part of its efforts to protect the UK economy from the damaging effects of rising inflation, writes Andrew Michael.
In a widely expected decision, the Bank’s Monetary Policy Committee (MPC) raised the bank issuance rate from 0. 5 percent to the current 3. 5 percent, its level since the fall of 2008.
The decision comes despite yesterday’s official figures that showed UK inflation had eased from a 41-year high of 11.1% to stand at 10.7% in the year to November 2022.
Earlier this week, news broke that annual inflation in the United States slowed to 7. 1% in November from 7. 7% reported a month earlier.
Last night, the US Federal Reserve also imposed a 0.5 percentage point rise on its Funds Rate, taking it to a range between 4.25% and 4.5% (see story below).
Both the Bank of England and the Federal Reserve are tasked with maintaining long-term inflation of 2%.
Today’s announcement through the Bank will lead to an almost immediate increase in loan prices for more than two million UK loan consumers who have taken out floating rate loans.
Those with consistent rates may not see a quick replacement in their monthly payments, but they may face more expensive loans when their current contract ends.
The Bank said the MPC’s nine-member committee voted 6-3 in favor of today’s decision. Of the 3 dissenters, two members were in favor of keeping the bank rate at 3%, while one called for an increase of 0. 75 percentage points.
Explaining its decision to raise interest rates, the Bank said that while peak symptoms of bottlenecks in global supply chains had shown signs of abating, “global inflationary pressures remain elevated. “
It adds: “The labour market remains tight and there have been signs of inflationary pressures on domestic costs and wages that could require greater patience and therefore warrant a more competitive policy response. “
Russ Mould, chief investment officer at AJ Bell, said: “While there are signs of slowing inflation, it remains well above the Bank of England and Federal Reserve’s 2% target. The market’s hard work is also too strong for central banks to prevent further rate hikes.
“Rising rates make it more expensive for consumers and businesses to borrow cash and theoretically lead to reduced spending and investment, which deserves to help ease the economy and lower prices. It takes time to find its way through the formula, so central banks will continue their policy of raising rates until there is sufficient evidence of a policy change.
Jenny Holt, managing director of visitor savings and investments at Standard Life, said: “Our research shows that even with an interest rate of 3. 5%, higher than you can get recently on almost all UK savings accounts Easy access, a £10,000 savings will be reduced to around £8,680 in real terms after two years if inflation remains at 10%.
“These numbers underscore the importance of making sure your savings work as well as possible. If your savings only generate 1% interest, the actual price after two years will be around £8,260, a difference of £420.
The European Central Bank (ECB), as well as the Bank of England and the US Federal Reserve, increased their main borrowing rate through percentage issuances from 0. 5% to 2. 5% in a bid to combat inflation in the eurozone.
The ECB called inflation too high: “Interest rates will continue to need to rise, mostly at a sustained pace, to achieve a sufficiently restrictive retreat in inflation to the 2% target over the medium term. “
By raising rates at more modest rates than recently, central banks are reacting to signs that inflation may have peaked in many countries. However, the world’s major economies will most likely fall into recession in the coming months.
Anna Stupnytska, global macroeconomist at Fidelity International, said: “The ECB’s hawkish tone suggests that it is preparing markets for further tightening through rate hikes and quantitative tightening. “
The Bank of England’s bank rate announcement will be made on February 2, 2023.
The United States Federal Reserve – the US equivalent of the Bank of England – has raised its target benchmark interest rate by 0.5 percentage points in a bid to contain inflation, Andrew Michael writes.
The Federal Reserve’s budget rate is now at a range of 4. 25% to 4. 5%, a 15-year high, with additional increases expected in 2023. Analysts estimate that it could peak at between 5% and 6%.
The Bank of England is expected to raise its bank rate through a similar move when it announces its latest resolution (Thursday): this would take the rate from 3% to 3. 5%.
Today’s hike by the Fed’s rate-setting Federal Open Market Committee was widely expected. It halts a run of four consecutive 0.75 percentage point rises that began in the summer.
The slowdown in the pace of accumulation follows yesterday’s official figures showing US inflation fell to 7. 1% for the year to November 2022, its lowest point in 12 months, and down from 7. 7% last month (see story below).
Hours earlier, news broke that UK inflation had also slowed from a 41-year high of 11. 1% to 10. 7% for the year to November.
Countries around the world are battling inflationary pressures brought on by a poisonous economic cocktail of rising energy costs and chain bottlenecks exacerbated by the war in Ukraine.
The Federal Reserve, tasked through the U. S. government with keeping inflation at 2% consistent with the year, warned that additional increases in the budget rate would be needed in 2023: “The Committee believes that ongoing increases in the diversity of targets will be adequate to fund policy that is restrictive enough to bring inflation down to 2% over time.
It indicates that a variety of factors are driving prices: “Inflation remains elevated, reflecting pandemic-related supply and demand-related imbalances, emerging food and energy prices, and broader price pressures.
“Russia’s war against Ukraine is causing enormous human and economic hardship. The war and resulting events are contributing to increasing pressure on inflation and weighing on global economic activity.
Today’s shift to a smaller rate hike will likely also be mimicked through the European Central Bank, which is expected to favor a 0. 5 percentage point increase.
Richard Carter, head of constant interest rate research at Quilter Cheviot, commented on the Fed’s decision: “This will inspire some investors who may see it as a sign of an inflection point in the fight against inflation. He’s confident in his hard stance and believes it’s working, though he may not need to take his foot off the gas just yet.
“Markets arguably believe that a comfortable landing will be achieved and that a pause or return to more accommodative financial situations will soon follow, but the Fed’s hawkish tone will not be limited to a single piece of smart news.
“Inflation may be coming down, but it’s still very much in the system. In fact, facility inflation remains a fear and will be the next key indicator to watch. Despite this positive news, many uncertainties remain about the long-term nature of the economy and the direction of interest rates.
Inflation in the UK has slowed from a 41-year high of 11. 1% to 10. 7% for the year to November 2022, according to the latest figures from the Office for National Statistics (ONS) published today, writes Andrew Michael.
A drop in the Consumer Price Index (CPI) will raise hopes that a turning point has been reached in a year of rising costs and ease pressure on the Bank of England before it shows its new resolve on rate setting. of interest for 2022 (Thursday). .
Over the past year, the Bank has raised its influential bank rate eightfold, to its current level of three percent, in an effort to avoid price increases.
On a monthly basis, the ONS said the CPI rose by 0. 4% in November this year, with a 0. 7% increase in the corresponding month last year.
He added that declining transport fares, especially fuel, are the biggest contributors to the decline in the latest inflation figures, but this is partially offset by emerging fares in restaurants and pubs.
Grant Fitzner, lead economist at the ONS, said: “While remaining at traditionally high levels, annual inflation eased in November. Prices continue to rise, albeit less than in the same period last year, with the most notable example being motor fuels. Tobacco and clothing costs have also increased, albeit to a lesser extent than last year at this time. “
Despite today’s announcement, inflation remains stubbornly in double digits thanks to a combination of economic conditions, plus rising energy costs exacerbated by the war in Ukraine and bottlenecks in the global supply chain.
Tomorrow, the Bank of England is expected to raise interest rates again – with forecasters predicting a half percentage point hike to 3.5% – as it attempts to tackle soaring prices against an increasingly recessionary backdrop.
This is a week for central banks around the world, as the U. S. Federal Reserve is expected to raise interest rates today and a similar announcement from the European Central Bank is expected tomorrow.
Responding to today’s inflation figure, Jeremy Hunt, Chancellor of the Exchequer, said: “Bringing inflation down so that people’s wages go up is my most sensible priority, which is why we will be keeping energy costs low this winter through our Energy Price Guarantee scheme and implementing a plan to partially reduce inflation next year.
“I know it is tough for many right now, but it is vital that we take the tough decisions needed to tackle inflation – the number one enemy that makes everyone poorer.”
Some analysts estimate that if the power of the Government were not able to limit average household spending to £2,500 per year (£3,000 per year as of April 2023), the inflation figure would be closer to 14%.
Samuel Tombs, UK lead economist at Pantheon Macronomics, said: “The fall in CPI inflation in November will require some relief from [the Bank of England’s] financial policy committee and will recommend that the more sensible rate is already firmly in the past. Looking ahead, CPI inflation is expected to continue to decline in the coming months.
Richard Carter, head of fixed interest research at Quilter Cheviot, said: “The latest data marks a fall of 0.4%, which is far more palatable than the huge 1% increase seen between September and October of this year. While the slight dip is a step in the right direction, the issue of rising food prices and growing household energy bills remains firmly in place.
“Temperatures have dropped sharply over the past week and demand for fuel will undoubtedly increase as people are forced to heat their homes. As the autumn has been fairly mild, we are only now starting to see the true effect. While government aid remains in place for now, any adjustments made once the April deadline is reached may have a knock-on effect on inflation.
Inflation in the United States slowed to 7. 1% in November of the fiscal year from 7. 7% the previous month, putting the most recent figure at its lowest annual rate since December 2021, writes Andrew Michael.
The U. S. Bureau of Labor Statistics The U. S. Department of Health reported (Tuesday) that customer costs rose 0. 1% between October and November this year, after rising 4 times that rate in the month to October.
According to the Bureau, housing “was by far the largest contributor to the monthly increase across all items, more than offsetting declines in energy indices. “
The speed of annual customer value expansion slowed more than expected last month (forecasters had expected a reading of 7. 3%), prompting the Federal Reserve, the U. S. central bank, to take notice of the severity of its recent financial tightening policy.
In November, in an effort to curb rising inflation levels caused by a damaging combination of economic conditions, in addition to skyrocketing energy prices, the Federal Reserve raised its benchmark interest rate by 0. 75 percentage points, a fourth consecutive historic increase of that size.
The federal budget rate is now at 3. 75% to 4%, its highest point since January 2008, at the height of the global currency crisis.
The Fed’s next rate-setting decision is revealed tomorrow (Wednesday 14 December). A day later, the Bank of England and the European Central Bank will separately announce their last rate-setting decisions of the year.
All three central banks are still expected to raise rates, although there is less consensus on the duration of the hike.
In reaction to today’s announcement, the influential S-share index
Richard Carter, head of interest rate research at Quilter Cheviot, said: “Inflation continues to move in the right direction for the US, and today’s figures fall short of expectations. As a result, the Fed will feel justified in its hawkish stance. while markets will begin to think that the problems arising from the tightening of the financial situation may soon be over.
“While the war against inflation is turning, we are a long way off declaring victory and the Fed will keep its hawkish stance for a while longer, even if it does potentially force a recession. We are still likely to see at least a 50 basis point rise in interest rates tomorrow and we cannot rule out further moves should other data points refuse to budge as quickly as investors would like.”
Gerrit Smit, portfolio manager at the Stonehage Fleming Global Best Ideas Equity Fund, said: “In our view, US CPI inflation, for this cycle, peaked at 9. 1% in June. If a U. S. recession materializes, it will most likely be Strong employment and consumption, as well as high private money reserves, offer some comfort in this case.
Eurozone inflation fell to 10% in the year to November, from 10. 6% the previous month, to initial figures released today, writes Andrew Michael.
It’s the first drop in nearly 18 months. However, as the rate remains five times higher than the EU’s 2% target, forecasters estimate that the European Central Bank will raise interest rates across the bloc by part of one percentage point at the next meeting of its board of governors on Dec. 15.
The ECB has already increased three times this year. The eurozone deposit is currently at 1. 5%, after being in negative territory in August of this year.
The Bank of England will also announce its next decision on the Bank Rate – currently 3% – on 15 December.
A decline in wholesale energy costs in Europe, combined with an easing in supply chain bottlenecks, has recently raised hopes of a slowdown in inflation in the euro area, despite emerging food costs.
Inflation in the U. S. has also fallen in recent months, unlike in the U. K. , where costs for customers have continued to rise. Earlier this month, the UK recorded an inflation rate of 11. 1% for the year to October 2022, a 41-year high.
The Bank of England, European Central Bank and Federal Reserve in the US share the common aim of maintaining financial stability in their respective regions. Each has a long-term inflation target of 2%.
David Goebel, associate director of investment strategy at Evelyn Partners, commented on the inflation rate fall: “This will certainly be a welcome development for citizens and policymakers. These latest readings will give consumers and investors some hope that the worst of this inflationary episode could be in the rear-view mirror.”
UK inflation accelerated to a 41-year high with a reading of 11.1% in the year to October 2022, according to the Office for National Statistics (ONS), writes Andrew Michael.
The increase in the Customer Value Index (CPI), which rose from 10. 1% in the 12 months to September, was due to energy expenditures in emerging countries and the country’s highest point in inflation since October 1981.
The ONS said the CPI rose by 2% in October from September, almost double the 1. 1% recorded in the same year last year.
Grant Fitzner, lead economist at the ONS, said: “Rising fuel and electricity prices have pushed headline inflation to its highest point in more than 40 years, despite the energy price guarantee. Over the past year, fuel prices have increased by nearly 130%, while electricity prices have increased by around 66%.
Fitzner added that an increase in a variety of foods also boosted the inflation figure, this was partially offset by a drop in fuels, adding to a drop in the price of gasoline.
With double-digit inflation since September, the most recent rate hike will be a hard-to-digest tablet for families already mired in a severe cost-of-living crisis.
Earlier this month, the Bank of England raised interest rates for the eighth time in less than year, piling extra financial pressure on to the UK’s two million households with variable rate mortgages.
Tomorrow, the government is expected to take into account a brutal autumn that will combine steep tax increases and drastic spending cuts.
Responding to the current inflation figure, Jeremy Hunt, Chancellor of the Exchequer, said: “The aftershock of Covid and Putin’s invasion of Ukraine are pushing inflation up in the UK and around the world. This insidious tax eats away at families’ salaries, budgets, and savings. at the same time that it thwarts any possibility of long-term economic growth.
“It is our duty to the Bank of England in its project to bring inflation back to its [2%] target by acting responsibly with the country’s finances. This requires difficult but mandatory decisions on taxes and expenditures to balance the books.
“We cannot have a long-term sustainable expansion with maximum inflation. Tomorrow I will present a plan to reduce debt, stabilize supply and reduce inflation, while protecting the most vulnerable.
Rachel Winter, Partner at Killik
“The pound is continuing its gradual recovery against the dollar, but while in the US CPI inflation has slowed, the UK has not been as fortunate, and the Bank of England has said we are unlikely to see any significant drop in inflation for many months to come.”
Inflation in the United States slowed to 7.7% in the year to October, down from 8.2% recorded a month earlier, taking the figure to its lowest annual level since the start of this year, Andrew Michael writes.
The U. S. Bureau of Labor Statistics reported that customer costs increased 0. 4% month over month. This has been less than expected, but probably at a pace fast enough to keep the country’s central bank on track to implement additional interest rate increases.
The Bureau said housing, fuel and food contributed to the latest monthly increase, but added that after sectors such as food and energy, so-called “core” inflation rose 0. 3% in October, part of the figure for the same measure. a month before.
The British pound rose sharply to just over $1. 16 following the announcement of a surprising slowdown in U. S. inflation. Today’s knowledge bolstered hopes that the U. S. Federal Reserve will refrain from extra-competitive interest rate hikes that would put pressure on the dollar.
Earlier this month, the Federal Reserve also attempted to curb rising inflation levels by raising its benchmark interest rate by 0. 75 percentage points, a fourth consecutive increase of such unprecedented magnitude.
Announcing its most recent hike, the Fed anticipated that “ongoing increases” to US interest rates would be necessary for its inflation-beating policy to be “sufficiently restrictive” to return levels to its longstanding target of 2%.
The latest insights into inflation come on the heels of this week’s U. S. midterm elections, in which the Republican Party’s expected “red wave” failed to materialize.
Despite this, the party is most likely to take over the smallest space in Congress, the House of Representatives. The Senate race remains balanced with four state effects yet to be announced.
Stuart Clark, portfolio manager at Quilter Investors, said: “US inflation has fallen again, giving some impetus to the concept that we are now the worst. The rate is lower than expected, which will bring some relief to consumers and the market as a result as a whole, although it should be noted that food and housing continue to rise, so we are not completely out of the woods yet.
“Inflation also remains stubbornly high, and as such, the Fed will maintain its hawkish stance for some time. “
Samuel Fuller, director of Financial Markets Online, said: “Policymakers have got their wish. The signs are that a series of rapid interest rate rises may finally be taming rampant inflation. Prices are cooling faster than expected in the US, which makes a 0.75% rate rise next month extremely unlikely.
“It’s going to calm nerves on both sides of the Atlantic, as knowledge offers the tantalizing promise of calmer waters where policymakers wouldn’t possibly have to destroy economies to tame inflation. “
The Bank of England has raised interest rates for the eighth time in less than a year, in a bid to protect the UK economy from the damaging effects of rising inflation, writes Andrew Michael.
In an expected move, the resolution taken by the Bank’s Monetary Policy Committee (MPC) to raise the policy rate from 0. 75% to 3% is the largest such increase since policymakers rushed to adopt sterling on Black Wednesday 1992.
The MPC’s nine-strong committee voted 7-2 in favour of today’s decision.
Explaining the move to hike rates, the MPC pointed to a “very challenging outlook for the UK economy”. The Bank of England has a mandate, set by government, to maintain inflation over the long term at a level of 2%.
The MPC added that it expects the UK “to be in recession for an extended period” and warned that customer value inflation “will remain at levels above 10% in the near term”. term. ” Consumer values in the year to September increased by 10. 1%.
The drawdown rate is vital because it affects both the burden of loans and the amount of interest paid through banks and corporations to lend to savers with money on deposit. The last time the bank rate remained at the current level was in November 2008.
Today’s news follows less than 24 hours from the US Federal Reserve’s decision to hike interest rates – also by three-quarters of a percentage point – their fourth rise of this magnitude in the past five months (see story below).
Last week, the European Central Bank hiked interest rates across the eurozone by the same amount, the second rise of this size in two months.
Today’s resolution through the Bank of England will cause a rapid rise in prices for around 2. 2 million loan consumers in the UK who have taken out variable or variable rate loans. Those who take advantage of follow-up agreements, which reflect movements in the reduction rate, will delight in a notice that will affect their payments.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said today’s news is unlikely to provide an overnight big bang where rates rise significantly: “With the big high street banks stuffed full of lockdown savings, they’re happy to continue offering miserable rates – typically under half a per cent.”
Jeremy Hunt, Chancellor of the Exchequer, said: “Inflation is the enemy and weighs heavily on families, pensioners and businesses across the country. Today, the Bank took steps consistent with its goal of bringing inflation back to its target. “What the government can do now is repair stability, clean up our public finances and reduce debt so that interest rate increases remain as low as possible. “
Alice Haine, private finance analyst at Bestinvest, said: “Raising interest rates when the economy is already in recession is a typical course of action for a central bank, but we live in exceptional times and the Bank of England has had to act to control the situation. Double-digit inflation is limiting business and customer spending.
“Higher interest rates will pile more pressure on household finances already battered by the toxic mix of high prices, falling real incomes, soaring borrowing costs and the effects of a recession. Expectations of higher taxes and spending cuts to come when the Chancellor unveils his budget on 17 November means the hit to the consumer wallet will continue as Britain tightens its belt to plug the shortfall in public finances.”
The announcement of the Bank Rate will be made public on December 15.
The U. S. Federal Reserve also attempted to curb rising inflation levels by raising its benchmark interest rate by 0. 75 percentage points, a fourth consecutive increase of this magnitude that will go down in history, writes Andrew Michael.
The Fed funds rate now stands in a range between 3.75% and 4%, the highest level since January 2008 at the height of the global financial crisis.
Countries around the world are battling inflationary pressures through a cocktail of economic situations ranging from record energy costs and the war in Ukraine to post-pandemic supply chain bottlenecks.
In delivering the long-awaited resolution of its Open Market Decision-Making Committee today, the Federal Reserve said that “continued increases” in the federal budget rate will allow policy to be “restrictive enough” to bring inflation back to its long-standing 2% target.
This is the same target as the Bank of England, which shows its latest interest rate resolution (Thursday). UK interest rates have recently stood at 2. 25%, having been raised seven times through the Bank since December 2021.
Analysts expect the Bank to raise the interest rate to 2. 75% or, more likely, to 3%.
U. S. inflation has eased across the board in recent months, with annual costs rising 8. 2% in the year through September, up from 8. 5% in the 12 months through July.
However, data released since the Federal Reserve’s last rate announcement in September shows that consumer value expansion is accelerating across a wide variety of goods and services, suggesting that underlying inflationary pressures are taking hold.
Last week, the European Central Bank raised its key interest rate to 0. 75% for the time in a row. Deposit rates, which were negative last August, now stand at 1. 5% in the euro area.
The Fed’s next rate-setting announcement takes place on 14 December.
Richard Carter, head of constant interest rate research at Quilter Cheviot, said: “There’s still a lot of uncertainty about where rates will peak, and there’s a genuine fear that the Fed will tighten too much and push the U. S. into a crisis situation. The result is a painful recession.
“Today’s suggests that the Fed believes it still has a long way to go in its fight to tame inflation, but we can expect the speed of long-term rate hikes to slow as we head into the new year, which deserves reassurance to investors. “
Sonia Meskin, head of U. S. macroeconomics at BNY Mellon Investment Management, said: “The real question for investors is the trajectory of policies going forward. We believe there is a 50% chance that the Fed will increase 75 foundation issuances in December, and a 50% chance that it will increase 50 foundation issuances.
“Regardless of the fact that the Fed’s forecasts and our forecasts recommend that the policy rate stabilize between 4. 5% and 5. 0% in early 2023, persistently high inflation is a notable upside threat to this forecast. “
The Office for National Statistics (ONS) will use subsidised energy unit prices when calculating the Consumer Price Index over the coming months, a move which will reduce the headline rate of inflation, writes Jo Groves.
The reduction in unit values is the result of the government-funded energy price guarantee for domestic consumers and the energy bill relief program for non-domestic consumers.
Reduced prices for business users will be reflected in the input Producer Price Index, which measures the cost of raw materials used in production.
The magnitude of the relief has been quantified and will only be temporary, as either project is expected to operate only until April 2023.
The ONS announced in August that the £400 discount on domestic energy bills under the Energy Bills Support Scheme (EBSS) would be treated as increasing household income, rather than reducing expenditure. As a result, this scheme does not affect CPI calculations.
The EBSS will reduce the family’s electricity costs by £400, spread over six months, from October 2022 to March 2023.
It remains to be seen how the above adjustments will affect the October ONS inflation figures, which will be published on 16 November 2022.
The next day, the government will make an autumn statement in which it will review public finances and set policy targets. This will possibly include major points about government for energy consumers from April 2023.
The European Central Bank (ECB) has raised its key interest rate by 0.75 percentage points in an attempt to head off soaring inflation levels across the eurozone, Andrew Michael writes.
The move follows an increase of the same magnitude in September and marks the third rate hike in as many months for the 19-member currency bloc. The deposit rate, which was negative until August, increased from 0% to 0. 75% and has now doubled. to 1. 5% after today’s increase.
The magnitude of the ECB’s new hike is comparable to the last three increases imposed through the Federal Reserve on U. S. borrowing costs.
The Bank of England has settled for measures of one percentage point or less in the seven times it has raised its key interest rate since December last year to its current point of 2. 25%. The Bank’s next announcement on rate setting will be made on November 3.
The ECB said it expects to hike rates further in a bid to tame inflation. The inflation rate in the euro area stood at 9.9% in the year to September. The latest figures for the UK and US are 10.1% and 8.2% respectively.
All three central banks have an inflation target of 2%.
Today’s move, which pushes the deposit rate up to its highest level since 2009, had been widely expected by economic forecasters. It suggests eurozone rate-setters are not yet ready to slow the pace of monetary tightening, despite mounting political criticism.
Georgia Meloni, Italy’s recently-elected prime minister, said recently that tighter monetary policy was “considered by many to be a rash choice”.
Their outlook echoes the considerations of Emmanuel Macron, the French president, who warned of “overwhelming demand” from central banks to combat inflation across the bloc.
In a statement, the ECB said: “In recent months, rising energy and food prices, resource bottlenecks and the recovery in demand from the pandemic have led to increased price pressures and emerging inflation. The Governing Council’s financial policy aims to cut “We call and protect ourselves against the threat of a persistent upward expansion of inflation expectations. “
Anna Stupnytska, global economist at Fidelity International, said: “As today’s resolution is widely expected, the focus is now on the track of rates. The ECB continues to face a difficult trade-off between peak inflation and a deteriorating economic outlook, with a looming recession on the horizon.
“As the global energy crisis unfolds with Europe bearing the brunt, the ECB’s window of opportunity for aggressive frontloading of policy tightening is shrinking rapidly. Today’s move is likely to be the last jumbo hike in this cycle.”
Inflation in the UK has passed the double-digit mark at 10. 1% for the year to September 2022, according to the Office for National Statistics (ONS), writes Andrew Michael.
The latest consumer price index (CPI), up 9. 9% in the year to August, means inflation is at the same level as in July, accelerating hopes that price increases are starting to ease.
September’s CPI figure is vital because it is one of three measures used by the government (along with wage expansion and a minimum growth rate of 2. 5%) for the triple lock on the pension guarantee.
Assuming the government sticks to the triple lockdown, today’s figure (which is that of the three measures) means that state pensions will increase by 10. 1% from the start of the fiscal year next April.
However, there are a number of reports that the Prime Minister and her Chancellor will break the pledge to use the highest of the three figures given that inflation is so high.
The ONS said the CPI rose 0.5% in September compared with August, a larger increase over the same month than in 2021 when the index rose 0.3%. The main drivers behind rising prices came from food, non-alcoholic drinks and transport, although the continued fall in the price of motor fuels made the largest, partially offsetting, downward contribution to the change in the rate.
Darren Morgan, director of economic statistics at the ONS, said: “After last month’s slight decline, headline inflation has returned to its peak seen earlier this summer. The increase was due to additional increases in the food sector, which saw the biggest annual increase in more than 40 years, while hotel costs also rose after falling at the same time last year.
The resurgence of double-digit inflation will be a difficult pill to swallow for families – suffering the worst crisis of life in years – both for ministers and for the Bank of England. This shows that the price increase has not yet peaked, despite an energy guarantee that limits fuel and electricity costs this winter.
In recent months the UK, along with many countries worldwide, has felt the impact of inflationary headwinds as a result of soaring energy prices, a squeeze in the post-pandemic global supply chain and the war in Ukraine.
The Bank, which has a mandate from the government to keep inflation to 2%, repeatedly warned this summer that rising prices could hit 13% this winter and remain at elevated levels throughout 2023, although it has since revised this forecast down to 11%.
Last weekend, Bank Governor Andrew Bailey did not rule out a really broad interest rate hike (up to a full percentage point) to fight emerging inflation when the Bank’s Monetary Policy Committee (MPC) meets early next month.
The Bank rate currently stands at 2.25% having been hiked seven times in under a year. The next Bank rate announcement will be on 3 November.
Marcus Brookes, chief investment officer at Quilter Investors, said: “The drop in inflation seen in August appears to have been a fluke, and with the changing environment we live in lately, inflation is unlikely to fall for some time yet.
“As we head towards the winter and demand for gas increases, we will begin to see higher energy bills really come into play. While Prime Minister Liz Truss’s energy plan means they are capped at £2,500 for now [per annum, for a household with average consumption], it has been made very clear that this iteration of government support [the Energy Price Guarantee] will not be in place for as long as was once promised, and this could well have a knock-on effect on inflation.”
Chancellor Jeremy Hunt announced on Monday that, after two years of running from 1 October, the guarantee will only be in force until April 2003.
Samuel Tombs, lead economist at Pantheon Macronomics, said: “September customer value figures continue to put pressure on the Bank of England’s MPC to specifically raise the bank rate at its next meeting on November 3, despite the recession. what is coming right now.
“Looking ahead, we continue to expect headline CPI inflation to rise to about 11% in October, primarily due to higher energy prices for customers. “
U. S. inflation continued to fall last month, at a slower-than-expected pace, writes Andrew Michael.
Today’s figures from the U. S. Bureau of Labor Statistics show that the U. S. Department of Labor is the most important in the U. S. U. S. data shows that the customer value index for “all items” rose 8. 2% in the year to September 2022, down from the 8. 5% increase recorded in July.
The 0.1 percentage point dip was half the figure predicted by forecasters.
The Bureau said increases in housing, food and health care costs during the month were partially offset by a drop in fuel prices, but noted that the cost of herbal fuel and electricity had risen over the same period.
On a monthly basis, the Bureau reported that client costs increased 0. 4% between August and September, compared to a 0. 1% increase from July to August 2022.
The Bureau’s core consumer prices reading for September, that excludes both food and electricity, came in at 6.6%, a 40-year high. This was above the 6.5% that was expected, as well as August’s figure of 6.3%.
Today’s news will increase pressure on the Federal Reserve, the U. S. central bank, to continue its competitive policy of financial tightening, adding to the increase in interest rates.
Yesterday, the Federal Reserve indicated that it was more concerned about not doing enough to prevent US inflation from soaring than about doing too much.
Published minutes from its September 2022 meeting, at which the Federal Reserve imposed its third consecutive 0. 75 percentage point hike, showed central bankers remained committed to “deliberately” tightening financial policy in the face of “widespread inflation. ” and unacceptably maximal”.
US benchmark interest rates currently stand in the range 3% to 3.25%. The Fed’s next rate-setting announcement will be made on 2 November.
The Federal Reserve’s stated purpose is to maximize employment and inflation at a rate of 2% over the long term, the same rate as the Bank of England.
The UK inflation figure will be announced on Wednesday, October 19. The Bank of England is expected to adopt its next rate resolution on November 3.
Richard Carter, head of constant interest rate research at Quilter Cheviot, said: “As expected, today’s US CPI figures once again showed that inflation is slowing thanks to declining gas prices, falling to 8. 2% in the 12 months through September. 8. 3% in August.
He added: “Despite a slight slowdown, inflation continues to rise, so we expect an interest rate increase of 0. 75% at the next assembly and the federal budget rate to approach 4. 5% by the end of the year. Of course, the Fed will replace them, but they may want to be patient.
Figures released through the Office for National Statistics show that the UK’s gross domestic product (GDP) fell by around 0. 3% in August.
July’s positive GDP figure (a measure of the price of goods produced in the UK) was also revised down from 0. 2% to 0. 1%. The ONS says there has also been a continued slowdown in the three-month rolling exchange rate, with GDP for the 3 months to August also down 0. 3% in the 3 months to May.
A 1. 6% drop in production is seen as the main cause of August’s drop as companies cut production due to higher energy costs and a drop in customer demand.
The service sector saw an 0.1% fall in August after growing 0.3% in July while construction grew by 0.4% on the back of a 1.9% increase in new building projects. Infrastructure (5.3% growth), private industrial (4.3%) and private housing new work (1.7%) were the main contributors to the positive construction sector number.
Commenting on the figures, Jonathan Moyes, head of investment research at Advisors Wealth Club, said: “It’s hard to find many positives in the data, the structural sector remains a strong domain. With a significant tightening of monetary situations until September AND in October, the air is getting colder. These figures are a harbinger of the coming winter.
“The market’s attention will remain firmly fixed on both the Chancellor and the Bank of England as they look to restore confidence and stabilise the government bond market.
“While inflation remains high, the bank is unlikely to see weak GDP as an explanation for easing [interest rate] policy. The government, for its part, is obviously looking for a severe recession through accommodative fiscal policy. We look forward to hearing the main points on how this will be funded.
Chancellor Kwasi Kwarteng will announce details of his fiscal policy on 31 October.
The Bank of England has expanded its intervention in the bond market (this time with inflation-linked bonds) in a bid to avoid a sharp sell-off in UK government debt, writes Andrew Michael.
Yesterday, the Bank said it was taking “additional steps” to strengthen the emergency aid package it introduced in September and which is due to close at the end of this week.
This included an increase in the duration of potential gold bond purchases from £5bn to £10bn.
However, this morning, the Bank announced that it was expanding its bond-buying program to include index-linked bonds (government bonds whose interest rate varies in line with inflation).
Today’s announcement comes into force without delay and will last until Friday, coinciding with the Bank’s traditional public debt auction.
The Bank said, “These new operations will serve as an additional hedge to repair orderly market conditions. “
Bonds are a form of promissory note that governments and corporations factor when they need to borrow money. In exchange for a loan, the bond factor will pay interest on the interest on a bond for a set period of time until the life of the note expires, at which point the original loan is also repaid.
The value of U. K. government bonds, or gilts, fell sharply in the wake of the Sept. 23 mini-budget, forcing the Bank to interfere to salvage what it described as a “significant threat to monetary instability” and “any similar threat to monetary instability. “contagion to credit situations for UK households and businesses.
Victoria Scholar, chief investment officer at Interactive Investor, said: “The Bank has extended its intervention in the UK government bond market to compensate for market ‘dysfunction’ and curb monetary contagion.
“The UK central bank is adding inflation-linked government bonds to its purchases, buying up to £5 billion a day, due to concerns about the effect of the bond market slump on pension funds. This comes a day after the Bank of England expanded its measures by introducing short-term investments for banks to help ease pressure on pension funds.
“UK government bonds are attempting to regain ground this morning after yesterday’s sharp sell-off.”
The Bank of England (BoE) has announced new measures to keep UK money markets running, following last month’s turmoil in the pensions sector following the government’s mini-budget, writes Andrew Michael.
In a surprising move, the Bank of England introduced primary intervention in the U. K. government bond market, or gilts, in late September to salvage what it described as a “significant threat to monetary instability. “
The decision, which involved a temporary scheme to buy gilts worth billions of pounds, was made following the Chancellor of the Exchequer’s financial statement that sent shockwaves through the markets and exerted huge liquidity pressures on UK pension funds.
Today, the Bank of England said it would take “additional steps” to expand its aid as it prepares to finalize its contingency plan on Friday.
In the initial program, designed to last a fortnight, the Bank of England promised to buy up to 65 billion pounds of government securities at 5 billion pounds a day. Purchases of government securities through the Bank of England are made through an auction process.
So far, the U. K. ‘s central bank has bought bonds worth around £5 billion, after quelling the initial panic in the market that saw bond costs fall and prompted the pension budget to forcibly sell assets to meet the complex monetary obligations underpinning its solvency.
With this aid coming to an end later this week, the Bank of England said it was prepared to increase the volume of its daily bond purchases to £10 billion per day this week.
In a statement, the Bank of England said it was “ready to deploy (this) unused capacity to increase the maximum duration of the remaining five auctions above the current point of £5 billion for each auction. “
It added: “The maximum auction size will be confirmed each morning at 9am and will be set at up to £10 billion in today’s operation. The Bank’s existing reserve pricing mechanism will remain in operation during this period.”
Tom Selby, head of pension policy at AJ Bell, said: “The Bank of England has further eased its regulations for the purchase of government securities as it prepares to end the dramatic intervention it first announced on 28 September.
In addition, he laid out his plan beyond this Friday, when he will prevent the purchase of government securities, with a view to maintaining order in the market and avoiding a “death spiral” of forced sales of government securities through UK pension funds. There is still a lot of uncertainty about the era of adjustment once the Bank abandons its emergency intervention.
Kwasi Kwarteng, Chancellor of the Exchequer, has delayed his medium-term fiscal plan and the publication of independent UK budget forecasts until 31 October 2022, more than three weeks earlier than expected, the Treasury announced today.
The original plan had been set for November 23. He intended to take advantage of Mr Kwarteng’s mini-budget, which contained a proposal for £45 billion in unfunded tax cuts and led to a rout in money markets and saw the price of the pound fall to a record low against the US dollar.
The British pound returned to its pre-mini-budget levels against the dollar, when the UK’s official forecaster revised its calculations, apparently the country went into recession over the summer, writes Andrew Michael.
The British pound rose against the dollar to $1. 116 this morning, after retreating from its low of just over $1. 03 last week via a market crash in reaction to the government’s recent proposals for a gigantic series of unfunded tax cuts.
The increase comes as the Office for National Statistics (ONS) revealed that the UK economy grew by 0. 2% in the second quarter of this year, with an earlier estimate of a 0. 1% drop.
This discrepancy in the Gross Domestic Product figure – a measure of a country’s output generated by products and services – appears slight but makes an important difference to its economic status. This is because a recession is usually defined as two consecutive quarters of contraction.
The revised figure means that the UK, despite its precarious position after a tumultuous week in the markets and amid a severe cost-of-living crisis resulting from rising inflation, technically cannot yet be considered a country in recession. The review contradicts recent information from the Bank of England that this was the case.
Despite the upward revision, the ONS said the total duration of the UK economy is still 0. 2% below its pre-Covid 19 level.
Given the prevailing economic conditions, the city’s forecasters say it’s a matter of “when” and not “if” the UK ends up falling into recession.
Grant Fitzner, lead economist at the ONS, said: “We have published advance GDP figures by incorporating new strategies and sources. These new figures come with more accurate estimates of the money sector and the price developments facing the healthcare sector. pandemic.
“These advance figures show that the economy grew in the second quarter, revised upwards after a slight decline. They also show that although household savings declined in the last peak quarter, they stored more than we had estimated in the past and after the pandemic.
Danni Hewson, currency analyst at AJ Bell, said: “This is not very convenient for families struggling to pay their bills, but the revised figures suggest that the UK economy is not in recession, at least not yet. To achieve this milestone, it wants to contract for two consecutive quarters, and despite earlier estimates, Britain managed to post a weak expansion in the three months to June.
“But this good news is offset by the bad news. Despite the end of lockdowns and the return to general life, the UK economy has yet to regain momentum, as it is the only G7 country that has failed to return to the previous situation. pandemic levels.
Inflation in Germany has reached double-digit levels for the first time in more than 70 years. Consumption in Europe’s largest economy rose 10. 9% in the year to September, a big jump from 8. 8% in the previous month.
The Bank of England (BoE) was forced today to take emergency measures in bond markets amid turbulence that has led to a sharp rise in the cost of public borrowing, writes Andrew Michael.
The BoE has launched a surprise and potentially enormous intervention in government bonds, also known as gilts, to stop what it described as “a material risk to financial instability” in the wake of last Friday’s mini-budget.
In recent days, sterling has weakened against the dollar and bond prices have plummeted as the market has digested the government’s recent gigantic tax-cutting plans that require really extensive borrowing to be successfully executed.
Gilts are part of the £100 trillion global bond market and are a kind of promissory note that the UK government issues when it wants to borrow money. They are incredibly important to the UK’s monetary formula, as they have an effect on lending rates. pensions and the state of public finances.
Central to the intervention, the BoE, the UK’s central bank, has announced plans to delay an earlier programme of ‘quantitative tightening’ – that required it to sell off bonds – and replaced it instead with a scheme to buy long-dated gilts (those due to mature several years hence).
The Bank of England said it would make: “Temporary purchases of long-term British bonds from September 28.
“The goal of those purchases will be to repair orderly market conditions. Purchases will be made on whatever scale is necessary to achieve this result. The transaction will be fully cleared through HM Treasury.
The Bank of England’s Financial Policy Committee welcomed plans for “temporary and targeted purchases in the bond market for reasons of monetary stability, at a pressing pace. “
In reaction to the announcement, sterling fell 1. 5% to $1. 0571, a few cents above the U. S. currency’s all-time low this week.
Reacting to today’s Bank of England decision, the Treasury said: “The Bank has known a threat similar to the recent turmoil in government securities markets. It will temporarily purchase long-term UK government bonds from today to restore order in the market. “”.
Ben Laidler, global market strategist at eToro, said: “Desperate times call for desperate measures and that is precisely what the Bank of England warned today. In an attempt to put out the fire that has been burning since last week’s mini-budget, the bank came to the rescue of the free-falling UK bond market, which had begun to shut down the UK lending market.
“The transitory purchase of long-term bonds cancels the Bank’s recently announced ‘quantitatively tightening’ bond sale plan and has already seen an increase in bonds.
Stuart Clark, portfolio manager at Quilter, said: “By incentivising targeted, controlled and seemingly time-bound intervention, the Bank of England will seek to prop up the economy for a more expensive bailout if the situation continues to worsen, especially while preserving its independence.
“Above all we need to see the government regain credibility with domestic and international investors and explain how they plan to pay for these tax cuts other than just through borrowing.”
The Bank of England (BoE) has ruled out the need for an emergency rate hike after sterling fell to a record low against the dollar the day before, writes Andrew Michael.
The Bank of England raised its key interest rate by 0. 5 issues to 2. 25% less than a week ago, the seventh consecutive rate hike since December last year.
In the overnight industry in Asia, sterling fell to $1. 0327 on Monday morning, its lowest level against the dollar since the advent of decimalization in the U. K. in 1971.
The drop was due to comments from Chancellor of the Exchequer Ki Kwarteng, who hinted that additional tax cuts would follow in the wake of last week’s seismic “fiscal event”, which has yet to be named in the budget.
In a statement from the Bank of England, Bank of England Governor Andrew Bailey said the Bank’s Monetary Policy Committee “will not hesitate to replace interest rates as mandatory to bring inflation back to the 2% target in a sustainable manner over the medium term, in line with its target. “”delivering. “
Bailey added that the Bank of England “is very closely following developments in money markets in light of the significant revaluation of monetary assets. “
He said: “As the OAG has made clear, at its next scheduled meeting it will present a full assessment of the effect on demand and inflation of the government’s announcements. “
The MPC is due to meet on 3 November.
Danni Hewson, monetary analyst at AJ Bell, said: “It’s been a difficult day for markets as London investors wake up to the falling pound. There is no denying that we live in times of nervousness.
“The biggest problem the government has at the moment is trust. It’s not that a bold new plan for growth won’t work, it’s that they’ve not demonstrated to either investors or the public that they know how to make it work.”
The Bank of England raised interest rates to 2. 25% today. The 50 percentage points accumulated from 1. 75 per cent put the bank rate at the level since November 2008, when it stood at 3 per cent.
However, the increase is not as large as the 75 percentage point increase that was feared: that is the magnitude of the increase implemented through the US Federal Reserve (see account below).
Five members of the Bank’s nine-strong Monetary Policy Committee backed the 50 percentage point move, with three arguing for a similar rise as the US. One member voted for a 25 percentage point increase.
The latest rise will impact around 2.2 million households on variable mortgage rates. Those on tracker rates – which mirror the movements in the Bank rate by a given margin – will see an immediate impact in payments.
For example, the building will add £62 per month to the load of a £250,000 mortgage, or £37 a month to the load of a £150,000 mortgage.
Homeowners paying standard variable rates (SVRs), the average of which stands at 5.4% according to Moneycomms.co.uk, will see the rise at their lender’s discretion.
Often, banks and lending corporations increase SVRs within a month of the bank rate decision, but lenders will most likely be pressured not to pass on the entire increase as households struggle with other emerging prices such as food, energy, and electricity. and gasoline.
The roughly 6. 3 million families with fixed-rate mortgages will feel the effect of this and previous rate increases when they reach the end of the contract term, usually two to five years.
According to the Financial Conduct Authority, more than a portion of the constant rates will expire in the next two years.
The Bank of England is counting on interest rate hikes (now the seventh in a row since December last year) to tame emerging inflation. Their reasoning is that if costs are higher, other people will spend less, which will reduce costs.
However, despite inflation, as measured by the consumer value index, fell to 9. 9% in the year ending in August, in part due to falling food values. gas and diesel, still almost five times higher than the 2% target set by the government, which has drawn criticism. that interest rate increases do not have the expected effect.
Despite the government’s recently announced energy value guarantee of £2,500 a year for average energy consumption costs – plus the automatic £400 relief that will be implemented for all household electricity costs this winter – UK families are still bracing for higher energy costs. . starting next month.
But the Bank has revised down its inflation rate prediction. It expects a peak just below 11% in October, whereas in August it feared inflation topping 13% by the year end.
Recent figures from the ONS also reveal that 98% of households attribute the growing burden of living to rising food prices.
The next resolution of interests through the Bank’s Monetary Policy Committee will take position on November 3.
The Committee said it would not hesitate to raise the bank rate further, saying it would take steps to bring inflation back to its 2% target: “Policy is not on a predefined path. As always, the committee will review and at the appropriate point the type of reduction at each meeting.
“The scale, pace and timing of any further changes in Bank Rate will reflect the Committee’s assessment of the economic outlook and inflationary pressures. Should the outlook suggest more persistent inflationary pressures, including from stronger demand, the Committee will respond forcefully, as necessary.”
The U. S. Federal Reserve raised its benchmark interest rate through percentage issuances from 0. 75% to a range of 3% to 3. 25%. This is the third consecutive increase of this magnitude.
In delivering the decision, the Federal Reserve noted that recent economic signals point to a modest expansion in spending and output and that job creation has been in recent months, while the unemployment rate remains low.
But he said inflation in the U. S. remains elevated, reflecting imbalances from sources and demands such as the coronavirus pandemic, emerging food and energy stocks and what he called “broader price pressures. “
He added that Russia’s war against Ukraine and similar occasions were creating further upward pressure on inflation and weighing on economic activity, emphasizing that he remains “very attentive to inflationary risks. “
The Fed’s stated objective is to achieve maximum employment and inflation at the rate of 2% over the longer run – the same rate as the Bank of England, which announces its latest interest rate decision tomorrow (Thursday).
In addition to the chunky hike in the target range for the federal funds rate – today’s 0.75 percentage point increase comes on the heels of a similar rise in July (see story 27 July below) – the Fed warned that ongoing increases in the target range “will be appropriate”.
Rates are expected to reach 4. 60% next year before falling again.
The Federal Reserve will also maintain its holdings of U. S. Treasuries and other debt instruments.
Kwasi Kwarteng MP, the UK’s recently appointed Chancellor of the Exchequer, will present a mini Budget on Friday 23 September, writes Andrew Michael.
The “fiscal event” – promised by new Prime Minister Liz Truss as part of her plan to tackle crippling levels of inflation and a worsening cost of living crisis this winter – has been delayed due to the death of Queen Elizabeth II.
The Chancellor’s announcement will follow next Thursday’s delayed interest rate announcement from the Bank of England, when the UK’s central bank is expected to raise rates from their current level of 1.75% by at least another half a percentage point.
This will follow the U. S. Federal Reserve’s announcement on Wednesday.
Kwarteng is expected to dedicate the new Conservative to a radical programme of tax cuts.
Part of the plan will be to address the financial difficulties that families and businesses are experiencing lately due to rising energy prices. The energy price guarantee, announced by the Prime Minister on 8 September, lacks important details in several areas, adding how they will apply to businesses. Mr Kwarteng will therefore be pressed to provide more details on the government’s wider plan.
That said, it is conceivable that Mrs Truss herself will provide more main points in the days following the Queen’s funeral on Monday, given that she revealed the plan in a speech in the House of Commons.
In a bid to breathe life into the UK’s rate of expansion, the chancellor is expected to unveil cuts to national insurance and cancel plans to raise corporate tax rates from 19% to 25% next April.
The chancellor is also likely to push for a post-Brexit deregulation initiative and would also favor a cap imposed by the European Union limiting the amount bankers can earn in bonuses.
UK inflation edged down slightly to 9.9% in the year to August, according to the latest figures from the Office for National Statistics (ONS), writes Andrew Michael.
A dip in the Consumer Prices Index – from a figure of 10.1% recorded in the 12 months to July – was the first downward move since September 2021. The trajectory echoed a similar path to the US inflation figure reported yesterday (see story below) and could be a sign that the recent spike in prices might have peaked.
This relief is attributed to lower gasoline and diesel pumping costs. However, the benefits of reduced fuel costs have been more than offset by new food bills.
Despite the decrease in the headline rate, UK inflation remains at nearly five times the 2% target set by the government for the Bank of England (BoE) and continues to pile pressure on consumers and households already in the grip of a cost-of-living crisis.
The Bank of England has continuously warned this summer that UK inflation could peak at around 13% this winter and remain at higher levels in 2023.
The ONS said that in addition to falling oil prices, the main participants in August’s inflation came from housing and household services, transport, food and non-alcoholic beverages.
In recent months the UK, along with many countries worldwide, has felt the brunt of inflationary headwinds as a result of surging energy prices, a squeeze in the post-pandemic global supply chain and the war in Ukraine.
In an attempt to combat rising prices, the BoE recently raised interest rates to 1.75%, the sixth hike since the end of 2021.
While below the 40-year high announced in July, today’s inflation figure is unlikely to deter the UK central bank from delivering any further rate hikes, potentially of up to 0. 75 percentage points, when the Bank of England releases its latest announcement. .
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The headline rate of CPI inflation fell in August for the first time since last September and now looks set to drop sharply next year, thanks partly to the government’s energy price cap.
“Looking ahead, we expect headline CPI inflation to reach close to 11% in October, driven by an increase in the contribution of electricity and vegetable fuel prices. But we are increasingly convinced that October’s CPI inflation rate will turn out to be the peak and decelerate in 2023. “
Andrew Tully, technical director at Canada Life, said: “Today’s inflation numbers will do little to reassure households across the country who are struggling to come to terms with increased prices and higher bills, despite the Government’s recent proposal to limit energy bills for the next couple of years.
“The immediate outlook is bleak, with BofE forecasting inflation to peak later this year at around 13%. “
U. S. inflation remained opposite last month, at a slower-than-expected pace, writes Andrew Michael.
Today’s figures from the U. S. Bureau of Labor Statistics show that the U. S. Department of Labor is the most important in the U. S. U. S. data shows that the customer value index for “all items” rose 8. 3% in the year to August 2022, down from a cumulative 8. 5% in July.
The 0. 2 percentage point drop is part of what economic forecasters expected. The bureau said a 10. 6% month-month drop in gas costs through August was offset by higher housing, food and health care costs.
On a monthly basis, the Bureau reported that prices to customers increased by 0. 1 per cent, compared to a fixed price in July.
Following the news, the pound fell 1% against the dollar – to a low of $1.1578 – reversing gains over the last few days which saw sterling pull away from a near-40 year low.
The latest inflation figures are intended to distract the U. S. central bank, the Federal Reserve, from continuing its competitive policy of interest rate hikes. Its next announcement will be made on Wednesday, September 21.
UK inflation is at a 40-year high of 10.1%, with the latest inflation figure due to be released by the Office of National Statistics tomorrow (Wednesday). The Bank of England will announce its latest base rate decision on 22 September, with the event postponed from this week following the death of Queen Elizabeth II.
Daniel Casali, lead investment strategist at Evelyn Partners, said: “Although CPI inflation in August surprised to the upside, there is still evidence that the annual trend is peaking, at least in the short term.
“However, with annual inflation rates at record highs, the U. S. Federal Reserve will continue to raise interest rates until the end of the year. “
The European Central Bank (ECB) has raised its key interest rate through an unprecedented 0. 75 percent issuance to curb rising inflation levels in the eurozone, writes Andrew Michael.
The ECB’s governing council said the deposit rate across the 19-member currency bloc would rise from zero to 0.75% – its highest level since 2011 – and warned that further rises are on their way.
Today’s announcement follows July’s half-percentage-point increase, the first interest rate hike in more than a decade.
The ECB said: “This first step accelerates the transition from the current very accommodative point of policy rates to levels that allow for an immediate return of inflation to the ECB’s medium-term target of 2%. »
Today’s resolution brings the eurozone’s financial policy more in line with that of the Bank of England and the U. S. Federal Reserve, which have raised interest rates several times this year.
The euro oscillated between slight gains and losses against the dollar following the ECB’s announcement and has been close to parity with the US currency lately.
Today’s interest rate hike comes despite growing fears that the eurozone could slip into a recession later this year, as rising energy costs – caused essentially by Russia’s restrictions on key European fuel materials – would exert a grip on the region’s households and businesses.
Inflation in the euro has recently stood at 9. 1%, a rate that conceals gigantic diversifications between other Member States. In France and Germany, inflation is just below the 7% level. But in the case of the Baltic countries of Latvia, Lithuania and Estonia, the figure exceeds 20%.
Consumption in the UK increased by 10. 1% in the year to July 2022.
Hinesh Patel, portfolio manager at Quilter Investors, said: “Having nonetheless joined the rate hike club in July with the ECB’s first rate hike in 11 years, it’s no surprise that another hike is coming today.
“At the margin, an increase in policy rates would be a welcome stimulus for banks and savers that have been financially suppressed, but it would solve the energy crisis exacerbated by Russia’s ongoing aggression against Ukraine. “
James Bentley, head of Financial Markets Online, said: “The ECB would possibly have driven a carriage and horses towards European unity.
“Key economic reforms in the euro area have been conspicuous by their absence during 10 years of low growth, while policymakers have continued to pursue a consistently accommodative financial policy. As the ECB prepares to raise interest rates further in the coming months, a balance sheet is on the horizon. “
Inflation in the eurozone hit a record high of 9. 1% in the year to August 2022 as Europe’s cost-of-living crisis deepens, writes Andrew Michael.
The figure is up from 8.9% the previous month, according to an estimate from Eurostat, the statistical office of the European Union. Starting in November 2021, this is the ninth consecutive record for consumer price rises within the single currency bloc.
The latest figure, largely due to energy costs as well as emerging costs of food, alcohol and tobacco, beat economists’ expectations. The news brings the region closer to double-digit inflation for the first time since the arrival of the euro in 1999.
According to Eurostat figures, inflation rates vary widely among the bloc’s countries. The most sensible on the list are the Baltic states of Estonia, Lithuania and Latvia, which as of August this year recorded annual inflation rates of 25. 2%, 21. 1% and 20. 8%. % respectively.
France, in contrast, recorded a figure of 6.5%, followed by Malta (7.1%) and Finland (7.6%). The euro area’s largest economy, Germany, saw annual inflation reach 8.8% in August, its highest level in almost 50 years.
In the UK, annual inflation hit 10. 1% in the year ending in July, according to the most recent figures from the Office for National Statistics.
Fiona Cincotta of City Index said: “The new record inflation justifies a gigantic rate hike through the European Central Bank at the September meeting.
“Whichever way you look at it, the outlook for the region is bleak, with few signs that peak inflation is overtaking it. Instead, markets are bracing for inflation to continue rising into double digits, most likely as early as next month.
Food inflation in the UK accelerated sharply to 9. 3% in August 2022, up from 7. 0% last month, according to figures from the British Retail Consortium (BRC).
The latest figure is the highest rate in almost 15 years and is well above the BRC’s 3-month average rate of 7.2%
The number of new products is 10. 5%.
Helen Dickinson, executive leader of the BRC, said: “The war in Ukraine and the resulting costs of feed, fertiliser, wheat and vegetable oil have continued to drive up food costs.
“Fresh produce inflation, in particular, has risen to its highest point since 2008, with products such as milk, margarine and chips seeing the biggest increases. “
Stock prices around the world fell after US Federal Reserve Chairman Jerome Powell said the central bank would continue raising interest rates to the highest inflation rate in the country.
Speaking at the economic symposium held in Jackson Hole, Wyoming, Powell reiterated his commitment to fighting inflation, but warned that this course of action could cause “some pain” to the U. S. economy.
Powell said: “We are taking firm and swift action to moderate demand, better align with the source, and keep inflation expectations anchored. We will continue until we are sure that the task is finished.
Last month, the Federal Reserve raised its benchmark interest rate by 0. 75 percentage points to 2. 25% to 2. 5%. Soon after, the United States reported a decline in inflation, which went from a 40-year high of 9. 1% in June 2022 to 8. 5% in July.
Following Powell’s Jackson Hole speech, the US S-Index
Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International, said: “Given the backdrop of easing monetary situations since early July, as we had anticipated, we have noted a reluctance on the part of Federal Reserve Chair Jerome Powell on the market price of an immediate replacement, of course, through caution and opposition to a policy easing sooner rather than later.
“While inflation has started to show signs of a turn, some of the more resilient and persistent components remain elevated. In addition, the labour market remains tight.”
Callie Cox, investment analyst at eToro, said: “It is significant that Powell’s tone has returned to hawkishness despite symptoms of slowing inflation. Inflation is arguably slowing, but it’s still too high for the Fed’s liking and Powell is willing to threaten further expansion and the market’s suitability for hard work to bring it down.
UK inflation could peak at a near 50-year high of 18.6% early next year because of soaring wholesale gas prices, according to the latest forecast from Citigroup, writes Andrew Michael.
Given that fuel charges emerged for a quarter last week, the life charge may succeed to degrees not seen since the 1970s, the investment bank said. This, he said, would force the Bank of England to raise its key interest rate to 7%. , 4 times its current point of 1. 75%, if the demand for higher wages becomes widespread.
Wholesale costs of herbal fuel in the UK and Europe are trading at almost tenfold higher levels, and other forecasters have also raised their inflation forecasts.
Last week, emerging energy costs were one of the biggest participants in annual customer costs in the UK, hitting a 40-year high of 10. 1% through July 2022.
Citi expects the retail energy price cap in the UK, which limits the amount of fuel and electrical power businesses can qualify for constant energy pools and costs, to reach £4,567 in January and then £5,816 in April.
The limit, set via the Ofgem electrical regulator, has lately stood at £1,971 per year for a typical household consumption. The figure for its next construction planned for October, which will be revealed later this week, is expected to exceed £3,500.
Benjamin Nabarro, chief economist at Citi, said: “We now expect CPI inflation to peak at over 18% in January. Even with the economy softening, last week’s data reaffirmed the continued risk that pass-through from headline inflation into wage and domestic price setting could accelerate.”
If the forecast is correct, this figure would be higher than the peak of inflation reached in the UK after the 1979 oil crisis, when the Customer Value Index reached 17. 8%.
Inflation in the UK hit a new 40-year high of 10. 1% through July 2022, according to the most recent figures from the Office for National Statistics (ONS), writes Andrew Michael.
The increase to the Consumer Prices Index (CPI) was higher than economists’ forecasts of 9.8% and will pile extra pressure onto consumers and households already in the grip of a cost-of-living crisis.
The sharp increase from 9. 4% recorded in June gives us the first double-digit CPI for the UK since February 1982.
The ONS said July’s increase is basically due to rising food costs, adding baked goods, dairy, meat and vegetables. Higher costs of other staples, such as the addition of puppy food, toilet paper rolls, toothbrushes and deodorants, also contributed to the increase.
Grant Fitzner, lead economist at the ONS, said: “The cost of raw fabrics and products leaving factories continued to rise, driven by steel and food, respectively.
“Due to increased demand, the value of package holidays has increased, having fallen at the same time last year, while airline ticket prices have also increased. “
In recent months, the UK, like many countries around the world, has been severely affected by inflationary economic difficulties due to emerging energy prices, the post-pandemic global chain contraction and the war in Ukraine.
Inflation in the UK is now more than five times the government’s 2% target for the Bank of England (BoE). The Bank of England recently forecast that inflation would peak at around 13% by the end of this year and remain at “elevated levels. “2023.
In a bid to fight emerging prices, the Bank of England recently raised interest rates to 1. 75%, the sixth hike since 2021. Today’s inflation announcement may lead to a rate hike when it considers its next resolution in September.
Yesterday, in another consequence from steepling inflation levels, it emerged that real levels of UK pay fell at the fastest rate for more than 20 years.
Rachel Winter, Partner at Killik
Rob Clarry, investment strategist at Evelyn Partners, said: “July’s increase is basically due to emerging food costs. With adjustments to price caps made through energy regulator Ofgem in October expected to bring the inflation rate to around 13%, UK households are facing a tough time.
“These points are largely beyond the scope of the Bank of England, which means that financial policy is less effective in addressing them directly. “
One detail that will influence the next inflation rate announcement is the recent drop in fuel prices. Petrol now sells for around £1. 75 a litre, up from more than £1. 90 a litre in some cases in July.
The U. S. has recently noticed a decline in its inflation rate, and this relief is attributed in part to the decline at the pump.
Gross domestic product (GDP) figures released today through the Office for National Statistics (ONS) show that the UK economy grew by 0. 1% in the second quarter of the year, from April to June 2022.
There was a significant relief of 0. 6% in June, attributed via the ONS to a relief in economic activity due to Queen Elizabeth’s Platinum Jubilee celebrations: “It is vital to note that the Jubilee and the May bank holiday change resulted in a roll-off accumulation in May 2022 and two fewer rolling days in June 2022.
“This should therefore be taken into account when interpreting the seasonally adjusted movements for May and June 2022. “
The economy grew 0. 4% in May after growing 0. 8% in the first quarter of the year. But economists agree that the economy’s long-term trend is toward a recession, sometimes thought of as a contraction of the economy for two consecutive quarters.
The ONS says the services sector fell by 0.4% in the quarter, largely due to a ‘negative contribution’ by human health and social work activities. It says this reflects a reduction in coronavirus (COVID-19) activities.
However, the benefits of an easing of coronavirus restrictions have expanded in other areas, with tour agencies and operators doing well, as well as accommodation and food services, as well as arts, entertainment and recreational activities.
In terms of consumer spending, the ONS indicates that household spending fell in real terms (excluding the effect of inflation) to 0. 2% in the second quarter.
It says we are spending less on tourism, clothing and footwear, food and non-alcoholic beverages, and restaurants and hotels. This was partially offset by higher expenditure on transport, housing and health.
Taking inflation into account, household spending increased by 2. 6% in the quarter, reflecting recent inflationary pressures on the price of household spending. In other words, we spend more to get less.
Last month, the ONS recorded inflation of 9. 4%. The Bank of England says this figure will reach double-digit diversity in the coming months.
The next inflation announcement from the ONS will be on 17 August.
The economic contraction in the second quarter may influence the Bank when it meets in September to decide whether to increase the Bank interest rate from its present 1.75%.
Jonathan Moyes, Head of Investment Research at Wealth Club, said: “The current rise in inflation is largely due to global food and energy prices, which are largely out of the Bank’s control.
“Higher interest rates in the UK will do little to alleviate those pressures. By looking to stave off any knock-on inflationary pressures, such as higher wages, the Bank risks strangling the life out of the economy without significantly easing the cost-of-living crisis.
“While the Bank expected a slight contraction in GDP in the second quarter, the growing weakness of the UK economy would likely give it pause before proceeding to raise rates. “
U. S. inflation slowed more than expected last month, a sign that the recent rise in costs may have passed its peak, writes Andrew Michael.
The tech-heavy Nasdaq rose 2. 5% on the news.
Today’s figures from the US Bureau of Labor Statistics show the consumer prices index rising by 8.5% in the year to July 2022, down from 9.1% – a 40-year high – a month earlier.
In a drop that exceeded forecasts, the Bureau said the weaker figure was due to declining fuel prices, with the energy index falling 4. 6% month-on-month through July.
Consumer prices in the UK rose by 9.4% in the year to June 2022, with the Bank of England warning recently that the inflation figure could reach 13% by the end of the year. The Office for National Statistics will reveal the latest figures next week.
The latest figures released in the United States will ease investors’ fears that the country’s central bank, the Federal Reserve, will continue its competitive policy of interest rate hikes at its next political assembly in September.
Last month, the Fed raised its target benchmark interest rate by 0.75 percentage points, to a range between 2.25% and 2.5%, the second rate hike of this magnitude in successive months.
Rob Clarry, investment strategist at wealth manager Evelyn Partners, said: “The key that markets have faced over the last month is whether the Fed will deviate from its existing tightening plans. Falling commodity prices, deteriorating customer confidence, and slowing expansion may simply prompt the Federal Reserve to moderate its meetings over the long term.
Britain is on the brink of recession, the Bank of England warned as it raised interest rates by 0. 5 percent yesterday. The increase in the bank rate from 1. 25% to 1. 75% marked the largest increase in the last 27 years.
The Bank also forecast that the economy will begin to shrink in the last quarter of the year – between October and December – and continue contracting until the end of 2023.
This would be the most domestic recession since the “credit crisis” of 2008.
A recession is universally explained as two consecutive quarters of negative GDP or gross domestic product expansion, a measure of a country’s economic output. In times of recession, the economy is struggling, other people are squandering their jobs, businesses are making fewer sales, and the country’s overall economic output is declining.
The Bank also revised its inflation forecasts to more than 13% by the end of the year – up from a current 9.4% – as even higher energy prices hit households from October when the regulator’s new price cap takes effect.
The increase in energy expenses is largely due to Russia’s invasion of Ukraine, which is also impacting high gasoline and diesel costs, as well as food prices.
After another round of interest rate hikes (the sixth in seven months), borrowing burdens will also rise further. Two million loan owners will be affected, and millions more will stay with them when they come to lend again or buy their first home.
However, the Bank said the rate hikes were to control rising inflation and “do its job” of bringing it back to its 2% target.
It explained: “The main way we can bring inflation down is to increase interest rates. Higher interest rates make it more expensive for people to borrow money and encourage them to save.
“This means that, in general, they will have a tendency to spend less. If other people in total spend less on goods and services, costs will tend to rise more slowly. This reduces the rate of inflation.
News of a looming recession will come as a blow to many families already under increasing pressures on the burden of living.
Laith Khalaf, Head of Investment Research at AJ Bell, commented: “Winter is approaching and shaping up to be an unmitigated horror show for the UK economy. Make no mistake, 0. 5% is a historic increase in interest rates, but it’s not. “It is overshadowed by the Bank of England’s dismal economic forecasts. “
He added: “Inflation is now expected to reach 13% until the end of this year, when the UK is also expected to enter recession, just in time for Christmas. “
However, Fraser Harker, an investment analyst at 7IM, advised people to “look beyond the headlines. “He said: “The word recession means other things to other people. It is perfectly conceivable that by the end of the year, the UK will have experienced two consecutive quarters of falling GDP.
“However, this doesn’t necessarily have to be accompanied by the things that most people associate with a recession – such as widespread rises in unemployment and significant drops in house prices.”
The Bank of England (BoE) raised its policy rate from 1. 25% to 1. 75% (the highest point in 14 years) in a widely expected move to curb rising inflation in the UK, writes Andrew Michael.
The most recent data showed that UK inflation, as measured through the consumer value index, had hit a 40-year high of 9. 4%, as of June 2022.
But, explaining its resolution on today’s rate hike, the Bank of England warned that a recent rise in fuel costs meant inflation could exceed 13% until the end of the year, well above its May forecast. .
The Bank of England also predicted that inflation could remain at “very high levels” next year.
The 50 basis point increase, announced through the Bank of England’s Monetary Policy Committee (MPC), is the Bank of England’s first increase of this magnitude in 27 years and the first since the committee’s inception 25 years ago.
MPC members voted overwhelmingly in favor of the half-percentage-point increase, with 8 votes in favor and one against.
The increase to the Bank rate, the sixth announced by the BoE since December 2021, will have an almost immediate financial impact on around two million UK households on variable rate mortgages, including tracker deals.
For example, borrowers with a £200,000 loan recently valued at a variable rate of 3. 5% can expect their monthly bill to increase by around £60 more.
The Bank of England’s announcement follows last week’s decision by the Federal Reserve, the U. S. central bank, to raise its benchmark target interest rate by 0. 75 percentage points, to a rate of between 2. 25% and 2. 5%.
Inflation in the United States has recently stood at 9. 1%. The Bank of England and the Federal Reserve have an inflation target of 2%.
Alice Haine, private finance analyst at investment service Bestinvest, said: “While it is incumbent on a central bank to raise rates when the economy is in danger of falling into a recession, the country is grappling with an emerging burden of life crisis. , while demanding global situations such as the war between Ukraine and Russia are driving food and fuel prices to dizzying levels. “
Haine added: “The new interest rate hike will also affect all families who are suffering. Up to 8 million vulnerable families are vying for £1,200 in government aid this year to help them cope with the huge monetary blow caused by the cost-of-living crisis, adding up to the £326 payment made last month.
Les Cameron, Financial Expert at M
The meeting of the BoE’s next rate-setting assembly will be announced on 15 September 2022.
The U. S. Federal Reserve raised its benchmark interest rate target through percentage issuances from 0. 75 to a range of 2. 25% to 2. 5%.
It implemented an increase of the same magnitude in June, starting with a 1% base (see article below).
Economists see the duration and speed of those increases as an indication of the U. S. central bank’s growing sense of urgency in its fight against inflation, which has stood at 9. 1 percent since the early 1980s.
The three main US market indices all responded positively to the move. The Dow Jones Industrial Index rose by over 530 points to 32,291 while the S&P 500 rose by almost 3% to 4,037. The NASDAQ index of tech stocks increased by over 4% to top 12,000.
In the UK, the main Bank interest rate stands at 1.25% – it was increased from 1% in June – while inflation is running at 9.4%. The Bank of England is widely expected to increase the Bank rate to 1.75% when the next rate announcement is made on 4 August.
The European Central Bank (ECB) announced an interest rate hike for the first time in more than a decade, in a larger-than-expected move to combat inflation in the eurozone. The construction will take effect from July 27.
The ECB’s Governing Council said the key interest rate across the 19-member currency bloc would rise to 0. 5%, from -0. 5% to zero. The 50 basis point increase, double the amount discussed last month, is the largest imposed by the central bank since 2000.
It also hinted at further interest rate rises at future meetings, although it gave no guidance on the size of those increases.
Today’s move brings Eurozone monetary policy more into line with that of both the Bank of England and the US Federal Reserve, which have each raised interest rates multiple times this year.
A rate set at 0 means that neither borrowers nor establishments derive advantages from the cash deposited.
Critics accused the ECB of being asleep at the wheel after inflation soared to 8.6% across the Eurozone – more than four times the central bank’s target of 2%.
The latest rise in inflation is largely due to the economic impact of the war in Ukraine, coupled with rising energy prices.
Today’s announcement by the ECB follows the earlier resignation of Italian Prime Minister Mario Draghi, ending the national unity government that had been created to take on unpopular reforms in the country.
Garry White, chief investment commentator at wealth manager Charles Stanley, said: “The ECB hawks are sounding tough right now, but they may have to temper their talk and guidance to face up to the realities of weak government finances in the periphery, and the fact a slowdown is already underway.
“To be more sensible, the ECB will now also be concerned about the political turmoil in Italy. For the ECB’s voting members, inflation is their only concern, unlike other Western central banks. “
Inflation in the UK hit a 40-year high of 9. 4% through June 2022, according to the most recent figures from the Office for National Statistics (ONS).
This accumulation is higher than the 9. 3% forecast by economists. On a monthly basis, the consumer price index (CPI) rose 0. 8% in June 2022, compared to a 0. 5% increase in June 2021.
The news will heap added pressure on household finances already stretched to breaking point as consumers grapple with the worst cost-of-living crisis in years.
The ONS said rising prices for fuel and food were the main contributors to the latest CPI figure edging higher, outweighing downward forces coming from the second-hand car market and audio-visual equipment.
Grant Fitzner, ONS chief economist, said: “Annual inflation again rose to stand at its highest rate for over 40 years. The increase was driven by rising fuel and food prices.
“The rate of raw materials and products leaving factories continued to rise, driven by emerging steel and food, respectively. »
In recent months, the UK, along with many countries around the world, has been severely affected by inflationary economic problems due to emerging energy prices, the post-pandemic global chain contraction and the ongoing war in Ukraine. .
Inflation in the UK is now almost five times higher than the 2% target set by the government at the Bank of England (BoE). The Bank of England expects inflation to peak at around 11% later this year before easing in 2023.
Yesterday at the City of London’s annual dinner at Mansion House, Bank of England Governor Andrew Bailey raised the option of raising interest rates by a fraction of a percentage point in early August, while hardening the central bank’s rhetoric on how to address emerging prices.
The BoE has already raised the bank rate five times, to its present level of 1.25%, since December 2021. A half-percentage point increase would be the largest hike in the bank rate since 1995.
Richard Carter, head of fixed interest research at Quilter Cheviot, said: “Another month and another rise in inflation as the relentless pressure on consumers continues. This time the UK consumer prices index came in at 9.4%, a touch higher than forecasted as continued high energy and petrol prices take effect.
“The Bank of England will be feeling the heat of the past few days and has a very difficult job on its hands to ensure the economy has a soft landing. Recession fears are growing by the day and if more extreme interest rate rises are required, this could easily tip the economy into contraction.”
Matt Roche, Associate Chief Investment Officer, Killik
“While it is advisable to keep a cash buffer for emergencies and plan major outlays well in advance, surplus monies can be made to work harder. For example, a stocks & shares individual savings account can provide excellent tax efficient long-term returns. With share prices having generally fallen in 2022, global stock markets now look that much more appealing for lifetime savers.”
U. S. inflation has accelerated to a new 40-year high through June 2022, according to the most recent figures from the U. S. Bureau of Labor Statistics (BLS), writes Andrew Michael.
In a jump that outpaced even the most aggressive forecasts, the BLS reported on Wednesday (13 July) that consumer prices rose to 9.1% last month, putting the annual inflation rate at its highest level since November 1981. Inflation in the UK also stands at 9.1%.
The BLS said prices rose across most goods and services leaving Americans having to dig deeper to pay for fuel, food, healthcare and rent.
Strong inflationary headwinds are now a familiar feature of the economic environment.
Consumer prices are feeling the effect of soaring energy prices and the conflict in Ukraine, as well as suffering from a global supply chain problem as the world emerges from the Covid-19 pandemic.
The latest inflation figures from the BLS have put pressure on the Federal Reserve, the U. S. central bank, to abandon its monetary policy guidance for the second month in a row and raise interest rates by one percentage point later this month.
In June, the Federal Reserve raised its interest rate cap from 1% to 1. 75%. The last time an increase of 0. 75 percentage points was imposed was in 1994.
The Federal Reserve, like central banks around the world, such as the Bank of England in the UK, has a 2% inflation target.
Richard Carter, head of constant interest rate research at Quilter Cheviot, said: “Consumer costs in the U. S. They have risen above 9%, reaching 9. 1% in the year to June. Now we’ll have to ask ourselves how close we are to the top.
“A 0. 75% increase by the Federal Reserve at its next meeting is a definite certainty, and possibly there would even be pressure from some quarters to do more. Central banks are obviously struggling to bring inflation down and if inflation continues to rise or hover around that level, there is more desire to do to bring it down, regardless of the economic consequences that this may have. “
In a surprising move, the Bank of Canada raised its key interest rate on Wednesday (July 13) by one percentage point to 2. 5% in a bid to curb inflation that authorities said threatened to become entrenched.
Millions of wages will get an increase from Wednesday 6 July, when the threshold from which National Insurance Contributions (NIC) will be paid will rise from £9,880 to £12,570, writes Andrew Michael.
The replacement announced in the March Spring Statement.
NICs increased as planned at the start of this fiscal year on April 6 to fund the government’s response to Covid, but the planned move drew complaints in the early months of this year, with critics calling it an additional burden on families facing worsening costs. Life crisis.
This prompted Rishi Sunak MP, then Chancellor of the Exchequer, to arrange the next construction on the threshold.
NICs, a source tax and self-employed benefits, are the second largest source of tax benefits for the UK government after the source of profit tax. The payment of NCI is vital because it provides Americans with the right to safety. social security benefits, in addition to the state pension.
The July 6 update means that other people classified through HM Revenue
Interactive Investor (ii), the investment platform, estimates that raising the NI threshold will generate benefits for 30 million people, saving a typical employee around £330 a year. The move also means that around 2. 2 million people will no longer receive their full payment through NI.
However, I pointed out that the effect of the tax brake means UK taxpayers would have to pay up to £16,000 more in tax on their source of income until the end of 2026, when a series of reliefs and tax exemption thresholds will be put in place. setting.
A tax drag occurs when inflation or revenue source expansion pushes taxpayers into a tax bracket with higher rates.
Last year, the chancellor froze the thresholds of the tax on the fundamental and top source of revenue from 2022 to 2026. At a time when average wages are rising, this move will draw an increasing number of other people into the higher-rate tax bracket.
According to ii, until 2026, a basic rate taxpayer earning £30,000 will see their take-home pay reduced by £1,816 in real terms due to personal tax relief and the NI threshold remaining in line with inflation.
The company added that taxpayers with higher rates would enjoy an even greater impact on their source of income. It calculated that someone earning £50,000 will have £4,271 less in real terms until 2026, while a user with the highest source of income income with an income source of £150,000 will pay an additional £15,596 in tax.
The calculation of II took into account the recent 1. 25 percentage point increase in the NI imposed through the Treasury on the NHS, as well as the increase in the initial NI threshold.
Alice Guy, a private finance expert at ii, said: “The chancellor is carrying out a secret £3,631 tax raid on millions of suffering families. This will bring many families to the brink as they face a crushing tax burden that will come on top of the most sensitive of the current cost-of-living crisis. “
Inflation in the UK rose to 9. 1% in the year to May 2022 (its point since 1982) according to the most recent figures from the Office for National Statistics (ONS).
The news will add to the pressure on already weakened household finances as consumers face the worst cost-of-living crisis in years.
On a monthly basis, the Customer Value Index (CPI) increased by 0. 7% in May this year, compared to a 0. 6% increase in May 2021.
The ONS said that rising prices for both food and non-alcoholic drinks – compared with falls for both a year ago – were the main contributors to the latest CPI figure edging higher.
In recent months the UK, along with many countries around the world, has felt the brunt of inflationary economic headwinds thanks to surging energy prices, a global post-pandemic supply chain bottleneck, and the ongoing conflict in Ukraine.
Inflation in the UK is now almost five times above the 2% target set by the government at the Bank of England (BoE). Last week, the Bank of England raised its key interest rate to 1. 25% in its latest policy to combat inflation.
At the same time, the UK’s central bank has warned that inflation could reach just 11% by the end of this year. Energy prices are expected to rise in October, along with an expected increase in the energy value cap, announced through Ofgem, the power regulator.
Grant Fitzner, ONS chief economist, said: “The price of goods leaving factories rose at their fastest rate in 45 years driven by widespread food price rises, while the cost of raw materials leapt at their fastest rate on record.”
Alice Haine, private finance analyst at Bestinvest, said: “People’s purchasing power is now seriously hampered and families want to have a serious monetary balance if they want to continue the lifestyle they are used to. “
Haine added: “With costs getting higher and higher, it’s important that we cut budgets now to reduce spending for those who need to end the year with their bank balance still in the black, as skyrocketing inflation means their pay simply doesn’t make it to that point. . »
Paul Craig, portfolio manager at Quilter Investors, said: “While the rate of expansion of inflation would have arguably slowed, we have many caveats that this is not a peak. It’s disappointing that the cost-of-living crisis isn’t recovering. “”It will be a short-lived affair, which will end up leaving the Bank of England caught between a rock and a hard place. “
“While the U. S. has identified a desire to act quickly and cut interest rates, the Bank of England continues to move at a slower pace, seeking to tip the economy into a recession at a time when businesses and consumers are feeling the effects. “
“However, its current strategy does little to prevent inflation from leaking out and that is why more difficult decisions will be made very soon, and the Bank is already hinting at a larger increase at its next meeting. “
The Bank of England (BoE) raised its key interest rate from 1% to 1. 25%, in a bid to stave off runaway inflation in the UK.
The most recent data showed that consumer costs rose 9% in the year to April 2022, the point among the world’s top G7 economies.
Today’s increase of 0. 25 percentage points was widely predicted by the city’s forecasters. The last time the bank rate topped 1% was in 2009, when Gordon Brown, Prime Minister and the global economy were emerging from the global currency crisis.
This is the Bank of England’s fifth rate hike since December last year and follows yesterday’s resolution through the US Federal Reserve. to set its interest rate ceiling at 75 basis points, to 1. 75% (see article below).
According to the Bank of England, its rate-setting policy committee voted six to three in favor of raising rates.
Today’s announcement is the latest in a series of attempts by central banks around the world to combat inflationary headwinds being felt in many countries. Inflation stands at 8. 6%. Both the Bank of England and the Federal Reserve have an inflation target of 2%.
An increase in bank rate in the UK could prove costly for families, already reeling from the falling cost of living, who have variable or variable rate mortgages. This is because lenders tend to accumulate required payments on mortgage loans to reflect emerging borrowing charges.
On the other hand, UK savers will benefit from the rate hike if they have cash deposited in fee-based floating-rate accounts, assuming providers pass on all or part of the rate hike to customers.
The new announcement of the bank rate will take place on 4 August, when an additional hike is expected, perhaps of the same magnitude, a 50 basis point hike to 1. 75% cannot be ruled out.
The United States Federal Reserve has increased its interest rates ceiling from 1% to 1.75% today in a bid to tackle the country’s highest inflation rate in 40 years.
Commentators in recent days had widely expected the 0. 75 percentage point increase in the Federal Reserve’s key interest rate. The last time the Federal Reserve imposed a rate hike of this magnitude was in 1994.
US inflation currently stands at 8.6%. Today’s rate hike is a sign from the Fed of an increasingly aggressive stance towards monetary tightening in a bid to tackling soaring consumer prices.
The new increase follows a half-percentage-point interest rate hike announced last month.
The Fed said: “Inflation remains elevated, reflecting pandemic-related sources and demands, imbalances, emerging energy stocks, and broader price pressures.
“Russia’s invasion of Ukraine is causing enormous human and economic hardship. The invasion and the occasions that followed are creating further upward pressure on inflation and weighing on economic activity. “
Today’s announcement by the Fed is the latest in a series of attempts by the world’s central banks to tackle inflationary headwinds being felt in many countries.
Global inflationary pressures are exacerbated by factors such as skyrocketing energy prices, post-pandemic global supply chain bottlenecks, and the war in Ukraine.
The Federal Reserve and the Bank of England (BoE), the UK’s central bank, have an inflation target of 2%. The inflation rate in the UK has recently stood at 9%.
Tomorrow (Thursday), the Bank of England is expected to announce a 0. 25 percentage point increase in the UK bank rate. The rate has recently stood at 1%, after four rate hikes since December last year.
If the Bank of England’s financial policy committee makes the decision to raise rates, it will prove costly for families with variable and follow-up mortgages, as lenders have a tendency to accumulate payments to reflect their own higher borrowing costs.
Savers, in contrast, would benefit from any further hikes if they have money deposited in variable rate-paying accounts, assuming their provider decided to pass on any rise to its customers.
In the UK, peak inflation is partly to blame for a life crisis that has squeezed the incomes of families who have found themselves poorer following a series of tax increases that came into effect in April 2022. Laith Khalaf, chief investment officer at an online broker AJ Bell said: “The global economy is possibly slowing, but central banks in the evolved world face a question of existential credibility. If they don’t act in the face of such rampant inflation, they’re undermining their own explanation for why they exist, but by aggressively raising rates, they’re putting pressure on economic activity. “
More than three-quarters of British adults feel “very” or “somewhat” concerned about the emerging cost of living, according to the effects of a May survey by the Bank of England and Ipsos looking at attitudes towards inflation.
The groups most likely to feel “very or worried” are women, older people aged 30 to 49, people with disabilities, and those living with older dependent children aged 0 to 4 years.
While levels of worry generally transcended income brackets, those earning less than £10,000 a year accounted for the largest proportion of being ‘very worried’ (31%), compared to only 12% of those with annual salaries of £50,000 or more.
According to the survey, a portion of adults (50%) who say they are “very concerned” about the burden of life that is emerging, consider it accordingly.
Sarah Coles, senior private finance analyst at Hargreaves Lansdown, said: “It’s hard enough to cover our costs at the moment, but what makes things worse is that costs will continue to rise from here. Inflation is expected to hold up” to peak for the rest of the year and peak by the end of 2022. This means that even those who make it through now could start to struggle later on.
The report coincided with U. S. inflation figures that revealed customer costs rose to 8. 6% in May of the year, according to the U. S. Bureau of Labor Statistics (BLS), marking a new 40-year high.
UK Consumer Price Index (CPI) inflation is last standing at 9% for the year ending in April, with May figures due to be announced on June 22.
Separate figures released today by the Office For National Statistics, showed that the UK’s economy as measured by its GDP (Gross Domestic Product) shrank in April by 0.3%, due to services, production and construction sectors all retracting. It marks the second consecutive month that the economy has shrunk, having retracted by 0.1% in March, and is fuelling fears of a recession.
The relentless rise in the cost of living is putting even more pressure on the Bank of England to raise interest rates when the next ruling is announced on Thursday (16 June), which will have an even bigger effect on the cost of mortgages.
U. S. inflation hit a new 40-year high in the year to May 2022, according to the most recent figures from the U. S. Bureau of Labor Statistics (BLS).
The BLS reported that customer costs rose to 8. 6% last month, up 0. 3 percentage points from the 8. 3% recorded in the year through April 2022, putting them at their point since December 1981. The bureau said the main participants in construction in the most recent inflation figure included “housing” (housing), food and fuel.
Strong inflationary headwinds have become a mainstay of the global economic environment over the past nine months. Consumer prices are not only feeling the effect of soaring energy prices and the ongoing conflict in Ukraine, but are also suffering from a global supply chain problem as the world emerges from the effects of the Covid-19 pandemic.
The US figure, which beat market expectations by 8. 3%, will be tough reading for the US Federal Reserve when it meets next week to decide its next interest rate move. The Federal Reserve, like other central banks around the world, such as the Bank of England in the United Kingdom, has a 2% inflation target.
In May, the Federal Reserve raised its key interest rate by a fraction of one percentage point to 1%, its first 50 basis point hike in more than 20 years. Today’s inflation figure may lead to a rate hike of a similar magnitude next week.
The Federal Reserve has already pledged to “quickly” impose economic policy at a more “neutral” point that no longer stimulates the economy. But further evidence that inflation is becoming more entrenched may force the government to raise rates even more aggressively than economic markets expect. .
Dan Boardman-Weston, chief executive of BIS Wealth Management, said: “The Federal Reserve has the difficult task ahead of it to ensure that inflation expectations do not take hold, but will most likely continue to tighten policy amid a economy in deceleration”. The “soft” landing they hope for still seems like a big ask.
The European Central Bank (ECB) announced it would raise interest rates this summer, the first such increase in 11 years, after warning that inflation would be higher than expected.
The ECB’s governing council announced that the base rate for the 19-member currency bloc would be raised by 0.25% in July, with the potential for a further – and possibly larger – hike already pencilled in for September.
July’s increase will lift the deposit rate of major advertising banks from its current point of -0. 5%. A negative interest rate means that borrowers are paying establishments for the privilege of keeping their cash on deposit.
Critics have accused the ECB of falling asleep at the wheel after eurozone inflation soared to 8. 1%, more than four times the central bank’s 2% target.
The latest rise in inflation is largely due to moderating energy prices, coupled with the economic impact of the war in Ukraine.
The ECB’s announcement will bring eurozone policy more in line with that of the Bank of England and the U. S. Federal Reserve, which have raised interest rates several times this year.
ECB President Christine Lagarde said: “It is a practice to start with slow construction that is not. . . excessive. “
Lagarde added that there is a risk that food and energy price inflation will continue to rise for some time and that business capacity will be permanently affected, which could also hurt eurozone economies for an extended period.
Assuming the ECB’s rate hike continues, the central banks of Japan and Switzerland would be the last two major financial governments in the world to remain at negative rates.
Hinesh Patel, portfolio manager at Quilter Investors, said: “The ECB has already tightened its policy a lot and to some extent is still holding firm, even if it turns out to be coming to an end despite everything.
“For the time being, the ECB’s balancing act remains a delicate task. The bloc is facing an inflationary surprise that demands swift and decisive action, but Russia’s ongoing attack on Ukraine continues to cast a shadow of uncertainty over Europe that could end in weak demand and recession.
The Office for National Statistics (ONS) found that the average value of a basket of cheap food products has risen at a slower rate than the official Customer Value Index (CPI), but very much in line with that of food and drink in general. . fresh.
The ONS found that the price of budget groceries rose by between 6% and 7% in the 12 months to April. This compares to an inflation rate of 6. 7% for the broader “food and non-alcoholic beverages” that were tracked over the same period.
Although both measures are lower than the overall annual inflation rate (9% through April), they found large price differences among other budget foods.
For example, the value of pasta has increased by 50% since April 2021, while the average value of potatoes has decreased by 14%. Rice, beef, bread, and chips have increased by 15 to 17 percent, while cheese, sausages, pizza, and potato chips decreased by as much as 7 percent.
The ONS also took into account ‘shrinkflation’, the procedure of reducing the length of products while maintaining their previous price.
The ONS collected the prices of 30 food and non-food products (adding pasta, potatoes, vegetable oil, poultry and pumpkins) by comparing prices on seven UK supermarket websites to show the cheapest available edition of each product.
This experimental study aims to determine how less expensive CPG goods are affected by inflation in the UK, as the official customer value index is influenced by more expensive purchases, such as clothing and footwear, entertainment, and restaurants.
Fears of a global wheat shortage are likely to trigger further price increases for staples such as pasta and bread.
Russia’s invasion of Ukraine, which produced a quarter of the world’s wheat exports before the conflict, has disrupted export routes to the Black Sea.
UK inflation rocketed to 9% in April 2022 – up from 7% the previous month – taking the figure to its highest level in 40 years, as consumer prices felt the effect of soaring energy costs and impact of the ongoing conflict in Ukraine.
The most recent increase, announced through the Office for National Statistics (ONS), will exacerbate the cost-of-living crisis faced by millions of UK households, as costs erode the strength of citizens’ incomes.
The current rise in inflation comes at a time when many workers are seeing their wages fall sharply in real terms. Average wages, and bonuses, rose by 4. 2% in the three months to March 2022, according to ONS data, an increase that has been largely absorbed by the emerging burden of living.
Recent figures from the National Institute of Economic and Social Research (NIESR) predict a worsening situation with real disposable income dropping 2.4% this year. This would cause an extra 250,000 households to fall into destitution by 2023, taking total UK numbers falling into the category of extreme poverty to 1 million.
“Homelessness” is explained as when a circle of relatives of four has £140 a week or less to live on after housing costs.
NIESR also warned that emerging costs and higher taxes are putting pressure on household budgets, regardless of the economic gap. An estimated 1. 5 million other families in the UK face food and energy expenses that exceed their disposable income.
The latest increase in inflation is due to rising energy and fuel prices, along with the economic impact of the war in Ukraine.
These are issues that go beyond those of the Bank of England (BoE), which sets interest rates, meaning that overburdened consumers still have no option to cut spending in order to live within their means.
Alice Haine, personal finance analyst at Bestinvest, said: “Taking constructive action to reduce spending now is imperative as the outlook darkens from here.
“The strategy is to slash family budgets, but it can only go that far if other people have already eliminated all the luxuries like dining out, going on vacation, and shopping for clothes.
“Once families struggle to pay essentials, such as mortgages or rent, food, and family bills, they risk getting into debt with overdrafts and credit cards they can’t pay. “
The effect of inflation on your finances depends on your individual spending habits. Your personal financial situation could be affected to a greater or lesser extent than the overall rate of 9%.
That’s because the ONS, which records customer insight into value, calculates its figures from a virtual basket of 700 pieces made up of everyday items like milk and bread, to larger pieces like the price of a plane or the value of a new car.
Savers with money in deposit accounts deserve peace of mind thanks to the Bank of England’s recent series of four interest rate hikes over the past six months. The latest quarter-point hike took the bank rate to 1%, its highest point since 2009.
Along with those developments, savings rates have risen slightly: easy-to-access accounts now pay 1% or more and constant-rate products around or above the 2% mark.
Historically, however, banks and credit companies have been slow to communicate news about emerging rates to savers. Moreover, even with emerging interest rates, their effect is overshadowed by the incredibly high point of existing inflation, which generates a genuine negative interest rate. back to savings.
The best advice for savers in this situation is to shop around for the best rates to get your money running as strong as possible.
Sarah Coles of Hargreaves Lansdown said: “For the four in five savers who have left their money languishing in easy access accounts with the high street banks – paying 0.1% or less – now is the time to move.
“The retail giants have passed on a small, insulting fraction of the rate hike to savers, so there’s no point in holding on to the case that they suddenly do the right thing. “
Coles adds that if you have savings you won’t need for five years or longer, it’s worth considering whether any extra money could be working harder for you in investments: “These will rise and fall in value over the short term, but over 5-10 years or more they stand a much better chance of beating inflation than cash savings,” she points out.
Unlike the U. S. , which recently experienced a slight reversal in its inflation numbers (see story below), U. K. inflation continues right now, fueling more fears about life problems through 2022 and into next year.
The Bank of England has warned that inflation could peak at 10% later this year when the energy cost cap is raised in October.
Richard Carter, head of constant interest rate research at Quilter Cheviot, says: “This will increase the pressure on the Bank of England to raise interest rates and take on rising costs, although, as he himself admits, many of the points driving inflation are beyond what is pasando. su control.
“We won’t be surprised to see additional pressure on the government to exert some fiscal leverage and try to alleviate family misery this fall. “
Another option would be for the government to impose a one-off levy on oil and gas producing companies, which have seen their profits soar thanks to runaway price of gas in the past year.
Earlier this week, Rishi Sunak, Chancellor of the Exchequer, warned the oil and fuel industry that unless corporations soon announce an increase in their investment plans for the UK, they could face a potential one-off tax on their profits.
Debbie Kennedy, of broker LifeSearch, says most Britons are worried about their finances: “Our studies found that seven in 10 Britons (72%) expect a worse monetary scenario this year as inflation soars, they expect £3,020 a year. pocket on average.
“Overall, just 8% of respondents said they don’t think they’ll be worse off financially as a result of inflation.
“The emerging life burden is also affecting our intellectual fitness. Three-quarters (74%) of adults say their intellectual fitness has been negatively affected in the last two years and, of these, ’emerging life burden’ (28%), largely followed by ‘Covid restrictions’ (27%) were the main causes.
US inflation showed a slight deceleration in April, though prices continued to grow close to a 40-year high, according to the latest figures from the US Bureau of Labor Statistics (BLS).
The BLS reported that the customer fell to 8. 3% in April, still stubbornly high, but below last month’s 8. 5% figure. Economists expected the inflation rate to fall more sharply to 8. 1%.
The data showed costs rose 0. 3% in April, slower than the 1. 2% increase recorded in March. The BLS says the biggest participants in the most recent inflation figure are housing, food, airline tickets and new vehicles.
Commentators suggest that the latest inflation figures will continue to put pressure on the U. S. Federal Reserve, the country’s central bank, to continue its program of raising interest rates by a fraction of a percentage point over the course of 2022.
The Federal Reserve recently raised its interest rate cap from 0. 5% to 1% and did not rule out measures for the rest of this year.
In recent weeks, other central banks including the Bank of England, Reserve Bank of India and Reserve Bank of Australia have each increased interest rates in a bid to tackle the inflationary headwinds being felt in many countries worldwide.
The fall in the US CPI would possibly be welcomed in the markets as investors begin to hold out hope that the inflation peak has already passed.
However, the numbers were still worse than expected and commentators believe it is too early to celebrate with inflation likely to remain high for some time to come, exacerbated by an ongoing crisis in the energy market and the continued conflict in Ukraine.
Richard Carter, head of constant interest rate research at Quilter Cheviot, said: “There’s still a lot of pressure on the Federal Reserve to raise interest rates and tame inflation. However, now attention is starting to turn to an expected sharp slowdown in “The global economy and markets are worried about this. “
Dan Boardman-Weston, CEO of BIS Wealth Management, said: “The Federal Reserve has the difficult task ahead of it to ensure that inflation expectations do not become entrenched. Most likely, they will continue to tighten their policy in the face of the economic slowdown. The “soft” landing you’re hoping for may not be so smooth.
The next announcement on inflation in the UK will be issued by the Office for National Statistics on May 18.
The Bank of England (BoE) raised its bank interest rate from 0. 75% to 1%, in a bid to counter the rising inflation rate in the UK.
Inflation in the UK stands at 7%, with City forecasters widely forecasting a 25 bps increase. The last time interest rates in the UK stood at 1% was in early 2009.
The move, the Bank of England’s fourth rate hike since December last year, follows yesterday’s decision by the US Federal Reserve to cap its interest rate at 50 basis points to 1%.
Today’s announcement by the Bank of England is the latest in a series of attempts across central banks around the world to combat inflationary headwinds being felt in many countries. U. S. inflation stands at 8. 5%. Both the Bank of England and the Federal Reserve have an inflation target of 2%.
Earlier this week, the Reserve Bank of India and the Reserve Bank of Australia announced interest rate hikes. This is the first hike in a decade for the latter.
A UK bank rate hike can be costly for families with mortgages or variable rate trackers. This is because lenders tend to accumulate required repayments on mortgage loans to reflect emerging borrowing costs.
On the other hand, UK savers will benefit from the rate hike if they have cash deposited in fee-based floating-rate accounts, assuming providers pass on all or part of the rate hike to customers.
Laura Suter, head of personal finance at AJ Bell, said: “Today’s move by BoE rate setters lumps even more pain on households struggling with the cost of living crisis. The global nature of the drivers of inflation means that this increase to 1% is very unlikely to beat inflation into a hasty retreat, but what it is certain to do is pile more misery on people already having to rely on debt just to pay their bills.”
The Bank Rate announcement will be effective on June 16.
The U. S. Federal Reserve raised its interest rate cap from 0. 5% to 1% in an effort to counter the highest inflation rate the country has experienced in 40 years.
Inflation in the United States currently stands at 8. 5%, and commentators widely expect the Fed to raise interest rates by 50 basis points (the largest update to its main interest rate since 2000). March.
At its two-day policy meeting that ended today, the Federal Open Market Committee voted to raise the federal budget rate target to between 0. 75% and 1%.
In a statement, the Fed said that it expected “ongoing increases in the target range will be appropriate”, paving the way for possible additional half-percentage point rises later this year.
Richard Carter, head of interest rate research at Quilter Cheviot, said: “This 50 basis point hike by the Federal Reserve will likely be followed by several more, judging by the tone of policy and the fact that the US economy continues to maintain its pace. “on all cylinders.
“Inflation is above 8%, while the latest jobs report shows that there are almost two jobs available for every unemployed person. These pressures aren’t going away anytime soon, so the Fed feels the need to act hard and fast.
Today’s announcement by the Fed is the latest in a series of attempts by central banks around the world to tackle inflationary headwinds being felt in many countries.
Earlier in the day, the Reserve Bank of India announced a 40 basis point increase in its benchmark interest rate to 4. 4%. On Tuesday this week, the Reserve Bank of Australia surprised economists by raising its policy rate by 25 basis points to 0. 35%. . The construction of the first of its kind in the country in a decade.
Global inflationary pressures are being exacerbated by the war in Ukraine. Inflation has also been driven by factors including soaring energy prices, as well as the reawakening of slumbering global economies post-pandemic.
Both the Fed and the Bank of England, the UK’s central bank equivalent, have inflation targets of 2%. The UK inflation rate currently stands at 7%.
Tomorrow (Thursday), the Bank is widely expected to announce an increase to the UK bank rate. This currently stands at 0.75% having already been subject to three rate rises since December last year.
If confirmed, a rise in the UK bank rate could prove costly to households with variable rate and tracker mortgages as lenders tend to increase repayments to reflect higher borrowing costs.
On the other hand, savers would gain advantages from an accrual if they have cash deposited in floating-rate accounts to which a provider has to pass on any rate accrual to its customers, in whole or in part.
In the UK, peak inflation is partly to blame for a cost-of-living crisis that has squeezed household incomes and left them poorer following a series of tax hikes that came into effect in April.
The number of cars produced in the UK in the first quarter of 2022 fell by 99,211 year on year, from 306,558 to 207,347 – a drop of almost a third. The 2021 figure was already comparatively low due to the impact of the pandemic and associated lockdowns.
The Society of Engine Manufacturers
Output in March fell by more than a third, down by -33.4% year-on-year, with 76,900 units made compared with 115,498 in the same month last year. This decline resulted in the weakest March since the financial crisis in 2009, when 62,000 cars were built.
The SMMT calls on the government to provide relief on energy burdens to the auto industry in the same way it does to energy-intensive industries such as metal production. It also needs UK businesses to reduce the loads and energy emissions in their vehicles. on par with its European competitors.
Mike Hawes, CEO of SMMT, said: “Two years into the pandemic, automotive production is still suffering badly. The recovery has not yet begun, and in a challenging economic environment, coupled with emerging energy costs, urgent action is needed to protect the competitiveness of the UK’s productive industry.
“We want the UK to be at the forefront of the transition to electrified vehicles, not only as a market but also as a manufacturer. There is a pressing desire to act if we are to safeguard jobs and livelihoods. “
James Hind, CEO of car trading site carwow, said: “Demand for new cars is still strong and, in many cases, consumers are prepared to wait. We aren’t seeing the drop in consumer confidence impacting new car demand yet.
“However, many of those willing to wait are turning to EVs, which are less affected by production issues, and automakers are prioritizing EV production, which means there are plenty of features to choose from.
“The knock-on effect, of course, is the used car market. As motorists scramble to get their hands on new models, many are turning to the used car market. As a result, demand is rising, and so are prices.
“Anyone who needs to replace their car may want to do it now. You could get great value for your used petrol or diesel car and potentially get a new EV much faster than a new petrol or diesel vehicle.
Inflation hit a new 30-year high to March 2022, according to the most recent figures from the Office for National Statistics (ONS).
Forced to rise by emerging fuel prices following the conflict in Ukraine, the consumer price index (CPI) rose at an annual rate of 7% in the year to March, up from 6. 2% in February.
The latest inflation figure beat the city’s expectations and came a day after U. S. consumer value inflation rose to the highest rate. The U. S. economy will reach a 40-year high of 8. 5% in the year to March 2022.
Rising prices are putting additional pressure on household finances, which are already suffering from a cost-of-living crisis. Commentators warn that UK inflation could slightly exceed 8% before starting to stabilise until the end of the year.
In March, inflation in the UK was more than three times higher than the 2% target set by the government at the Bank of England (BoE). It is also particularly higher than the “around 6%” rate forecast by the Bank of England at its last bank. Rate-setting assembly in March.
The bank rate has recently stood at 0. 75%. Today’s inflation figure will put additional pressure on the Bank of England’s policy committee to raise interest rates again on May 5. The Bank of England has already raised rates three times since December 2021.
Grant Fitzner, lead economist at the ONS, said: “Prices saw a sharp rise in annual inflation in March. Among the biggest increases are petrol costs, the costs of which are most commonly collected before the recent 5p in line with the cut in taxes on a litre of fuel, and furniture.
“Restaurant and hotel costs also rose sharply in March, while after falling a year ago, many types of food have increased. “
Paul Craig, portfolio manager at Quilter Investors, said: “The spring of last month did little to allay the fears of those already feeling money difficulties, and the arrival of the new energy value cap and the increase in national insurance added to the pressure.
“As wages don’t stay high and pensions are rising at the same level, things are going to get tough for many consumers. “
Martin Beck, lead economic adviser at the EY ITEM Club, said: “There will be a significant increase in inflation in April’s data, when we expect the CPI rate to rise to at least 8. 5%. This will be due to the 54% increase in the energy value cap and the recovery of the VAT rate for the hotel sector to 20%.
“This is the summit. But as the war in Ukraine will likely help keep food and oil prices at high levels for a long period, and with another increase in the energy price cap expected in October, inflation will put pressure on inflation. Time to fall. Over the full of 2022, we expect CPI inflation to average close to 7%.
US consumer price growth surged by 8.5% in the year to March 2022, surpassing Wall Street’s expectations and propelling the country’s inflation rate to its highest figure in more than 40 years.
The current increase in the Consumer Price Index, as reported by the U. S. Bureau of Labor Statistics, is due to emerging energy, food, and housing prices, while the effect of Russia’s invasion of Ukraine was beginning to be felt. .
Last month Joe Biden, the US President, banned all imports of oil and gas from Russia following the conflict in Ukraine, which started at the end of February.
Commentators suggested the latest figure will only pile extra pressure on the US Federal Reserve to accelerate the pace of the interest rate increases it announces in a bid to tame inflation.
Last month, the Fed raised interest rates from 0.25% to 0.5% – their first increase in four years. Along with other central banks, such as the Bank of England, the Fed has an inflation target of 2%. The next Fed rate-setting meeting is on 3-4 May.
UK inflation, as measured by customer prices, has recently stood at 6. 2%, while the Bank of England’s bank rate is 0. 75%. The Bank of England’s Monetary Policy Committee, which is responsible for setting interest rates, will next meet in early May. and its resolution will be made public on Cinco de Mayo.
Countries around the world have been facing severe inflationary difficulties lately. India’s retail inflation hit a 17-month high of 6. 95% last month from 6. 07% in February 2022. Consumption costs in Turkey in the year to March 2022 reached 61%, an increase of seven percentage emissions from last month.
Hinesh Patel, portfolio manager at Quilter Investors, said: “The Fed will feel emboldened today to press ahead with its aggressive hiking of interest rates as it looks to combat inflation. While used car prices and other non-essential items have begun to reach their price peak, the headline figures today illustrate how much of this is an energy-related shock.”
Dan Boardman-Weston, CEO and CIO of BRI Wealth Management, said: “The Federal Reserve has a difficult task ahead of it and has traditionally struggled to combat inflation that slows economic growth. “
A family’s typical energy expenses could reach around £2,500 through the autumn of this year, according to an influential forecasting group.
The EY Item Club (EYIC) says the rise in energy and commodity prices in part caused by the Ukraine conflict will have a severe effect on households and drag back UK economic activity.
It says emerging prices will add to UK inflation already at “significant” levels, forecasting inflation to hit a 40-year high of 8. 5% next month and forecasting prices to reach a further 6% by the end of 2022.
The EYIC also warns that while families across all economic sectors have experienced astonishing degrees of inflation in recent times, the cumulative 54% in typical household energy expenditures in April means that low-income families can enjoy an inflation rate of around 10%. .
With additional increases in energy expenditures expected in October, the EYIC says low-income families will likely experience consistently higher levels of inflation than their high-income counterparts, through 2023.
Martin Beck, chief economic adviser at EYIC, said that while the recent spring contained some support for households, a squeeze on income was taking place: “Consumer spending is a key component of the UK economy, and the passage of the worst of the pandemic is expected to spur a corresponding recovery in consumption. But the war in Ukraine and emerging energy costs mean the outlook has darkened. “
The Office for Budget Responsibility (OBR), the government’s budget watchdog, has forecast that inflation in the UK will peak at 8. 7% by the end of this year, with the emerging market further exacerbated by Russia’s ongoing invasion of Ukraine.
Inflation in the UK, as measured by the Consumer Price Index (CPI), hit a 30-year high of 6. 2% through February 2022. In recent months, emerging inflation has been driven by rising global costs of energy, gasoline, food, and durable goods.
In its report released today alongside the spring statement, the OBR said it expects CPI inflation to peak at 8. 7% in the fourth quarter of 2022. It also forecast that inflation in the UK would remain above 7% every quarter since the second quarter. from 2022, to the first quarter of 2023.
The OBR said it also expected rising inflation to outpace benefit expansion over the next year. He added that despite the policy measures announced through Chancellor of the Exchequer Rishi Sunak in the Spring Statement, there would be a net build-up of taxes across the economy from next month.
As a result, the OBR predicted that household post-tax incomes adjusted for inflation would fall during the tax year 2022/23 by 2.2%, their largest-ever drop since records began in the 1950s.
Inflation in the UK hit a new 30-year high through February 2022, according to the most recent figures from the Office for National Statistics (ONS).
The figures will increase pressure on Chancellor Rishi Sunak to announce more funding for families already facing a severe cost-of-living crisis when he delivers his spring statement at lunchtime.
The customer value index (CPI) rose at an annual rate of 6. 2% in the 12 months to February, up from 5. 5% last month, its highest point since 1992. This exceeded forecasts for an increase of 5. 9%.
The CPI rose 0. 8% in February 2022, the largest monthly increase between January and February since 2009.
In recent months, peak inflation has been driven by skyrocketing global tariffs for energy, gasoline, food, and durable goods. The ONS says the main participants in the latest monthly fare hike came from transport, household goods and furniture, while food and non-alcoholic beverages inflation also toper.
Today’s figures do not take into account the new price increase caused by the war in Ukraine, which began at the end of February.
Grant Fitzner, lead economist at the ONS, said: “Inflation rose sharply in February as the costs of a wide range of goods and services rose, for products as varied as food, toys and games. Furniture and flooring also contributed to higher inflation as costs began after the New Year’s sales.
Paul Craig, portfolio manager at Quilter Investors, said: “All eyes will be on the Chancellor today as he presents his Spring Statement and announces measures the government will take to tackle the ongoing cost-of-living crisis.
“This morning’s inflation data shows just how dire the situation is, and it is clear that the Government will need to act to prevent many other people from falling into financial distress as their wages are temporarily absorbed. »
Dan Boardman-Weston, CIO at BRI Wealth Management, said: “The data continues to point to a few more months of emerging inflation rates, but we expect this to ease as we head into the summer. “
The Bank of England, which raised interest rates to 0. 75% last week, expects inflation to reach 8% in the spring, with additional increases later in the year taking it towards 10% or even higher.
The Bank of England raised its bank interest rate to 0. 75%, an increase of 0. 25 percentage points. The move follows an increase by the U. S. Federal Reserve. yesterday, which saw rates rise from 0. 25% to 0. 5% (see article below).
Central banks are raising rates in an effort to ease inflationary pressures caused by emerging energy, fuel and food prices. The UK’s most recent inflation rate, announced last month, is 5. 5% but is expected to rise sharply when the effects of the conflict in Ukraine are factored into the calculation.
Prior to the conflict, the Bank of England said inflation would rise above 7% this spring. Some forecasters are saying a rate above 8% is possible, largely due to a 54% increase in domestic energy bills, but the most pessimistic have forecast rates above 10%.
The recent high inflation figure in the United States is 7. 9%, a 40-year high. Again, this figure is expected to rise further in the coming months.
The Bank of England has now increased the Bank rate three times since December 2021, and more rises may be forthcoming.
This will be bad news for those with variable rate and tracker mortgages, whose repayments likely increase to reflect the higher cost of borrowing. Homeowners with fixed rate deals will likely have to pay more when their term comes to an end and they need to find another loan.
The news will be more positive for savers if establishments pass on interest rates.
The Bank of England’s next announcement is scheduled for May 5.
The United States Federal Reserve has increased interest rates from 0.25% to 0.5% today in a bid to counter 40-year high inflation rates. This is the first increase in US interest rates since 2018.
The country’s consumer price index rose by 7.9% in February, although the figure did not take account of the latest inflationary pressures flowing from the conflict in Ukraine and economic sanctions imposed on Russia (see story below).
The Fed has an inflation target of 2%. The interest rate rise is intended to cool the economy by reducing the availability of ‘cheap’ money. Further rate hikes may be made in the coming months – in the Fed’s words: “… ongoing increases in the target range will be appropriate.”
The Bank of England will announce its latest resolution on the UK bank rate (Thursday). The rate has risen twice since December and now stands at 0. 5%.
The inflation rate in the UK stands at 5. 5% (the Bank’s target is also 2%). Economists expect an increase of 0. 25 percentage points to 0. 75%, which would translate into loan interest rates, although many lenders have already priced it in. an increase in rates on your existing offerings.
Existing borrowers with floating and follow-on rate arrangements would see their debt loads increase in the coming months. Those with consistent rates would likely face more expensive loans at the end of their existing contract.
There has been some speculation that the Bank rate could double to 1% given the mounting inflationary pressures in the economy. The Bank of England has already conceded that inflation will top 7% this spring, but again the prediction was made ahead of the Ukraine crisis. Some commentators have suggested inflation could hit double figures in the next few months.
The Office for National Statistics (ONS), which measures the rate of inflation in the UK, has announced adjustments to the basket of parts it uses to track price adjustments.
The ONS tracks around 730 prices for goods and services for its consumer price indices. It updates its basket annually “to avoid potential biases that might otherwise develop, for example, because of the development of entirely new goods and services. These procedures also help to ensure that the indices reflect longer-term trends in consumer spending patterns.”
The latest updates include the inclusion of a variety of new items, while others have been discontinued due to changes in user behaviors. It can be observed that many of the changes reflect the effect of the pandemic and related lockdowns.
New pieces include meatless sausages, sports bras and cutting shirts, antibacterial surface wipes, adult craft and hobby kits, and puppy collars.
Items dropped from the list include men’s suits, coal, doughnuts and hard-copy reference books.
Not all the changes can be traced directly to the pandemic. For example, meat-free sausages have been added to expand the range of “free from” products in the basket, reflecting the growth in vegetarianism and veganism.
However, antibacterial surface wipes have been added to the list of cleaning products to constitute existing cleaning trends as well as the demand for antibacterial products in reaction to COVID-19.
Similarly, puppy collars were introduced due to increased customer spending on puppy accessories, similar to the more general increase among puppy owners since the start of the pandemic.
Changes are also made to the shopping cart in reaction to broader adjustments in society. For example, in 2023 the sale of domestic coal will be banned due to government measures to fight climate change.
The ONS says removing it from the basket in 2022 protects the index from the possibility of not being able to collect price data towards the end of the year and from price movements, which can be perceived as the deadline for the ban to come into force. approaches. matrix
It says that, in some cases, items are dropped to reflect decreasing expenditure, such as doughnuts: “Research and anecdotal evidence from retailers has indicated that sales have fallen, potentially because of the rise in homeworking.
“Most of the individual cakes, which is what the ‘donuts’ represent, are in multi-packs, leaving a separate multi-cake left in the basket.
The US Customer Value Index rose 7. 9% in the year to February 2022, pushing the country’s inflation rate to its highest point since January 1982.
The increase, reported today through the U. S. Bureau of Labor Statistics, was due to higher gas, food and housing costs, but did not take into account the peak of the increase in energy costs caused by the Russian invasion of Ukraine on February 24.
Before the latest inflation news, the U. S. Federal Reserve was already under a lot of pressure to tame inflation by raising interest rates at its meeting next week.
In addition to imposing sanctions on Russia’s central bank and the country from the global monetary system, the U. S. administration, led by President Joe Biden, has banned imports of Russian oil and gas.
Last month, faced with the same inflationary headwinds affecting all primary economies, the Bank of England (BoE) raised its policy rate from 0. 25% to 0. 5%. This is the moment that accumulates in the space of 3 months, after going from 0. 1% to 0. 25% in December 2021.
The BoE’s Monetary Policy Committee also meets next week to decide if further monetary tightening is required as UK households continue to grapple with a cost-of-living crisis caused by soaring inflation exacerbated by the relentless surge in energy prices.
Any rise in the UK bank rate would inevitably be reflected in increased interest rates for borrowers, particularly those with mortgages.
Richard Carter, head of constant interest rate studies at investment company Quilter Cheviot, said: “Any hope that inflation is starting to peak in the U. S. It has actually been frustrated. Given that this knowledge covers the era that preceded the invasion of Ukraine, inflation would arguably not prevent that place. A rate hike at next week’s Federal Reserve meeting is certain. “
Caleb Thibodeau of Validus Risk Management said: “A super replacement will be needed in cases to prevent the Fed from implementing a hike next Wednesday and at all upcoming Federal Open Market Committee meetings this year. “
Inflation in the UK, as measured by the Consumer Price Index (CPI), hit a 30-year high through January 2022, according to the most recent figures from the Office for National Statistics (ONS).
Consumer costs rose at an annual rate of 5. 5% in January 2022, up from 5. 4% last month and well above the 0. 7% figure recorded in January last year. The last time prices temporarily accelerated this trend was in March 1992.
Inflation is now more than 3 percentage points above the 2% target set by the government at the Bank of England (BoE). The Bank of England recently forecast that UK inflation would exceed 7% this spring before declining subsequently.
The ONS said clothing, footwear, emerging household goods costs and rising rents helped push up costs last month, but added the January rise was partially offset by falling costs at the pump. , after all-time highs at the end of last year.
Since then, fuel prices have peaked again, reaching £1. 48 per litre of petrol and £1. 51 per litre of diesel. Coupled with the increase in the national energy cap by 54% in April, this is the reason why the Bank’s gloomy outlook is in the future.
Grant Fitzner, lead economist at the ONS, said last month that classic price cuts had taken place in some sectors, but “this is the smallest January drop since 1990, with fewer sales than last year. “
The latest announcement from the ONS is likely to increase pressure on the Bank of England to adopt a competitive stance on interest rates. The Bank of England has already announced two rate hikes within three months. The bank rate has recently stood at 0. 5%.
Jason Hollands of investing platform Bestinvest said: “Further and material increases in inflation are almost certainly coming, in part due to the lifting of the cap on energy bills. So, the thumb screws are going to continue to tighten over the coming months, with the Bank forecasting inflation will hit 7% by Easter.”
Rupert Thompson, at wealth manager Kingswood, said: “Inflation will rise in the coming months, likely peaking at around 7. 5% in April when the energy price cap starts to rise. Current data suggests that a further rate hike of 0. 25% in March looks like it’s all still done.
Last month, four of the nine members of the Bank’s Monetary Policy Committee, which decides on interest rates, voted to raise the bank interest rate by 0. 75%. If this hawkish sentiment prevails at the next assembly in March, the rate may double to 1%.
UK inflation, as measured by the Consumer Prices Index, jumped to 5.4% in the 12 months to December 2021 – its highest level in 30 years – according to the latest figures from the Office for National Statistics (ONS).
The last time the CPI reached this point was in March 1992.
In line with recent economic announcements around the world UK inflation has spiked in recent months – November’s CPI figure came in at 5.1% – leaving UK households facing the threat of a deepening cost-of-living crisis. The US recently revealed a figure of 7.5%.
December’s figure is above the Bank of England’s (BoE) 2% target, set through the government.
The latest insights into inflation may trigger an immediate rise in interest rates, following the Bank of England’s decision before Christmas to raise the bank rate to 0. 25% from its record low of 0. 1%.
According to the ONS, the latest inflation is due to several issues. These include the emerging costs of food, restaurant bills, hotel fees, furniture, household goods, clothing, and footwear in the run-up to Christmas.
But Grant Fitzner, lead economist at the ONS, said there was little evidence that pandemic restrictions had contributed to emerging prices: “Lockdowns in the economy last year had an effect on some products but, overall, this effect on headlines inflation rate was negligible. “
Paul Craig, portfolio manager at Quilter Investors, said: “The Bank of England was vindicated in its decision to hike rates in December in the face of Omicron uncertainty, but it could still go either way when its Monetary Policy Committee [MPC] meets in early February.
“The MPC will face a difficult choice between ensuring monetary stability or helping families cope with a cost-of-living crisis that threatens to strain their finances during a difficult winter period. “
In addition to an increase in National Insurance contributions in April and a permanent freeze on non-public tax breaks, which will push many workers into higher tax brackets, families face the prospect of a massive increase in their energy costs due to construction. up to the official value limit.
Analysts recommend that costs could reach as high as 50% when the cap is adjusted in April. The duration of this increase will be announced in early February.
Last fall, after temporarily postponing calculations on the so-called “triple lock,” the government demonstrated that it would accrue a diversity of public benefits from April 2022 on top of the September 2021 CPI figure of 3. 1%.
For 2022-2023, the total state pension will increase from its current rate of £179. 60 per week to £185. 20 per week (£9630 per year).
From April, allowances for working age, allowances for subsequent wishes arising from a disability and allowances for carers will also be increased at the same rate of 3. 1 per cent.
Other payments due to rise include Universal Credit, Personal Independence Payments, Child Benefit, Jobseeker’s Allowance, Income Support and Pension Credit.
Inflation, as measured by the Consumer Price Index (CPI), rose by 5. 1% in the 12 months to November 2021, its highest point in more than a decade, according to the most recent figures from the Office for National Statistics (ONS).
The inflation figure followed a strong upward trajectory at the end of 2021 (October’s reading was 4. 2%) and is now at its peak since September 2011.
The latest figure was well above City forecasts of 4.7% and now stands at more than double the Bank of England’s 2% target, set by the government. The steep rise from October to November could contribute to a potential hike in interest rates when the UK’s central bank reveals its final decision of the year on the subject later this week.
Grant Fritzner, chief economist at the ONS, said: “A wide variety of value increases have contributed to the sharp rise in inflation.
He added that the price of fuel had risen significantly, “bringing the average value of gasoline to a point higher than we had noticed before. “and new tobacco taxes.
According to Canada Life, evolving inflation is forcing roughly 40 million families in the UK to collectively add an additional £39. 6 billion a year to their average standard of living compared to 12 months ago.
Andrew Tulley, technical director at Canada Life, said: “The most recent inflation figures leave us with little hope for festive monetary cheer. We are all feeling the effects of this and the truth is that the average UK family will have to look for an extra thousand pounds next year to their current standard of living.
The UK figures are in line with recent US inflation data. U. S. data showed that consumer prices in November rose at their fastest pace in nearly 40 years.
Last week, the US Bureau of Labor Statistics reported that its consumer price index had risen by 6.8% in the year to November. The last time the figure had increased so rapidly was in 1982.
The Bank of England has warned that inflation could “comfortably exceed 5%” in the coming months, when energy regulator Ofgem imposes its energy price cap in April 2022, raising the rate of energy expenditure for millions of UK households.
The cap is based on trailing average prices in wholesale energy markets – with the relevant period for the next adjustment in April falling between August 2021 and February 2022.
Speaking at Leeds Business School, the Bank’s deputy governor on financial policy, Ben Broadbent, said: “Two-thirds of the way there, we can already be pretty sure (unfortunately) of some other significant increase in retail energy costs next spring. . »
Ofgem’s current price cap, which took effect on 1 October, is set at a record £1,277 a year or £1,309 for a prepayment meter tariff cap. The cap applies to households on a standard variable tariff (SVTs) consuming an average amount of energy. It refers to unit price of energy meaning that – depending on how much energy is used – some households will pay less or more.
Inflation is already high, with an annual expansion of 4. 2% in October, measured through the Consumer Price Index (CPI). That’s up from 3. 1% in September and more than double the government’s target of 2%.
The next inflation announcement is on 15 December.
Broadbent told Leeds Business School: “I come here at a normal time for the economy in general and for financial policy in particular. “
Inflation, as measured by the Consumer Price Index (CPI), rose 4. 2% in the 12 months to October 2021, according to figures released through the Office for National Statistics, following a 3. 1% increase recorded in September.
Today’s figure is the highest 12-month inflation rate since November 2011, when the annual CPI inflation rate was 4. 8%.
The figure is more than double the Bank of England’s 2% target, set by the government. This is stoking expectations the Bank will hike its key interest rate in December in a bid to cool the economy – a move that would likely trigger an increase in mortgage rates.
The current rate of 0.1% was widely tipped to increase earlier this month, but the Bank decided to hold fire at its meeting on 4 November.
The rise in living standards is attributed to the increase in the national energy price cap on Oct. 1, emerging stocks at the pump, and inflationary pressures across the economy as businesses grapple with the emerging costs of raw curtains.
Prices in hotels and restaurants are also higher than last year, as hotel companies no longer take advantage of the VAT reduction.
Economists warn that any increase in the bank rate will not leave a trail of inflation for several months. Dan Boardman-Weston of BIS Wealth Management said: “Inflation will continue to worsen in the coming months as sources remain scarce and demand is physically sustained. “Powerful, base effects are technically driving inflation higher.
“This will put pressure on the Bank of England to raise rates, which we think it will want to do in the coming months given high levels of inflation and the strength of the labour market. “
Inflation in the United States topped 6% in October. As with the UK, the reasons for the sharp rise in prices are expected to be “transitory”, but global supply chain issues such as increased demand as economies emerge from the Covid-19 crisis are translating into gloomy forecasts in some sectors. .
However, Boardman-Weston warns against a knee-jerk reaction: “Nothing we are seeing leads us to think that this inflation is permanent and, as we approach spring next year, the numbers will begin to fall rapidly.
“The Bank wants to be careful about tightening financial policy too hastily, because one misstep could cause more damage to the economy than this transitory inflation that we are seeing. “
While loan consumers will be anxiously watching the latest inflation numbers, savers are likely to see a glimmer of hope that they can take advantage of a higher rate on their accounts; Any improvement should be noted in the context of emerging prices.
The Bank will announce its final resolution on the bank rate on December 16.
UK inflation broke an upward trend and eased slightly last month, according to the most recent official figures from the Office for National Statistics (ONS).
The consumer price index (CPI) rose by 3. 1% in September 2021, after 3. 2% in August.
The ONS said higher shipping values contributed the most to the overall increase in value, along with household goods, food and furniture.
It added that restaurants and hotels helped pull the inflation rate lower. This was because prices rose less this summer compared with the same time last year, when the government’s Eat Out To Help Out scheme was running.
Despite a monthly drop in the inflation rate, the point is still well above the Bank of England’s (BoE) 2% target.
September’s inflation figures are unlikely to influence the Bank of England’s next interest rate decision, due in early November, as a pause in rate hikes had been anticipated.
Commentators say the drop in inflation in September is just one incident and that additional increases are expected in the coming months. In fact, the latest figures still don’t take into account either the recent surge in energy costs or the weeks-long gas pump crisis. behind.
Laith Khalaf, head of investment research at brokerage AJ Bell, warned: “Inflation is going to get even worse before it gets better. Inflation is widely felt, as the main determinants are housing and transportation costs, which are unavoidable for almost everyone in the country. “
September’s inflation figure of 3.1% will be used to determine next year’s rise in the state pension.
This means that, from April 2022, a pensioner who receives the new full state pension can expect a rise from £179.60 a week to £185.15. For those on the basic state pension, the current figure of £137.60 will rise to £141.86 next spring.
Next year’s increase could have reached 8% if the government had not had to abandon its “triple lock” for a year, based on an artificially distorted picture of the UK’s wage expansion in the wake of the pandemic.
The triple lock aims to increase the state pension according to the three measures: 2. 5%, CPI inflation and income. Earlier this year, the government announced it would suspend the use of the latter formula after benefits skyrocketed due to other people returning to work after their furlough program ends.
The UK inflation rate jumped sharply last month, according to the latest figures from the Office of National Statistics (ONS).
The Customer Value Index (CPI) increased by 3. 2% in August, up from 2% in the previous month. The 1. 2 percentage point increase is the largest recorded in the 12-month series of inflation rates in national CPI statistics, which began in 1997.
Inflation in the United Kingdom exceeded 10% in 1990 and exceeded 26% in 1975.
The latest figures show that inflation is now at its level since March 2012, due to rising costs for transport, restaurants and hotels.
Last summer, food and drink was reduced due to the government’s temporary “Eat Out to Help Out” reaction to the pandemic.
Used car costs also contributed to the increase. Demand is strong due to a relief in demand for new models, attributed in turn to a shortage of PC chips used in their manufacturing.
The increase in power is expected to drive further increases in the inflation rate in the coming months.
The latest CPI figure exceeds the official 2% target set by the Bank of England (BoE).
Jonathan Athow, deputy national statistician at the ONS, said: “August saw the largest annual month-on-month increase in inflation since the series was published almost a quarter of a century ago.
“A lot of this is probably temporary, as last year restaurant and cafeteria costs went down especially because of the Eat Out to Help Out program, while this year costs went up. “
August’s inflation rate coincides with a recent rise in costs in wholesale energy markets, a combination that may have serious monetary implications for millions of UK energy consumers this winter.
Last month, Ofgem, the UK’s energy regulator, announced that it would extend the cap on popular variable rate default price lists by up to 12%, to £1,277, its highest point on record. The new cap will come into effect on October 1, when the cap on prepayment rates will increase from £153 to £1309.
Around 15 million households will be hit by the cap increases. Ofgem recommends that those on default rates should switch their energy tariff to find a cheaper alternative. Prepay customers may also be able to save by switching.
Next month’s data, covering inflation figures for September, will pinpoint the point at which the state pension will be highest from April 2022 under the new transitional “double lock” recently introduced by the government.
The UK’s inflation rate slowed last month, according to the most recent figures from the Office for National Statistics (ONS).
The Customer Value Index (CPI) increased by 2% in July, up from 2. 5% in the previous month. The drop, driven by the declining value of clothing, footwear and recreational items, means the inflation figure is now in line with the Bank of England’s official figure. 2% target.
Jonathan Athow, from the ONS, said: “Inflation eased in July across a wide range of goods and services, adding clothing, which has eased with the return of summer sales after the pandemic hit the sector last year.
“This was offset by a sharp increase in the value of used cars amid increased demand, following a shortage of new models. “
Commentators say a drop in the headline inflation rate may only be temporary. The Bank of England forecasts that the expansion in customer value could reach just another 3% this month and peak at around 4% later in the autumn.
Richard Hunter of Interactive Investor said: “The easing of the inflation slowdown is likely to be short-lived, as there are still upward pressures in the pipeline.
“Cost inflation is still bubbling beneath the surface, whether in terms of supply chain bottlenecks that drive up costs, and pressures on hard work. In addition, the proposed increase in energy costs will fuel the inflationary chimney as the year progresses. “
Despite a monthly drop in the CPI, Sarah Coles of brokerage Hargreaves Lansdown issued this warning to savers: “Even at 2%, inflation can cause serious damage to your savings, so we want to protect ourselves by refusing to settle for depressing rates from giant (banking) customers. These will offer 0. 01% on easily accessible accounts, while the average (for all savings accounts) is 0. 07%, and the unrestricted competitive maximum is 0. 65%.
“Fixing your savings for 12 months will earn you up to 1.3%, which will significantly reduce the damage done by inflation,” she added.