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The annual inflation rate fell to 4. 6% in October this year, according to official figures, 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 adds that owner-occupied home (CPIH) prices rose 4. 7% in the year to October, up from 6. 3% a month earlier.
Today’s announcement that Prime Minister Rishi Sunak’s goal of halving inflation by the end of 2023 has been achieved.
Grant Fitzner, ONS lead economist, said: “Inflation particularly eased during the month as last year’s sharp rise in energy prices followed a slight rise in the energy value cap [a cap on how much energy suppliers can rate UK households] this year. “
“Food costs barely recovered this month, having risen 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 be on the Autumn Statement on 22 November, where rumours have been circulating for several days about conceivable adjustments to the UK’s Individual Savings Account (ISA) and inheritance tax regime.
Lindsay James, investment strategist at Quilter Investors, said: “The Prime Minister will breathe a deep sigh of relief today, especially given the political occasions of the past few days. Halving inflation was intended to be the simplest of his five priorities because this is a year-over-year comparison, and in 2022 inflation rose dramatically.
Although things have gotten a little closer, the current sharp drop in inflation to 4. 6% is a positive step on the long road to target levels. However, this scenario is basically explained through 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 will most likely be slow. “
U. S. headline inflation The U. S. interest rate fell to 3. 2% in October 2023 from 3. 7% the previous month, reducing the likelihood of an interest rate hike via the Federal Reserve at its last meeting of the year on Dec. 13, writes Andrew Michael.
The U. S. Bureau of Labor Statistics reported today that the Consumer Price Index (CPI) for all urban consumers remained unchanged in October, following a 0. 4 percentage point increase in September 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 came under pressure for policymakers not to be “fooled by a few months of smart 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%. All three minority shareholders voted to raise the rate to 5. 5%.
Today’s announcement reiterates the September decision, which ended a streak of 14 consecutive interest rate hikes dating back to December 2021.
The news will bring relief to more than a million borrowers with variable and outstanding mortgages who, until last month, had been hit by a series of increases in home loan rates that lasted about 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.
“Signs of some financial tightening effect continue to emerge on the labor market and on the dynamics of the real economy in general. “
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, although the most 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 of direct retail at Standard Life, said: “The Bank of England’s decision to keep the base rate on hold will be a welcome relief for others facing a difficult winter. Households nearing the end of their fixed-rate loan term will be especially pleased with this respite.
“There’s also smart news for those who can save. It looks like rates may also be peaking, however, there’s no indication that they’re going to start falling 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 emerging costs for the first time in a long time.
As expected, the U. S. Federal Reserve has kept borrowing prices at their highest level in 22 years, while maintaining the prospect of long-term 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 financial policy stance, the Committee will continue to monitor the implications of the revenue source data for the economic outlook. The Committee would be ready to adjust the financial policy stance if it were mandatory if dangers arose.
The Federal Reserve’s interest rate ruling follows recent official data that showed U. S. 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%.
As ongoing tensions in the Middle East threaten to soar oil costs and reignite inflationary pressures, market watchers say policymakers remain cautious about long-term decisions on borrowing costs.
Richard Carter, head of constant interest rate research at Quilter Cheviot, said: “Today’s decision by the Federal Reserve to keep interest rates unchanged underscores the complexity of the current U. S. economic outlook. Even as the economy challenges expectations with a strong expansion of tasks and economic expansion, the inflation rate remains well above its target of 2%. Analysts will be attentive to each new information release for clues about the long-term direction of the Reserve Federal.
“With customer giants like McDonald’s and Amazon beating earnings expectations and still missing about $1 trillion in pandemic-era savings to spur consumption, inflationary strain 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 lending 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 that began 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 euro zone countries rose 4. 3% in September 2023, up from 5. 2% the previous month, the slowest rate of expansion recorded across the trading bloc since October. of 2021.
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 to 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 cut their own rates, injecting festival into the market. The Federal Reserve will unveil its resolution on Nov. 1 and the Bank will hold it until the next day.
Marcus Brookes of Quilter Investors said: “After the most competitive series of rate hikes in its history, the ECB has joined the Federal Reserve and the Bank of England in hitting the pause button and accurately assessing the effect. ” of its movements to date. Inflation in the euro area has fallen especially 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 pushing energy prices higher. 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.
Gurpreet Gill of Goldman Sachs Asset Management 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 represent a new There is an upside threat to headline inflation, but a moderate expansion and cooling of core inflation will likely save it from additional rate hikes.
“We expect a rate cut starting in the third quarter of next year, a sharp slowdown in the economy, or a bigger-than-expected deterioration in the hard labor market could trigger a faster transition to policy easing. “
The annual inflation rate remained unchanged at 6. 7% in September this year, according to official figures, keeping pressure on the Bank of England in its fight against 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 slowed further this month, driven by a slowdown in the price of many goods, even as prices rose 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 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 geopolitical tensions in the Middle East threaten to send oil soaring, raising the threat of emerging inflationary pressures globally.
Today’s CPI announcement also completes the final component of the equation known as the government’s “triple lock” pension, the adjustment implemented for the accumulation of state pensions next April and which is conditional on one of three economic factors.
The goal of the triple lock is to protect the state pension from inflation by making sure it increases by a real amount each year. The measure implemented is the highest inflation measured through the September CPI; wage expansion measured between May and July; and a minimum accumulation of 2. 5%
Barring conceivable changes, the wage increase 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: “The return of UK inflation to target can very well be described as ‘slow and steady’, with CPI refusing to move in September at 6. 7%. It is transparent that the UK is winning any race on this trajectory, as inflation remains incredibly high and far higher 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 one-third of adults over the age of 66 who are still applying expect the state pension to be their primary 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 the annual expansion of normal wages, excluding bonuses, was more than 7. 8% between June and August 2023. This is down from 7. 9% during the three months to July this year, but still one of the highest rates in comparable years. . Filming 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 which 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, creating a challenge for those responsible for setting the reduction rate, which lately stands at 5. 25%.
Alice Haine, private finance analyst at Bestinvest, said: “Strong wage expansion can ease the monetary pressure on households, [but] risks fuelling inflation if corporations shift this burden onto consumers by increasing the value of their goods and services. “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 wage knowledge may be the government’s way of envisioning the triple lock. Average wage growth, adding bonuses, was 8. 1%, down from last month’s 8. 5% increase. This figure of 8. 5% is what deserves to be used for the calculation of the triple lock on state pensions and, as inflation is falling, it deserves to give pensioners their second big increase in a row.
“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 September 2023, unchanged from last month, writes Andrew Michael.
The U. S. Bureau of Labor Statistics The U. S. Consumer Price Index (CPI) for all urban consumers rose 0. 4% month-over-month on a seasonally adjusted basis in September, following a 0. 6% increase in August. The Bureau blamed housing for more than some of the September increase, adding that rising fuel costs are also a “major contributor” to the increase in the inflation figure for “all items. “
As expected, the core CPI figure, which excludes volatile food and energy prices, rose 0. 3% in September, bringing the 12-month figure to Array1%, up from Array3% 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.
Like other central banks around the world, the Federal Reserve must keep long-term inflation at 2% point.
The Federal Open Market Committee (FOMC), which sets rates, will release its next resolution on Nov. 1.
Today’s figures are in line with last week’s announcement of a sharp increase in job creation, with the US economy filling 336,000 job vacancies in September, up to an expected figure of 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.
“In fact, although inflation is slowly receding, the strength of the labor market means that the risk of a resurgence in inflation cannot be ignored, which keeps the Federal Reserve on its toes. Whether or not there will be a rise in interest rates remains unanswered. “
Daniel Casali, lead investment strategist at Evelyn Partners, said: “The ongoing slowdown in core inflation may offset last week’s jobs report to some extent if the FOMC needs to keep interest rates unchanged at its next meeting on November 1.
“In addition, policymakers will most likely place importance on the recent sharp rise in long-term government yields, which reduces the need for the Federal Reserve to tighten rates further, as markets have done their homework well for The FOMC will also be watching “This will affect the expansion of automotive movements and a possible shutdown of the US government starting in mid-November. “
Neil Birrell, chief investment officer at Premier Miton Investors, said: “The latest US inflation report. that will be presented to the Federal Reserve meeting later this month will give them too many headaches. The policy rate for September has stabilized as expected, allowing the Federal Reserve to proceed cautiously.
“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 headline inflation refusing to let up following the latest official figures, “the U. S. remains in a much stronger position in the fight against inflation compared to other evolved economies, and it is thanks to this position of strength that its economy has so far found itself to cope with any recession forecasts.
“However, just as markets were concerned when inflation spiked last year, they will also be concerned about the long-term trajectory of inflation and what will happen next. As inflation has declined, it has retreated incredibly and is unlikely to succeed in your goal at times.
“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 inflationary heat continuing to leave 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 debt 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 since peaking at 11. 1% in October last year, the 6. 7% figure is still well above the long-term 2% target set through the government for the Bank of England.
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 want to be sufficiently restrictive for long enough to bring inflation back to the 2-cent target consistent with the cents target in a sustainable manner over the medium term, in line with the Committee’s mandate. If there were symptoms, there would be further tightening of financial policy. more consistent and resilient inflationary pressures.
The resolution of the Bank Rate will be made on November 2, 2023.
Rob Morgan, lead investment analyst at Charles Stanley, said: “Rapid wage growth, above 8% year-on-year, is a fear for the Bank, meaning consumers are more likely to keep up with emerging prices. to additional fuel inflation.
“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 come as relief to more than one million borrowers with variable-rate and tracker mortgages who have been affected by a series of increases in mortgage lending dating back to December 2021.
Jeremy Batstone-Carr, European strategist at Raymond James Investment Services, said: “The Bank of England’s financial policy committee offers some relief to suffering households by keeping the base interest rate 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 of HSBC Asset Management said: “This is a very complicated decision for the OAG, reflected in the 5-4 vote split. The wonderful fall in inflation in August and the clear signs that the UK economy is collapsing under the pressure of Higher rates likely triggered a more “dovish” trend among policymakers.
“There is now a good chance that the bank rate has peaked, a view we share for both the U. S. Federal Reserve and the European Central Bank’s policy rates. While the UK’s most recent wage expansion figures are worrying, knowledge of the labour market is lagging. Signs that appear suggest that the UK economy is already flirting with recession, against a backdrop consistent with a slowdown in wage expansion and a shift in policy. “
The Federal Reserve, the U. S. The Bank of England’s U. S. borrowing policy 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 move echoes the Federal Reserve’s moves in June of this year, when it also kept loan prices at prevailing rates. This was in contrast to a month later, when a quarter-point increase pushed rates to their current 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 rise in inflation levels over the summer, driven by a surge in energy prices following the resolution taken by Russia and Saudi Arabia to lower material and oil prices, analysts’ expectations that the Federal Reserve would keep loan prices at their current level proved correct. .
However, there remains the option that the Federal Reserve will raise rates for the last time in the current cycle later this year; “A further rise is unlikely to disrupt the market,” according to Richard Flynn, managing director of Charles Schwab UK.
Fiona Cincotta, senior money markets analyst at City Index, said: “With inflation still above the Federal Reserve’s 2% target, recent insights highlighting the resilience of the U. S. economy, and oil costs point to a hundred dollars consistent with a barrel, the Federal Reserve will need the inflation rate. The door is open for some other possible construction 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, the president of the Fed Jerome Powell won’t have to make the same mistake by going back to court and inadvertently correcting without doing anything.
The annual inflation rate was 6. 7% in August this year, down from 6. 8% in the previous month, dashing expectations for a first increase in value since February, writes Andrew Michael. Today’s Consumer Price Index (CPI) from the Office for National Statistics The Bank of England’s resolution on reduction rates is still up in the air.
An increase in the annual inflation rate in August would likely have triggered a fifteenth consecutive increase in the credit burden. Market expectations were for a quarter-percentage-point increase, from 5. 25% to 5. 5%.
But today’s announcement, which also shows that the “core” CPI, which excludes volatile energy and food data, fell to 6. 2% in the 12 months through August (from 6. 9% in July), is an economic indicator that may lead the Bank to refrain from further raising the cost of borrowing, at least for now.
The CPI adding the prices of owner-occupied homes (CPIH) increased by 6. 3% in the year to August, compared to 6. 4% in the previous month.
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 price of petrol and diesel compared to a sharp drop at the same time last year, following the record values seen in July 2022. “
Fitzner added: “Core inflation slowed more than the headline rate this month, thanks to lower prices. “
The Bank of England, which has set a long-term inflation target of 2%, imposed through the government, will assess the latest insights into inflation 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 Organization for Economic Co-operation and Development (OECD) predicted that the UK economy would revel in the inflation rate 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 drop 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 bps 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 that 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 may also provide some relief to the Bank of England. While this cut may not be enough to prevent further rate hikes, core inflation, well below expectations, is good news.
“Last month, there was some smart news on inflation in the UK 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 follows this. time around.
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 basic issues up 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 policymakers raised rates to breathe life into the newly introduced euro price.
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 Reserve will announce their latest interest rate decisions next week. In line with developments in Europe, markets believe that UK loan prices will also see a quarter-point rate increase, but that the US could keep rates unchanged until at least November.
Investment professionals said the next focus is how long loan prices will remain at record levels.
Robert Scramm-Fuchs, portfolio manager at Janus Henderson Investors, said: “It was probably close, but the ECB gave us the final interest rate hike that the stock market most commonly expected. Judging by the ECB’s language and the downward revision of medium-term inflation estimates, it appears that the ECB has ended its rate-hiking cycle and we deserve to expect a long stagnation. “
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 financial policy transmission channel is obviously operating strongly, a recession is looming in the eurozone. Consequently, the ECB would probably have to immediately correct its trajectory in 2024. But for the moment, its guidance will probably focus on the scenario of a longer increase.
U. S. headline inflation stood at 3. 7% in August of the year, up from 3. 2% in July, marking just the right moment in the month of emerging costs after a year-long downward trend, writes Andrew Michael.
An increase, announced today through the U. S. Bureau of Labor Statistics, was expected after energy costs soared following the resolution by exporters, joining Saudi Arabia and Russia, to cut materials in a bid to lower oil costs.
Despite today’s increase, analysts doubt it will be enough to convince the U. S. Federal Reserve to raise its borrowing prices when the Federal Open Market Committee releases its next resolution on interest rates on Sept. 20.
Today’s knowledge from the Bureau also showed that the customer value index for all urban customers increased by 0. 6 percentage points in August this year, compared to a cumulative 0. 2 percentage point a month earlier. The Bureau stated that fuel is the largest contributor to the per month cumulative in all items, accounting for more than a portion of the accrual.
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: “On the surface, with the headline inflation rate 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 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 surprising given the recent rise in energy costs and the Fed will most likely revise those figures, for the time being.
“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.
The Customer Value Index (CPI) released today through the Office for National Statistics (ONS) broadly matches economists’ expectations that inflation will fall to 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 that sums up owner-occupied home prices (CPIH) rose by 6. 4% year-on-year through 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.
Food and non-alcoholic beverages inflation fell to 14. 9% in July from 17. 4% in June, food costs continue to rise, albeit at a slower pace.
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, the UK’s main borrowing burden.
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 presented by the government as evidence that its fiscal prudence is working in tandem with the effect on emerging constant interest rates 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 with yesterday’s knowledge that wages have risen by almost 8% over the past year, the cost-of-living crisis may be, after all, starting to worsen However, families are still under immense pressure and inflation is not going to fall drastically, But millions of other people will be very happy to see that their take-home pay now appears to be on par 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. “
U. S. inflation rose 3. 2% in the year to July, up from 3% in June, ending a streak 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 through 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 issues its next resolution in September.
The Federal Reserve’s benchmark interest rates currently range from 5. 25% to 5. 5%, their highest point since 2001. Last month, Federal Reserve Chair Jay Powell said the central bank would raise interest rates from time to time.
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. August figures will be published ahead of the next Federal Reserve meeting. in mid-September, but nothing in this suggests that it will do anything more 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 who expected cuts sometime this year or early next year would likely be disappointed. The Federal Reserve has said that rates will remain high enough [for inflation] in the near term and that it will be desperate not to enjoy a repeat of the 1970s, when we saw a further rise in inflation when central banks came too early to ease their policies. financial adjustment. Array”
As expected, the Bank of England announced a 0. 25 percentage point increase in its bank rate to 5. 25%, its point 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 a fixed-rate loan will feel the effect when their current agreement ends, and many will face massive increases in their monthly payments. The average rate for a two-year solution is now between 6. 5% and 7%, according to Moneyfacts, up five percentage issues higher than its previous rate.
It is estimated that around 800,000 transactions will take place at constant rates in the second half of 2023, with another 1. 6 million transactions expected to be completed in 2024. There are approximately seven million constant-rate transactions in total.
The Bank of England is raising 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 5 percent by the end of the year, achieving its 2 percent target 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 announcement of the reduction rate will be on September 21, with additional changes planned in November and December. The next rate move will largely be decided through the July inflation figure, which will be revealed through the Office for National Statistics on 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 caused banks to cut rates for their lending customers. We have now noticed that several primary banks cut rates; Not enough to make a dramatic difference in people’s monthly payments, but homeowners will breathe a sigh of relief that loan rates are moving 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, raising its deposit rate to 3. 75%, while expanding its main refinancing option to 4. 25%, writes Andrew Michael.
Today’s resolution will enter into force on 2 August, raising the debt burden in the euro domain to the record point last seen in 2001, when the ECB sought to bolster the newly introduced euro price.
The move comes as the ECB tries to quell persistent peak inflation. Although the eurozone inflation figure fell to 5. 5% in the 12 months to June this year – from 6. 1% in May – it remains well above the ECB’s medium-term 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 appear to show signs of easing, core inflation remains high overall. Previous rate hikes continue to be strongly transmitted – funding situations have tightened again and are dampening demand, which is vital to get inflation back to its 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 indicates that the ECB is nearing the end of its rate-hiking cycle, but the patience of core inflation also tells us that rate cuts are on the cards 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 be looking 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. policymakers will start borrowing. loan.
Following the steeper-than-expected fall in US inflation a fortnight ago (from 4% to 3%), the Federal Reserve said today: “Recent signals suggest that economic activity has increased at a moderate speed. Job creation has been 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’s commentators proposed a larger-than-expected half-percentage point rate hike, bringing the bank rate to 5%.
Gurpreet Gill, Goldman Sachs’ steady global source of income, said: “Paradoxically, today’s Fed meeting is one of the safest and most unsafe of the cycle. 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% following the Russian 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. In monthly terms, the CPI increased 0. 1% in June, compared to 0. 8% accumulating 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 with price increases slowing more than expected, the situation may need to be reconsidered.
Marcus Brookes, chief investment officer at Quilter Investors, said: “Today’s inflation figures give us a glimmer of light as they ultimately beat expectations and fall more than expected.
“However, while beating expectations is a pleasant surprise, it once again begs the question of why the UK is such a radical outlier compared to other evolved economies when it comes to inflation. (We are) still well above the point at which the Bank of England needs before we can even pause the rate hikes that we are used 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.
Inflation in the eurozone 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 20 countries that use the euro as their currency. Eight members of the 28-member European Union use the euro.
Rising prices for food, alcohol and tobacco contributed to the figure across the eurozone’s single trading bloc, which is down from 6. 4% in the year to June across the EU.
Average inflation in the EU as a whole contrasts sharply with rates at the country level.
Annual inflation up to June stood at 1% 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% in Hungary, Slovakia and the Czech Republic, respectively.
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 announcement will be published on 27 July.
Sterling continued its recent bullish trend and stock markets around the world also became more complex following a steeper-than-expected drop in US inflation (see article below) and a sell-off in the dollar, writes Andrew Michael.
The British pound rose 0. 5% against the dollar the previous day, taking the value of the British pound to a 15-month high of $1. 305, as investors increase their bets that the U. S. Federal Reserve will cut borrowing rates early next year.
European stocks also rose following 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, after 1. 5% in Wednesday’s trading session, its biggest gain in a day. in just two months.
On Wall Street, a few hours earlier, American stocks recovered, so that at the close of the day the American stock index S&P 500 had reached its highest point in 15 months, with large generation corporations leading the way.
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 policy interest rate hikes imposed through the Federal Reserve, this means that annual customer value 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 mandate when it comes to fixing inflation. But despite thirteen successive interest rate hikes since December 2021, the UK inflation figure remains decidedly stuck 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 remained between 3% in the year through June and 4% in the 12 months through May. Lower energy prices (down 16. 7% over the period) contributed to this 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 perceived 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 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 speculation suggests it could increase them at its next meeting on July 25-26.
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 borrowing rate in anticipation of a rate hike from the Bank of England. Previously, the Bank had said borrowers would face increases of hundreds of pounds a month in their loan prices in the coming years.
The Bank of England raised its bank rate through percentage issuances from 0. 5% from 4. 5% to 5%, its highest point in 15 years, writes Andrew Michael.
This is the thirteenth consecutive hike since December 2021, with a larger-than-expected interest rate hike aimed at ridding the UK economy of stubbornly high inflation. But today’s announcement will have an instant effect on the finances of more than a million. UK landlords whose loan prices 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 end their fixed rate contracts during the remainder of 2023. Given the volatility in the loan market, it is inevitable that many will face higher bills when negotiating a new loan. loan.
On the other hand, savers deserve – in theory – to take advantage of the latest interest rate hike, although providers tend to be slower to raise 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 insights that showed worsening inflationary pressures in the U. K. economy.
Yesterday, a report by charity StepChange revealed that almost seven million loan consumers had struggled to meet their spending and credit commitments in recent 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 dampened the specter of emerging costs (the annual figure hit a 40-year annual high of 11. 1% last fall), the downward trajectory has been smooth compared to other primary economies, many of which are percentage-like. Medium-term inflation target of 2%.
With annual inflation at 4% through May, the U. S. Federal Reserve will keep interest rates unchanged when it released its latest announcement last week. The Federal Reserve’s target budget rate continues to range between 5% and 5. 25%.
A day later, the European Central Bank raised interest rates by a quarter of a percentage point across the euro zone 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 stepping up its efforts in its fight against emerging economies following recent inflation and hot-button wage data.
“It has faced increased scrutiny and pressure over its ability to reduce inflation, as well as doubts about its baseline forecasts. Today’s increase is a desperate move to show markets that it is firmly committed to its mandate despite the difficulties monetary damages 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 pricing in a only 40% chance of such a mammoth 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. This staggering figure (many commentators expected a drop) will deal a severe blow to the hopes of millions of lenders and investors. other borrowers, who now expect a drop. Interest rates are expected to continue to rise, writes Andrew Michael.
The Bank of England is widely expected to continue its extended tightening policy when it unveils its new interest rate resolution tomorrow, with an increase from 4. 5% to 4. 75% or even 5% up for grabs.
Mortgage lenders have already raised rates a few days ago in anticipation of a rise in the bank rate.
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’s inflation rate, as measured by the Consumer Price Index (CPI), rose to 0. 7% in May, the same figure recorded in the same month last year. year.
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, the emerging sectors of air travel, recreational goods and used cars were the main participants in the latest CPI and CPI inflation figures.
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 most recent inflation figures in the United States showed that costs rose to 4% annually, while the figure for the eurozone trading bloc that covers most of continental Europe stands at 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 is already leaning heavily toward another 25 basis point increase, which would put further pressure on lending consumers with variable-rate loans, who have already experienced a series of rate increases.
Marcus Brookes, chief investment officer at Quilter Investors: “Today’s inflation figure will be a bitter tablet for consumers, investors and the government. With the CPI unchanged and core inflation rising, this confirms that the Bank of England still has no option to raise interest rates tomorrow. “The UK appears to be suffering from a more exclusive set of cases and this leaves the Bank of England with little selection, despite the consensus that this inflation is due more to origin issues than origin issues.
Alice Haine, private finance analyst at Bestinvest, said: “Stubbornly high inflation means consumers probably won’t 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 would raise interest rates by a quarter of a percentage point, widening its deposit rate to 3. 5%, while expanding its main deposit option. refinancing at 4%, writes Andrew Michael.
The move takes eurozone interest rates to a 22-year high as the ECB persistently battles peak inflation.
Today’s announcement, the eighth consecutive rate hike since last summer, contradicts the Federal Reserve’s decision yesterday 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 today’s rate hike “reflects the Governing Council’s updated assessment of the inflation outlook, core inflation dynamics, and the strength of inflation transmission. “Monetary policy.
“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 the official U. S. inflation figure of 4% for the year of May, announced this week. Inflation in the UK is 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 unveil its latest interest rate decision, with markets forecasting a 25 basis point hike. If true, it would bring the UK bank rate to 4. 75%, its point in 15 years.
Joseph Little, chief global strategist at HSBC Asset Management, said: “Today’s increase is the fastest policy tightening in Europe since the Bundesbank in the 1980s, with 400 foundational issuances of interest rate hikes in the last 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 constant interest rate research at Quilter Cheviot, said: “The European Central Bank would dream of being in the position of the Federal Reserve and stopping rate hikes to assess their impact. However, this is not the case and we are seeing a further increase in rates 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, says next week’s Bank of England resolution will be tricky: “The Bank is caught between a rock and a hard place, as it has to be between pushing more borrowers to the brink and letting more borrowers get to the brink. Inflation is running amok.
“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 take us to 5. 75%. Even uglier inflation data could easily lift those expectations up to 6%.
The Federal Reserve, the U. S. equivalent of the Bank of England, left its benchmark interest rate unchanged today after raising the borrowing rate since the beginning of 2022 as part of its fight against inflation, writes Andrew Michael.
This means that the Federal Reserve’s target budget rate continues to hover 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 US inflation figures 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. an annual basis that doubles the Fed’s long-term target of 2%, though well below the 9. 1% recorded last summer.
With core inflation (where volatile food and energy costs are excluded from the calculation) rising to 0. 4% in the month to May, and given the recent employment numbers, more interest rate hikes are possible, and an increase will most likely be observed. in July.
The Federal Reserve said: “In assessing the appropriate stance of financial policy, the Federal Open Market Committee will continue to monitor the implications of incoming data on the economic outlook.
“The Committee would be willing to adjust the stance of economic policy if dangers arose that could impede the achievement of its objectives [to keep inflation at 2 consistent with the penny]. The Committee’s tests will take into account a wide range of information, adding readings on labour market conditions, inflationary pressures and expectations, as well as economic and external 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 the inflation figures next Wednesday, ahead of the bank rate decision. Earlier today, Chancellor of the Exchequer Jeremy Hunt admitted that the UK had “no alternative yet” to continue to apply interest rates to deal with emerging prices. price.
Tomorrow, the European Central Bank (ECB) will announce its latest interest rate decision, which will affect loan prices across the eurozone’s single trading bloc.
The Federal Reserve, the ECB, and the Bank are mandated to keep long-term inflation at 2% in their respective jurisdictions.
David Henry, investment manager at Quilter Cheviot, said: “For the first time in more than a year, the Federal Reserve has kept interest rates at their current level. While this is rarely a very regular big event, this one is feels especially important. After all the increases of the last 15 months and the various shocks in the supply chain, the tide is nevertheless turning in the fight 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 will see what happens. 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 through the U. S. Bureau of Labor Statistics increases the likelihood that the Federal Reserve will leave borrowing prices as they are when it adopts its resolution on interest rates tomorrow.
Last month, the Federal Reserve raised interest rates for the tenth time in a row since March 2022. Lately they have been between 5% and 5. 25%.
But with the Customer Value Index (CPI) for all urban customers rising 0. 1% in May (or 0. 4% if asset values such as energy and food are excluded), the Fed will most likely continue to struggle to reconsider the case for such a policy. monetary tightening later this year, potentially in July.
The Bureau said housing is the biggest contributor to month-to-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 financial policy resolution later this week, which will adjust loan prices across the eurozone trading bloc. They are currently at a range of 3. 25% to 3. 75%. The market consensus is that loan prices will increase by 25 basis points.
The same applies to the Bank of England, which is expected to raise the UK bank rate (currently 4. 5%) for the thirteenth time in a row since December 2021 at its June 22 meeting. The Federal Reserve, the Bank, and the ECB are mandated to keep long-term inflation at 2% in their respective jurisdictions.
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, tension is easing. Tomorrow will most likely be the first FOMC meeting since March 2022 without a hike. rates. However, with annual core inflation In May, and following the very strong jobs report, the July FOMC meeting is already underway.
Gerrit Smit, manager of the Stonehage Fleming Global Best Ideas Equity fund, said: “The particularly sharp drop in headline inflation in the US to 4. 0% reinforces confidence that inflation is below and possibly would not be further tightening by the Fed is necessary.
“As employment numbers remain as strong as ever, investors don’t want to worry about a deep recession approaching, but rather look toward a normalizing economic environment with a mild and short recession, if there is one. “
Inflation fell sharply from 10. 1% to 8. 7% in the year to April 2023, the first time the figure has fallen 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 measured through the Consumer Price Index (CPI) rose to 1. 2% in April 2023, compared to 2. 5% recorded in the same month last year.
Grant Fitzner, chief economist at the ONS, said: “The inflation rate has fallen especially because the sharp increases in energy prices seen last year were not repeated in April, but were partly offset by rising prices. Used car and cigarette prices remain particularly higher than they were at the same time last year, with annual food value inflation close to record highs.
The ONS also reported that the CPI, adding prices for owner-occupied homes (CPIH), rose by 7. 8% in the year to April this year, up from 8. 9% the previous month. The Bank of England will take a look at the latest knowledge of the The ONS is due to assess it. What to do when the reduction rate, lately 4. 5%, rose a quarter of a point a fortnight ago, its 12th consecutive increase in 18 months.
The next rate announcement is scheduled for June 22.
Speaking yesterday before the House of Commons Treasury Select Committee, the bank’s governor, Andrew Bailey, admitted that there were “many lessons to be learned” when setting financial policy after the UK central bank failed to account for recent 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. However, while it’s positive that it’s now in the single digits, food costs are still coming up too fast.
“As well as helping families with a cost of living of around £3,000 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. . on 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 can expect a slower decline.
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 lending 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 increase mean for borrowers?What does the bank rate increase 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 multipartisan diversity committee this week wrote to several vendors, including Nationwide Building Society, Santander, TSB and Virgin Money, to compare their higher profits to low savings rates and overall fairness toward customers.
Laura Suter, director of personal finance at AJ Bell, said: “Banks are reacting to two forces: the reduction rate and competition. They will use the bank rate as an indicator to know if they want to increase their savings rates, but what their what the competition does is much more important.
“Banks are keen to make a profit, which comes at a cost to UK households. While lending rates have skyrocketed, savings rates haven’t risen as much, and some banks are worse than others at 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 asset finance specialist Anderson Harris, said: “The never-ending story of interest rate rises continues, dealing another blow to borrowers. The burden of living through a crisis, combined with the prospect of higher loan payments, has led an increasing number of consumers to turn to interest-only loans to pay 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 announcement of the Bank Rate will be made public on June 22.
U. S. inflation fell to 4. 9% in April of the year, from 5% in the previous month, suggesting that the Federal Reserve’s interest rate hike policy is having the desired effect of reducing emerging market 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 the UK, where inflation remains stubbornly in double digits at 10. 1%, the rate of value increase in the US 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 from 0. 25 last week – a 10th consecutive increase since March last year – to a range of 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 delivers its latest resolution (May 11).
Richard Carter of Quilter Cheviot said: “The Federal Reserve will breathe a sigh of relief as last week’s hard work was followed today by a lower-than-expected, albeit below-expectations, inflation figure. The Federal Reserve now has everything it wants to reach the Pause on rate hikes and reconsider its stance over the coming months. With inflation in the U. S. now below 5% for the first time in two years, markets will think the light at the end of the tunnel is clearing, and the worst part is some of that inflation is far away in the rearview mirror.
Daniel Casali of Evelyn Partners said: “While there are a number of emerging costs in the CPI report, in the case of used cars, for example, the overall message is that headline inflation is slowing and this gives the Federal Reserve reasons to keep interest rates unchanged next time. “time. se met 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 funding option rose to 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 eased in recent months, “underlying pressures on values 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 ruling by the Federal Reserve, its tenth consecutive rate hike since March 2022, means its target budget rate is now in a range of 5% to 5. 25%, its 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 may 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 latest resolution is arguably its 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 a competitive rate-setting policy by the U. S. central bank, price increases have not slowed as temporarily as expected.
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 could possibly be the last rate hike of the current cycle, but it is nonetheless the crusade to raise rates, the most competitive since the 1980s. “
“The resolution will have been carefully weighed because, on the one hand, the latest economic knowledge suggests that inflation remains high, particularly in the facilities sector, which needed to be curbed. But it should be stressed that the U. S. banking formula has experienced significant turbulence in recent months, with four banks failing since the beginning of March. “
Whitney Watson, Global Co-Head and Co-Head of Steady Income Sources and Liquidity Responses at Goldman Sachs Asset Management, said: “Recent insights reflect a subdued but resilient picture of the U. S. economy, so today’s rate hike was widely anticipated. Inflation is moving in the right direction, but progress has been uneven. A pause in rate action is appropriate, but further adjustment 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.
Month-on-month through March this year, costs increased by as much as 0. 8%, to a figure of 1. 1% recorded in both February 2023 and March last year.
According to the ONS, the largest downward contributions in today’s figure came from motor fuels, housing and family services and liquid fuels. However, these were partially offset by the increase in the burden of food (19. 2%), recreation and culture.
Grant Fitzner, lead economist at the ONS, said: “Inflation eased slightly in March but remains at a peak. The main points of the drop were fuel and fuel oil prices, which fell after sharp increases 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 house prices between owners and occupiers (CPI), rose to 8. 9% in the year to March 2023, up from 9. 2% a month earlier.
The Bank of England will thoroughly review 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 turmoil in the banking sector, the U. K. ‘s central bank raised interest rates last month for the 11th time in a row in a bid to rid the economy of persistent double-digit inflation.
Despite a recent incident, which saw UK inflation in February, the overall trajectory has been on a downward trajectory since reaching 11. 1% in October last year, but this figure remains stubbornly high.
Responding to today’s news, Jeremy Hunt, Chancellor of the Exchequer, said: “These figures reaffirm precisely why we want to continue our efforts to bring inflation down so that we can ease the pressure on families and businesses.
“We’re on the right track, and the Office for Budget Responsibility predicts we’ll partially reduce 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 inflationary challenge than Europe and the US. Price increases here are proving harder to neutralise and the Bank of England will almost charge at least a quarter of a point more increase to borrowing costs. “
Tom Hopkins, portfolio manager at BRI Wealth Management, said: “The slight monthly drop can be attributed to a year-on-year decline in energy costs and some easing of the food shortages we saw in February. This could be offset by a strong labor market, as wage expansion hasn’t slowed as much as economists had hoped.
“Today’s figure shows that the cost-of-living crisis that many Britons find themselves in is unlikely to loosen its grip on families as temporarily as expected. The British economy is not out of the woods yet. “
Alice Haine, private finance analyst at Bestinvest, said: “The slowdown in inflation will be a relief for households, giving hope that the currency crisis is really receding; A global figure of 10. 1% probably wouldn’t bring much relief for now, as costs continue to rise at rates that would have seemed normal early last year.
U. S. inflation fell to 5% in the year to March 2023, from 6% the previous month, suggesting that the country’s central bank’s competitive policy of raising interest rates has begun to affect prices, 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 Bureau added that the monthly inflation rate in March exceeded 0. 1 per cent, four times lower than the 0. 4 per cent recorded in February.
The current inflation figure is that total costs for U. S. customers have continued to fall for 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 three consecutive monthly declines.
Markets have recently speculated that the Federal Reserve wants stability in 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 rival Swiss bank UBS.
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 inflation economy into a recession 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 tensions. underlying the US economy.
“However, the Federal Reserve will be relieved to see no major negative surprises in this inflation report, which will help stabilize the situation further. “
Daniel Casali, lead investment strategist at Evelyn Partners, said: “The Fed’s current situation is that it is over-tightening 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.
Given its decision, which was in line with economists’ forecasts, the MPC – which voted 7-2 in favor of the measure – maintained its position that any further rate hikes would count on the emergence of inflation symptoms.
Today’s announcement will have a rapid effect on the finances of approximately 1. 4 million homeowners whose borrowing costs will be affected by the decision.
According to banking framework UK Finance, around 640,000 loan borrowers who benefit from tracker products, which fall based on key rates, will see their bills pile up to an average of £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 mortgage loans won’t enjoy a monthly increase in their monthly payments, but they may face more expensive mortgages once they complete existing transactions.
On the other hand, the current rise in rates may simply lead to mixed sentiments among UK savers in search of higher 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 showed that consumer costs in the UK rose by 10. 4% in the year to February 2023, an unforeseen uptick in the inflation figure after three months of falling prices.
Last night, the US Federal Reserve – the Bank of England – raised its budget target rate by a quarter point, taking it to a range from 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 US regional banks, as well as the acquisition of its Swiss subsidiary of UBS. . 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.
The U. S. Federal Reserve – where inflation has recently stood at 6% – and the Bank of England must keep 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, where committee members have to weigh the fragility of the global banking sector and the need for solutions. Inflation is back to target.
“The recent turmoil in the banking sector, which began with the collapse of Silicon Valley Bank (SVB) just a fortnight ago, has reminded central banks that things can fall apart when financial policy tightens rapidly. Even if the contagion dangers of the tech banks and Credit Suisse crisis seem to have eased for the time being, the Bank of England will have to be cautious if it decides to tighten its financial policy further from now on. “
The Bank Rate announcement is scheduled for May 11.
Last night, the US Federal Reserve raised its federal budget rate target from 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 coming out of the US, combined with strong annual inflation in the UK, from 10. 1% to 10. 4% yesterday, makes an increase of at least 0. 25% to 4. 25% almost certain.
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 can also reflect an increase, account providers have been criticized for reacting slowly 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 very 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.
The Federal Reserve and the Bank of England are mandated to keep their domestic inflation rate at 2%, with emerging interest rates being their main mechanism for achieving this. Inflation stands at 6%.
In the UK, the Office for Budget Responsibility predicted last week that inflation would fall to 2. 9% during 2023. If this figure remains stubbornly high in the coming months, it is conceivable, however, that the rate of reduction 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 puzzled analysts who had expected inflation to fall to 9. 9% after three months of declines from the peak of 11. 1% reached in November 2022, is attributed to rising costs in the restaurant, cafeteria, food and apparel 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 increased by as much as 1. 1% month-on-month, compared to a monthly increase of 0. 8% 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 CPI inflation rate came from housing and housing (mainly electricity, fuels 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 closely examine the knowledge of the ONS 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 struggled in January to find tempting deals to recoup some of the money consumers hadn’t spent on 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 U. S. Federal Reserve will announce its latest interest rate resolution today. Its current target rate is between 4. 5% and 4. 75%; An increase to 5% is possible, even if U. S. inflation is low at 6%.
The Bank of England has reacted to rival UBS’s acquisition of crisis-hit bank Credit Suisse, aiming to reassure British bank customers and money markets.
Following the announcement of the £2. 5 billion deal 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 money services clearing system.
The Bank of England also announced coordinated action with central banks in the United States, Canada, Japan, Switzerland and the eurozone to increase “liquidity” in foreign markets by giving banks more advertising in 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 status comforts that can be obtained and serves as a vital safety net to ease tensions in global investment markets, helping to mitigate the effects of those supply-side stresses. . Loans to families and businesses.
The European Central Bank (ECB) has raised interest rates by a fraction of one percentage point in a bid to tame inflation, despite fears that an increase of that magnitude could exacerbate a currency crisis after a tumultuous week in the global banking sector, writes Andrés Miguel.
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 has a mandate to keep long-term inflation at 2%, said emerging costs in the eurozone remain the biggest risk to the bloc, adding that “inflation will most likely remain too high for too long. “.
The ECB said it “closely monitors existing market tensions and is in a position to respond if necessary to maintain price stability and monetary stability in the euro area. “
Interest rates are expected next week from the US Federal Reserve and the Bank of England.
Richard Carter, head of interest rate research at Quilter Cheviot, said: “The ECB has looked at what’s happening in the banking sector and has said well that it’s comfortable with what’s happening by raising rates by a fraction of 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 criticized for being behind in the global fight against inflation, being the last of the three major central banks to start its cycle. However, such lagging progress may simply turn this lagging position into an advantage.
“Interest 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% for the year 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, scheduled for March 22, a day earlier than the Bank of England expected 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 monthly value increase, accounting for almost three-quarters of the increase. Higher prices on food, recreation and home furnishings also contributed to the increase.
The most recent data indicates that US 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 clock is ticking in small increments, commentators say U. S. inflation has remained decidedly steady, suggesting that the Federal Reserve still has a long way to go to get costs under control.
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 interest rate research at Quilter Cheviot, said: “US inflation continues to fall and suggests that the Federal Reserve’s moves are doing their job of pushing it down, pushing the economy into a 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.
“While the fallout from Silicon Valley banks is still fresh, a 25 bps rate hike turns out to be the likely peak scenario for the Fed at its next meeting. “
Oliver Rust of data aggregator Truflation said: “January’s customer value was higher than expected at 6. 4%, prompting the Fed to hint that it would increase through 50 core issues at its March 22 meeting, out of the usual 25. affairs. expected. “
“However, given the existing and sensitive scenario for U. S. banks, the Fed is now much more likely to maintain a 25 bps increase. If the central bank were to hike by 50 basis points, it would most likely be a 25 basis point increase. surprise for already nervous markets. “
Eurozone inflation fell to 8. 6% in the year to January 2023, above expectations but down from 9. 2% in the previous month, writes Andrew Michael.
Eurostat, the statistical agency of the European Union (EU), stated 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 inflation levels, four times higher than the EU’s 2% inflation target, the European Central Bank (ECB) raised its main borrowing prices by issuing 0. 5 percent across the euro from February 8.
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. “
Nearly all U. S. Federal Reserve policymakers supported the resolution to further slow the pace of interest rate hikes at the U. S. central bank’s last policy meeting, but also that containing unacceptably high levels of inflation would be the key to the extent to which interest rates can rise. Raised. We had to let it go.
According to minutes released last night from the Federal Reserve’s January rate-setting meeting, policymakers agreed that rates would rise, but that a move toward smaller increases 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.
Inflation in the UK fell to 10. 1% in the year to January 2023 from 10. 5% a month earlier, according to figures from the Office for National Statistics (ONS), writes Andrew Michael.
While stubbornly staying in double digits for the fifth month in a row, today’s announcement of a fall in customer value inflation (the third in three months) bolsters hopes that the UK has finally reached a turning point after a year dominated by skyrocketing rises. Vouchers.
The ONS said customer costs fell by 0. 1% month-on-month through January this year. The main contributor to the drop came from shipping (i. e. , the transportation of people and fuel), as well as restaurants and hotels.
The costs of alcohol and tobacco have partially offset this trend.
Grant Fitzner, lead economist at the ONS, said: “Although still at a peak level, inflation slowed in January. This is due to falling air and rail costs after last month’s sharp rise. Gas costs continue to fall and costs for restaurants, cafes and takeaways 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 showed a continuous downward trend (see article below).
Earlier this month, the Bank of England raised interest rates for the tenth time in just over a year (to 4%) as it continues its fight against double-digit inflation, which has put monetary pressure on households and businesses. Jeremy Hunt, Chancellor of the Exchequer, said: “While any fall in inflation is welcome, the fight is over. “
Rachel Winter, Partner at Killik
“While today’s figures might offer some light at the end of the tunnel, rates remain at their highest point in 40 years and many continue to face the accusation of living in crisis. People face a difficult balancing act: making sure they have sufficient liquidity during an era when we’ve narrowly avoided recession, while also making a smart investment to prevent inflation from eating away at savings.
Julia Turney, wife of Barnett Waddingham, said: “Inflation is slowing, but the war on living costs continues. After a 41-year high of 11. 1% in October, a third consecutive drop in inflation since November to 10. 1% in January suggests we are beginning a slow but steady progression towards the 2% inflation rate target. set by the Bank of England.
“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 eases. “
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 goods, compiled by the U. S. Bureau of Labor Statistics, represents the smallest 12-month increase 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 forward for the latest update, commentators say US inflation remains resolutely in check and that the Federal Reserve, the US central bank, has more to do to rein in emerging prices.
Last month, the Federal Reserve raised its benchmark interest rate through 0. 25 percentage points as part of its ongoing fight against inflation.
Following the Federal Reserve’s announcement in January, the Bank of England and the European Central Bank followed suit, raising their key interest rates by a fraction of a percentage point.
All three institutions are mandated to keep inflation at 2% over the long term.
The next UK inflation update will be released (Wednesday), while the official Eurozone figures will be released on February 23.
Commenting on today’s figures, the Bureau said housing is by far the largest contributor to the monthly increase in all items.
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 rid the UK economy of sustained double-digit inflation, writes Andrew Michael.
The Bank’s Monetary Policy Committee (MPC) raised the bank issuance rate from 0. 5 percent to 4 percent, its point in 15 years. Official data released in January showed that costs to customers rose by as much as 10. 5% in the UK over the 12 months to December 2022.
Yesterday, the United States Federal Reserve – the Bank of England – imposed an increase of 0. 25 percentage points 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 through the Bank will lead to an almost immediate increase in loan prices for around two million UK consumers of variable interest rate loans or follow-on loans.
Households with fixed-rate mortgages won’t enjoy an increase in their monthly payments, but they 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 customer value inflation remains elevated, it has most likely peaked in many complex economies, adding that the UK. He added: “Domestic inflationary pressures in the UK have been stronger than expected. The regular wage expansion of the personal sector and CPI [customer value index] inflation was particularly higher than expected in the November financial policy report.
“Given the delays in the transmission of financial policy, bank rate hikes 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 effectively 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 a further rate rise would cause problems, one in seven (15%) said they would convert their loan to interest just to cope, one in five (22%) were considering cutting their pension contributions. , while one in 30 say they would have promoted their wealth to move to a less expensive location.
Thinking about savers, Dan Howe of Janus Henderson Investors said: “The latest rate hike is likely to inspire mixed emotions among investors across the country looking for higher returns. 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 imperative for those who protect their savings from inflation and seek real-term growth. A savings account with a smart rate of return has its function, 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.
Amid inflationary pressures in the euro area, the ECB announced its target to raise loan prices through 50 additional fund issuances at its next financial policy meeting in March.
The ECB said it would then assess its policy, adding: “Keeping interest rates at restrictive degrees will reduce inflation over time by dampening demand and also opposing the threat of a persistent upward move in inflation expectations. “
The U. S. Federal Reserve (the U. S. Bank of England) raised its benchmark interest rate through 0. 25 percent issuances as part of its attempt to tame inflation, writes Andrew Michael.
The federal budget rate is now between 4. 5% and 4. 75%, a 15-year high, with the possibility of further increases in 2023.
Today’s announcement called for a more modest rate hike than the last five consecutive hikes that began last summer, of around one 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 with which economic policy affects economic activity and inflation, as well as economic developments and development. “
Countries around the world continue to struggle with inflationary pressures through a damaging cocktail of economic factors. This diversity ranges from rising energy costs, exacerbated by the war in Ukraine, to a number of supply chain bottlenecks resulting from the Covid-19 pandemic.
Tomorrow (Thursday), the Bank of England and the European Central Bank are expected to take a similar stance to the Federal Reserve when they are 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 0. 4% in December 2022, compared with a 0. 5% increase in the same month a year earlier.
He added that the largest contribution to reducing inflation came from transportation, car fuels, as well as clothing and footwear. These were offset by emergent 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.
“Prices at the pump fell especially in December, and the price of clothing also fell slightly. However, this increase was offset by increases in bus tickets, airline tickets, and hotel accommodation. Food prices continue to rise, and charges also arise 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 global supply chain bottlenecks as a result of the pandemic.
Today’s announcement may have costly consequences for mobile and broadband customers. Many service providers in this area use January’s inflation figure as the basis for their “contractual” value increases later this spring. Assuming they materialize, the value of those deals may be higher. up to 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 provide the spring budget on March 15.
Daniel Casali, lead investment strategist at Evelyn Partners, said the ONS’s findings will inspire confidence that UK inflation has peaked: “Another slowdown in annual inflation, momentum from October’s peak of 11. 1%, will add to the new sense of optimism around the world. The UK economy was boosted by last week’s oddly 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 moment, as salary agreements are negotiated in the public and personal sectors, and economic forecasts expect a deep and prolonged decline in our standards of living. The Bank of England forecasts that inflation will fall sharply from mid-year, but will not reach the 2% target for another 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 Value Index figure for all goods, compiled by the U. S. Bureau of Labor Statistics, is based on the Consumer Value Index for All Goods. The U. S. Census and released (Thursday) represents the smallest 12-month accumulation since fall 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 institution of the Bank of England, raised its reference interest rates by issuing 0. 5 percent to a variation of 4. 25% to 4. 5%, a 15-year high.
The move follows four consecutive 0. 75 percentage point rate hikes that began last summer and, according to City commentators, the Fed’s tactics appear to be paying off.
Richard Carter, head of interest rate research at Quilter Cheviot, said: “Inflation in the U. S. continues its downward trajectory to reach 6. 5% in December, a figure that will be positive for markets on hopes that the Federal Reserve will slow down its rate hikes. 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 confirmation of the downward trend in US inflation is constructive in rebuilding overall investor sentiment and confidence that the Federal Reserve has succeeded in its task so far.
“There are new reasons why the Fed’s rate hike procedure is reaching a complex level and why investors can 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 client costs cooled further in December, reinforcing the view that the Federal Reserve could slow rate hikes in the coming 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 move comes despite official figures yesterday looking like UK inflation had risen from a 41-year high of 11. 1% to 10. 7% for 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 U. S. Federal Reserve The U. S. government also imposed a 0. 5 percentage point increase in its budget rate, bringing it to a range of between 4. 25% and 4. 5% (see article below).
Both the Bank of England and the Federal Reserve are tasked with maintaining long-term inflation of 2%.
Today’s announcement by the Bank will lead to an almost immediate increase in loan prices for more than two million UK loan consumers who have taken out variable or 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 nine-member MPC committee voted 6-3 in favor of today’s decision. Of the three dissenters, two favored keeping the bank rate at 3 percent, 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 hard work market remains tight and there have been signs of inflationary pressures on domestic costs and wages that may simply imply more patience and thus warrant a more forceful economic policy response. »
Russ Mould, chief investment officer at AJ Bell, said: “While there are signs of inflation slowing, 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 investments and savings at Standard Life, said: “Our research shows that even with an interest rate of 3. 5%, higher than what can be had lately on almost all easily accessible savings accounts, a £10,000 savings will fall to around £8,680 in real terms after two years if inflation stays 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), like the Bank of England and the United States Federal Reserve, increased its main borrowing rate through percentage issues from 0. 5% – to 2. 5% – in an attempt to fight 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 Rate announcement will be published on February 2, 2023.
The U. S. Federal Reserve (the U. S. Bank of England) raised its benchmark interest rate by 0. 5 percent in an attempt to engage inflation, writes Andrew Michael.
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%.
The hike announced today through the Federal Reserve’s Federal Rate Setting Committee was widely expected. It ends a series of 4 consecutive 0. 75 percent emission increases that began this 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.
“The war waged by Russia and Ukraine is causing enormous human and economic hardship. The war and upcoming events are contributing to increasing pressure on inflation and weighing on 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 a turning point in the fight against inflation. confident in his tough stance and believes it’s working, although he possibly doesn’t need to take his foot off the gas just yet.
“Markets would conceivably think that a comfortable landing would be achieved and that a pause or return to looser financial situations would possibly return soon, but the Fed’s hawkish tone won’t end with a single piece of smart news.
“Inflation is possibly coming down, but it is 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 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 most recent figures from the Office for National Statistics (ONS) released today, writes Andrew Michael.
A drop in the Consumer Price Index (CPI) will raise hopes that a pivotal moment has been reached in a year of rising costs and ease pressure on the Bank of England ahead of its new resolution on setting interest rates 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 0. 4% in November this year, with an increase of 0. 7% in the corresponding month last year.
He added that the drop in transportation costs, especially fuel, is the main factor contributing to the drop in the latest inflation figures. But this is partially offset by the rise of costs 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, in addition to rising energy costs exacerbated by the war in Ukraine and global supply chain bottlenecks.
Tomorrow the Bank of England is expected to raise interest rates again (analysts are forecasting a half-percentage-point increase to 3. 5%) to fight rising costs amid a deepening recession.
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.
Reacting to today’s inflation figure, Jeremy Hunt, Chancellor of the Exchequer, said: “Bringing inflation down so that people’s wages rise is my most sensible priority, which is why we will keep spending power this winter at a low point, thanks to our power. “It’s worth securing the formula and putting in place a plan to halve inflation next year.
“I know it’s complicated for many right now, but it’s critical that we make the challenging decisions necessary to combat inflation, the number one enemy that impoverishes everyone. “
Some analysts estimate that if the power of government were not able to restrict 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 interest rate research at Quilter Cheviot, said: “The most recent data marks a 0. 4% drop, which is more acceptable than the huge 1% increase seen between September and October this year. While this slight reduction is a step in the right direction, the factor of emerging food costs and emerging household power expenditures remains firmly on the agenda.
“Temperatures have dropped dramatically over the past week and demand for fuel will undoubtedly increase as people are forced to heat their homes. While the drop has been fairly mild, we are only now starting to see the true impact of emerging energy bills. Even if government aid holds for now, any adjustments made after the April deadline could have a knock-on effect on inflation.
U. S. inflation slowed to 7. 1% in November of the year, from 7. 7% a month earlier, 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 annual rate of expansion of customer costs slowed more than expected last month — forecasters had expected a figure of 7. 3% — prompting the Federal Reserve, the U. S. central bank, to take note 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 level since January 2008, at the height of the global currency crisis.
The Federal Reserve’s next rate-setting resolution will be released (Wednesday, December 14). A day later, the Bank of England and the European Central Bank will separately announce their final rate-setting resolutions for 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 Inventory 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 pains of a tight financial situation will possibly soon end.
“As the war on inflation rages on, we are far from signaling victory and the Fed will maintain its hawkish stance for some time, even if it risks triggering a recession. Most likely, we will still see at least a 50 bps cut. Interest rates are rising and we can’t rule out additional moves if additional knowledge refuses to move as temporarily 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 raised three times this year. The eurozone’s deposit has recently stood at 1. 5%, after being in negative territory in August this year.
The Bank of England will announce its next resolution on the bank rate (most recently at 3%) on December 15.
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. The U. S. has also declined overall in recent months, in contrast to the U. K. , where customers have continued to increase. 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, the European Central Bank, and the U. S. Federal Reserve have a common goal of maintaining monetary stability in their respective regions. Each has a long-term inflation target of 2%.
Commenting on the falling inflation rate, David Goebel, Associate Head of Investment Strategy at Evelyn Partners, said: “This will be a welcome progression for citizens and policymakers. These most recent figures will give consumers and investors hope that the worst of this inflation episode would possibly be left in the rearview mirror. “
Inflation in the UK has accelerated to a 41-year high of 11. 1% for 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 2% in October compared to September, almost double the 1. 1% recorded 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 the increase in a variety of food products also boosted the inflation figure, which was partly offset by a decrease in fuels, in addition to a drop in the price of gasoline.
With double-digit inflation since September, an increase in the inflation rate will be a hard pill to swallow 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 a year, putting more money pressure on the two million British households with adjustable-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 return inflation to its target [of 2%] by acting responsibly with the country’s finances. This requires difficult but mandatory tax and spending decisions to balance the books.
“We can’t have long-term sustainable expansion with peak inflation. Tomorrow I will present a plan to reduce debt, stability of supply and reduce inflation, while protecting the most vulnerable.
Rachel Winter, Partner at Killik
“The pound continues its slow rally against the dollar, however, while in the US CPI inflation has slowed, the UK has not been so lucky, and the Bank of England said it is unlikely to see a significant drop in inflation in the coming months. “.
Inflation in EE. UU. se slowed to 7. 7% in October of the year, from 8. 2% in the previous month, bringing the figure to its lowest annual point since the beginning of this year, writes Andrew Michael.
The U. S. Bureau of Labor Statistics The U. S. Department of Agriculture reported that customer costs rose 0. 4% month-over-month. This has been less than expected, but likely at a fast enough pace to keep the country’s central bank on track to implement additional interest rate hikes.
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 US inflation.
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 historic increase of this magnitude.
In delivering its new hike, the Federal Reserve predicted that “continued increases” in US interest rates would mean its inflation-fighting policy would be “tight enough” to return the grades to its long-standing 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 Federal Reserve will maintain its hawkish stance for some time. “
Samuel Fuller, head of Financial Markets Online, said: “Policymakers have made their wish come true. The signs are that a series of immediate interest rate hikes would possibly, nonetheless, bring runaway inflation under control. Prices are falling faster than expected in the United States, making a 0. 75% rate hike next month incredibly 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 OAG’s nine-member committee voted 7-2 in favor of today’s decision.
Explaining the decision to raise rates, the OAG noted a “very challenging outlook for the UK economy”. The Bank of England has a mandate, set through the government, to keep long-term inflation at one point 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 continue to rise by degrees above 10% in the near term”. Consumer value 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 comes less than 24 hours after the U. S. Federal Reserve’s decision to raise interest rates (also by three-quarters of a point), its fourth hike of this magnitude in the last five months (see article below).
Last week, the European Central Bank raised interest rates in the eurozone by the same amount, an increase of this magnitude in two months.
Today’s ruling through the Bank of England will lead to a rapid rise in prices for around 2. 2 million UK loan consumers who have taken out floating rate or floating rate loans. Those who take advantage of tracking agreements, which reflect movements in the reduction rate, will revel in a notice that their payments will be affected.
Sarah Coles, senior private finance analyst at Hargreaves Lansdown, said today’s news is unlikely to trigger an overnight big bang in which rates rise significantly: “With the big banks flush with lockdown savings, they are content to continue offering depressed rates, less than part to consistent with the penny.
Jeremy Hunt, Chancellor of the Exchequer, said: “Inflation is the enemy and is weighing heavily on families, pensioners and businesses across the country. Today the Bank took action consistent with its aim to bring inflation back to its target. The most the UK can do “What the government can do now is repair stability, clean up our public finances and reduce debt so that interest rate rises 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 put more pressure on household finances, already battered by the poisonous combination of high prices, falling genuine incomes, emerging borrowing prices and the effects of a recession. Expectations of higher taxes and spending cuts loom when the chancellor unveils his November 17 budget means the blow to consumers’ wallets will continue as Britain tightens its belt to close the public finance deficit. “
The announcement of the Bank Rate will be made public on December 15.
The US Federal Reserve also attempted to curb rising levels of inflation 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 federal budget rate is now at 3. 75% to 4%, its highest point since January 2008, at the height of the global currency 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 target of 2%.
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 rising. put down roots.
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 announcement on rate setting will be on December 14.
Richard Carter, head of constant interest rate research at Quilter Cheviot, said: “There remains a lot of uncertainty about where rates will peak, and there is a genuine fear that the Federal Reserve will overtighten and push the US into a crisis situation”. The result is a painful recession.
“Today suggests that the Federal Reserve believes it still has a long way to go in its fight to control inflation, but we can expect the speed of long-term rate hikes to slow as we head into the new year. ” , which deserves to reassure investors. “
Sonia Meskin, head of U. S. macroeconomics at BNY Mellon Investment Management, said: “The real question for investors is the trajectory of policy going forward. We believe there is a 50% chance that the Fed will increase 75 fund issues in December, and a 50% chance that it will exceed 50 foundational issues.
“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 unit energy values to calculate the customer value index over the next few months, a measure that will measure the headline inflation rate, writes Jo Groves.
The decrease in unit values is a result of the government-funded energy price guarantee for domestic consumers and the energy bill relief program for non-domestic consumers.
Discounted prices for business users will be reflected in the manufacturer’s 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 cut in household energy expenditure under the Energy Bill Support Scheme (EBSS) would be seen as an increase in household income, rather than a relief from spending. Therefore, this formula does not include 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 increased its key interest rate through 0. 75 percentage issuances to curb rising levels of inflation in the eurozone, writes Andrew Michael.
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 plans to raise rates further to tame inflation. The inflation rate in the euro stood at 9. 9% in the year to September. The most recent figures for the UK and the USare 10. 1 per cent and 8. 2 per cent respectively.
All three central banks have an inflation target of 2%.
Today’s decision, which brings the deposit rate to its highest point since 2009, is widely expected by economic forecasters. This suggests that eurozone policymakers are not yet in a position to slow the speed of financial tightening, despite growing political criticism.
Georgia Meloni, Italy’s newly elected prime minister, recently said that tightening financial policy “is seen by many as a hasty 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, soaring energy and food costs, bottlenecks at sources and the necessary recovery after the pandemic have led to a widening of pressures “The policy aims to reduce demand and protect against the threat of a persistent upward trend in 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 and Europe is hit the hardest, the window of opportunity for the ECB to aggressively push its policy tightening is narrowing. Today’s resolution will most likely be the last major increase 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 adheres to the triple lock, today’s figure – which is that of all three measures – means state pensions will rise by 10. 1% from the start of the financial year next April.
However, several reports suggest that the Prime Minister and his Chancellor will not honor their commitment to use the figure of three, given the peak of inflation.
The ONS said the CPI rose 0. 5% in September from August, a larger increase from the same month than in 2021, when the index rose 0. 3%. The main drivers of the increase in value came from food, non-alcoholic beverages and transportation, the continued decline in the value of fuel contributing to the larger decline, partially offset by the rate change.
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 rise was due to further 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 hard pill to swallow for families (facing the worst cost-of-living crisis in years), both ministers and the Bank of England. It shows that price increases have not yet occurred. It peaked, even though an energy policy guarantees it will limit fuel and electricity expenses this winter.
In recent months, the UK, like many countries around the world, has felt the impact of inflation headwinds stemming from rising energy prices, the contraction of the post-pandemic global supply chain, and the war in Ukraine.
The bank, which has been tasked by the government with keeping inflation at 2%, consistently warned this summer that price increases could reach just 13% this winter and remain at higher levels in 2023, though it has since revised that 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%, after having been raised seven times in less than a year. The bank rate announcement will be made public on November 3.
Marcus Brookes, chief investment officer at Quilter Investors, said: “The decline in inflation seen in August turns out to have been a fluke, and with the changing environment we live in lately, inflation is unlikely to come down for some time yet.
“As we get closer to winter and increases in fuel are required, we’re going to start to see higher energy expenditures really come into play. While Prime Minister Liz Truss’s energy plan means they are currently capped at £2,500 [per year, for a family with average consumption], it has been very transparent that this iteration of the government [the energy value guarantee] is not going to be on the table for the promised time, which would possibly have a knock-on effect on inflation. “.
Chancellor Jeremy Hunt announced on Monday that, after running for two years from 1 October, the guarantee will only be in place until April 2003.
Samuel Tombs, Lead Economist at Pantheon Macronomics, said: “September’s 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 3 November, despite the looming recession.
“Looking ahead, we continue to expect headline CPI inflation to rise to about 11% in October, primarily due to higher energy prices for customers. “
Inflation in the United States 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-point drop is part of the figure predicted by meteorologists.
The Bureau said increases in housing, food and health care expenses during the month were partly offset by a drop in the value of gasoline. But he noted that the load of herbal fuel and electric power has increased over the same period.
On a monthly basis, the Bureau reported that customer costs increased 0. 4% between August and September, compared to a 0. 1% increase from July to August 2022.
The Bureau’s core consumption value figure for September, which excludes food and electricity, was 6. 6%, a 40-year high. This figure is higher than the 6. 5% expected, as well as the 6. 3% in August.
Today’s news will increase pressure on the Federal Reserve, the U. S. central bank, to continue its competitive financial tightening policy, adding to the increase in interest rates.
Yesterday, the Federal Reserve indicated that it was more concerned about not doing enough to prevent U. S. inflation from soaring, rather than doing too much.
The published minutes of its September 2022 meeting, at which the Federal Reserve imposed its third consecutive 0. 75 percentage point increase, showed that central bankers remained committed to “deliberately” tightening financial policy in the face of “widespread and unacceptably high inflation. “
U. S. benchmark rates have recently been between 3% and 3. 25%. The Federal Reserve’s next announcement on rate setting will be made on Nov. 2.
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 interest rate research at Quilter Cheviot, said: “Unsurprisingly, the US CPI figures. Today’s reports showed once again that inflation is slowing thanks to declining oil prices, falling to 8. 2% in the 12 months through September compared to 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 corporations cut production due to higher energy costs and a drop in customer demand.
The sector saw a 0. 1% drop in August after a 0. 3% expansion in July, while structure increased 0. 4% thanks to a 1. 9% increase in new structure projects. Infrastructure (5. 3% expansion), new personal commercial works (4. 3%) and personal housing (1. 7%) were the main contributors to the positive figure in the structures sector.
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 be firmly on the Chancellor and the Bank of England as they try to restore confidence and stabilise the government bond market.
“While inflation remains high, the bank is unlikely to see the weak GDP as an explanation for easing [interest rate] policy. The government, for its part, is obviously seeking a serious recession through a accommodative fiscal policy We look forward to hearing the main points on how this will be financed.
Chancellor Kwasi Kwarteng will announce the main points of his fiscal policy on October 31.
The Bank of England has expanded its intervention in the bond marketplace – this time to come with inflation-linked gilts – in a bid to save you a sharp sell-off in UK government debt, writes Andrew Michael.
Yesterday, the Bank said it was taking “additional steps” to bolster the emergency relief plan it introduced in September and which should end by the end of this week.
This included an increase in the duration of potential gold bond purchases from £5 billion to £10 billion.
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 takes effect without delay and will last until Friday, along with the Bank’s traditional bond-buying auctions.
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 £5bn a day, amid concerns about the effect of falling bond markets on pension funds. It 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 will regain some ground this morning after yesterday’s sharp sell-off. “
The Bank of England (BoE) has announced new measures to keep Britain’s money markets functioning, 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 concerned a transitional programme of bond purchases worth billions of pounds, was taken following the Chancellor of the Exchequer’s monetary report that caused shocks in the markets and massive pressures on the liquidity of UK pension funds.
Today, the Bank of England said it would take “additional steps” to scale up 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 sent bond costs tumbling and caused the pensions budget to force asset sales to deal with complex monetary obligations that underpin their credit value.
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. “
He added: “The maximum duration of the auction will be displayed each morning at 9am and will be set at £10 billion in today’s operation. The Bank’s existing reserve pricing mechanism will remain operational 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.
Sterling returned to its pre-mini-Budget levels against the dollar as the UK’s official forecaster revised its estimates, with the country apparently slipping 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 rise 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 a previous estimate of a fall of 0. 1%.
This hole in the gross domestic product figure – a measure of a country’s output generated through products and facilities – is small, but it makes a vital difference to its economic situation. In fact, a recession is explained as two consecutive quarters of contraction.
This revised figure means that the UK, despite its precarious scenario after a tumultuous week in the markets and in the midst of a severe life crisis resulting from runaway inflation, cannot technically yet be considered to be in recession. . The review contradicts a recent statement by 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, City forecasters say it’s a matter of “when” and not “if” the UK eventually falls 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 recommend 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 to take emergency action in bond markets today, amid market turmoil that has caused the government borrowing rate to rise sharply, writes Andrew Michael.
The Bank of England introduced a wonderful and potentially massive intervention in government bonds, also known as gilts, to end what it described as “a significant threat to monetary instability” following 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 type of promissory note that the UK government issues when it wants to borrow money. They are incredibly important to the UK monetary formula as they have an effect on lending rates. pensions and the state of public finances.
At the center of the intervention, the Bank of England, the central bank of the United Kingdom, announced plans to delay a previous program of “quantitative tightening” – which required it for bonds – and update it with a program of long-term bond purchases (these due to an adulthood by several years).
The Bank of England said it would make: “Temporary purchases of long-term British bonds from 28 September.
“The goal of those purchases will be to repair orderly market conditions. Purchases will be made at any scale 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 monetary stability reasons, at an urgent 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 a bid to put out the fire that has been burning since last week’s mini-budget, The bank came to the rescue of the 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 pushing for targeted, controlled and seemingly time-bound intervention, the Bank of England will seek to avoid a more expensive bailout for the economy if the situation continues to worsen, especially while preserving its independence. . Formation
“First of all, we want the government to regain its credibility with domestic and foreign investors and how it plans to finance those tax cuts without just going into debt. “
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 overnight trading in Asia, sterling fell to $1. 0327 on Monday morning, its lowest price against the dollar since decimalization was introduced in the UK in 1971.
The drop was due to comments from Chancellor of the Exchequer Kwasi Kwarteng, who warned that additional tax cuts would follow last week’s seismic “fiscal event”, which was a budget in all its names.
In a statement from the Bank of England, Bank of England Governor Andrew Bailey said the bank’s financial policy committee “will not hesitate to replace interest rates as mandatory in order 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 closely monitoring 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 OAG will meet in 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 challenge for the government right now is trust. It’s not that an ambitious new expansion plan may not work, it’s that they haven’t proven to 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 point increase from 1. 75% puts the bank rate at the highest point since November 2008, when it reached 3%.
However, the increase is not as steep as the dreaded 75 percentage point increase: that’s the duration of the increase implemented through the US Federal Reserve (see article below).
Five members of the Bank’s nine-member Monetary Policy Committee supported the 50 percentage point increase, and three of them advocated an increase to the U. S. one. One member voted for a 25 percentage point increase.
The new building will accommodate approximately 2. 2 million families with variable loan rates. Those who profit from tracking rates, which reflect movements in the drawdown rate across a given margin, will see a quick effect on their payouts.
For example, the building will add £62 per month to the burden of a £250,000 mortgage, or £37 per month to the burden of a £150,000 mortgage.
Homeowners paying variable rates (SVR), which average 5. 4% according to Moneycomms. co. uk, will see the increase at their lender’s discretion.
Banks and lending corporations often raise SVRs within a month of a 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, although inflation (measured through the customer value index) fell to 9. 9% in the year ending August, partly due to the decline in gasoline and diesel prices, it remains almost five times higher than the government’s target of 2%. , prompting criticism that interest rate increases are not having the desired 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 its inflation forecasts downward. He expects a high of just under 11% in October, while in August he feared inflation would exceed 13% until the end of the year.
Recent figures from the ONS also reveal that 98% of households attribute the growing burden of living to rising food prices.
The next rate resolution to be taken through the Bank’s Monetary Policy Committee will take a position on Nov. 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 size, speed and timing of any further adjustments to the bank rate will depend on the Committee’s assessment of the economic outlook and inflationary pressures. If the outlook suggests more persistent inflationary pressures, in addition to stronger demand, the Committee will respond vigorously, if 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 move, the Federal Reserve noted that recent economic signals point to a modest expansion in spending and output and that job creation has increased 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, and stressed that he remains “very attentive to inflationary risks. “
The Federal Reserve’s stated goal is to achieve a maximum employment and inflation rate of 2% over the long term, the same rate as the Bank of England announcing its most recent interest rate ruling (on Thursday).
In addition to the sharp increase in the diversity target for the federal budget rate (the current 0. 75 percentage point increase follows an increase in July (see July 27 article below)), the Federal Reserve warned that continued increases in diversity goal “to be appropriate. “
She expects rates 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, appointed Chancellor of the Exchequer of the UK, 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 an exacerbation of the cost-of-living crisis this winter – was delayed due to the death of Queen Elizabeth II.
The Chancellor’s announcement will stick to the Bank of England’s belated interest rate announcement next Thursday, when the UK central bank is expected to raise rates from their current point of 1. 75% to at least part of 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 monetary difficulties that families and businesses have been facing lately due to rising energy prices. The energy price guarantee, announced by the Prime Minister on 8 September, lacks details in several areas, particularly on how it will be applied to businesses. Kwarteng will therefore be pressed to provide more data on the government’s broader 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 be in favour of the EU-imposed cap that limits the amount bankers can earn in bonuses.
Inflation in the UK fell to 9. 9% in the year ending in August, according to the most recent figures from the Office for National Statistics (ONS), writes Andrew Michael.
A drop in the customer value index, through a 10. 1% figure recorded in the 12 months through July, was the first drop since September 2021. The trajectory echoed a figure similar to the U. S. inflation figure. It could also be just a sign that the recent increase in value 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 policy rate cut, UK inflation remains almost several times higher than the 2% government target for the Bank of England (BoE) and continues to put pressure on consumers and households already suffering from the impact of inflation. 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 contributions to inflation in August came from housing and family services, transport, food and non-alcoholic drinks.
In recent months, the UK, like many countries around the world, has felt the onslaught of inflationary headwinds from emerging energy prices, the compression of the post-pandemic global chain and the war in Ukraine.
In a bid to fight emerging prices, the Bank of England recently raised interest rates to 1. 75%, the sixth hike since the end of 2021.
Although 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 BoE make your latest announcement known.
Samuel Tombs, UK lead economist at Pantheon Macronomics, said: “The headline CPI inflation rate fell in August for the first time since last September and is now expected to fall sharply next year, partly thanks to the price cap on government power.
“Looking ahead, we expect the headline CPI inflation rate to reach around 11% in October, driven by a higher contribution from electricity and vegetable fuel prices. But we are increasingly convinced that October’s CPI inflation rate will peak and decelerate in 2023. “
Andrew Tully, chief technical officer at Canada Life, said: “Today’s inflation figures will do little to reassure families across the country who are struggling to make do with emerging costs and expenses, despite the government’s recent proposal to limit energy expenses over the next year. . . a few 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%, compared to a fixed price in July.
Following the news, the British pound fell 1% against the dollar (to a low of $1. 1578), reversing gains over the past few days that saw the British pound move 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.
Inflation in the UK is at a 40-year high of 10. 1% and the latest inflation figure will be published (Wednesday) via the Office for National Statistics. The Bank of England will announce its latest ruling on its base rate on September 22. , and the occasion was 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 in the currency bloc’s 19 members would rise from 0% to 0. 75% (its level since 2011) and warned that further hikes were on the way.
Today’s announcement follows the half-percentage-point increase in July, the first interest rate hike in more than a decade.
The ECB said: “This major milestone accelerates the transition from the current very accommodative point of policy rates to levels that will allow for an immediate return of inflation to the ECB’s medium-term target of 2%. “
Today’s resolution further aligns financial policy in the euro area with that of the Bank of England and the US Federal Reserve, which have raised interest rates several times this year.
The euro fluctuated between slight gains and losses against the dollar after the ECB’s announcement and is close to parity with the US currency lately.
Today’s interest rate hike comes despite growing fears that the eurozone could slide into a recession later this year as rising energy costs – primarily caused by Russia’s restrictions on key European fuel materials – would exert control over families and businesses in the region.
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 for the Baltic countries of Latvia, Lithuania and Estonia, the figure is more than 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 who have been financially repressed, but it would resolve 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 consistently accommodative financial policy. As the ECB prepares to raise rates further of interest in the coming months, a balance is on the horizon. “
Eurozone inflation hit an all-time high of 9. 1% in the year to August 2022, as Europe’s burden of living through the crisis deepens, writes Andrew Michael.
That’s up from 8. 9% last month, according to an estimate by Eurostat, the European Union’s statistical office. Since November 2021, this is the ninth consecutive record for consumer price increases in the single currency bloc.
The latest figure, largely due to energy costs as well as higher costs of food, alcohol and tobacco, exceeds 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, on the other hand, recorded a figure of 6. 5%, followed by Malta (7. 1%) and Finland (7. 6%). In Germany, the eurozone’s largest economy, annual inflation hit 8. 8% in August, its highest in just 50 years. 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 latter figure is the rate over nearly 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 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 yet to show signs of reversing, some of the most resilient and persistent components remain elevated. In addition, the labor market remains tight. “
Callie Cox, investment analyst at eToro, said: “It’s significant that Powell’s tone has returned to hawkish despite signs of slowing inflation. Inflation is possibly slowing, but it’s still too high for taste. of the Federal Reserve and Powell is willing to threaten further expansion and the adequacy of the labor market to bring it down.
Inflation in the UK could peak at 18. 6%, its point in just 50 years, early next year due to skyrocketing wholesale fuel prices, according to Citigroup’s most recent forecast, 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 main contributors to UK customers’ annual costs, which rose to 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, lead economist at Citi, said: “We now expect CPI inflation to peak at over 18% in January. Even with the slowdown in the economy, last week’s knowledge reaffirmed the lingering threat of an acceleration in the pass-through of headline inflation. to the national wage and to the fixed value.
If the forecast is correct, this figure would be higher than the peak inflation reached in the United Kingdom after the oil crisis of 1979, when the customer value index reached 17. 8%.
Inflation in the UK has hit a new 40-year high of 10. 1% until July 2022, according to the latest figures from the Office for National Statistics (ONS), writes Andrew Michael.
The increase in the Customer Value Index (CPI) exceeds economists’ forecasts at 9. 8% and will put further pressure on customers and families already in the grip of a cost-of-living crisis.
The sharp increase from 9. 4% 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 borne the brunt of inflationary economic hardship due to emerging energy prices, the contraction of the post-pandemic global chain, and the war in Ukraine.
Inflation in the UK is now more than five times the 2% target set by the government 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.
To try and fight emerging prices, the Bank of England recently raised interest rates to 1. 75%, the sixth increase since the end of 2021. Today’s inflation announcement could lead to higher prices. rate when you consider your next resolution in September.
Yesterday, due to peak inflation, it emerged that real wage levels in the UK fell at the fastest rate in 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 the value limits of electricity regulator Ofgem in October expected to bring the inflation rate to around 13%, UK families are facing a difficult 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 experienced a decline in its inflation rate, and the 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 through the ONS to a relief in economic activity due to Queen Elizabeth’s Platinum Jubilee celebrations: “It is critical to note that the jubilee and the move of the May bank holiday resulted in a rolling day 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 said the sector fell 0. 4% in the quarter, largely due to a “negative contribution” from human fitness and social care activities, reflecting relief in coronavirus (COVID-19)-like 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.
Regarding 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, convenient food and beverages, and restaurants and hotels. This is partially offset by higher spending on transportation, 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 ONS’s inflation announcement will be made on 17 August.
The economic contraction in the second quarter may influence the Bank, when it meets in September, to decide whether to raise its interest rate from its current rate of 1. 75 percent.
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 not help ease those pressures. By pursuing inflationary pressures, such as higher wages, the Bank risks strangling the economy without particularly mitigating the cost-of-living crisis.
“While the Bank expects 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 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 the consumer value index rose 8. 5% for the year to July 2022, up from a 40-year high of 9. 1% in the previous month.
In a drop that exceeded forecasts, the Bureau said the weaker figure was due to a drop in fuel prices, with the energy index falling 4. 6% on a monthly basis through July.
UK consumer prices rose 9. 4% in the year to June 2022, and the Bank of England recently warned that the inflation figure could reach just 13% until 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 Federal Reserve raised its benchmark interest rate by 0. 75 percentage points, to a rate between 2. 25% and 2. 5%, the second increase of this magnitude in consecutive months.
Rob Clarry, investment strategist at wealth manager Evelyn Partners, said: “The key question markets have faced over the past month is whether the Fed will deviate from its existing tightening plans. Falling commodity prices, deteriorating customer sentiment and slowing expansion would likely prompt the Federal Reserve to take its foot off the fuel at upcoming meetings.
The United Kingdom is on the brink of recession, the Bank of England warned when it raised interest rates yesterday through 0. 5 percent issues. The increase in the bank rate from 1. 25% to 1. 75% marked the largest increase in the last 27 years.
The Bank also expects the economy to start contracting in the last quarter of the year (between October and December) and continue to contract by the end of 2023.
This would be the most severe recession since the 2008 “credit crisis. ”
A recession is universally explained as two consecutive quarters of negative expansion in GDP or gross domestic product, a measure of a country’s economic output. In times of recession, the economy is struggling, other people are throwing away their jobs, businesses are making fewer sales, and the country’s overall economic output is declining.
The Bank also revised its inflation forecast above 13% until the end of the year (from 9. 4% currently) as even the most powerful prices will hit households from October, when the regulator’s new price cap comes into effect.
The increase in energy expenses is largely due to Russia’s invasion of Ukraine, which is also impacting high gas and diesel costs, as well as food prices.
Following the circular of interest rate hikes (the sixth in seven months), borrowing burdens will also increase further. Two million loan owners will be immediately affected, and millions more will have to stick around when they 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.
He explains: “The main path to inflation is to raise interest rates. Higher interest rates make borrowing more expensive and inspire others 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.
The announcement of a looming recession will come as a blow to many families already struggling with mounting cost-of-living pressures.
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 go into 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 have to be accompanied by the phenomena that most people associate with a recession, such as widespread unemployment and a significant drop in space prices. “
The Bank of England (BoE) raised its key interest 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, in explaining its resolution on today’s rate hike, the Bank of England warned that a recent surge in fuel costs meant inflation could exceed 13% by 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 creation 25 years ago.
The MPC voted overwhelmingly in favor of the half-percentage-point increase, with 8 votes in favor and one against.
The bank rate hike, the sixth announced by the Bank of England since December 2021, will have an almost immediate monetary effect on around two million British households with variable-rate mortgages, adding follow-on arrangements.
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 US central bank, to raise its benchmark target interest rate by 0. 75 percentage points to 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 at risk of falling into recession, the country is grappling with an emerging life burden while Demanding global situations like the war between Ukraine and Russia are driving food and fuel prices to sky-high levels. ”
Haine added: “The latest 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 next BoE rate-setting meeting will be announced on September 15, 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.
All three major U. S. stock indices reacted definitively to the decision. The Dow Jones Industrial Average rose more than 530 points to 32,291, while the S
In the UK, the main bank’s interest rate stands at 1. 25% (1% in June), while inflation stands at 9. 4%. The Bank of England is widely expected to raise its policy rate to 1. 75% at the next rate announcement in August. 4.
The European Central Bank (ECB) announced an interest rate hike for the first time in more than a decade, as part of a larger-than-expected move to combat inflation in the euro area. The hike 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 additional interest rate hikes at upcoming meetings, but gave no indication on how long such hikes would last.
Today’s resolution brings financial policy in the euro more closely aligned with that of the Bank of England and the U. S. Federal Reserve, which have raised interest rates several times this year.
A rate set at 0 means that neither borrowers nor establishments derive advantages from the cash deposited.
Critics have accused the ECB of falling asleep at the wheel after eurozone inflation soared to 8. 6%, more than four times the central bank’s 2% target.
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, lead investment commentator at wealth manager Charles Stanley, said: “The hawks at the ECB look difficult at the moment, however, they would arguably want to temper their rhetoric and direction to address the realities of weak public finances in the periphery, and the fact that a slowdown is already taking place.
“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 add to the pressure on already weakened family finances as they face the worst cost-of-living crisis in years.
The ONS said emerging fuel and food costs were the main participants in the latest CPI figure, offsetting downward forces in the used car and AV market.
Grant Fitzner, lead economist at the ONS, said: “Annual inflation has returned to its rate in more than 40 years. This build-up is due to rising fuel and food prices.
“The price of raw materials and products leaving factories continued to rise, driven by higher steel and food prices, 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 Bank of England has already raised its bank rate five times, to its current point of 1. 25%, since December 2021. An increase of part of one percentage point would be the largest increase in the bank rate since 1995.
Richard Carter, head of constant interest rate research at Quilter Cheviot, said: “Another month and some other rise in inflation as the relentless pressure on clients continues. This time, the UK Customer Value Index came in at 9. 4%, higher than expected. due to the continuous maximum values of energy and gas.
“The Bank of England is going to feel the heat of the last few days and will have a very difficult task ahead of it to achieve a comfortable landing for the economy. Recession fears develop throughout the day and if further excessive interest rate hikes are necessary, it could gently tilt the economy towards a contraction. “
Matt Roche, Associate Chief Investment Officer, Killik
“While it’s a smart idea to keep a reserve of coins for emergencies and plan for primary expenses well in advance, excess coins can be used more. For example, an individual inventory savings account can provide efficient long-term tax returns. With stock prices falling in 2022, global stock markets now look even more attractive to longtime savers.
Inflation in the United States 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 leap that exceeded even the boldest forecasts, the BLS announced Wednesday that customer costs hit 9. 1% last month, putting the annual inflation rate at its point since November 1981. Inflation in the UK is also at 9. 1%.
The BLS said the costs of maximum goods have risen, forcing Americans to dig deeper to pay for fuel, food, physical care and rent.
Strong inflationary headwinds are now a familiar feature of the economic environment.
Consumer costs are feeling the effects of rising energy costs and the shock in Ukraine, and are also suffering from a global chain factor 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 an absolute certainty and possibly there would even be pressure from some sectors to do more. Central banks are obviously suffering from inflation and if inflation continues to rise or hover around this level, more will need to be done to bring it down, whatever the economic consequences that 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 at which National Insurance Contributions (NIC) must be paid rises from £9,880 to £12,570, writes Andrew Michael.
The replacement announced in the Spring Statement in March.
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 led MP Rishi Sunak, then chancellor of the exchequer, to organize 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. Paying for NICs is vital because it provides Americans with the right to security. social security benefits, in addition to the state pension.
The July 6 update suggests that 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 that 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 number of tax relief and exemption thresholds will be put in place. configuration.
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 core and higher income tax thresholds from 2022 to 2026. At a time when average wages are rising, this move will attract an increasing number of other people into the tax bracket higher rate.
According to ii, until 2026, a basic rate taxpayer earning £30,000 will see their take-home pay reduced by £1816 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, private finance expert at ii, said: “The chancellor is carrying out a secret £3,631 tax raid on millions of suffering families. This will push many families to the brink as they face a crushing fiscal burden that will come on the most sensitive part 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 higher costs of food and non-alcoholic drinks (with declines in both cases a year ago) were the main contributor to the rise in the latest CPI figure.
In recent months, the UK, along with many countries around the world, has been severely impacted by inflationary economic difficulties due to rising energy prices, the post-pandemic global 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, chief economist at the ONS, said: “The price of goods leaving factories rose at its fastest rate in forty-five years, driven by widespread food prices, while the price of raw materials rose at its fastest speed 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 to cut budgets now to cut expenses for those who need to end the year with their bank balance still in the dark, as runaway inflation means their salaries simply don’t make it that far. »
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) today raised its official interest rate from 1% to 1. 25%, in a bid to curb 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%.
A bank rate hike in the UK can prove costly for families, already reeling from the falling cost of living, who have variable or variable rate mortgages. That’s because lenders tend to accumulate required payments on home 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 U. S. Federal Reserve raised its interest rate cap from 1% to 1. 75% in an effort to combat the highest inflation rate the country has experienced 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 lately stands at 8. 6%. Today’s rate hike is a sign of a competitive stance from the Federal Reserve on financial tightening in an effort to combat rising 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.
“The Russian invasion of Ukraine is causing enormous human and economic hardship. The invasion and the events that followed are creating further upward pressure on inflation and weighing on economic activity. “
Today’s announcement through the Federal Reserve is the latest in a series of attempts by central banks around the world to combat inflationary headwinds being felt in many countries.
Global inflationary pressures are being exacerbated through 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 be costly for households with variable and tracker mortgages, as lenders have a tendency to stack up payments to reflect their own higher borrowing costs.
On the other hand, savers would benefit from any additional accumulation if they deposited their cash in floating-rate accounts, assuming their provider decided to pass on any accumulation to its customers.
In the United Kingdom, peak inflation is partly to blame for a cost-of-living crisis that has reduced the incomes of families left poorer after a series of tax increases that came into effect in April 2022. Laith Khalaf, chief investment officer Research by online broker AJ Bell said: “The global economy may be slowing, but central banks in the evolved world face an existential question of credibility. If they fail to act in the face of such rampant inflation, they undermine their very reason for being. , but by aggressively raising rates, they are putting pressure on economic activity. “
More than three-quarters of British adults feel “very” or “somewhat” worried about the emerging cost of living, according to 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, other seniors aged 30 to 49, other people with disabilities, and those living with dependent children aged 0-4 years.
While degrees of worry affect all income source groups, those earning less than £10,000 a year make up the largest proportion of those who are “very worried” (31%), compared to just 12% of those earning £50,000 or more a year.
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 based on this.
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 US inflation figures which revealed that customer costs rose to 8. 6% in May of the year, according to the US Bureau of Labor Statistics (BLS) Array, marking a new maximum of 40 years.
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 through the Office for National Statistics showed that the UK economy, measured through its GDP (gross domestic product), contracted by 0. 3% in April, due to declines in the services, production and structure sectors. A month of economic contraction, following a 0. 1% contraction in March, fueled 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 inflation headwinds have been a mainstay of the global economic environment for the past nine months. Consumption costs are not only feeling the effects of rising energy costs and the ongoing conflict in Ukraine, but they are also suffering from a global source chain factor as the global economy emerges. of 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 benchmark rate by a fraction of a percentage point, to 1%, the first 50 basis points accumulated in more than 20 years. Today’s inflation reading could lead to a rate hike of 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 make sure inflation expectations don’t become entrenched, but it will most likely continue to tighten its policy amid a slowing economy. “The “soft” landing they expect still looks like a lot of demand.
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 of the 19-member currency bloc would be raised to 0. 25% in July, with the option of a further (and larger) increase already planned 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 staying asleep at the wheel after inflation soared to 8. 1% in the euro area, 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 governments in the world to continue to apply negative rates.
Hinesh Patel, portfolio manager at Quilter Investors, said: “The ECB has already tightened policy a lot and to some extent is still holding firm, even if it turns out to be coming to an end.
“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 cost of budget food rose by between 6% and 7% in the year to April. This compares with an inflation rate of 6. 7% for broader “food and non-alcoholic beverages” that followed 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 French fries have increased by 15 to 17 percent, while cheese, sausage, pizza, and French fries have decreased by up to 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 threaten to lead to further increases in the price of commodities 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.
Inflation in the UK rose to 9% in April 2022, up from 7% last month, pushing the figure to its highest point in 40 years, with consumer prices feeling the impact of rising prices. Energy prices and the effect 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) expect the situation to worsen, with a genuine source of disposable income set to fall by 2. 4% this year. This would result in 250,000 more families being distressed by 2023, bringing the total number of UK families falling into the excessive poverty category to 1 million.
“Misery” is explained as when a family group of four has £140 a week or less to live on after housing costs.
NIESR also warned that emerging and expanding taxes are putting pressure on household budgets, regardless of the economic divide. 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, private finance analyst at Bestinvest, said: “It is imperative to take constructive action now on spending as the outlook darkens from here.
“The strategy is to slash family budgets, but it can only go so far if other people have already eliminated all luxuries like dining out, going on vacation and buying 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%.
In fact, the ONS – which registers the customer’s knowledge of the value – calculates its figures from a virtual basket of 700 pieces made up of parts such as milk and bread, to others such as a plane ticket 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 rises in the last six months. The latest quarter-point rise 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 fixed-rate products soar around or above the 2% mark.
However, banks and construction companies have historically been slow to pass on news about emerging rates to savers. Moreover, even with the rise of interest rates, their effect is overshadowed by the recent incredibly high spike in inflation, which generates a veritable negative rate of return on 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 4 in 5 savers who have languished in easy-to-access bank accounts – paying 0. 1% or less – now is the time to act.
“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 that you may not need for five years or more, it’s worth considering whether the extra cash might be more useful for your investments: “It’s going to go up and down in the short term, but after five years. ” In 10 years or more, they have a much better chance of beating inflation than liquid savings,” he said.
Unlike the United States, which recently experienced a slight reversal in its inflation figures (see article below), inflation in the United Kingdom continues like this for the time being, fueling new fears about cost-of-living issues through 2022 and beyond.
The Bank of England has suggested that inflation could peak at 10% later this year when the energy price 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 out of control. “alcanzar. 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-time tax on oil and fuel companies, which have seen their profits rise thanks to rising fuel costs over the past year.
Earlier this week, Rishi Sunak, the Chancellor of the Exchequer, stepped up his warnings to the oil and fuel industry that unless corporations soon announce an increase in their investment plans for the UK, they could face a potential providential 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, only 8% of respondents said they thought their monetary scenario would worsen due to inflation.
“The emerging life burden also has a negative effect on our intellectual fitness. Three-quarters (74%) of adults say their intellectual fitness has been negatively impacted in the past two years and of those, the “emerging burden of life” (28%), largely followed by “Covid restrictions” (27%). were the main causes.
U. S. inflation slowed in April, even as costs continued to rise near their highest point in 40 years, according to the most recent figures from the U. S. 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 that costs rose 0. 3% in April, a slower rate than the 1. 2% increase recorded in March. The BLS says the top 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 pressure the US 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, the Reserve Bank of India and the Reserve Bank of Australia, have raised interest rates in a bid to tackle inflationary headwinds. that are felt in many countries around the world.
The fall in the US CPI may be welcomed by the markets, as investors begin to hope that the inflation peak has already passed.
However, the figures are even worse than expected and it is too early for commentators to celebrate, as inflation will most likely remain high for some time, exacerbated by the current energy market crisis and the ongoing 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, 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. They will most likely continue to tighten policy in the face of slowing inflation. economy. . The “soft” touchdown you expect 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% and City forecasters are widely forecasting a 25 bps increase. The last time UK interest rates were 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 increase can be costly for families with variable rate mortgages or 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 resolution by policymakers at the Bank of England brings even more pain to families suffering the burden of living through the crisis. The global nature of the factors driving inflation means that this build-up of up to 1% is highly unlikely to lead to a precipitous fall in inflation, but what it will do is add to the distress of those who have already been forced into debt just to pay off their debts. Tickets. Array”
The announcement of the Bank Rate will be made public on June 16.
The U. S. Federal Reserve raised its interest rate cap from 0. 5% to 1% in a bid 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 it expects “continued increases in target diversity to be appropriate,” paving the way for possible additional half-percentage-point increases 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 a desire to act aggressively and quickly.
Today’s announcement by the Federal Reserve is the latest in a series of attempts by central banks around the world to combat 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 through the war in Ukraine. Inflation has also been driven by factors such as skyrocketing energy prices, as well as the awakening of global economies that were dormant after the pandemic.
Both the Federal Reserve and the Bank of England, the UK’s central bank, have a 2% inflation target. The inflation rate in the UK has lately stood at 7%.
Tomorrow (Thursday), the Bank is expected to announce a UK bank rate hike. It has recently stood at 0. 75% after being the subject of three rate hikes since December last year.
If confirmed, an increase in the UK bank rate could prove costly for families with variable mortgages and lagging behind, as lenders tend to accumulate payments to reflect emerging 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 life crisis that has squeezed the incomes of families who have found themselves 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 to 99,211 year-on-year, from 306,558 to 207,347, a drop of almost a third. The 2021 figure was already relatively low due to the effect of the pandemic and related lockdowns.
The Society of Engine Manufacturers
In March, production fell by more than a third, -33. 4% year-on-year, with 76,900 units manufactured compared to 115,498 in the same month last year. The drop resulted in the weakest March since the 2009 currency crisis, when 62,000 cars were made. 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 have to charge low-load, low-carbon energy. 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 sector.
“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, managing director of car shop Automobilewow, said: “Demand for new cars remains strong and in many cases customers are willing to wait. We don’t yet see that declining customer confidence is having an effect on order requests. “for new cars.
“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 rate of “around 6%” predicted by the Bank of England in its latest bank. Assembly to set rates in March.
The rate has recently stood at 0. 75%. Today’s inflation figure will put more pressure on the Bank of England’s financial 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 risen. “
Paul Craig, portfolio manager at Quilter Investors, said: “Last month’s spring statement did little to allay the fears of those already feeling monetary hardship, and the arrival of the new cap on energy costs and increases in the national insurance have increased the pressure even further. .
“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 is due to the 54% accumulation of the energy value cap and recovery of the VAT rate for the hotel sector up to 20%.
“This is the summit. But since the war in Ukraine could help keep food and oil prices at high levels for an extended period, and with a further increase in the energy price cap scheduled for October, inflation will take time to come down. For 2022 as a whole, we expect CPI inflation to average close to 7%.
Expanding the value of U. S. customersThe U. S. inflation rate rose 8. 5% in the year to March 2022, beating Wall Street’s expectations and pushing the country’s inflation rate to its level for 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 U. S. president, banned all oil and fuel imports from Russia in the wake of the conflict in Ukraine that began in late February.
Commentators have warned that the latest figure would put further pressure on the U. S. Federal Reserve to accelerate the speed of interest rate hikes it announces in an effort to tame inflation.
Last month, the Federal Reserve raised interest rates from 0. 25% to 0. 5%, its first hike in four years. Like central banks, such as the Bank of England, the Federal Reserve has an inflation target of 2%. The Federal Reserve’s next rate-setting meeting will take a position on May 3-4.
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 rates, will next meet in early May and its resolution will be made public on May 5.
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, up from 6. 07% in February 2022. Consumer costs in Turkey in the year to March 2022 reached 61%, an increase of seven percentage points from last month.
Hinesh Patel, portfolio manager at Quilter Investors, said: “The Federal Reserve will feel emboldened today to continue its competitive interest rate hikes as it tries to combat inflation. As the costs of used cars and other non-essential parts have to skyrocket, today’s headline figures illustrate just how much this surprise is similar to energy.
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. “
Typical household energy costs could reach around £2,500 until autumn this year, according to an influential forecasting group.
The EY Item Club (EYIC) says emerging energy and commodity prices, partly caused by the Ukraine conflict, will have a severe impact on households and reduce economic activity in the UK.
It says emerging costs will add to UK inflation already at “significant” levels, predicting inflation will hit a 40-year high of 8. 5% next month and predicting costs will rise by 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 reduction in income was taking place: “Consumer spending is a key component of the UK economy, and the exit from 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 UK inflation will peak at 8. 7% by the end of this year, with emerging inflation further exacerbated by Russia’s ongoing invasion of Ukraine.
Inflation in the United Kingdom, measured through the Consumer Price Index (CPI), reached a 30-year high of 6. 2% until 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 expects inflation to rise above profit 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 in taxes across the economy from next month.
As a result, the OBR predicts that inflation-adjusted after-tax household income would fall to as much as 2. 2% in the 2022/23 fiscal year, the biggest drop recorded 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 serious cost of living crisis when he delivers his spring lunchtime statement.
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 as he delivers his spring statement and announces the steps the government will take to tackle the ongoing cost-of-living crisis.
“This morning’s inflation data shows how dire the situation is and it is clear that the government wants to act to save many more people from falling into monetary hardship while their wages are temporarily absorbed. “
Dan Boardman-Weston, CIO of 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 pushing it toward 10% or higher.
The Bank of England raised its bank interest rate to 0. 75%, an increase of 0. 25 percentage points. The move follows a hike by the US 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.
Before the conflict, the Bank of England had announced that inflation would exceed 7% this spring. Some forecasters consider a rate above 8% possible, thanks in large part to the 54% increase in household energy bills, but the most pessimistic are expecting 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 increased its bank rate3 since December 2021, and there will be more hikes to come.
This will be bad news for those with adjustable-rate and follow-on mortgages, whose payments will likely pile up to reflect the higher burden of borrowing. Homeowners with fixed-rate agreements will likely have to pay more at the end of their term. And you’ll want to locate the 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 U. S. Federal Reserve raised interest rates from 0. 25% to 0. 5% in a bid to counter the highest inflation rates in 40 years. This is the first interest rate hike in the United States since 2018.
The country’s Customer Value Index increased by 7. 9% in February; this figure does not take into account the new inflationary pressures resulting from the confrontation in Ukraine and the economic sanctions imposed on Russia (see article below).
The Federal Reserve has an inflation target of 2%. Raising interest rates aims to cool the economy by reducing the availability of “cheap” money. Further rate hikes are possible in the coming months; in the words of the Federal Reserve: “. . . It will be appropriate to continue to increase the diversity of objectives. “
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 agreement.
There has been a hypothesis that the bank rate could double to 1% given the emerging inflationary pressures in the economy. The Bank of England has already admitted that inflation will exceed 7% this spring, once again, this forecast was made before the Ukraine crisis. Some commentators have warned that inflation could reach double digits in the coming 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 goods and facilities values for its customer price indices. It updates its basket annually “to avoid possible biases that could develop otherwise, for example due to the progression of completely new goods and facilities. “Assistance in ensuring that the indices reflect long-term trends in customer habits.
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 removed from the list include men’s suits, charcoal, donuts and paper reference books.
Not all of the adjustments can be attributed to the pandemic. For example, meatless sausages have been added to expand the diversity of “free-from” products in the basket, reflecting the expansion of 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 being made to the basket in reaction to broader adjustments in society. For example, the sale of domestic coal will be banned in 2023 due to the government’s 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. .
He says that in some cases, pieces are being removed to reflect a reduction in spending, such as donuts: “Research and anecdotal evidence from stores have indicated that sales have fallen, possibly due to the increase in the number of people fleeing home.
“Most of the individual cakes, which is what the doughnuts represent, are in multiple packets, and in the basket there is a separate multiple cake.
The U. S. Customer Value IndexIt rose 7. 9% in the year to February 2022, pushing the country’s inflation rate to its point since January 1982.
The increase, reported today through the U. S. Bureau of Labor Statistics, is expected to increase the number of people in the U. S. The U. S. government’s decision was due to higher gas, food and housing costs, but it did not account for the peak of the increase in energy costs caused by Russia’s invasion of Ukraine on Feb. 24.
Before the latest inflation news, the US Federal Reserve was already under a lot of pressure to reduce inflation by raising interest rates when it meets 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 winds affecting all primary economies, the Bank of England (BoE) raised its key interest rate from 0. 25% to 0. 5%. This is the momentum that is accumulating in the space of three months, following an increase from 0. 1% to 0. 25% in December 2021.
The Bank of England’s financial policy committee will also meet next week to determine whether further financial tightening is necessary as UK families continue to grapple with a cost-of-living crisis brought on by runaway inflation exacerbated by relentlessly emerging energy prices.
Any bank rate in the UK would inevitably result in higher interest rates for borrowers, i. e. those with mortgages.
Richard Carter, head of steady interest rate research 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. Prices last accelerated so much 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 easing thereafter.
The ONS said clothing, footwear, emerging costs of household items and rentals helped drive up costs last month. But he adds that the increase in January was partially offset by the drop in costs at the pump, after the records 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. Along with the increase in the national electricity cap to 54% in April, this is the explanation for the Bank’s gloomy short-term forecast.
Grant Fitzner, chief economist at the ONS, said last month saw classic price falls in some sectors, but that “this is the smallest January drop since 1990, with fewer sales than last year. “
The latest ONS announcement 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 lately stands at 0. 5%.
Jason Hollands of investment platform Bestinvest said: “Significant further increases in inflation are almost looming, partly due to the lifting of the cap on energy bills. As such, the screws will continue to tighten in the coming months, with the Bank forecasting inflation to reach 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 Price Index, jumped to 5. 4% in the 12 months to December 2021, its point in 30 years, according to the most recent 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, inflation in the UK has soared in recent months (November’s CPI figure hit 5. 1%), leaving UK families facing risk of a deepening cost of living crisis. 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 problems. These include the emerging costs of food, restaurant bills, hotel rates, furniture, household items, 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 justified its decision to raise rates in December amid Omicron uncertainty, but may still approve it either way when its Monetary Policy Committee [MPC] meets. in 2017. early February.
“MPC will face a difficult trade-off between ensuring financial stability or helping families cope with a burden of crisis that risks straining their finances during a tough winter season. “
In addition to an increase in national insurance contributions in April and a lasting freeze on private tax breaks, which will push many wage earners into higher tax brackets, families face the prospect of a massive increase in their energy bills due to a building. 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 2022-23, 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 to meet future disability needs and allowances for carers will also be increased at the same rate of 3. 1 per cent.
Other bills expected to accumulate include the Universal Credit, Personal Independence Payments, Child Benefit, Unemployment 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 is well above the City’s forecast of 4. 7% and is now more than double the Bank of England’s 2% target, set through the government. The sharp increase from October to November may contribute to a possible interest rate hike when the U. K. central bank will release its final resolution of the year on the issue 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 fuel prices had risen significantly, “pushing average gasoline prices to levels higher than previously observed. “Other points contributing to this scenario are the growing burden of clothing, as well as the emerging burdens of food, used cars, and higher taxes on tobacco.
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, which showed customer prices in November rose at the fastest rate in almost 40 years.
Last week, the U. S. Bureau of Labor Statisticsannounced that its Customer Value Index increased by 6. 8% in the year to November. The last time this number rose that much was in 1982.
The Bank of England has warned that inflation could “comfortably exceed 5%” in the coming months when energy regulator Ofgem implements its energy price cap in April 2022, increasing the rate of energy expenditure for millions of UK households.
The limit is in the average costs observed in wholesale energy markets; The applicable era for the next adjustment in April is 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 existing price cap, which came into force on October 1, is set at a record £1,277 a year, or £1,309 for a prepaid meter price cap. The limit applies to families with a variable tariff (SVT) that consume an average amount of energy. This is the unit of energy, which means that depending on the amount of energy used, some families will pay less or more.
Inflation is already high, with an annual expansion of 4. 2% in October, as measured by the Consumer Price Index (CPI). That’s up from 3. 1% in September and more than double the government’s target of 2%.
The inflation announcement will come on December 15.
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%.
This figure is more than double the 2% target set through the Bank of England and set through the government. This is fueling expectations that the Bank will raise its key interest rate in December in a bid to cool the economy, a move that in most cases is likely to cause a drop in lending rates.
The current rate of 0. 1% was expected to rise earlier this month, but the Bank did not trigger at its Nov. 4 meeting.
The rise in living standards is attributed to the increase in the national energy price cap on October 1, emerging values at the pump and inflationary pressures across the economy as businesses struggle with emerging raw curtain costs. .
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 cautions against a knee-jerk reaction: “Nothing we’re seeing leads us to think that this inflation is permanent, and as we get closer to spring next year, the numbers will start 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 eagerly 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 deserves to be placed 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 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.
He added that restaurants and hotels have helped bring down the rate of inflation. In fact, costs have risen less this summer than at the same time last year, when the government’s Eat Out To Help Out program was in effect.
Despite the monthly drop in the inflation rate, the point remains 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 September’s drop in inflation is only a passing problem and further increases are expected in the coming months. In fact, the most recent figures still do not take into account the recent rise in energy prices or the fuel pump crisis of a few weeks ago.
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 3. 1% inflation will be used to increase the state pension next year.
This means that from April 2022, a pensioner receiving a full state pension can expect an increase from £179. 60 per week to £185. 15. For those receiving the basic state pension, the current figure of £137. 60 will increase 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’s inflation rate rose sharply last month, according to the most recent figures from the Office for 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 were reduced due to the government’s transitory “Eat Out to Help” reaction to the pandemic.
Used car prices also contributed to the increase. Demand is strong due to a relief in the supply of new models, which is attributed to a shortage of PC chips used in their manufacture.
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.
Approximately 15 million families will be affected by the cap increases. Ofgem recommends that those with default tariffs replace their electricity tariff to find a less expensive alternative. Prepaid consumers can also save money by switching.
Next month’s data, which covers September’s inflation figures, will pinpoint the point at which the state pension will be highest from April 2022 under the government’s new “double lock” of transitoriness.
The UK’s inflation rate slowed last month, according to the latest 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 fell in July across a wide range of goods and services, adding clothing, which fell 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 decline in the headline inflation rate may only be temporary. The Bank of England forecasts that customer value expansion could reach 3% this month and peak at around 4% later in the fall.
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%.
“Repairing your savings for 12 months will allow you to earn up to 1. 3%, especially by reducing the damage caused by inflation,” he added.