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Today’s U. S. inflation figures show that costs rose at a headline rate of 3. 2% for the year to February, up from the 3. 1% annual increase recorded in January, while month-over-month the increase was 0. 4%, up from 0. 3%.
The annual base rate, which excludes notoriously volatile food and energy prices, fell from 3. 9% to 3. 8%, while the monthly base rate remained unchanged at 0. 4%.
Inflation figures in national economies are used through central banks such as the U. S. Federal Reserve (Fed) and the Bank of England for interest rate policy.
The modest rise in the US policy ratedeserves to dissuade the Federal Reserve from cutting rates before June at the earliest: they have been oscillating between 5. 25% and 5. 5% lately. Previously, commentators thought that an interest rate cut might have been on the way. cards this month (the Federal Reserve’s next announcement is expected on Wednesday, March 20).
In the UK, the latest inflation rate announcement from the Office for National Statistics will be published on Wednesday next week, with the Bank of England’s latest ruling on its bank rate expected the following day.
Inflation in the UK lately is 4% consistent with the year, with a bank rate of 5. 25% unchanged from last August. The bank rate is expected to cut this month, especially considering today’s US figures.
That said, in his budget speech last week, Chancellor Jeremy Hunt said he expects UK inflation to fall to the Bank of England’s 2% target “in the coming months”, which would mean a further cut in the bank rate to some level. summer.
If lenders convince themselves that the rate of reduction will be reduced, we will most likely see relief in the cost of borrowing for homebuyers, and there will likely be relief in interest rates paid to savers as well.
Inflation in the UK is 4% in the year to January, unchanged from December 2023, writes Andrew Michael.
While this figure is below market expectations for a 4. 2% increase, it reduces the likelihood of an interest rate cut via the Bank of England before the summer.
Today’s consumer price index (CPI) from the Office for National Statistics shows that it fell by 0. 6% in January, the same rate as in January 2023.
Core CPI, which excludes volatile data on energy, food, alcohol and tobacco, rose 5. 1% in the year to January 2024, up from 5. 2% in the previous month.
The CPI adding owner-occupied prices (CPIH) increased 4. 2% year-over-year through January 2024, the same speed as the previous month. On a monthly basis, the CPIH decreased by 0. 4% in January, the same rate as in January last year.
The ONS said the largest contribution to the monthly update of CPI and HPI rates came from housing and household services, mainly through higher price lists for fuel and electricity (the energy price cap increased by 5% on 1 January). via price reductions for furniture and household items, food and non-alcoholic beverages.
Grant Fitzner, lead economist at the ONS, said: “Inflation was unchanged in January, reflecting adverse effects within the basket of goods and services.
“The price of fuel and electric power has increased at a higher rate than in the same period last year due to the increase in the energy price cap, while the price of used vehicles has increased for the first time since May.
“To compensate for this, furniture and family parts costs fell more than a year ago and food costs fell this month for the first time in more than two years. All of those points combined resulted in any replacement in the overall rate.
The Bank of England, which the government is requiring to keep the UK’s long-term inflation at 2%, has kept interest rates at a 15-year high of 5. 25% since August 2023.
Earlier this month, the Bank’s Monetary Policy Committee maintained a cautious tone, saying it needed more evidence that inflationary pressures had eased before bringing down borrowing costs. The next announcement on the bank rate will be made on March 21.
Neil Birrell, chief investment officer at Premier Miton Investors, said: “Unlike in the US [see story below], inflation in the UK was somewhat higher than expected in January. This will be perceived as good news by those looking to cut rates. sooner rather than later, as it reinforces the concept that inflation is returning to its target.
“However, it is still necessary for the Bank of England to make decisions that would jeopardise the return to its target. “
Alice Haine, private finance analyst at Bestinvest, said: “In 2024, many families will feel financially pressured, with pandemic-related savings depleted and a particularly higher standard of living than a few years ago.
“Once again, the dubious economic climate indicates that spending will have to remain restrained and the emergency budget will need to be replenished to ensure households from any additional monetary shocks. “
Headline inflation in the United States fell to 3. 1% in the year to January 2024 (a smaller-than-expected decline), reducing the chances of loan price relief on the other side of the Atlantic, writes Andrew Michael.
UK inflation figures for January will be released (Wednesday). The figure for the year to December was 4%.
Official figures released today by the U. S. Bureau of Labor Statistics show that the U. S. Department of Labor is still in the U. S. U. S. data shows that its Customer Value Index (CPI) for all urban customers rose 0. 3% in January, up from a 0. 2 percentage point increase in December 2023.
Explaining the data, the Bureau said housing (rent) costs continued to rise in January, contributing more than two-thirds to the monthly increase in all parties. Food costs also rose last month, the overall effect of either side being offset by a drop in energy costs caused by a drop in fuel costs in January.
According to the Bureau, core CPI, which excludes volatile food and energy prices, rose 0. 4% in January, up from a 0. 3 percentage point increase a month earlier.
The Bureau added that in the year to January this year, the core CPI, which is a reliable indicator of long-term inflation trends, rose to 3. 9 percent, the same point that was announced a month earlier. Market watchers were expecting a core CPI figure of 3. 8% and a headline CPI figure of 2. 9%.
The U. S. Federal Reserve, like its British Bank of England, must keep inflation at 2% in the medium to long term. Last month, it left loan prices unchanged at a 23-year high ranging from 5. 25% to 5. 5%. %.
Economists and investors are waiting to see how soon it will take the Federal Reserve, which is to blame for the borrowing prices of the world’s largest economy, to start cutting interest rates.
After ending an era of sustained inflation through competitive financial policy over the past two years, interest rates were expected to start falling this spring, presaging a series of quarter-percentage-point cuts for the rest of 2024.
But with inflation still well above target, coupled with resilient economic data since the beginning of the year (in the US labor market, for example), the counterargument has been that premature easing of borrowing rates would exacerbate the possibility of additional inflationary pressures. more in the future.
The Federal Reserve’s next announcement is scheduled for March 20, and the Bank of England’s next call the next day.
Michele Morra, portfolio manager at Moneyfarm, said: “US CPI was much stronger than expected, which comes as a big blow to investors expecting a rate cut in the spring. The increase in core CPI will be a headache for the Federal Reserve, especially since the data showed a monthly increase of 0. 4%, which is the largest increase since May 2023.
“We can expect the Fed to emphasize the desire to exercise caution and make data-driven decisions to determine the timing and magnitude of any long-term policy action. This technique would reflect a balance between the desire to address disinflationary pressures, while ensuring that policy moves are well-calibrated with the Fed’s dual mandate of maximum employment and sound prices.
Neil Birrell, chief investment officer at Premier Miton Investors, said: “We have way beyond the genuine inflation rate and are now focusing on the disinflation point in goods and services, but it looks like everything is moving faster than expected.
“The Fed will feel justified by the language it has used about rate cuts, because there is no doubt that they are being taken even further. We’re still out of danger, but we’re still out of danger. “
As expected, the Bank of England kept its bank interest rate at 5. 25% for the fourth time in a row, leaving it unchanged since August of the year, writes Andrew Michael.
The Bank’s Monetary Policy Committee voted six to three in favor of keeping the bank rate at its highest point in 16 years. Of the three “no” votes cast, two were in favor of raising the bank rate to five, five consistent with the penny, while one was in favor of lowering loan prices to five percent.
Today’s announcement aligns with recent decisions by central banks such as the U. S. Federal Reserve and the European Central Bank (see articles below).
The announcement means that millions of borrowers who benefit from variable-rate and follow-on mortgages and loans are not expected to see any direct effect on their payments, although lenders are free to raise variable rates if they wish.
New borrowers and those who are nearing the end of consistent deals and want to remortgage this year (over one million borrowers) will be watching to see how the finalists react to today’s announcement.
Today’s news also means that savers can get a “genuine” return on money held in bank accounts and loan companies, as long as they look for the deals. A genuine return is achieved when the interest paid from a savings account or bond is higher than the current inflation rate, which is currently 4%.
Higher-paying fixed-rate bonds pay more than 5%, according to our savings spouse Raisin, and more than 40 such accounts pay more than 4%. However, the cash will have to be locked for periods ranging from six months to qualifying for such a fee.
Explaining its ruling, the Bank of England said that since its last rate-setting ruling in December, the global economic expansion had remained “subdued,” although it acknowledged that activity “remains strongest in the United States. “
The Bank added that while wholesale energy costs have fallen significantly, “significant dangers similar to developments in the Middle East and the disruption of shipping through the Red Sea persist. “
Like other central banks, the Bank of England must keep inflation at 2% over the medium to long term.
In a bid to avoid the surge in inflation levels that plagued the UK economy in 2022 and much of last year, the Bank raised loan prices 14 times in a row between December 2021 and August 2023, in the most competitive financial tightening since the 1980s.
In financial markets, the Bank will cut loan prices in quarter-percentage-point increments, four to five times this year, starting in June.
The OAG’s rate-setting resolution will take its position on March 21.
Rob Morgan, chief investment analyst at Charles Stanley, said: “Although inflationary pressures are showing clear signs of easing, the Bank remains willing to hold firm and leave rates in restrictive territory, while being more confident that price increases will be absolutely defeated.
“Central banks on both sides of the Atlantic are, slowly but actually, putting the inflation genie back in the bottle. After an era of restrictive interest rates to extinguish the flames of emerging prices, inflation is melting and 2024 is the year of the “pivot. “” where they can focus on when to cut them instead of worrying about whether they could increase them further.
“This is easier said than done, as financial policy acts with an unpredictable lag, which presents a double-edged risk: cut rates too soon and inflation may simply return, but cut it too late and the economic damage may simply get worse.
Dean Butler, managing director of direct retail at Standard Life, said: “Interest rates are still unlikely to fall near or below inflation this year, meaning that other people expanding their savings may be placed in an ideal scenario through 2024 with returns above inflation. “. Prices are going up.
“The highest-paying easy-to-access savings accounts are lately offering rates of around 5%; A £10,000 savings fund in an account with the best value may be worth £10,588 in real terms after two years. “
The U. S. Federal Reserve today kept borrowing prices at their highest level in 23 years, as the strong expansion of the domestic economy reinforces policymakers’ view that they should wait before cutting interest rates, writes Andrew Michael.
The Federal Open Market Committee (FOMC) announced that the Fed’s benchmark target interest rates remain at a range of 5. 25% to 5. 5%.
The Bank of England’s ruling on the bank rate will remain in place until tomorrow, when commentators expect the rate to remain at 5. 25%, where it has been since August last year.
Explaining the decision, the FOMC, whose members voted unanimously to keep rates at current levels, said: “Recent signs that economic activity has expanded at a steady pace. Job creation has slowed since the beginning of last year but remains strong, and the unemployment rate has remained low. Inflation has declined over the past year but remains high.
“The Committee considers that the dangers to its employment and inflation targets are increasingly balanced.
However, the Committee cautioned that: “The economic outlook is and the Committee remains very attentive to inflation risks.
“The Committee does not believe that it is appropriate to reduce the diversity of targets until it has gained greater confidence that inflation is moving sustainably towards 2 percent. “
Earlier this month, official figures indicated that annual headline inflation in the United States rose more than expected in December 2023 to 3. 4%, up from 3. 1% in November.
Like other primary central banks around the world, such as the Bank of England and the European Central Bank (ECB), the Federal Reserve must keep inflation at 2% over the medium to long term. To achieve this, the main tool for central banks must have is the ability to raise and lower borrowing costs.
In 2022 and last year, central banks embarked on competitive rounds of interest rate hikes to skyrocketing inflation levels caused by a toxic mix of economic conditions, coupled with Russia’s invasion of Ukraine and post-pandemic supply chain bottlenecks.
The economic medicine worked, and inflation in primary economies fell sharply from double-digit levels reached in the fourth quarter of 2022. But the policymakers’ current fear is that untimely easing in loan prices could lead to a resurgence of inflationary pressures. .
Richard Flynn, Charles Schwab’s managing director for the UK, said: “Investors seem confident that the Federal Reserve will soon abandon its restrictive interest rate policy and move closer to rate cuts, but the timing of this resolution remains uncertain – spring is fading as recent stronger-than-expected economic insights have tempered investors’ expectations for the stock of the Federal Reserve. the Fed. “
Danni Hewson, head of monetary research at AJ Bell, said: “Investors need clarity from the Federal Reserve. They need to be sure that the path to a turnaround is well underway and that a resilient U. S. economy would likely not allow others around the world to table it to take longer than markets expected to push the button.
Last week, the ECB, the Fed that covers eurozone countries, also kept interest rates unchanged, leaving its main refinancing rate at an all-time high of 4. 5% (see article below).
Seema Shah, Lead Global Strategist at Principal Asset Management, said: “After a month characterized by a flood of strong economic insights but subdued price pressures, it is unexpected that the Federal Reserve is reluctant to offer forward guidance on rate cuts.
“Solid knowledge about the labor market and economic activity inevitably adds some doubt to their projections. The improvement in inflation has been substantial, but as long as the underlying economy remains this strong, the threat of additional inflationary pressures will be ignored.
Whitney Watson, co-head and co-chief investment officer of steady sources of income and liquidity responses at Goldman Sachs Asset Management, said: “The Federal Reserve has shifted its stance from a bullish bias to a data-driven approach. With a strong economic growth, policymakers are expected to wait for additional evidence of a sustained downward trend in inflation before making any changes.
“Now is the time for investors to earn good yields on high-quality bonds to generate a good source of income and position themselves for rate relief, as central bank policy rates look set to end the year declining for the first time in two years. “
The European Central Bank (ECB) kept loan prices unchanged in the eurozone for the third time in a row, leaving its main refinancing rate at an all-time high of 4. 5%, writes Andrew Michael.
Its marginal lending facility remains at 4. 75% and its deposit facility at 4%.
The ECB said existing knowledge “amply confirms” its assessment beyond the medium-term economic outlook: “Apart from an energy-related upward base effect on headline inflation, the downward trend in core inflation has continued and beyond interest rate increases continue with repercussions on financing conditions.
“A shortage of funding is holding back demand, which helps bring inflation down. “
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 of England will release its latest rate resolution on February 1. The Federal Reserve will announce its resolution on Jan. 31.
The ECB last raised interest rates in September 2023, the tenth consecutive hike, in reaction to rising inflation levels that peaked at 10. 6% across the trading bloc in October 2022.
In the year to December 2023, inflation in the euro stood at 3. 4%, well above target. This compares to 4% in the UK and 3. 4% in the US.
In line with today’s announcement, markets expect UK and US central banks to keep loan prices at current rates.
Richard Carter, head of constant interest rate research at Quilter Cheviot, said: “Once again, the ECB has kept interest rates stable, reiterating its reluctance to start cutting them despite increasing pressure to do so.
“Markets expected cuts to start as early as the spring, but the ECB is concerned that cutting rates too soon could cause more damage than keeping them at high levels for too long. However, the weakening economic outlook will be a major fear and could prompt faster cuts than the ECB expected in a bid to breathe life into growth. “
The annual rate of inflation rose from 3. 9% in November to 4% in December, reversing a recent downward trend and reducing the likelihood of a decline in loan prices in the coming months, writes Andrew Michael.
Today’s Consumer Price Index (CPI) from the Office for National Statistics (ONS) shows that the CPI rose by 0. 4% last month, the same pace of accumulation as in December 2022.
Core CPI, which omits volatile energy and food data, rose 5. 2% on the year in December, the same speed as in November.
The CPI adding owner-occupied home prices (CPIH) rose 4. 2% in the 12 months to December 2023, unchanged from the previous month.
The ONS said the biggest upward impact on CPI and CPI adjustments was due to higher alcohol and tobacco prices, which were offset by lower food and non-alcoholic drink prices.
Grant Fitzner, lead economist at the ONS, said: “The rate of inflation accelerated in December, with tobacco costs rising due to recently introduced tariff increases. These were partially offset by a decline in food inflation, the costs of which continued to rise, albeit at a much slower pace than at the same time last year.
“Prices for products coming out of factories have changed little in recent months, while raw material prices are still lower than they were a year ago. “
Before Christmas, the Bank of England, tasked through the government with keeping long-term inflation in the UK at 2%, left interest rates unchanged at 5. 25%, their highest point in 15 years. The next announcement on bank rates will come on February 1 as commentators are skeptical about the likelihood of an interest rate cut.
After a downward trajectory in recent months, the existing inflation figure is now double the Bank’s target and is higher than the figures for the United States (3. 4%) or the euro (2. 9%).
Richard Carter, head of interest rate research at Quilter Cheviot, said: “While today’s increase does not particularly increase the figure, it shows that the UK’s war on inflation is still over and the scenario remains precarious.
“Not only has the headline inflation rate risen unexpectedly, but core CPI remains high. Core inflation has declined much more gradually than the headline figure, and progress in this area is likely to be slow. Therefore, the Bank of England can express its chorus from cutting rates to returning to a more appropriate level.
Dean Butler, managing director of direct retail at Standard Life, said: “With the joy of January and shortages, the effect of inflation moving further away from the Bank of England’s 2% target will be a severe blow to suffering households. “.
“It appeared that the pressure on people’s finances had eased slightly, with lower inflation expectations and one of the UK’s biggest lenders yesterday cutting lending rates in anticipation of an imaginable early base rate cut via the Bank of England. However, it may take a little longer for the tension to ease.
“Hopefully, this month’s figure is a failure and we will soon see the expected decrease in inflation. For those who want to save, this is still a great time to look for the most advantageous accounts.
U. S. headline inflation The U. S. stock rose more than expected to 3. 4% for the year to December 2023, up from 3. 1% in the previous month, giving the Federal Reserve an explanation for why it should keep borrowing prices at their current 22-year high when it discloses its next interest. interest rate decision by the end of this month,” writes Andrew Michael.
The U. S. Bureau of Labor Statistics The U. S. Department of Agriculture reported that the consumer price index (CPI) for all urban consumers rose 0. 3% last month, following a 0. 1 percentage point drop in November 2023.
In explaining today’s figures, the Bureau attributed more than a portion of the increase in the monthly CPI to emerging housing expenditures. Electricity and fuel rates also increased in December, which more than offset the decline in natural gas rates.
According to the Bureau, the core CPI, which excludes volatile food and energy prices, rose by 0. 3% in December 2023, the same increase as the previous month.
In the year to December, the Bureau said the core CPI, a reliable gauge of long-term inflation trends, rose 3. 9%, up from 4% in the 12 months through November. Economists had expected a core CPI reading of 3. 8% and a headline headline. CPI reading of 3. 2%.
The Federal Reserve, the subsidiary of the Bank of England, is mandated to keep inflation at 2% over the medium to long term. Last month, it left loan prices unchanged at a 22-year high ranging from 5. 25% to 5. 5%. %.
One of the main questions being raised in global markets is how soon it will take the Federal Reserve, which is to blame for the borrowing prices of the world’s largest economy, to start cutting interest rates after adopting a competitive financial policy stance over the next two years. years to fight against the highest levels of inflation.
Market watchers had expected the Federal Reserve to start cutting loan prices as early as the spring, but the current rise in inflation numbers could derail that possibility.
Richard Flynn, managing director of Charles Schwab UK, said: “Today’s figures show an increase in the rate of inflation, an increase that is likely to be interpreted by the market as unwanted, albeit surprising.
“The recent larger-than-expected earnings expansion has been a wake-up call for many investors expecting lower interest rates. While strong activity in the labor market is a sign of a healthy economy and is smart for workers, it can also be a contributing factor. something to inflation, which has likely influenced the price increases seen today.
“Inflation numbers over the past few months have been promising, and a single figure is not a trend. But if today’s report marks the start of an uptrend, there’s a good chance the Federal Reserve will delay rate cuts later than expected. It looks like the market has taken the lead by announcing up to six rate cuts by the Federal Reserve in 2024. “
The Federal Reserve’s interest rate ruling will be announced on Jan. 31. The Bank of England’s latest bank rate announcement will be made on February 1 (the current rate is 5. 25%).
The annual inflation rate plunged more than expected to 3. 9% in November this year, according to official figures, raising hopes that interest rates may start falling faster than expected in 2024, writes Andrew Michael.
Today’s Customer Value Index (CPI) from the Office for National Statistics (ONS) fell sharper than economists’ forecasts of 4. 3% and is at its lowest point in more than two years.
The ONS added that on a monthly basis, the CPI rose by 0. 2% on a monthly basis through November, compared to a 0. 4% increase 12 months ago.
Core CPI, which excludes volatile energy and food data, rose 5. 1% year-to-date last November, up from 5. 7% in the previous month.
The CPI adding owner-occupied home prices (CPIH) rose 0. 1% in the year to November 2023, up from 0. 4% 12 months earlier.
The ONS said the downward contributions to the update of the annual CPI and HPI rates came from transport, recreation and culture, and food and non-alcoholic beverages.
Grant Fitzner, lead economist at the ONS, said: “Inflation has slowed to its lowest annual rate in more than two years, but costs remain particularly higher than before the invasion of Ukraine.
“The main driving force behind this month’s drop was the decline in the value of fuel after a surge at the same time last year. The value of food has also brought down inflation, rising much more slowly than at the same time last year. There has also been “There has been a drop in the value of family parts and the value of used cars. “
Last week, the Bank of England, which the government is required to keep the UK’s long-term inflation at 2%, left loan prices unchanged at a 15-year high of 5. 25% for the third month in a row (see article below). .
Although the current inflation reading remains nearly double its target, commentators were hopeful that the Bank could fulfill its mandate without causing a hard landing for the economy.
Yesterday (Tuesday), annual CPI inflation in the euro stood at 2. 4%, its lowest rate in two years. Core inflation, for the trading bloc that encompasses the 20 countries whose usual currency is the euro, fell to 3. 6%.
Richard Carter, head of constant interest rate research at Quilter Cheviot, said: “Compared to last year, a sense of cautious optimism has recently hung in the air and this morning’s 3. 9% inflation figure adds to that. The Bank of England now faces a less daunting task: bringing inflation back to its 2% target next year, without requiring a deep recession.
“This additional slowdown in the speed of value increases offers a glimmer of relief to families struggling with the new burden of life. “
James McManus, chief investment officer at Nutmeg, said: “Although energy costs are well below last year’s levels, food costs, which have slowed based on today’s data, are still 9% higher than they were a year ago. Hence, food inflation, which we feel most intensely in our weekly grocery shopping or in our restaurants, but we still wish to drastically minimize.
“With the wage situation, the Bank of England has a lot to do on the inflation front. “
The Bank of England kept its bank interest rate at 5. 25% for the third time in a row, writes Andrew Michael. It reached this point in August 2023.
In a widely anticipated resolution that echoes the U. S. Federal Reserve’s resolution yesterday to keep rates unchanged (see article below), the Bank’s Monetary Policy Committee (MPC) voted six to three in favor of keeping the 15-year interest rate unchanged. 5. 25%.
Each of the three dissenting voices in the MPC voted to increase the rate through percentage issuances from 0. 25 to 5. 5%.
Explaining its decision, the Bank said: “Since the MPC’s previous decision, Customer Value Index inflation has declined as expected, while there has been negative news in the expansion of the personal sector’s normal average weekly earnings.
“However, key signs of patience with inflation in the UK remain elevated. Monetary policy will want to be sufficiently restrictive for long enough to bring inflation back to the 2-cent target consistent with the medium-term objective, in line with the Committee’s mandate.
Inflation stood at 4. 6% in October, according to the Office for National Statistics. November’s data will be released next week.
The official announcement of the Bank Rate will be made on February 1, 2024.
Today’s announcement through the Bank of England, its latest interest rate-setting resolution of 2023, will provide partial relief to millions of loan consumers and other borrowers who benefit from adjustable-rate and tracker-based loans.
This has been a challenging year for current and potential borrowers, who face affordability pressures stemming from emerging interest rates and the ongoing cost-of-living crisis, as well as asset costs still at peak levels relative to income.
Between December 2021 and August this year, the Bank, in the face of rising inflation, raised loan prices 14 times in a row in a bid to curb emerging prices, which peaked at an annual rate of 11. 1% in October 2022 before falling to 11. 1%. % in October of 2022. su current level.
The Bank’s resolution also means that savers can get a “genuine” return on money held in bank accounts and loan companies, as long as they look for the deals. A genuine refund is received when the interest rate paid is higher than the prevailing inflation figure. .
Despite the welcome drop in inflation, the UK figure is still the best compared to official US data. and the eurozone, where costs are rising at an annual rate of 3. 1% and 2. 4% respectively. UK inflation is also more than double long-term inflation. 2% forward target followed by central banks around the world.
As domestic interest rates stabilize and inflation risks recede, the next resolution for financial policymakers will be how long they will keep loan prices at existing rates and what is the opportunity, if any, to start reducing them.
In explaining his resolve to keep interest rates unchanged, Federal Reserve Chair Jay Powell gave markets the clearest signal yet that a prolonged era of financial tightening was over.
Global markets responded to his comments by reaching multi-year highs. But Bank of England Governor Andrew Bailey has warned that it is too early to think about a rate cut.
Rob Morgan, chief investment analyst at Charles Stanley, said: “While inflationary pressures are showing clear signs of easing and the UK economy is on the brink of recession, the Bank is keen to control the situation by keeping rates in restrictive territory.
“The Bank is aware that it is going too far by raising rates and causing more damage to the economy than necessary, but at the end of the day, its task is to bring inflation back to target. Just as it is more complicated to extract the last remnants of toothpaste from the tube, it can be difficult to extract the remnants of unwanted inflation from the system, which will therefore have to maintain restrictive interest rates for some time. “
Karen Noye, loan expert at Quilter, said: “The Bank of England’s resolution to keep the interest rate at 5. 25% is a vital resolution with multiple implications for the UK economy. But overall, this is good news for lending and the real estate market. .
“For the housing market, this pause in interest rate hikes may boost confidence. Greater certainty about loan prices leads to greater customer confidence and increased activity in the real estate market. More potential customers deserve to start feeling confident entering the market, which can simply increase prospectively or even increase asset prices.
“The latest space value indices have shown that, due to the limited housing stock, the value has increased slightly. “
The European Central Bank (ECB), like the Federal Reserve and the Bank of England, left its three key interest rates unchanged.
Borrowing prices for its main refinancing option, marginal lending and deposit services, remained unchanged at 4. 5%, 4. 75% and 4%, respectively.
Explaining its decision, the ECB said: “Core inflation has eased further, but pressures on domestic value remain elevated, primarily due to the sharp expansion in unit labour costs.
The ECB added that inflation is expected to ease over the next year, before approaching its 2% target in 2025.
The U. S. Federal Reserve kept loan prices unchanged at their highest level in 22 years, as expected, while noting that it remains “very vigilant” to inflation hazards and would be willing to adjust its stance and increase its hikes if the economic outlook changed. Andrés Miguel.
Today’s announcement through the Federal Open Market Committee (FOMC), its most recent 2023 rate-setting resolution, that the Fed’s benchmark target interest rates remain at a range of 5. 25% to 5. 5%.
The Bank of England will announce its resolution on the bank rate on December 14 at 12 noon. The rate is expected to remain at 5. 25%. The European Central Bank will also publish its new rate resolution on the same day.
Earlier in the day, the latest economic data showed that U. S. manufacturers’ price inflation, which tracks the values companies get for their goods and services, slowed more than expected in November, supporting the FOMC’s resolution to leave interest rates unchanged.
The FOMC, whose members voted unanimously to keep rates at current levels, said: “Recent signs that the expansion of economic activity has slowed from the strong speed of the third quarter. Job creation has slowed since the beginning of the year but remains strong. and the unemployment rate has remained low. Inflation has declined over the past year but remains high.
The Fed’s resolution on interest rates follows official figures released through the U. S. Bureau of Labor Statistics, which showed that headline inflation in the U. S. It fell to 3. 1% in November from 3. 2% the previous month.
Like the world’s other primary central banks, the Federal Reserve is mandated to keep inflation at 2% over the medium to long term. Its next price announcement will be made on January 31, 2024.
Lindsay James, investment strategist at Quilter Investors, said: “The U. S. economy continues to defy expectations, task expansion remains remarkably steady, and the economy continues to expand.
“However, even though annual headline inflation fell to 3. 1% in November, it is still well above the 2% target and core inflation rose on a monthly basis, which seems that price pressures are not over yet. This may allow the Federal Reserve to maintain its increased position for an extended period until 2024. “
Headline inflation in the U. S. U. S. borrowing fell as expected to 3. 1% for the year to November from 3. 2% the previous month, all but ensuring that borrowing prices will remain at existing levels when the Federal Reserve unveils its new 2023 interest rate resolution on Wednesday. Andrew Michael writes.
Announcements from the Bank of England and the European Central Bank will remain on Thursday; Both are expected to keep their respective interest rates unchanged.
The U. S. Bureau of Labor Statistics reported today that the Consumer Price Index (CPI) for all urban consumers fell 0. 1 percentage points in November 2023, after holding steady a month earlier. To these figures, the Office indicated that rental prices continued to rise in November. , offsetting the drop in fuel prices.
According to the Bureau, core CPI, which excludes volatile food and energy prices, rose 0. 3% in November, following a 0. 2% increase a month earlier. In the year through November, the Bureau said core CPI, a long-term indicator of inflation developments, rose 4%, the same point as in October.
The Federal Reserve, like the Bank of England, is mandated to keep inflation at 2% in the medium to long term. Last month, it left borrowing prices unchanged at a 22-year high of 5. 25% to 5. 5%.
Following today’s release, commentators expect that the Federal Reserve will likely keep interest rates at grade one when it makes its final decision on the issue of borrowing tomorrow.
The Bank of England’s bank rate has stood at 5. 25% since August.
Tom Hopkins, senior portfolio manager at BIS Wealth Management, said: “Headline inflation in the US is rising. The U. S. inflation rate came in at 3. 1% YoY in November 2023, in line with consensus expectations and the lowest reading in months. Inflation held steady at 4% in November 2023, unchanged from last month, but still at its lowest level since September 2021, in line with market expectations.
“Today’s reading will definitely be welcome in the market as it strengthens the case for the Federal Reserve to keep interest rates at its last meeting of this year, tomorrow.
“Over the past few weeks, we’ve noticed that the market has started to assess the anticipation of a policy change early next year, and lately the market has priced in a 40% chance of a rate cut starting in March 2024, which is optimistic. The market has consistently wrongly predicted the Fed’s direction over the past two years and the risk is that it could happen again.
Ryan Brandham, Head of Global Capital Markets for North America at Validus Risk Management, said: “The US Consumer Price Index figures are in high quality. U. S. sales were largely in line with expectations, with a higher monthly figure.
“The market is already pricing in more than four interest rate cuts in 2024. However, with core CPI remaining at 4%, there is a threat that those declines will occur as temporarily as the market expects.
“The Fed wants to see a sustained decline in inflation before taking any meaningful action. Even if the release is largely in line with expectations, the market’s reaction would likely be subdued as attention turns to tomorrow’s next rate-setting meeting.
Inflation in the 20-nation bloc (the euro) is expected to reach 2. 4% for the year to November, up from 2. 9% in October.
The European Central Bank, like central banks such as the Bank of England, is tasked with keeping inflation at 2%. Annual inflation in the UK in October fell to 4. 6% from 6. 7% last month.
November’s figure for the eurozone – a preliminary estimate made through the EU’s statistical office, Eurostat – fell short of headline expectations and warned that an interest rate cut could be in play to stave off the risk of recession in the trading bloc.
The inflation rate fell in the food, alcohol and tobacco sectors (from 7. 4% to 6. 9%), (from 4. 6% to 4%) and non-energy commercial goods (from 3. 5% to 2. 9%). with an inflation rate of -11. 5% compared to -11. 2% in October.
Forecasts for wholesale energy costs suggest they could rise in the coming weeks, especially if the weather turns out to be particularly cold and require increases accordingly. Any increase in retail energy costs could simply reduce the rate of decline in inflation.
The UK energy price cap, which limits the amount suppliers can qualify for per unit of energy and at constant prices, will increase to 5%, from £1,834 to £1,928 per year for an average family from 1 January 2023.
The euro’s dominance includes Belgium, Germany, Estonia, Ireland, Greece, Spain, France, Croatia, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland.
The annual inflation rate fell sharply, according to official figures, to 4. 6% in October this year, from 6. 7% the previous month, reducing the threat of a further increase in loan prices through the Bank of England before the end of 2023, writes Andrew Miguel.
Today’s Customer Value Index (CPI) from the Office for National Statistics (ONS) fell to the lowest rate in just two years. On a monthly basis, the rate was unchanged in October 2023, compared with a 2% increase for the same month last year, largely attributed to higher energy costs.
The ONS reported that the “core” CPI, which omits volatile energy and food data, rose by 5. 7% in the 12 months to October this year, up from 6. 1% in September.
The CPI adding owner-occupied home prices (CPIH) rose 4. 7% in the year to October, up from 6. 3% in the previous month.
Today’s announcement that Prime Minister Rishi Sunak’s goal of halving inflation by the end of 2023 has been achieved.
Grant Fitzner, lead economist at the ONS, said: “Inflation eased particularly during the month as last year’s sharp rise in energy prices followed a slight increase in the energy value cap [a cap on how much UK households can qualify energy suppliers] this year. “
“Food costs barely recovered 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 is going to breathe a deep sigh of relief today, especially given the political occasions of the last few days. Halving inflation is intended to be the simplest to achieve among its five priority targets, as this is a year-over-year comparison, and in 2022 inflation rose sharply.
While things have gotten a little closer, the sharp drop in inflation to 4. 6% is a positive step on the long road to target levels. However, this is basically due to points that do not seem to be repeated in the coming months. .
“Energy costs are the main contributor to the drop. While the great knowledge is good news for the Bank of England’s interest-rate-setting financial policy committee, it will need to see more evidence of an economy-wide inflation slowdown, which comes mainly from fluctuations in foreign energy markets.
“With a slower decline in core CPI, now at 5. 7% from 6. 1% in September, it is clear that progress towards the 2% target is most likely to be slow. “
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 under pressure for policymakers not to be “fooled by a few smart months of data. “He warned that the central bank could simply raise rates again, even as officials have been reluctant to raise borrowing levels from existing levels. Degrees.
Like other central banks, the Federal Reserve is mandated to keep long-term inflation at a level of 2%. Following today’s US figures, the focus will be on the most recent UK inflation figure, released tomorrow. Last month, the Office for National Statistics announced an annual inflation rate of 6. 7% through September 2023, unchanged from last month.
Lindsay James, investment strategist at Quilter Investors, said: “Current insights into US inflationsignal that the Federal Reserve’s interest rate charts are 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 home loan rate hikes 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 that costs rose by only 2. 9% across the eurozone’s trading bloc in September of the year to October 2023.
Although UK inflation has fallen since peaking at 11. 1% in October last year, the most recent figure is still well above the long-term target of 2%. The Bank says it expects inflation to continue to decline this year, to around 4. 5%, before proceeding to decline in 2024.
The next resolution on bank rates will be adopted on 14 December. Before that, on 22 November, Chancellor Jeremy Hunt will deliver his autumn statement.
Rob Morgan, lead investment analyst at Charles Stanley, said: “They have given the impression of cracks in the economy and labour market, and many signs of inflation are subsiding as expected, so the Bank can rightly take a wait-and-see stance. “this stage. indicate.
“With inflation well above the 2% target and wage expansion still high, a further rate hike is ruled out in the coming months, but the likely peak situation is that we have already peaked in interest rates and a long stagnation lies ahead. before the top. The descent begins.
Emma Mogford, fund manager at Premier Miton Monthly Income Fund, said: “I am increasingly convinced that we are now at peak rates. The immediate rise in interest rates over the next year will continue to reduce the demand for intelligence and facilities and thus inflation, which the Bank of England hopes to reduce to 2% in two years. If inflation can come down while the economy is resilient, that would be smart for UK stocks.
Dean Butler, managing director of direct retail at Standard Life, said: “The Bank of England’s resolve to keep the base rate on hold will be a welcome relief for those facing a difficult winter. Households nearing the end of their fixed-rate loan will be thrilled with this respite.
“There’s also smart news for those who can save. It looks like rates may be peaking as well, but there’s no indication that they’re going to start falling anytime soon, and Best Buy’s fixed-rate savings accounts lately are between 5. 5% and 6%. With inflation expected to fall to around 5% through 2023, liquid savings would possibly 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 Fed’s resolution on interest rates follows recent official data showing that US inflation stood at 3. 7% for the year to September 2023.
This is particularly lower than the UK’s recent peak figure of 6. 7%, but higher than yesterday’s initial estimate that costs rose by just 2. 9% across the eurozone trading bloc in the year to October 2023. Each of the respective central banks has an inflation target of 2%.
As ongoing tensions in the Middle East threaten to drive up 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 hold interest rates on hold underscores the complexity of the current U. S. economic landscape. Even as the economy defies expectations with strong task expansion and economic expansion, the inflation rate remains well above its 2% target. Analysts will be keeping an eye on each new release of information for clues about the long-term direction of the Federal Reserve.
“With giant customers like McDonald’s and Amazon beating earnings expectations and with around $1 trillion in potential pandemic-era savings still available to stimulate consumption, inflationary pressure remains palpable. “
As expected, the European Central Bank (ECB) has halted a series of 10 consecutive interest rate hikes in the eurozone without altering loan prices, writes Andrew Michael.
Today’s announcement that the central bank’s main refinancing rate remains at 4. 5%. Its marginal 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 countries that make up the euro area rose by 4. 3% in September 2023, up from 5. 2% in the previous month, and the slowest rate of expansion recorded across the trading bloc since October 2021.
Like other central banks, such as the Bank of England and the US Federal Reserve, the ECB must keep inflation at 2% 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 set their own rates, injecting festival into the market. The Federal Reserve will release its resolution on Nov. 1 and the Bank will abide by it the next day.
Marcus Brookes of Quilter Investors said: “After the most competitive series of rate hikes in its history, the ECB has joined the Federal Reserve and the Bank of England in hitting the pause button and accurately assessing the effect of their moves to date. “Inflation in the euro area has fallen particularly and is expected to moderate further, although it is still far from its target.
“A number of dangers remain that could keep inflation elevated, adding to emerging wage expansion and uncertainty in the Middle East, which is 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.
Goldman Sachs Asset Management’s Gurpreet Gill said: “The ECB’s interest rate hike cycle is over and we expect today’s resolution to keep rates unchanged to continue into 2024. Higher energy costs pose a new upside threat to headline inflation, but a moderate expansion and cooling of core inflation will likely save it from additional rate hikes.
“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 through the Office for National Statistics (ONS) beat market expectations and followed yesterday’s figures which showed UK wage expansion slowed to 7. 8% in the three months to 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 rate announcement is expected on November 2.
Last month, in a historic move, the Bank left loan prices unchanged for the first time in just two years, leaving them at a 15-year high of 5. 25%. In recent weeks, central banks around the world have warned that loan prices may simply remain at higher levels until next year to maintain inflationary pressures.
Rising 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, increased by 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 that is conditional on one of three economic factors.
Last month, the Bank left loan prices unchanged for the first time in just two years after better-than-expected insights showed that inflationary heat had begun to recede from the UK economy.
Although inflation has eased since peaking at 11. 1% in October last year, the current figure of 6. 7% is still well above the Bank’s long-term target of 2%, set through the government.
Currently, the inflation figure, which will be revised (Wednesday), is lower than the current wage expansion figures, which creates a challenge for those who are about to set the bank rate, which lately stands at 5. 25%.
Alice Haine, private finance analyst at Bestinvest, said: “The expansion of high wages may ease the monetary pressure on households, [but] it risks fuelling inflation if corporations shift that 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 of 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, core CPI, which excludes volatile food and energy prices, rose 0. 3% in September, bringing the 12-month annual report to 4. 1%, up from 4. 3% in August.
The Federal Reserve, the Bank of England’s U. S. bank, left borrowing prices unchanged last month at a range of 5. 25% to 5. 5%, after an 18-month era dominated by consecutive bouts of financial tightening 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 a level of 2%.
The Federal Open Market Committee (FOMC), which sets rates, will release its next resolution on Nov. 1.
Today’s figures follow last week’s announcement of a sharp increase in job creation, with the U. S. economy filling 336,000 job openings in September, up to an expected 170,000 jobs.
Seema Shah, Chief Global Strategist at Principal Asset Management, said: “After the surprise and astonishment caused by last week’s jobs report, today’s CPI numbers are unfolding without incident, which is reassuring. With core CPI in line with expectations and broadening the disinflation narrative, there is nothing in the inflation report that tilts the Fed one way or the other.
“Indeed, although inflation is slowly receding, the strength of the hard labor market means that the risk of a resurgence in inflation cannot be ignored, keeping the Federal Reserve on its toes. Whether or not there will be an increase in interest rates remains unanswered. “
Daniel Casali, 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.
“Moreover, policymakers are most likely to attach importance to the recent sharp rise in long-term government yields, which reduces the need for the Fed to tighten rates further, as markets have done their homework well for them. The FOMC will also be keeping an eye on “This will affect the expansion of auto movements and a possible U. S. government shutdown starting in mid-November. “
Neil Birrell, chief investment officer at Premier Miton Investors, said: “The latest US inflation report to be presented to the Federal Reserve Board 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 from there.
“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 worried when inflation spiked last year, they will also be worried about the long-term evolution of inflation and what will happen next. As inflation has eased, it has receded incredibly and is unlikely to succeed in its target 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 that inflationary heat continues to flow out of the UK economy, writes Andrew Michael.
Today’s decisive resolution through the Bank’s Monetary Policy Committee (MPC), which voted 5-4 in favor of the resolution, leaves the bank rate at a 15-year high of 5. 25%. This follows a series of 14 consecutive increases dating back to December. 2021 and could mark the peak of borrowing prices in the current cycle.
The move comes a day after official UK inflation figures fell to 6. 7% for the year to August 2023, from 6. 8% the previous month (see article below).
Although inflation has fallen from its peak of 11. 1% in October last year, the 6. 7% figure is still well above the government’s long-term target of 2% set by 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 bring relief to more than one million borrowers with adjustable-rate and follow-on mortgages who have been impacted by a series of mortgage lending increases dating back to December 2021.
Jeremy Batstone-Carr, European strategist at Raymond James Investment Services, said: “The Bank of England’s 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, which is reflected in the 5-4 vote split. The wonderful drop in inflation in August and the transparent symptoms that the UK economy is collapsing under pressure from emerging market rates most 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 US bank of the Bank of England, has, as expected, left loan prices unchanged after an 18-month era governed 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 situations for households and businesses are likely to impact economic activity, hiring, and inflation. The magnitude of those effects remains unclear. The Committee remains closely alert 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 pointing to $100 per barrel, the Fed will need to bring inflation down. “Type. Door open for some other possible hike in November or December.
Richard Carter, head of interest rate research at Quilter Cheviot, said: “With today’s pause, we are now in a waiting game with the Federal Reserve to see if its actions so far are enough to achieve the coveted and comfortable landing in the United States. The insights that are released from now on will be scrutinized and scrutinized for an indication of whether or when the Fed will raise rates again or when, in fact, it’s time to start cutting them.
“At the end of the day, given the continued strength of the economy and labor market, we will most likely wait some time before cutting rates. However, having been slow to raise rates in the face of rising inflation, Federal Reserve Chair Jerome Powell won’t have to make the same mistake by going back to the cut-off and inadvertently correcting without doing anything.
The annual 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.
A drop in the annual inflation rate in August would likely have triggered a 15th consecutive increase in credit. Market expectations were for a quarter-percentage-point increase, from 5. 25% to 5. 5%.
But today’s announcement, which also 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 owner-occupied home prices (CPIH) rose 6. 3% in the year to August, up from 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 value of petrol and diesel compared to a sharp drop in the same period last year, following the record values seen in July 2022. “
Fitzner added: “Core inflation slowed this month more than the headline rate, 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 inflation knowledge before deciding what to do about the bank rate.
Although UK inflation has continued its overall downward trend since February, recent ONS data on accelerating wage expansion suggest that the spectre of inflation has disappeared.
Yesterday, the Paris-based Organisation for Economic Co-operation and Development (OECD) predicted that the UK economy would revel in the rate of inflation among the world’s richest countries this year. The OECD has said it expects the inflation rate in the UK to reach average. 7. 2% in 2023.
Richard Carter, head of constant interest rate research at Quilter Cheviot, said: “The ONS figures reveal an unforeseen drop in inflation to 6. 7% in the 12 months to August 2023, despite emerging costs at the pump. The final results were more positive than the increase expected by many economists, largely due to a significant drop in food costs, while core inflation also declined from 6. 9% to 6. 2%.
“While this drop in inflation relieves some of the pressure on the Bank of England to raise rates once again, it remains in a position to push the cause forward with some further 25-issue foundational interest rate hike tomorrow. If this turns out to be in this 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 finally have a real impact.
Neil Birrell, chief investment officer at Premier Miton Investors, said: “Better-than-expected inflation knowledge this morning would possibly provide some relief to the Bank of England. While this would arguably not be enough to salvage the rate hike, core inflation, which is well below expectations, is good news.
“Last month, there was some smart news on 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 core issues to 4. 5%. The quarter-percentage-point increase expected by monetary analysts will also apply to its deposit rate, which rises to 4%, and its marginal lending facility, which rises to 4. 75%.
Explaining its decision, the tenth time in a row it has raised rates, the ECB warned that inflation “will most likely remain too high for too long. “
Like other central banks, such as the Bank of England and the US Federal Reserve, the ECB must keep inflation at 2% over the medium term.
The further increases in borrowing rates, which will take effect on Sept. 20, forecast that inflation across the trading bloc will average 5. 6% in 2023.
Today’s ruling raises the ECB’s deposit rate above the record high reached in 2001, when the authorities raised rates to breathe life into the recently introduced price of the euro.
But the ECB hinted that today’s hike could be just the last of the existing cycle: “The Governing Council considers that key ECB interest rates have reached levels that, if sustained for a sufficiently long period, will make a really important contribution to the good timed return. From inflation to targeting.
The Bank of England and the U. S. Federal ReserveThey will announce their final interest rate decisions next week. In line with developments in Europe, markets say that loan prices in the UK will also see a quarter-point rate increase, but that the US will see a quarter-point rate increase. Rates will remain unchanged until at least November.
Investment professionals said the next focus is on how long loan prices will remain at record levels.
Robert Scramm-Fuchs, portfolio manager at Janus Henderson Investors, said: “It was probably a close decision, but we got this new ECB interest rate hike that the stock market was mainly waiting for. Judging by the language of the low revisions of medium-term inflation estimates, it appears that the ECB is done with its rate hike cycle and we deserve to expect a prolonged plateau. “
Anna Stupnytska, an economist at Fidelity International, said: “From now on, markets will determine how long rates will remain at those restrictive levels, which of course will have the trail of inflation and expansion from there.
“While the transmission channel of financial policy is obviously working strongly, a recession in the euro’s dominance is looming. As a result, the ECB would possibly want to make an immediate correction in its trajectory in 2024. But for now, their orientation will most likely be by the situation of a longer hike. “
Headline inflation in the United States stood at 3. 7% in August, up from 3. 2% in July, marking the second consecutive month of emerging prices after a year-long downward trend, writes Andrew Michael.
An increase, announced today 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: “Apparently, the headline inflation rate has risen for the second month in a row, the Fed will be relieved to see core inflation continue to fall.
“The Federal Reserve will be concerned that emerging energy prices will begin to expand the economy, which would increase the threat of a resurgence in core inflation towards the end of the year and force central banks to start raising rates again. “
Seema Shah, lead global strategist at Principal Asset Management, said: “The rise in headline inflation is not a surprise given the recent rise in energy costs and the Fed will most likely take a look at those numbers, for now.
“Most likely, the inflation numbers won’t be enough to influence the Federal Reserve’s call next week for a rate hike. But they also don’t fully explain the question of a pause in November versus the likelihood of a hike. “
The annual rate of inflation fell sharply from 7. 9% in June to 6. 8% in July, but the good news — the third consecutive monthly drop in the cost of living — is unlikely to deter the Bank of England from raising interest rates next month. Writes. André Michel.
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 UK wage expansion hit a record 7. 8% (8. 2% adding bonuses) in the three months to June this year will ring alarm bells at the Bank as higher wages in settlements may simply push inflation higher.
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 the 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, unchanged from 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 unveils its next resolution in September.
The Federal Reserve’s benchmark interest rates have lately been between 5. 25% and 5. 5%, their highest point since 2001. Last month, Federal Reserve Chair Jay Powell said the central bank would implement additional rate hikes on a meeting-by-meeting basis.
Neil Birrell, chief investment officer at Premier Miton Investors, said: “US inflation was broadly as expected in July, although the year-on-year figure was slightly lower than expected. The August figures will be released before the Federal Reserve’s next meeting in mid-September, but nothing in this suggests that it will do anything other than keep interest rates exactly where they are.
“It increasingly looks like the Fed has done a smart job, at least for now. While we may see a further rise in inflation, markets will be okay with it in the near term.
David Henry, investment manager at Quilter Cheviot, said: “Core inflation remains more persistent and will start to come down further in the autumn when seasonal points are expected to ease.
“Those who expected cuts sometime this year or early next year would likely be disappointed. The Federal Reserve said that rates would remain high enough [for inflation] for the time being and that they would be desperate not to go back to the 1970s, when we saw inflation rise when central banks came too early to ease financial tightening. . . “
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 fixed-rate mortgages will feel the effect at the end of their current contract, and many will face massive increases in their monthly payments. The average rate for a two-year fixed rate is now between 6. 5% and 7%, according to Moneyfacts, up to five percentage issues higher than its previous rate.
An estimated 800,000 fixed-rate transactions will close in the second part of 2023 and another 1. 6 million transactions are expected to close in 2024. There are about seven million fixed-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%.
There were fears that the Bank would put in place 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 bank rate announcement will be made on Sept. 21, with additional changes expected in November and December. The next rate move will largely be decided through the July inflation figure, which will be revealed through the Office of National Policy. Statistics as of August 16.
Laura Suter of investment platform AJ Bell commented: “The slowdown in inflation means that interest rates are not expected to rise as much as before; A few months ago we expected rates to peak at 6. 5%, but now expectations are 6% or even 5. 75%.
“As a result, banks have lowered rates for their lending customers. We have now noticed that several large banks are cutting rates; Not enough to make a drastic difference in individuals’ monthly payments, but homeowners will breathe a sigh of relief when they see interest rates 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 crack down on persistent peak inflation. Even though the eurozone inflation figure fell to 5. 5% in the 12 months to June this year (from 6. 1% in May), it is still well above the ECB’s medium-term inflation. 2% target.
The interest rate hike (the ninth consecutive hike since last summer) followed a similar move by the U. S. Federal Reserve (see article below).
The ECB said: “Developments since the last meeting mean that inflation is expected to fall further for the rest of the year to remain above target for an extended period.
“While some measures look like signs of easing, core inflation continues to rise overall. Previous rate hikes continue to have a strong impact: funding situations have become tighter 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 hike cycle, but the patience of core inflation also tells us that rate cuts are in the crosshairs for now. “
The Federal Reserve, i. e. the Bank of England in the United States, raises its benchmark interest rates by a quarter of a percentage point, to a range from 5. 25% to 5. 5%, the highest point since 2001, writes Andrew Michael.
After leaving loan prices unchanged at its June rate-setting meeting, the Federal Open Market Committee (FOMC) voted unanimously in favor of a 25 basis point rate hike, signaling a return to financial tightening, aimed at combating higher levels of inflation.
U. S. inflation stands at 3% annually in June, which compares favorably with the U. K. ‘s 7. 9% annual rate this month.
Investors will now turn to the Federal Reserve for clues as to whether this is the last hike in the current rate-setting cycle and, if so, when the U. S. authorities will begin to reduce the borrowing burden.
Following the steeper-than-expected fall in US inflation a fortnight ago – from 4% to 3% – the Federal Reserve said today: “Recent signs suggest that economic activity has grown at a moderate pace. Job creation has increased in recent months and the unemployment rate has remained low.
But the Federal Reserve said that “inflation remains elevated. “
Along with other central banks around the world, including the Bank of England and the European Central Bank (ECB), the Federal Reserve has a medium- to long-term mandate to keep inflation at 2%.
All eyes will then turn to the ECB’s rate-setting resolution (Thursday), before the Bank of England does the same next week on August 3.
At its last meeting, the Bank’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% in the wake of Russia’s invasion. of Ukraine.
The ONS also said core inflation, which excludes volatile food and energy prices, rose 6. 9% in the 12 months to June, up from 7. 1% in May. On a monthly basis, the CPI increased by 0. 1% in June, compared to 0. 8% in the same month last year.
The CPI that aggregates owner-occupied home prices (CPIH) rose 7. 3% in the year to June, up from 7. 9% in May.
Grant Fitzner, lead economist at the ONS, said: “Inflation has slowed particularly to its lowest annual rate since March 2022, driven by lower fuel prices. At the same time, core inflation also declined after hitting a 30-year high in May. Food price inflation eased slightly this month and remains at very high levels.
Fitzner added: “While prices facing brands remain high, particularly for construction fabrics and food products, the speed of expansion has slowed over the past year, with the total price of raw fabrics falling for the first time since late 2020. “
The Bank of England, with a 2% inflation mandate in the medium to long term, will take a look at the latest data from the ONS 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 being up by part of a percentage point in June. The next announcement is expected on August 3.
Until today’s inflation figures were released, market watchers were expecting a half-point hike by the Bank next month. But as price increases decrease more than expected, it would possibly be mandatory to reconsider the situation.
Marcus Brookes, chief investment officer at Quilter Investors, said: “Today’s inflation figures give us a glimmer of light as they 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: “Finally some news about lower-than-expected inflation in the UK for June and more importantly, the core inflation rate has fallen more than expected.
“While we expect it to continue to fall and be at its lowest point in a year, it continues to rise in absolute terms and the Bank of England wishes to be vigilant and act accordingly until there is a point of certainty that inflation is back under control.
Eurozone inflation fell to 5. 5% in the 12 months to June this year, from 6. 1% in the previous month, according to the most recent official Eurostat figures.
The dominance of the euro is made up of the 20 countries that use the euro as their currency. Eight members of the 28-member European Union do 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 for the EU as a whole contrasts sharply with the rates recorded in each country individually.
Annual stock inflation rose to 1% in June in Luxembourg, while Belgium and Spain recorded a figure of 1. 6%. But over the same period, values increased by 19. 9%, 11. 3% and 11. 2% respectively in Hungary, Slovakia and the Czech Republic.
Together with central banks around the world, plus the Bank of England and the US Federal Reserve, the European Central Bank is tasked with keeping eurozone inflation at 2% over the medium to long term.
The ECB’s next interest rate announcement will be made on 27 July.
The British pound continued its recent uptrend and stock markets around the world also became more complex after a steeper-than-expected drop in US inflation (see article below) and a sell-off in the dollar, writes Andrew Michael.
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, U. S. stocks recovered, so that at the start of trading, the U. S. stock index S
This follows the country’s latest official inflation figures, which show prices rose 3% in the year to June 2023, their slowest rate of expansion since March 2021.
After a series of competitive rate hikes imposed through the Federal Reserve, this means that annual customer-rated inflation in the United States is approaching the central bank’s medium- to long-term target of 2%. The British equivalent of the Federal Reserve, the Bank of England, also has a similar inflation-fixing mandate. But despite thirteen successive interest rate hikes since December 2021, the UK inflation figure remains decidedly fixed at 8. 7%.
The Federal Reserve’s next interest rate ruling is scheduled for July 26, and the Bank of England will unveil its latest announcement a week later.
U. S. inflation stood at 3% in the year through June, up from 4% in the 12 months through May. Lower energy prices (down 16. 7% over the period) contributed to the decline.
Core inflation (energy and food prices based on their short-term volatility) rose month-on-month to 4. 8%, although it was the lowest monthly increase since June 2021.
The overall picture will be 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 hypotheses suggest that it could simply increase them at its next assembly on July 25 and 26.
The Bank of England raised interest rates from 4. 5% to 5% in June. It is highly likely that the still-high inflation rate in the UK will lead to a further hike, of up to 5. 25%, when the Bank announces its new resolution in August. 3.
Many UK lenders have already increased the cost of borrowing in anticipation of a rate hike by the Bank of England. Earlier in the day, the Bank said borrowers would face increases of hundreds of pounds a month in their loan prices over the next few years. .
The Bank of England 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 immediate effect on the finances of more than a million people. 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 lending 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 the charity StepChange revealed that nearly seven million loan consumers had struggled to cover their expenses 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 eased the specter of a rise consistent with costs (the annual figure hit a 40-year high of 11. 1 percent last fall), the downward trajectory has been mild compared to other primary economies, many of which consistently have the same trend. Medium-term inflation target of 2 consistent with the penny.
With annual inflation at 4% through May, the 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 eurozone trading bloc, where inflation stood at 6. 1% in May of the year.
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 on its ability to bring inflation down, as well as doubts about its baseline forecasts. Today’s increase is a desperate move to show markets that they are firmly committed to their mandate despite the monetary hardship 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 despite market pricing, there is only a 40% chance of such a hike.
“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 stagnant at 8. 7% for the second consecutive month through May 2023. The staggering figure (many commentators had hoped for a decline) will deal a blow to the hopes of millions of lenders and other borrowers, who now expect a decline. Interest rates will most likely rise further, writes Andrew Michael.
The Bank of England is widely expected to continue its extended policy of tightening when it unveils its new interest rate resolution tomorrow, with an increase from 4. 5% to 4. 75% or even 5% at stake.
Mortgage lenders have already raised rates a few days ago in anticipation of a bank rate hike.
Today’s figure from the Office for National Statistics (ONS) exceeded market expectations and leaves questions about whether the Bank’s 18-month policy of continuous financial tightening is having enough effect to tame price increases.
On a monthly basis, the UK inflation rate, as measured by the Consumer Price Index (CPI), rose by 0. 7% in May, unchanged from the same month a year earlier.
The ONS also reported that the CPI, adding up owner-occupied housing (CPIH) prices, rose by 7. 9% in the year to May this year, up from 7. 8% in the previous month.
Core CPI, which includes volatile participants such as energy, food and alcohol, rose 7. 1% in the 12 months through May, up from 6. 8% in April.
According to the ONS, 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, ONS lead economist, said: “Following last month’s fall, 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 by as much as 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, said: “Today’s inflation figure will be a bitter pill to swallow for consumers, investors and the government. With CPI unchanged and core inflation rising, this confirms that the Bank of England still has no option to “The UK suffers from a more exclusive set of cases and that leaves the Bank of England with little choice, despite the consensus that this inflation is due more to source issues than demand 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 limit when their constant-rate loans mature, and they will have to absorb much higher payments. As borrowing costs account for a larger percentage of consumers’ take-home pay, this can have dire consequences for the economy, as other people restrict their spending to ensure they can pay their bills. Domestic.
The European Central Bank (ECB), as expected, announced that it will raise interest rates by a quarter of a percentage point, raising its deposit rate to 3. 5% while expanding its main refinancing option to 4%, writes Andrew Michael.
The move takes eurozone 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 yesterday’s resolution taken by the Federal Reserve to leave U. S. borrowing prices unchanged for the first time since early 2022 (see article below).
Explaining its resolve to raise rates, effective June 21, the ECB’s Governing Council warned that inflation, even if it falls, will likely remain too high for too long, adding that it is “determined to bring inflation back to its 2% average. ” -long-term goal at the right time. “
The ECB said today’s rate hike “reflects the Governing Council’s updated assessment of the inflation outlook, core inflation dynamics and the strength of financial policy transmission.
“Previous rate hikes are strongly transmitted. . . and have a slow effect on the entire economy. “
Eurostat estimates recommend that inflation in the euro stood at 6. 1% in May. The official figure for the month will be released on Friday.
This compares with 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 release its latest interest rate decision, and markets are pricing in a 25 basis point increase. If true, it would bring the UK bank rate to 4. 75%, its point in 15 years.
Joseph Little, 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 Fed’s position and pausing 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 get us to 5. 75%. Even uglier inflation data could simply push those expectations all the way 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 remains between 5% and 5. 25%, its level since 2007.
While the Federal Reserve’s decision to keep rates on hold rather than raise them was widely expected, it is less transparent whether today’s resolution marks the end, or merely a pause, of the country’s tightening of financial policy.
The move was due, at least in part, to the latest official U. S. inflation figures. US Census Papers released yesterday, which showed a sharp month-on-month drop from 4. 9% to 4% (see article below). However, this means that costs for customers continue to rise. It will increase annually to double the Federal Reserve’s long-term target of 2%, though down from 9. 1% last summer.
With core inflation (where volatile food and energy 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 financial policy stance, the Federal Open Market Committee will continue to monitor the implications of incoming data on the economic outlook.
“The Committee would be 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 inflation figures next Wednesday, ahead of the bank rate decision. Earlier in the day, Chancellor of the Exchequer Jeremy Hunt admitted that the UK had “no alternative” to continue raising interest rates to tackle emerging prices.
Tomorrow, the European Central Bank (ECB) will announce its latest interest rate decision, which will affect borrowing prices across the eurozone’s only trading bloc.
The Federal Reserve, the ECB, and the Bank are mandated to keep long-term inflation at 2% in their respective jurisdictions.
David Henry, investment manager at Quilter Cheviot, said: “For the first time in over a year, the Federal Reserve has kept interest rates at their current level. While this is rarely a very regular big event, this one feels especially important. After all the increases of the last 15 months and the various source chain shocks, 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 watching. Mode: You will wait for your moves so far to take effect on the economy and therefore will not need to brake too hard.
U. S. inflation slowed more than expected to 4% in the year ended May, from 4. 9% the previous month, writes Andrew Michael.
Today’s announcement 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 U. K. , where inflation remains stubbornly high (8. 7%), the rate of value increase in the U. S. has slowed markedly from the 40-year high of 9. 1% reached last summer. Annual inflation in the United States 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 constant interest rate research at Quilter Cheviot, said: “The Fed will be pleased to see inflation decline than expected in May, giving it some breathing room to pause rates for the foreseeable future. “
Seema Shah, Lead Global Strategist at Principal Asset Management, said: “With inflation broadly in line with expectations, the strain is easing. Tomorrow will most likely be the first FOMC meeting since March 2022 without a rate hike. However, with annual core inflation in May, and following the very strong jobs report, the July FOMC meeting is already underway.
Gerrit Smit, fund manager at Stonehage Fleming Global Best Ideas Equity, said: “The particularly steep drop in headline inflation in the U. S. to 4. 0% reinforces confidence that inflation is below and that further tightening by the Fed would possibly not be necessary.
“With employment numbers still as strong as ever, investors don’t want to worry about an impending deep recession, but rather expect a normalizing economic environment with a mild and short recession, if there is one. “
Inflation fell 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.
Today’s figure from the Office for National Statistics (ONS) is the first transparent sign that a long series of interest rate hikes dating back to December 2021 has started to reduce value increases to some extent, but is still well above the Bank of England’s 2. This is significantly higher than the recent 4. 9% in the United States and 7% in the eurozone trading bloc as a whole.
On a monthly basis, the rate measured through the Consumer Price Index (CPI) rose 1. 2% in April 2023, up from 2. 5% in the same month last year.
Grant Fitzner, lead economist at the ONS, said: “The rate of inflation has fallen markedly as last year’s sharp increases in energy values were not repeated in April, but were partially offset by the emerging charge of used cars and cigarettes. However, values remain particularly higher than they were at the same time last year, with annual food value inflation near record highs.
The ONS also reported that the CPI, adding up owner-occupied housing prices (CPIH), rose by 7. 8% in the year to April this year, up from 8. 9% in the previous month. The Bank of England will take a look at the latest knowledge of the ONS should assess it. What to do when the rate of decline, lately at 4. 5%, rose by a quarter point a fortnight ago, its twelfth consecutive increase in 18 months.
The announcement of the Bank Rate is scheduled for June 22.
Speaking before the House of Commons Treasury Special Committee, the bank’s governor, Andrew Bailey, admitted that there were “many lessons to be learned” in the progression of financial policy after the UK central bank failed to wait for the recent rise in inflation. .
Responding to today’s inflation news, Chancellor of the Exchequer Jeremy Hunt said: “The International Monetary Fund (IMF) said we have acted decisively to tackle inflation, but while it is positive that it is now in the single digits, food costs are still rising too fast.
“As well as helping families with 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: “We should not believe that much of April’s decline is due solely to accounting measures. In April 2022, the value of energy will increase by up to 47. 5%. Thanks to the government’s energy value guarantee, this energy increase has now disappeared from the equation year after year, leading to a substantial decrease in the comparative inflation rate. “
The Bank of England has raised its borrowing prices for the twelfth time in a row, writes Jo Thornhill.
In a widely expected move in the markets, the Bank’s Monetary Policy Committee (MPC) voted to raise its bank rate from 4. 25% to 4. 5%, its level since 2008.
The commission, 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 diversity committee this week wrote to several vendors, including Nationwide Building Society, Santander, TSB and Virgin Money, wondering about their higher gains compared to low savings rates and overall capital for customers.
Laura Suter, Director of Personal Finance at AJ Bell, said: “Banks are reacting to two forces: the drawdown 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 savings rates are 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 further effort is needed to stubbornly fight peak inflation and repair some much-needed stability. Hopefully, this will be the last bull run before we start to see a plateau. “
Adrian Anderson, of property finance specialist Anderson Harris, said: “The never-ending story of interest rate hikes continues, dealing another blow to borrowers. The cost-of-living crisis, coupled with the prospect of emerging loan repayments, has prompted a growing number of consumers to transfer to interest-rate loans only to pay to cushion 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 in the UK, where inflation remains stubbornly in double digits at 10. 1%, the rate of increase in value in the US is at 10. 1%. It has slowed markedly from its 40-year high of 9. 1% reached last summer. lowest rate in two years.
The Federal Reserve, the equivalent of the Bank of England, raised interest rates through 0. 25 percent issuance last week — a tenth 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 releases its most recent 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 that the light at the end of the tunnel is shining and that the worst part 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 Fed reason 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 refinancing option stands at 3. 75%, writes Andrew Michael.
Today’s announcement reflects yesterday’s resolution by the U. S. Federal Reserve (see article below). The Bank of England will announce the new bank rate on Thursday, May 11: it currently stands at 4. 25% and is expected to rise from 0. 25% to 4. 5%.
The ECB’s ruling means that interest rates in the eurozone have risen seven times in a row since the middle of last year, even though today’s increase is part of the 0. 5% increase announced in March.
Explaining its decision, the ECB said that while headline inflation has 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 of the United States, raised its benchmark interest rate through 0. 25 percentage issuances in what is widely seen as the latest rate hike measure (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 most recent ruling is arguably the most complicated to date and is something of a balancing act. Inflation currently stands at 5%, down from some of the 10. 1% recorded in the UK in the year to March 2023.
But despite 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 would possibly be the last rate hike of the current cycle, but it remains the most competitive rate hike crusade since the 1980s.
“The resolution will have been carefully weighed because, on the one hand, recent economic insights suggest that inflation remains high, especially in the sector, which was expected to slow. But it’s vital to note that the U. S. banking formula has been in turmoil in recent months, with 4 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.
On a month-on-month basis through March this year, costs increased by 0. 8% to a figure of 1. 1% recorded in both February 2023 and March last year.
The ONS said the biggest 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 spending on food (19. 2%), recreation and culture.
Grant Fitzner, lead economist at the ONS, said: “Inflation eased in March but remains at a peak. The main drivers of the drop were fuel and fuel oil prices, both of which declined 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 up owner-occupied housing (CPIH) prices, rose by 8. 9% in the year to March 2023, up from 9. 2% in the previous month.
The Bank of England will take an in-depth look at the latest ONS data on how to respond to the bank rate, which has recently stood at 4. 25%. Its next resolution will be announced on May 11.
Despite 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 well on our way to getting there, and the Office for Budget Responsibility projects that we’ll bring inflation down some of it 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, with the sharp increases at the start of 2022 outside of year-over-year comparisons, however, this figure brings inflation back to its January level.
“It is now clear that the UK faces a worse and more persistent inflationary challenge than in Europe and the US. Price rises are proving harder to neutralize here, and the Bank of England will almost raise at least another quarter of a percent point from accumulating borrowing costs. “
Tom Hopkins, portfolio manager at BRI Wealth Management, said: “The slight monthly drop can be attributed to a decline in energy costs year-over-year 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 come as a relief to households, raising hopes that the currency crisis is well and indeed receding; An overall figure of 10. 1% won’t bring much relief to households’ portfolios 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 control 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 monthly inflation rate in March rose by 0. 1%, four times less than the 0. 4% recorded in February, the Bureau added.
The current inflation figure of customer costs in the U. S. is still high. The U. S. economy in total has continued to fall over the past nine months.
By contrast, the UK’s recent annual inflation peak – announced in March – saw a surprising rise to 10. 4% year-on-year from 10. 1% in the previous month, after recording three consecutive monthly declines.
Markets have recently speculated that the Federal Reserve wants to maintain the stability of the monetary formula after last month’s global banking crisis, which led to the collapse of Silicon Valley Bank and the acquisition of Credit Suisse through Swiss rival 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 the economy into a recession. it will remain a key element in the Federal Reserve’s decision-making process, but recent events, such as the collapse of Silicon Valley Bank and other lenders, have begun to influence market sentiment and track potential underlying tensions in the U. S. economy.
“However, the Fed will be relieved not to see any nasty surprises in this inflation report, which would help stabilize the situation further. “
Daniel Casali, lead investment strategist at Evelyn Partners, said: “What the Fed expects now is that it will overtighten its policy, leading to a currency crisis in the banking sector.
“The Fed is aware that there are pockets of inflation that are out of its control, namely energy costs. OPEC’s recent production cut has pushed up crude oil costs and forced the Federal Reserve to bring inflation down.
“Despite the hawkish rhetoric from some members of its rate-setting committee, the Fed would likely be reluctant to raise rates too much. “
The Bank of England today raised borrowing prices for the eleventh time in a row in a bid to rid the UK economy of double-digit inflation and despite recent turmoil in the global banking sector, writes Andrew Michael.
The Bank’s Monetary Policy Committee (MPC) raised the bank issuance rate from 0. 25 percent to 4. 25 percent, its point in 15 years.
In light of its resolution, which in line with economists’ forecasts, the MPC – which voted 7-2 in favor of the resolution – maintained its position that any further rate hikes would depend on emerging symptoms of inflation.
Today’s announcement will have a swift effect on the finances of approximately 1. 4 million homeowners whose borrowing costs will be affected by the decision.
According to the UK Finance banking framework, around 640,000 loan borrowers who benefit from tracking products, which fall based on key rates, will see their bills pile up to an average of £285 per year.
In addition, a further three-quarters of a million customers, who will benefit from so-called adjustable-rate mortgages, will face £182 in additional fees during the year.
Households with fixed-rate mortgages won’t enjoy a monthly increase in their monthly payments, but they could 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 U. S. regional banks, as well as UBS’s acquisition of its Swiss subsidiary. . rival, Credit Suisse.
The Bank of England said today that its Financial Policy Committee has briefed the MPC on recent global banking developments, adding: “The FPC believes that the UK banking formula maintains strong capital and liquidity positions, and is well positioned to continue 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 quickly. Even if the dangers of contagion of “The crisis of the technology banks and Credit Suisse seem to have eased for the moment, the Bank of England will have to be cautious if it decides to tighten its financial policy even further from now on. “
The Bank Rate is scheduled to be announced on May 11.
Last night, the U. S. 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 closely attentive to inflationary risks. “
Analysts have concluded that if inflation stays above target for an extended period, the Federal Reserve will be hesitant to raise interest rates further.
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 forecast last week that inflation would fall to 2. 9% over the course of 2023. While this figure will remain stubbornly high in the coming months, it is conceivable that the bank rate will remain close to its current level. . level.
Inflation, as measured by the Consumer Price Index (CPI), rose to 10. 4% year-on-year in February, according to figures released through the Office for National Statistics (ONS), writes Kevin Pratt.
The increase, which 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 rose 1. 1% month-on-month, compared to a 0. 8% month-over-month increase in February 2022.
Looking at the consumer price index, which includes owner-occupied housing (CPIH) costs, it rose 9. 2% in the 12 months through February 2023, up from 8. 8% in January.
The largest upward contributions to the annual CPI inflation rate came from housing and housing (mainly electricity, gasoline and other fuels), as well as food and non-alcoholic beverages.
Rising energy prices are a persistent result of Russia’s invasion of Ukraine in February last year.
On a monthly basis, the CPI increase rose to 1. 0% in February 2023, compared to a 0. 7% increase in February 2022.
The Bank of England will 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 been scrambling in January to find tempting deals to recoup some of the cash that consumers hadn’t spent over Christmas. Normally, New Year’s clothing sales would have given way to full-price sales. spring lines before the twinkling lights were put away. But we are in a general moment and shops and hospitality establishments took advantage of the month of February to withdraw.
“There has been good news: the price at the pump has dropped even further and shipping costs have also dropped. And while energy prices are still uncomfortably high compared to last year, at least families don’t have to worry about an increase in the price of electricity. end of the month, which prevent a rise in inflation in April.
“And from what we can read, manufacturers’ prices continue to fall, basically because of the fall in the price of oil. Wholesale fuel prices and the price of other commodities are also falling, but there is a lag and this makes the situation uncomfortable for both businesses and families looking to balance their weekly budgets.
The U. S. Federal Reserve will announce its latest interest rate resolution later today. Its current target rate is between 4. 5% and 4. 75%; An increase to 5 per cent is conceivable, even if US inflation is low at 6 per cent.
The Bank of England has reacted to rival UBS’s takeover of crisis-hit bank Credit Suisse with the aim of reassuring UK bank customers and money markets.
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 available status comforts and serves as a vital backstop in easing stress in global investment markets, helping to mitigate the effects of such source pressures. “families and businesses.
The European Central Bank (ECB) has raised interest rates by 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 tensions in the markets and is in a position to react if necessary to maintain monetary value and 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 rightly said 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 criticised for being behind in the global fight against inflation, being the last of the three major central banks to start its cycle. However, those lagging advances may simply turn this lagging position into an advantage.
“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 battling inflation, the Federal Reserve is grappling with three banks in the coming week and broader considerations about monetary stability.
Consumer costs rose 0. 4% month-on-month in February this year, according to official figures from the U. S. Bureau of Labor Statistics released today.
The Bureau said housing contributed the most to the increase in monthly value, accounting for nearly three-quarters of the increase. Higher prices on food, recreation and home furnishings also contributed to the increase.
The most recent data indicates that U. S. consumer costs as a whole have continued to decline for the past eight consecutive months. However, the Federal Reserve’s mandate is to keep inflation at 2% over the long term.
While the 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 which path the U. S. central bank will take. See the U. S. below.
Richard Carter, head of constant interest rate research at Quilter Cheviot, said: “US inflation continues to fall and suggests that the Federal Reserve’s moves are doing their job by bringing it down, pushing the economy into recession. However, core inflation remains problematic and more stubborn than many would like, leaving additional rate hikes on the table.
“Inflation will continue to be the Fed’s main decision-maker, but the events of the past few days are starting to weigh on market sentiment and there are dangers that the U. S. economy is under pressure in the background. However, we welcome the absence of duels in this inflation report, which helps to calm the situation after a very dubious week.
“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 customer value was higher than expected at 6. 4%, prompting the Fed to hint that it would increase 50 fund issuances at its March 22 meeting, out of the usual 25 ‘Expected Foundation Issues’.
“However, given the 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 below 9. 2% in the previous month, writes Andrew Michael.
Eurostat, the statistical agency of the European Union (EU), said that the inflation figure in the eurozone, made up of 20 countries, stood at 5. 6% in January 2022.
Across the 28 EU countries, inflation stood at 10% in January, up from 10. 4% in December, almost double the 5. 6% figure recorded in January 2022.
Eurostat said the main participants in the latest eurozone inflation figure came from emerging prices of food, alcohol and tobacco.
The data compiler added that the euro-dominated countries with annual inflation rates in January were the Baltic states of Latvia (21. 4%), Estonia (18. 6%) and Lithuania (18. 5%).
By contrast, the lowest rates were recorded in Luxembourg (5. 8%), Spain (5. 9%), Cyprus and Malta (both 6. 8%).
In a bid to combat stubbornly high levels of inflation, four times higher than the EU’s 2% inflation target, the European Central Bank (ECB) raised its main borrowing prices through 0. 5 percent issuance across the euro from 8 February.
Coinciding with its latest announcement on inflation, the ECB revealed its target to increase loan prices through 50 core issues in its next interest rate resolution on 16 March.
Explaining its thinking, the ECB said: “Keeping interest rates at restrictive degrees will, over time, reduce inflation by dampening demand and will also counter 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 last night’s minutes of 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 prices fell 0. 1% on a monthly basis through January this year. The main participants in the drop came from shipping (passenger and fuel transport), as well as restaurants and hotels.
Higher alcohol and tobacco costs counteract this trend.
Grant Fitzner, lead economist at the ONS, said: “Although still at a peak, inflation slowed in January. This is due to declining air and train costs after last month’s sharp increase. Gas costs continue to fall, and the costs of restaurants, cafeterias, and takeout have decreased.
“Other indications are that the costs faced by companies are rising more slowly, due to the decline in crude oil, electric power and oil costs. However, corporate costs remain the highest overall, especially for metal products. “
Today’s figure comes on the heels of yesterday’s US inflation figure, which showed a continued downward trend (see story 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 may offer some reassurance at the end of the tunnel, costs remain at their highest level in 40 years and many continue to face a cost-of-living crisis. People are faced with a difficult balancing act: securing enough cash liquidity during an era when we’ve narrowly avoided recession, while also making a smart investment to prevent inflation from eating away at all savings.
Julia Turney, wife of Barnett Waddingham, said: “Inflation is slowing, but the war on the burden of living continues. After hitting a 41-year high of 11. 1% in October, a third consecutive drop in inflation since November to 10. 1% in January suggests that we are making slow but steady progress towards the Bank of England’s 2% inflation target.
“As positive as this news is, we will need to prevent prices from remaining at record levels and it will be a long time before the pressure on households is eased. “
U. S. inflation fell to 6. 4% for the year to January 2023, a higher-than-expected figure but lower than the 6. 5% recorded a month earlier, according to today’s official figures, writes Andrew Michael.
Forecasters had expected the annual rate of expansion of customer costs to slow to 6. 2%.
The Consumer Price Index for All Goods, compiled by the U. S. Bureau of Labor Statistics, is based on the Consumer Price Index for All Goods. In the U. S. , it 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 for the latest update, commentators say U. S. inflation remains decidedly under control and that the Federal Reserve, the U. S. central bank, has more to do to rein in emerging market prices.
Last month, the Federal Reserve raised its benchmark interest rate through 0. 25 percent issuance as part of its ongoing fight against inflation.
In the wake of the Federal Reserve’s announcement in January, the Bank of England and the European Central Bank followed suit and raised their key interest rates by a fraction of a percentage point.
All three institutions are mandated to 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 across 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 Fed’s homework is already done, 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 US Federal Reserve – that of the Bank of England – imposed a 0. 25 percentage point increase in its budget rate, bringing it to a variation of 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 result in an almost immediate increase in loan prices for around two million UK loan consumers with variable or tracking rate 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, increases in the Bank Rate since December 2021 are expected to have an expansionary effect on the economy in the coming quarters. “
Jeremy Hunt MP, Chancellor of the Exchequer, said: “Inflation is a stealth tax that poses the biggest risk to living standards in a generation. Hence the Bank’s action today to halve inflation this year. “
Brian Murphy, head of lending at the Mortgage Advisory Bureau, 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, raising the base rate. “This will inevitably leave many homeowners stuck and worried about the prospect of an even bigger increase in their borrowing costs.
Mike Stimpson, of wealth adviser Saltus, said: “Today’s rate hike, the third consecutive 0. 5% hike, may have a significant effect on homeowners, many of whom are already struggling to cover their monthly payments.
“For a follow-on loan, currently at 4. 5%, an increase of 0. 5% will add an extra £41 to the monthly payment on a £150,000 loan set over 20 years. Our most recent wealth index report shows that 35% of lenders are already struggling to cover the burden of the last two rate hikes, while 43% admit that any further increase would put them in trouble.
“Of those who believe an increase in additional rates would spell trouble, one in seven (15%) said they would turn their loan into interest just to afford it, one in five (22%) were contemplating cutting their pension contributions. , while one in 30 say they would have touted their wealth to move to a less expensive location.
Thinking about savers, Dan Howe of Janus Henderson Investors said: “The new rate hike is likely to inspire mixed emotions among investors across the country looking for higher yields. While an increase in the base rate is good news for those with money in savings accounts, it doesn’t guarantee that providers will raise their rates for the time being.
“Diversification is a must for those who want to protect their savings from inflation and are in favor of expansion in real terms. A savings account with a smart rate of return has its role, but so does a sensible investment. “
The European Central Bank (ECB) also announced that it will increase its main borrowing burden through 0. 5 percent issuances from 2. 5 percent to 3 percent, starting Feb. 8, in a bid to bring down inflation in the euro area.
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 evaluate its policy, adding: “Keeping interest rates at restrictive degrees will reduce inflation over time by moderating demand and also countering 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 additional increases in 2023.
Today’s announcement called for a more modest rate increase than the last five consecutive hikes that began last summer, about 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 in which economic policy affects economic activity and inflation, and economic and economic developments. “
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 have 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, which hurts the economy too much, has tested the Fed’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 biggest contribution to the drop in inflation came from transportation, motor fuels, as well as clothing and footwear, which were offset by higher costs in restaurants and hotels, as well as food and non-alcoholic beverages.
Grant Fitzner, lead economist at the ONS, said: “Inflation eased slightly in December, remains at a very high level, and overall costs rose sharply over the year as a whole.
“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 simply 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. “
Mr. 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.
“This is indeed a critical moment, as wage agreements are being negotiated in the public and private sectors, and economic forecasts expect a deep and prolonged fall in our popular standard of living. The Bank of England expects inflation to fall sharply from the middle of the year, but we won’t 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, a subsidiary of the Bank of England, raised its benchmark interest rates through issuance from 0. 5 percent to a range of 4. 25 percent to 4. 5 percent, 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 further confirmation of the downward trend in US inflation is constructive in further rebuilding overall investor sentiment and confidence that the Fed has been a success 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 US Federal Reserve also imposed a 0. 5 percentage point increase in its budget rate to between 4. 25% and 4. 5% (see next article).
Both the Bank of England and the Federal Reserve are tasked with maintaining long-term inflation of 2%.
Today’s announcement through the Bank will lead to an almost immediate increase in loan prices for more than two million UK loan consumers who have taken out floating rate loans.
Those with consistent rates may not see a quick replacement in their monthly payments, but they may face more expensive loans when their current contract ends.
The Bank said the MPC’s nine-member committee voted 6-3 in favor of today’s decision. Of the 3 dissenters, two members were in favor of keeping the bank rate at 3%, while one called for an increase of 0. 75 percentage points.
Explaining its decision to raise interest rates, the Bank said that while peak symptoms of bottlenecks in global supply chains had shown signs of easing, “global inflationary pressures remain elevated. “
It adds: “The labour market remains tight and there have been signs of inflationary pressures on domestic costs and wages that could require greater patience and thus warrant a more competitive policy response. “
Russ Mould, chief investment officer at AJ Bell, said: “While there are signs of slowing inflation, it is still well above the Bank of England and the Federal Reserve’s 2% target. The market’s hard work is also too strong for central banks to prevent further rate hikes.
“Rising rates make it more expensive for consumers and businesses to borrow cash and theoretically lead to reduced spending and investment, which deserves to help ease the economy and lower prices. It takes time to find its way through the formula, so central banks will continue their policy of raising rates until there is sufficient evidence of a policy change.
Jenny Holt, managing director of visitor savings and investments at Standard Life, said: “Our research shows that even with an interest rate of 3. 5%, higher than 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), as well as the Bank of England and the US Federal Reserve, increased their main borrowing rate through percentage issuances from 0. 5% to 2. 5% in a bid to combat inflation in the eurozone.
The ECB called inflation too high: “Interest rates will continue to need to rise, mostly at a sustained pace, to achieve a sufficiently restrictive return of 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 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 streak of four consecutive 0. 75 percentage point hikes that began this summer.
The slowdown in the pace of accumulation follows yesterday’s official figures showing that US inflation had fallen to 7. 1% for the year to November 2022, its lowest point in 12 months, and down from 7. 7% last month (see article below).
Earlier in the day, it gave the impression that inflation in the UK had also slowed slightly, from a 41-year high of 11. 1% to 10. 7% in the year to November.
Countries around the world are battling inflationary pressures brought on by a poisonous economic cocktail of rising energy costs and chain bottlenecks exacerbated by the war in Ukraine.
The Federal Reserve, tasked through the U. S. government with keeping inflation at 2% consistent with the year, warned that additional increases in the budget rate would be needed in 2023: “The Committee believes that ongoing increases in the diversity of targets will be adequate to fund policy that is restrictive enough to bring inflation down to 2% over time.
It indicates that a variety of factors are driving prices: “Inflation remains elevated, reflecting pandemic-related supply and demand-related imbalances, emerging food and energy prices, and broader price pressures.
“Russia’s war against Ukraine is causing enormous human and economic hardship. The war and the resulting events are contributing to increased pressure on inflation and weighing on global economic activity.
Today’s shift to a smaller rate hike will likely also be mimicked through the European Central Bank, which is expected to favor a 0. 5 percentage point increase.
Richard Carter, head of constant interest rate research at Quilter Cheviot, commented on the Fed’s decision: “This will inspire some investors who may see it as a sign of an inflection point in the fight against inflation. He’s confident in his hard stance and believes it’s working, though he may not need to take his foot off the gas just yet.
“Markets 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 may be coming down, but it’s still very much in the system. In fact, facility inflation remains a fear and will be the next key indicator to watch. Despite this positive news, many uncertainties remain about the long-term nature of the economy and the direction of interest rates.
Inflation in the UK has slowed from a 41-year high of 11. 1% to 10. 7% for the year to November 2022, according to the 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 by 0. 4% in November this year, with a 0. 7% increase 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%) in a bid to combat 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.
Responding to today’s inflation figure, Jeremy Hunt, Chancellor of the Exchequer, said: “Bringing inflation down so that people’s wages go up is my most sensible priority, which is why we will be keeping energy costs low this winter through our Energy Price Guarantee scheme and implementing a plan to partially reduce inflation next year.
“I know it’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 sharply over the past week and demand for fuel will undoubtedly increase as people are forced to heat their homes. As the autumn has been fairly mild, we are only now starting to see the true effect. While government aid remains in place for now, any adjustments made once the April deadline is reached may have a knock-on effect on inflation.
Inflation in the United States slowed to 7. 1% in November of the fiscal year from 7. 7% the previous month, putting the most recent figure at its lowest annual rate since December 2021, writes Andrew Michael.
The U. S. Bureau of Labor Statistics The U. S. Department of Health reported (Tuesday) that customer costs rose 0. 1% between October and November this year, after rising 4 times that rate in the month to October.
According to the Bureau, housing “was by far the largest contributor to the monthly increase across all items, more than offsetting declines in energy indices. “
The pace of annual expansion in customer value slowed more than expected last month (forecasters had expected a reading of 7. 3%), justifying an easing in the severity of its recent financial tightening policy through the Federal Reserve, the U. S. central bank.
In November, in an effort to curb rising inflation levels caused by a damaging combination of economic conditions, in addition to skyrocketing energy prices, the Federal Reserve raised its benchmark interest rate by 0. 75 percentage points, a fourth consecutive historic increase of that size.
The federal budget rate is now at 3. 75% to 4%, its highest point since January 2008, at the height of the global currency crisis.
The 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 causing 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 just 18 months. However, with the rate still five times higher than the EU’s 2% target, forecasters estimate that the European Central Bank will raise interest rates across the bloc by a fraction of a percentage point at its next Governing Council. assembly on 15 December.
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 by 2% in October from September, almost double the 1. 1% recorded in the same year last year.
Grant Fitzner, lead economist at the ONS, said: “Rising fuel and electricity prices have pushed headline inflation to its highest point in more than 40 years, despite the energy price guarantee. Over the past year, fuel prices have increased by nearly 130%, while electricity prices have increased by around 66%.
Fitzner added that an increase in a variety of foods also boosted the inflation figure, this was partially offset by a drop in fuels, adding to a drop in the price of gasoline.
With double-digit inflation since September, the most recent rate hike will be a hard-to-digest tablet for families already mired in a severe cost-of-living crisis.
Earlier this month, the Bank of England raised interest rates for the eighth time in less than 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 lend a hand to the Bank of England in its project to bring inflation back to its target [2%] by acting responsibly with the country’s finances. This requires difficult but mandatory decisions on taxes and spending 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 British pound continues its slow rally against the dollar, but while in the US CPI inflation has slowed, the UK has been very lucky, and the Bank of England has said that a significant drop in inflation is unlikely for several years. 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 U. S. inflation. Today’s knowledge bolstered hopes that the U. S. Federal Reserve will refrain from extra-competitive interest rate hikes that would put pressure on the dollar.
Earlier this month, the Federal Reserve also attempted to curb rising inflation levels by raising its benchmark interest rate by 0. 75 percentage points, a fourth consecutive increase of such unprecedented magnitude.
In pronouncing its new hike, the Federal Reserve predicted that “continued increases” in U. S. interest rates would mean that its inflation-fighting policy would be “restrictive enough” to return grades to their long-standing 2% target.
The latest inflation insights come on the heels of this week’s U. S. midterm elections, in which the GOP’s expected “red wave” failed to materialize.
Despite this, the party is most likely to take over the smallest space in Congress, the House of Representatives. The Senate race remains balanced with four state effects yet to be announced.
Stuart Clark, portfolio manager at Quilter Investors, said: “US inflation has fallen again, giving some impetus to the concept that we are now the worst. The rate is lower than expected, which will bring some relief to consumers and the market as a result as a whole, although it should be noted that food and housing continue to rise, so we are not completely out of the woods yet.
“Inflation also remains stubbornly high, and as such, the Fed will maintain its hawkish stance for some time. “
Samuel Fuller, 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 resolution through the Bank of England will cause a rapid rise in prices for around 2. 2 million loan consumers in the UK who have taken out variable or variable rate loans. Those who take advantage of follow-up agreements, which reflect movements in the reduction rate, will delight in a notice that will affect their payments.
Sarah Coles, senior 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-related savings, they are content to continue offering depressed rates. less than a part consistent with 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 of bringing 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 U. S. Federal Reserve also attempted to curb rising inflation levels by raising its benchmark interest rate by 0. 75 percentage points, a fourth consecutive increase of this magnitude that will go down in history, writes Andrew Michael.
The 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 taking hold.
Last week, the European Central Bank raised its key interest rate to 0. 75% for the time in a row. Deposit rates, which were negative last August, now stand at 1. 5% in the euro area.
The Fed’s announcement on rate setting will be on December 14.
Richard Carter, head of constant interest rate research at Quilter Cheviot, said: “There’s still a lot of uncertainty about where rates will peak, and there’s a genuine fear that the Fed will tighten too much and push the U. S. into a crisis situation. The result is a painful recession.
“Today’s suggests that the Fed believes it still has a long way to go in its fight to tame inflation, but we can expect the speed of long-term rate hikes to slow as we head into the new year, which deserves reassurance to investors. “
Sonia Meskin, head of U. S. macroeconomics at BNY Mellon Investment Management, said: “The real question for investors is the trajectory of 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 reduction in unit values is the result of the government-funded energy price guarantee for domestic consumers and the energy bill relief program for non-domestic consumers.
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 raised its key interest rate through 0. 75 percent issuances to curb rising inflation levels 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, rising energy and food prices, resource bottlenecks and the recovery in demand from the pandemic have led to increased price pressures and emerging inflation. The Governing Council’s financial policy aims to cut “We call and protect ourselves against the threat of a persistent upward expansion of inflation expectations. “
Anna Stupnytska, global economist at Fidelity International, said: “As today’s resolution is widely expected, the focus is now on the track of rates. The ECB continues to face a difficult trade-off between peak inflation and a deteriorating economic outlook, with a looming recession on the horizon.
“As the global energy crisis unfolds 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 sticks to the triple lockdown, today’s figure (which is that of the three measures) means that state pensions will increase by 10. 1% from the start of the fiscal year next April.
However, there are several reports that the Prime Minister and his Chancellor will not live up to their commitment to use the figure of the three, given the peak of inflation.
The ONS said the CPI rose 0. 5% in September from August, a larger increase over 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 increase was due to additional increases in the food sector, which saw the biggest annual increase in more than 40 years, while hotel costs also rose after falling at the same time last year.
The resurgence of double-digit inflation will be a hard pill to swallow for families (who are 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 due to rising energy prices, post-pandemic global supply chain compression, 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%, having been raised seven times in less than a year. The announcement of the bank rate 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 two years of running from 1 October, the guarantee will only be in force until April 2003.
Samuel Tombs, Lead Economist at Pantheon Macronomics, said: “September’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 drop of 0. 1 points is part of the figure predicted by meteorologists.
The Bureau said increases in housing, food and health care costs during the month were partially offset by a drop in fuel prices, but noted that the cost of herbal fuel and electricity had risen over the same period.
On a monthly basis, the Bureau reported that client costs increased by 0. 4% between August and September. This compares to a 0. 1% increase from July to August 2022.
The Bureau’s headline consumption value figure for September, which excludes food and electricity, hit a 40-year high of 6. 6%. This is higher than the 6. 5% expected, as well as August’s 6. 3% figure.
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 3-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 and 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 weak GDP as an explanation for easing [interest rate] policy. The government, for its part, is obviously looking for a severe recession through accommodative fiscal policy. We look forward to hearing the main points on how this will be funded.
Chancellor Kwasi Kwarteng will announce the main points of his fiscal policy on October 31.
The Bank of England has expanded its intervention in the bond market (this time with inflation-linked bonds) in a bid to avoid a sharp sell-off in UK government debt, writes Andrew Michael.
Yesterday, the Bank said it was taking “additional steps” to strengthen the emergency aid package it unveiled in September and which is due to close at the end of this week.
This included an increase in the duration of potential gold bond purchases from £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 comes into force without delay and will last until Friday, coinciding with the Bank’s traditional public debt auction.
The Bank said, “These new operations will serve as an additional hedge to repair orderly market conditions. “
Bonds are a form of promissory note that governments and corporations factor when they need to borrow money. In exchange for a loan, the bond factor will pay interest on the interest on a bond for a set period of time until the life of the note expires, at which point the original loan is also repaid.
The value of U. K. government bonds, or gilts, fell sharply in the wake of the Sept. 23 mini-budget, forcing the Bank to interfere to salvage what it described as a “significant threat to monetary instability” and “any similar threat to monetary instability. “contagion to credit situations for UK households and businesses.
Victoria Scholar, chief investment officer at Interactive Investor, said: “The Bank has extended its intervention in the UK government bond market to compensate for market ‘dysfunction’ and curb monetary contagion.
“The UK central bank is adding inflation-linked government bonds to its purchases, buying up to £5 billion a day, due to concerns about the effect of the bond market slump on pension funds. This comes a day after the Bank of England expanded its measures by introducing short-term investments for banks to help ease pressure on pension funds.
“UK government bonds are set to reclaim a floor this morning after yesterday’s sharp sell-off. “
The Bank of England (BoE) has announced new measures to keep UK money markets running, following last month’s turmoil in the pensions sector following the government’s mini-budget, writes Andrew Michael.
In a surprising move, the Bank of England introduced primary intervention in the U. K. government bond market, or gilts, in late September to salvage what it described as a “significant threat to monetary instability. “
The decision, which concerned a transitional program to buy billions of pounds worth of public debt, was taken in the wake of the Chancellor of the Exchequer’s monetary report which sent shock waves through the markets and put enormous pressure on the liquidity of the UK pension funds.
Today, the Bank of England said it would take “additional steps” to expand its aid as it prepares to finalize its contingency plan on Friday.
In the initial program, designed to last a fortnight, the Bank of England promised to buy up to 65 billion pounds of government securities at 5 billion pounds a day. Purchases of government securities through the Bank of England are made through an auction process.
So far, the U. K. ‘s central bank has bought bonds worth around £5 billion, after quelling the initial panic in the market that 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.
The British pound returned to its pre-mini-budget levels against the dollar when the UK’s official forecaster revised its calculations, apparently the country went into recession over the summer, writes Andrew Michael.
The British pound rose against the dollar to $1. 116 this morning, after retreating from its low of just over $1. 03 last week via a market crash in reaction to the government’s recent proposals for a gigantic series of unfunded tax cuts.
The uptick comes as the Office for National Statistics (ONS) revealed that the UK economy grew by 0. 2% in the second quarter of this year, with an earlier estimate of a 0. 1% drop.
This discrepancy in the gross domestic product figure – a measure of a country’s output generated through goods and facilities – is small but makes a significant difference to its economic situation. In fact, a recession is explained as two consecutive quarters of contraction.
The revised figure means that the UK, despite its precarious position after a tumultuous week in the markets and amid a severe cost-of-living crisis resulting from rising inflation, technically cannot yet be considered a country in recession. The review contradicts recent information from the Bank of England that this was the case.
Despite the upward revision, the ONS said the total duration of the UK economy is still 0. 2% below its pre-Covid 19 level.
Given the prevailing economic conditions, the city’s forecasters say it’s a matter of “when” and not “if” the UK ends up falling into recession.
Grant Fitzner, lead economist at the ONS, said: “We have published advance GDP figures by incorporating new strategies and sources. These new figures come with more accurate estimates of the money sector and the price developments facing the healthcare sector. pandemic.
“These advance figures show that the economy grew in the second quarter, revised upwards after a slight decline. They also show that although household savings declined in the last peak quarter, they stored more than we had estimated in the past and after the pandemic.
Danni Hewson, currency analyst at AJ Bell, said: “This is not very convenient for families struggling to pay their bills, but the revised figures 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 today to take emergency measures in bond markets amid turbulence that has led to a sharp rise in the cost of public borrowing, writes Andrew Michael.
The Bank of England introduced a wonderful and potentially massive intervention on 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 execute successfully.
Gilts are part of the £100 trillion global bond market and are a kind of promissory note that the UK government issues when it wants to borrow money. They are incredibly important to the UK’s monetary formula, as they have an effect on lending rates. pensions and the state of public finances.
At the center of the intervention, the Bank of England, the central bank of the United Kingdom, announced plans to delay a previous “quantitative tightening” program – which required it for bonds – and update it with a program of buying long-term bonds (which mature to adulthood in 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 reasons of monetary stability, at a pressing pace. “
In reaction to the announcement, the British pound fell 1. 5% to $1. 0571, a few cents above the U. S. currency’s record low this week.
Reacting to today’s Bank of England decision, the Treasury said: “The Bank has known a threat similar to the recent turmoil in government securities markets. It will temporarily purchase long-term UK government bonds from today to restore order in the market. “”.
Ben Laidler, global market strategist at eToro, said: “Desperate times call for desperate measures and that is precisely what the Bank of England warned today. In an attempt to put out the fire that has been burning since last week’s mini-budget, the bank came to the rescue of the free-falling UK bond market, which had begun to shut down the UK lending market.
“The transitory purchase of long-term bonds cancels the Bank’s recently announced ‘quantitatively tightening’ bond sale plan and has already seen an increase in bonds.
Stuart Clark, portfolio manager at Quilter, said: “By incentivising targeted, controlled and seemingly time-bound intervention, the Bank of England will seek to prop up the economy for a more expensive bailout if the situation continues to worsen, especially while preserving its independence.
“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 the overnight industry in Asia, sterling fell to $1. 0327 on Monday morning, its lowest level against the dollar since the advent of decimalization in the U. K. in 1971.
The drop was due to comments from Chancellor of the Exchequer Ki Kwarteng, who hinted that additional tax cuts would follow in the wake of last week’s seismic “fiscal event”, which has yet to be named in the budget.
In a statement from the Bank of England, Bank of England Governor Andrew Bailey said the Bank’s Monetary Policy Committee “will not hesitate to replace interest rates as mandatory to bring inflation back to the 2% target in a sustainable manner over the medium term, in line with its target. “”delivering. “
Bailey added that the Bank of England “is 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 points accumulated from 1. 75 per cent put the bank rate at the level since November 2008, when it stood at 3 per cent.
However, the increase is not as 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 in the U. S. increase. 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 through a given margin, will see a quick effect on their payouts.
For example, the building will add £62 per month to the load of a £250,000 mortgage, or £37 a month to the load of a £150,000 mortgage.
Homeowners who pay variable rates (SVRs), which average 5. 4% according to Moneycomms. co. uk, will see the increase at the discretion of their lender.
Often, banks and lending corporations increase SVRs within a month of the bank rate decision, but lenders will most likely be pressured not to pass on the entire increase as households struggle with other emerging prices such as food, energy, and energy. 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 (as measured through the Consumer Price Index) eased to 9. 9% in the year to August, in part due to declining gasoline and diesel prices, it is still about five times above the government’s target of 2%. What drew criticism: that interest rate hikes 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 down its forecasts for the inflation rate. It expects a peak of just under 11% in October, while in August it 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 resolution of interests through the Bank’s Monetary Policy Committee will take position on November 3.
The Committee said it would not hesitate to raise the bank rate further, saying it would take steps to bring inflation back to its 2% target: “Policy is not on a predefined path. As always, the committee will review and at the appropriate point the type of reduction at each meeting.
“The 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, emphasizing that he remains “very attentive to inflationary risks. “
The Federal Reserve’s stated goal is to achieve a peak employment and inflation rate of 2% over the long term, the same rate as the Bank of England, which announces its latest resolution on interest rates (on Thursday).
In addition to the sharp increase in target diversity 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 target diversity “will be appropriate. “
Rates are expected to reach 4. 60% next year before falling again.
The Federal Reserve will also maintain its holdings of U. S. Treasuries and other debt instruments.
Kwasi Kwarteng MP, 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 devastating 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 financial difficulties that families and businesses are experiencing lately due to rising energy prices. The energy price guarantee, announced by the Prime Minister on 8 September, lacks important details in several areas, adding how they will apply to businesses. Mr Kwarteng will therefore be pressed to provide more details on the government’s wider plan.
That said, it is conceivable that Mrs Truss herself will provide more main points in the days following the Queen’s funeral on Monday, given that she revealed the plan in a speech in the House of Commons.
In a bid to breathe life into the UK’s rate of expansion, the chancellor is expected to unveil cuts to national insurance and cancel plans to raise corporate tax rates from 19% to 25% next April.
The chancellor is also likely to push for a post-Brexit deregulation initiative and would also be in favour of the EU-imposed cap that limits the amount bankers can earn in bonuses.
Inflation in the UK eased to 9. 9% in the year to August, according to the most recent figures from the Office for National Statistics (ONS), writes Andrew Michael.
A drop in the customer value index, of 10. 1% in the year to July, was the first drop since September 2021. The trajectory echoed a similar trajectory to the inflation figure reported in the US. This may also simply be a sign that the recent rise in values has possibly 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 cut in the policy rate, UK inflation is still about five times higher than the Government’s 2% target set for the Bank of England (BoE) and continues to put pressure on consumers and households already suffering from the effects of inflation.
The Bank of England has continuously warned this summer that UK inflation could peak at around 13% this winter and remain at higher levels in 2023.
The ONS said that in addition to falling oil prices, the main participants in August’s inflation came from housing and household services, transport, food and non-alcoholic beverages.
In recent months, the UK, like many countries around the world, has been severely impacted by inflationary headwinds stemming from emerging energy prices, post-pandemic global chain compression, 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.
While below the 40-year high announced in July, today’s inflation figure is unlikely to dissuade the U. K. central bank from delivering any further rate hikes, potentially as much as 0. 75 percentage points, when the Bank of England releases its latest announcement. .
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, thanks in part to the government’s energy value cap.
“Looking ahead, we expect headline CPI inflation to reach close to 11% in October, driven by an increase in the contribution of electricity and vegetable fuel prices. But we are increasingly convinced that October’s CPI inflation rate will turn out to be the peak and decelerate in 2023. “
Andrew Tully, technical director at Canada Life, said: “Today’s inflation 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 cap energy expenditures 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 per cent, 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 sterling pull away from a near 40-year low.
The latest inflation figures are intended to distract the U. S. central bank, the Federal Reserve, from continuing its competitive policy of interest rate hikes. Its next announcement will be made on Wednesday, September 21.
Inflation in the UK is at a 40-year high of 10. 1% and the latest inflation figure will be released (Wednesday) through the Office for National Statistics. The Bank of England will announce its latest resolution 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 across the 19-member currency bloc would rise from 0% to 0. 75% (its point since 2011) and warned that further increases 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 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.
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 slip into a recession later this year, as rising energy costs – caused essentially by Russia’s restrictions on key European fuel materials – would grip 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 to banks and savers who have been financially repressed, but it would solve the energy crisis exacerbated by Russia’s ongoing aggression against Ukraine. “
James Bentley, head of Financial Markets Online, said: “The ECB would possibly have driven a carriage and horses towards European unity.
“Key economic reforms in the euro area have been conspicuous by their absence during 10 years of low growth, while policymakers have continued to pursue a consistently accommodative financial policy. As the ECB prepares to raise interest rates further in the coming months, a balance sheet is on the horizon. “
Inflation in the eurozone hit a record high of 9. 1% in the year to August 2022 as Europe’s cost-of-living crisis deepens, writes Andrew Michael.
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 sensitive on the list are the Baltic states of Estonia, Lithuania and Latvia, which until 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 in just 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 costs around the world fell after U. S. Federal Reserve Chair Jerome Powell said the central bank would continue to raise 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 competitive support despite symptoms of slowing inflation. Inflation may be slowing, but it’s still too high for the Fed’s liking and Powell is willing to threaten further expansion and work the market’s fitness 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 U. K. and Europe are trading at about 10 times headline levels, and other forecasters have also raised their inflation forecasts.
Last week, emerging energy costs were one of the biggest participants in annual customer costs in the UK, hitting a 40-year high of 10. 1% through July 2022.
Citi expects the retail energy price cap in the UK, which limits the amount of fuel and electrical power businesses can qualify for constant energy pools and costs, to reach £4,567 in January and then £5,816 in April.
The limit, set by electricity regulator Ofgem, currently stands at £1,971 per year for a household with average consumption. The figure for its next planned increase in October, which will be later this week, is already expected to exceed the British pound. 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 of inflation reached in the UK after the 1979 oil crisis, when the Customer Value Index reached 17. 8%.
Inflation in the UK hit a new 40-year high of 10. 1% through July 2022, according to the most recent figures from the Office for National Statistics (ONS), writes Andrew Michael.
The rise in the consumer price index (CPI) exceeds economists’ forecasts of 9. 8% and will put additional pressure on consumers and families already in the grip of a life 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 been severely impacted by inflationary economic difficulties 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 government’s 2% target for the Bank of England (BoE). The Bank of England recently forecast that inflation would peak at around 13% by the end of this year and remain at “elevated levels. “2023.
In a bid to fight emerging prices, the Bank of England recently raised interest rates to 1. 75%, the sixth hike since 2021. Today’s inflation announcement may lead to a rate hike when it considers its next resolution in September.
Yesterday, 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 is building up basically because of rising food costs. With adjustments to the value limit made through energy regulator Ofgem in October, which are expected to bring the inflation rate to around 13%, UK families are going through 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 noticed a decline in its inflation rate, and this relief is attributed in part to the decline at the pump.
Gross domestic product (GDP) figures released today through the Office for National Statistics (ONS) show that the UK economy grew by 0. 1% in the second quarter of the year, from April to June 2022.
There was a significant relief of 0. 6% in June, attributed via the ONS to a relief in economic activity due to Queen Elizabeth’s Platinum Jubilee celebrations: “It is vital to note that the Jubilee and the May bank holiday change resulted in a roll-off accumulation in May 2022 and two fewer rolling days in June 2022.
“This should therefore be taken into account when interpreting the seasonally adjusted movements for May and June 2022. “
The economy grew 0. 4% in May after growing 0. 8% in the first quarter of the year. But economists agree that the economy’s long-term trend is toward a recession, sometimes thought of as a contraction of the economy for two consecutive quarters.
The ONS 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.
In terms of consumer spending, the ONS indicates that household spending fell in real terms (excluding the effect of inflation) to 0. 2% in the second quarter.
He says we’re spending less on tourism, clothing and footwear, comfortable 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’s decision when it meets in September 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.
“Although the Bank had expected a slight contraction in GDP in the second quarter, the growing weakness of the UK economy would possibly 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 declining fuel prices, with the energy index falling 4. 6% month-on-month through July.
Consumer prices in the UK rose by 9. 4% in the year to June 2022, and the Bank of England recently warned that the inflation figure could reach 13% by the end of the year. The Office for National Statistics will release 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 between 2. 25% and 2. 5%, the second such hike 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 current 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 domestic recession since the “credit crisis” of 2008.
A recession is universally explained as two consecutive quarters of negative GDP or gross domestic product expansion, a measure of a country’s economic output. In times of recession, the economy is struggling, other people are squandering their jobs, businesses are making fewer sales, and the country’s overall economic output is declining.
The Bank also revised its inflation forecast to more than 13% through 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 gasoline and diesel costs, as well as food prices.
After another round of interest rate hikes (the sixth in seven months), borrowing burdens will also rise further. Two million loan owners will be affected, and millions more will stay with them when they come to lend again or buy their first home.
However, the Bank said the rate hikes were to control rising inflation and “do its job” of bringing it back to its 2% target.
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 policy rate from 1. 25% to 1. 75% (the highest point in 14 years) in a widely expected move to curb rising inflation in the UK, writes Andrew Michael.
The most recent data showed that UK inflation, as measured through the consumer value index, had hit a 40-year high of 9. 4%, as of June 2022.
But, 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’s first increase of this magnitude in 27 years and the first since the committee’s inception 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 U. S. central bank, to raise its benchmark target interest rate by 0. 75 percentage points, to a rate of between 2. 25% and 2. 5%.
Inflation in the United States has recently stood at 9. 1%. The Bank of England and the Federal Reserve have an inflation target of 2%.
Alice Haine, a 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 a recession, the country is grappling with an emerging life burden crisis, while demanding global situations such as the Ukraine-Russia war are driving food and fuel prices to skyrocketing levels. “
Haine added: “The new interest rate hike will also affect the entire government for families who are suffering. Up to 8 million vulnerable families are vying for £1,200 in government aid this year to help them cope with the huge monetary blow caused by the cost-of-living crisis, adding up to the £326 payment made last month.
Les Cameron, Financial Expert at M
The meeting of the BoE’s next rate-setting assembly will be announced on 15 September 2022.
The U. S. Federal Reserve raised its benchmark interest rate 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 story below).
Economists see the duration and speed of those increases as an indication of the U. S. central bank’s growing sense of urgency as it battles inflation that 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 ECB hawks look difficult at the moment, however, they would possibly 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 voting members of the ECB, 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 is back at 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 hit by inflationary economic issues due to emerging energy prices, the contraction of the post-pandemic global chain, 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.
At the City of London’s annual dinner at Mansion House yesterday, Bank of England Governor Andrew Bailey raised the option of a half-percentage-point interest rate in early August, while hardening the central bank’s rhetoric on fighting 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 Consumer 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 a definite certainty, and possibly there would even be pressure from some quarters to do more. Central banks are obviously struggling to bring inflation down and if inflation continues to rise or hover around that level, there is more desire to do to bring it down, regardless of the economic consequences that this may have. “
In a surprising move, the Bank of Canada raised its key interest rate on Wednesday (July 13) by one percentage point to 2. 5% in a bid to curb inflation that authorities said threatened to become entrenched.
Millions of wages will get a boost from Wednesday 6 July, when the threshold from which National Insurance Contributions (NIC) will be paid will rise from £9,880 to £12,570, writes Andrew Michael.
The replacement announced in the March Spring Statement.
NICs increased as planned at the start of this fiscal year on April 6 to fund the government’s response to Covid, but the planned move drew complaints in the early months of this year, with critics calling it an additional burden on families facing worsening costs. Life crisis.
This prompted Rishi Sunak MP, then Chancellor of the Exchequer, to arrange the next construction on the threshold.
NICs, a source tax and self-employed benefits, are the second largest source of tax benefits for the UK government after the source of profit tax. The payment of NCI is vital because it provides Americans with the right to safety. social security benefits, in addition to the state pension.
The July 6 update suggests that people classified through HM Revenue
Interactive Investor (ii), the investment platform, estimates that raising the NI threshold will gain advantages for 30 million people, saving a typical employee around £330 a year. The move also means that approximately 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 thresholds of the tax on the fundamental and top source of revenue from 2022 to 2026. At a time when average wages are rising, this move will draw an increasing number of other people into the higher-rate tax bracket.
According to ii, until 2026, a basic rate taxpayer earning £30,000 will see their take-home pay reduced by £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 largest source of income income with an income source of £150,000 will pay an additional £15,596 in tax.
The calculation of II took into account the recent 1. 25 percentage point increase in the NI imposed through the Treasury on the NHS, as well as the increase in the initial NI threshold.
Alice Guy, a private finance expert at ii, said: “The chancellor is carrying out a secret £3,631 tax raid on millions of suffering families. This will bring many families to the brink as they face a crushing tax burden that will come on top of the most sensitive of the current cost-of-living crisis. “
Inflation in the UK rose to 9. 1% in the year to May 2022 (its point since 1982) according to the most recent figures from the Office for National Statistics (ONS).
The news will add to the pressure on already weakened household finances as consumers face the worst cost-of-living crisis in years.
On a monthly basis, the Customer Value Index (CPI) increased by 0. 7% in May this year, compared to a 0. 6% increase in May 2021.
The ONS said higher costs of food and non-alcoholic beverages (with declines in both cases a year ago) were the main contributor to the rise in the most recent 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. This is because lenders tend to accumulate required payments on mortgage loans to reflect higher 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.
U. S. inflation has recently stood at 8. 6%. Today’s rate hike is a sign of the Federal Reserve’s competitive stance on financial tightening in an effort to fight 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.
“Russia’s invasion of Ukraine is causing enormous human and economic hardship. The invasion and the occasions that followed are creating further upward pressure on inflation and weighing on economic activity. “
Today’s announcement 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 exacerbated by factors such as skyrocketing energy prices, post-pandemic global supply chain bottlenecks, and the war in Ukraine.
The Federal Reserve and the Bank of England (BoE), the UK’s central bank, have an inflation target of 2%. The inflation rate in the UK has recently stood at 9%.
Tomorrow (Thursday), the Bank of England is expected to announce a 0. 25 percentage point increase in the UK bank rate. The rate has recently stood at 1%, after four rate hikes since December last year.
If the Bank of England’s financial policy committee makes the decision to raise rates, it will prove costly for families with variable and follow-on mortgages, as lenders tend to accumulate 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 UK, peak inflation is partly to blame for a cost-of-living crisis that has squeezed the incomes of families left poorer following a series of tax hikes 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 don’t act in the face of runaway inflation, they undermine their very raison d’être, but by aggressively raising rates, they are putting pressure on economic activity. “
More than three-quarters of British adults feel “very” or “somewhat” concerned about the emerging cost of living, according to the effects of a May survey by the Bank of England and Ipsos looking at attitudes towards inflation.
The groups that are most likely to feel “very or worried” are women, seniors aged 30-49, people with disabilities, and those living with dependent older 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 U. S. inflation figures that revealed customer costs rose to 8. 6% in May of the year, according to the U. S. Bureau of Labor Statistics (BLS), marking a new 40-year high.
The UK Consumer Price Index (CPI) lately measures inflation at 9% for the year ending in April, with May figures due 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 a tough read 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 UK, has an inflation target of 2%.
In May, the Federal Reserve raised its key interest rate by a fraction of one percentage point to 1%, its first 50 basis point hike in more than 20 years. Today’s inflation figure may lead to a rate hike of a similar magnitude next week.
The Federal Reserve has already pledged to “quickly” impose economic policy at a more “neutral” point that no longer stimulates the economy. But further evidence that inflation is becoming more entrenched may force the government to raise rates even more aggressively than economic markets expect. .
Dan Boardman-Weston, chief executive of BIS Wealth Management, said: “The Federal Reserve has the difficult task ahead of it to 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 hike 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 likely 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 falling asleep at the wheel after eurozone inflation soared to 8. 1%, more than four times the central bank’s 2% target.
The latest rise in inflation is largely due to moderating energy prices, coupled with the economic impact of the war in Ukraine.
The ECB’s announcement will bring eurozone policy more in line with that of the Bank of England and the U. S. Federal Reserve, which have raised interest rates several times this year.
ECB President Christine Lagarde said: “It is a practice to start with slow construction that is not. . . excessive. “
Lagarde added that there is a risk that food and energy price inflation will continue to rise for some time and that business capacity will be permanently affected, which could also hurt eurozone economies for an extended period.
Assuming the ECB’s rate hike continues, the central banks of Japan and Switzerland would be the last two major financial governments in the world to remain at negative rates.
Hinesh Patel, portfolio manager at Quilter Investors, said: “The ECB has already tightened 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 price of budget groceries rose by between 6% and 7% in the 12 months to April. This compares to an inflation rate of 6. 7% for the broader “food and non-alcoholic beverages” that were tracked over the same period.
Although both measures are lower than the overall annual inflation rate (9% through April), they found large price differences among other budget foods.
For example, the value of pasta has increased by 50% since April 2021, while the average value of potatoes has decreased by 14%. Rice, beef, bread, and chips have increased by 15 to 17 percent, while cheese, sausages, pizza, and potato chips decreased by as much as 7 percent.
The ONS also took into account ‘shrinkflation’, the procedure of reducing the length of products while maintaining their previous price.
The ONS collected the prices of 30 food and non-food products (adding pasta, potatoes, vegetable oil, poultry and pumpkins) by comparing prices on seven UK supermarket websites to show the cheapest available edition of each product.
This experimental study aims to determine how less expensive CPG goods are affected by inflation in the UK, as the official customer value index is influenced by more expensive purchases, such as clothing and footwear, entertainment, and restaurants.
Fears of a global wheat shortage are very likely to lead to additional price increases for 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, from 7% last month, pushing the figure to a 40-year high as customer costs were hit by rising energy costs and the effect of the ongoing shock 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 a worsening of the situation, with a genuine source of disposable income set to fall by 2. 4% this year. This would result in the distress of 250,000 more families 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 costs and higher taxes are putting pressure on household budgets, regardless of the economic gap. An estimated 1. 5 million other families in the UK face food and energy expenses that exceed their disposable income.
The latest increase in inflation is due to rising energy and fuel prices, along with the economic impact of the war in Ukraine.
These are issues that go beyond those of the Bank of England (BoE), which sets interest rates, meaning that overburdened consumers still have no option to cut spending in order to live within their means.
Alice Haine, 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 that far if other people have already eliminated all the luxuries like dining out, going on vacation, and shopping for clothes.
“Once families struggle to pay essentials, such as mortgages or rent, food, and family bills, they risk getting into debt with overdrafts and credit cards they can’t pay. “
The effect of inflation on your finances depends on your individual spending habits. Your personal financial situation could be affected to a greater or lesser extent than the overall rate of 9%.
That’s because the ONS, which tracks customer value insights, calculates its figures from a virtual basket of 700 pieces made up of everyday items like milk and bread, to larger pieces like the price of a plane or the value of a new car.
Savers with money in deposit accounts deserve peace of mind thanks to the Bank of England’s recent series of four interest rate hikes over the past six months. The latest quarter-point hike took the bank rate to 1%, its highest point since 2009.
Along with those developments, savings rates have risen slightly: Easy-to-access accounts now pay 1% or more, and fixed-rate products soar around or above the 2% mark.
Historically, however, banks and credit companies have been slow to communicate news about emerging rates to savers. Moreover, even with emerging interest rates, their effect is overshadowed by the incredibly high point of existing inflation, which generates a genuine negative interest rate. back to savings.
The best advice for savers in this situation is to shop around for the best rates to get your money running as strong as possible.
Sarah Coles of Hargreaves Lansdown said: “For 4 in five savers who have languished in easily accessible bank accounts – paying 0. 1% or less – now is the time to act.
“Retail giants have passed on a small fraction of rising interest rates to savers, so there’s no point in waiting for them to 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 beyond what is pasando. su control.
“We won’t be surprised to see additional pressure on the government to exert some fiscal leverage and try to alleviate family misery this fall. “
Another option would be for the government to impose a one-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 is also affecting our intellectual fitness. Three-quarters (74%) of adults say their intellectual fitness has been negatively affected in the last two years and, of these, ’emerging life burden’ (28%), largely followed by ‘Covid restrictions’ (27%) were the main causes.
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 dipped to 8. 3% in April, still stubbornly high, but down from last month’s 8. 5% figure. Economists had 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 put pressure on the U. S. Federal Reserve, the country’s central bank, to continue its program of raising interest rates by a fraction of a percentage point over the course of 2022.
The Federal Reserve recently raised its interest rate cap from 0. 5% to 1% and did not rule out measures for the rest of this year.
In recent weeks, other central banks, including the Bank of England, the Reserve Bank of India, and the Reserve Bank of Australia, have raised interest rates in a bid to cope with inflationary headwinds being felt in many countries around the world.
The fall in the US CPI would possibly be welcomed in the markets as investors begin to hold out hope that the inflation peak has already passed.
However, the figures are even worse than expected and commentators say it is too early to celebrate, as inflation will most likely remain high for some time, exacerbated by the ongoing 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, CEO of BIS Wealth Management, said: “The Federal Reserve has the difficult task ahead of it to ensure that inflation expectations do not become entrenched. Most likely, they will continue to tighten their policy in the face of a slowing 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%, with City forecasters widely forecasting a 25 bps increase. The last time interest rates in the UK stood at 1% was in early 2009.
The move, the Bank of England’s fourth rate hike since December last year, follows yesterday’s decision by the US Federal Reserve to cap its interest rate at 50 basis points to 1%.
Today’s announcement through the Bank of England 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. 5%. Both the Bank of England and the Federal Reserve have an inflation target of 2%.
Earlier this week, the Reserve Bank of India and the Reserve Bank of Australia announced interest rate hikes. This is the first hike in a decade for the latter.
A UK bank rate hike can be costly for families with mortgages or variable rate trackers. This is because lenders tend to accumulate required repayments on mortgage loans to reflect higher 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 Bank of England policymakers causes even more pain to families suffering from the cost-of-living crisis. The global nature of the drivers of 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 others who have already been forced into debt just to pay their bills. “
The next rate announcement will be on June 16.
The U. S. Federal Reserve raised its interest rate cap from 0. 5% to 1% in an effort to counter the highest inflation rate the country has experienced in 40 years.
Inflation in the United States currently stands at 8. 5%, and commentators widely expect the Fed to raise interest rates by 50 basis points (the largest update to its main interest rate since 2000). March.
At its two-day political caucus 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 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.
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 cost-of-living crisis that has squeezed household incomes and left them poorer following a series of tax hikes that came into effect in April.
The number of cars produced in the UK in the first quarter of 2022 fell 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 reduce the loads and energy emissions in their vehicles. on par with its European competitors.
Mike Hawes, CEO of SMMT, said: “Two years into the pandemic, automotive production is still suffering badly. The recovery has not yet begun, and in a challenging economic environment, coupled with emerging energy costs, urgent action is needed to protect the competitiveness of the UK’s productive 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 “around 6%” rate forecast by the Bank of England at its last bank. Rate-setting assembly in March.
The bank rate has recently stood at 0. 75%. Today’s inflation figure will put additional pressure on the Bank of England’s policy committee to raise interest rates again on May 5. The Bank of England has already raised rates three times since December 2021.
Grant Fitzner, lead economist at the ONS, said: “Prices saw a sharp rise in annual inflation in March. Among the biggest increases are petrol costs, the costs of which are most commonly collected before the recent 5p in line with the cut in taxes on a litre of fuel, and furniture.
“Restaurant and hotel costs also rose sharply in March, while after falling a year ago, many types of food have increased. “
Paul Craig, portfolio manager at Quilter Investors, said: “The spring of last month did little to allay the fears of those already feeling money difficulties, and the arrival of the new energy value cap and the increase in national insurance added to the pressure.
“As wages don’t stay high and pensions are rising at the same level, things are going to get tough for many consumers. “
Martin Beck, lead economic advisor at the EY ITEM Club, said: “There will be a significant increase in inflation in the April data as 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 higher 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%.
U. S. customer value expansion rose 8. 5% in the year to March 2022, beating Wall Street expectations and pushing the country’s inflation rate to its point in more than 40 years.
The existing increase in the Consumer Value Index, as reported by the U. S. Bureau of Labor Statistics, has increased significantly. In the U. S. , it was due to emerging energy, food, and housing prices as the effect of Russia’s invasion of Ukraine began 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 figures would put more pressure on the U. S. Federal Reserve to accelerate the speed of interest rate hikes it announces in a bid 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 from 6. 07% in February 2022. Consumption costs in Turkey in the year to March 2022 reached 61%, an increase of seven percentage emissions from last month.
Hinesh Patel, portfolio manager at Quilter Investors, said: “The 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. “
A family’s typical energy expenses could reach around £2,500 through the autumn of this year, according to an influential forecasting group.
The EY Item Club (EYIC) says 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 prices will add to UK inflation already at “significant” levels, forecasting inflation to hit a 40-year high of 8. 5% next month and forecasting prices to reach a further 6% by the end of 2022.
The EYIC also warns that while families across all economic sectors have experienced astonishing degrees of inflation in recent times, the cumulative 54% in typical household energy expenditures in April means that low-income families can enjoy an inflation rate of around 10%. .
With additional increases in energy expenditures expected in October, the EYIC says low-income families are expected to experience consistently higher levels of inflation than their higher-income counterparts, through 2023.
Martin Beck, senior economic adviser at EYIC, said that while the recent spring included some support for households, the strain on income continues: “Consumer spending is a key component of the UK economy, and the passage of the worst-case scenario is expected to spur a corresponding recovery in consumption. But the war in Ukraine and emerging energy costs mean the outlook has darkened. “
The Office for Budget Responsibility (OBR), the government’s budget watchdog, has forecast that inflation in the UK will peak at 8. 7% by the end of this year, with the emerging market further exacerbated by Russia’s ongoing invasion of Ukraine.
Inflation in the UK, as measured by the Consumer Price Index (CPI), hit a 30-year high of 6. 2% through February 2022. In recent months, emerging inflation has been driven by rising global costs of energy, gasoline, food, and durable goods.
In its report released today alongside the spring statement, the OBR said it expects CPI inflation to peak at 8. 7% in the fourth quarter of 2022. It also forecast that inflation in the UK would remain above 7% every quarter since the second quarter. from 2022, to the first quarter of 2023.
The OBR said it also expects inflation to rise above earnings expansion over the next year. He added that despite the policy measures announced through Rishi Sunak, Chancellor of the Exchequer, in the spring statement, there would be a net accumulation 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 severe cost-of-living crisis when he delivers his spring statement at lunchtime.
The Customer Value Index (CPI) rose at an annual rate of 6. 2% in the 12 months through February, up from 5. 5% last month, its highest point since 1992. This beat forecasts for a 5. 9% increase.
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 just how dire the situation is and it is clear that the government wants to act to save many other people from falling into monetary difficulties 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 U. S. Federal Reserve yesterday, which saw rates rise from 0. 25% to 0. 5% (see article below).
Central banks are raising rates in an effort to ease inflationary pressures caused by emerging energy, fuel and food prices. The UK’s most recent inflation rate, announced last month, is 5. 5% but is expected to rise sharply when the effects of the conflict in Ukraine are factored into the calculation.
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 an effort 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. More rate hikes are possible in the coming months – in the words of the Federal Reserve: “. . . Continued increases in the diversity of objectives will be appropriate. “
The Bank of England will announce its latest resolution on the UK bank rate (Thursday). The rate has risen twice since December and now stands at 0. 5%.
The inflation rate in the UK stands at 5. 5% (the Bank’s target is also 2%). Economists expect an increase of 0. 25 percentage points to 0. 75%, which would translate into loan interest rates, although many lenders have already priced it in. an increase in rates on your existing offerings.
Existing borrowers with floating and follow-on rate arrangements would see their debt loads increase in the coming months. Those with consistent rates would likely face more expensive loans at the end of their existing 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 U. S. Federal Reserve was already under a lot of pressure to tame inflation by raising interest rates at its meeting next week.
In addition to imposing sanctions on Russia’s central bank and the country from the global monetary system, the U. S. administration, led by President Joe Biden, has banned imports of Russian oil and gas.
Last month, faced with the same inflationary headwinds affecting all primary economies, the Bank of England (BoE) raised its key interest rate from 0. 25% to 0. 5%. This is the momentum that is accumulating in the three-month area, 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, especially 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 declining subsequently.
The ONS said clothing, footwear, emerging costs of household goods and rising rents helped lift costs last month, but added that January’s increase was partially offset by lower costs at the pump, after record highs at the end of last year.
Since then, fuel prices have peaked again, reaching £1. 48 per litre of petrol and £1. 51 per litre of diesel. Coupled with the increase in the national energy cap by 54% in April, this is the reason why the Bank’s gloomy outlook is in the future.
Grant Fitzner, lead economist at the ONS, said last month that classic price cuts had taken place in some sectors, but “this is the smallest January drop since 1990, with fewer sales than last year. “
The latest announcement from the ONS is likely to increase pressure on the Bank of England to adopt a competitive stance on interest rates. The Bank of England has already announced two rate hikes within three months. The bank rate has recently stood at 0. 5%.
Jason Hollands, of investment platform Bestinvest, said: “Further significant increases in inflation are almost on the horizon, partly due to the lifting of the energy bill cap. As such, the screws will continue to tighten in the coming months, and the Bank predicts inflation will reach 7% until Easter.
Rupert Thompson, of wealth manager Kingswood, said: “Inflation is set to rise further in the coming months, probably peaking at around 7. 5% in April as the energy value cap increase eases. Current data suggests that 0. 25 The interest rate hike in March seems quite conclusive.
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%.
Inflation in the UK, as measured by the Customer Value 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 came in at 5. 1%), leaving UK families facing the risk of a deepening cost-of-living crisis. 7. 5 per cent.
December’s figure is above the Bank of England’s (BoE) 2% target, set through the government.
The latest insights into inflation may trigger an immediate rise in interest rates, following the Bank of England’s decision before Christmas to raise the bank rate to 0. 25% from its record low of 0. 1%.
According to the ONS, the latest inflation is due to several issues. These include the emerging costs of food, restaurant bills, hotel fees, furniture, household goods, clothing, and footwear in the run-up to Christmas.
But Grant Fitzner, lead economist at the ONS, said there was little evidence that pandemic restrictions had contributed to emerging prices: “Lockdowns in the economy last year had an effect on some products but, overall, this effect on headlines inflation rate was negligible. “
Paul Craig, portfolio manager at Quilter Investors, said: “The Bank of England justified its decision to raise rates in December in the face of Omicron uncertainty, but it can still approve it either way when its Monetary Policy Committee (MPC) meets in 2017 in early February.
“The MPC will face a difficult choice between ensuring monetary stability or helping families cope with a cost-of-living crisis that threatens to strain their finances during a difficult winter period. “
In addition to an increase in National Insurance contributions in April and a permanent freeze on non-public tax breaks, which will push many workers into higher tax brackets, families face the prospect of a massive increase in their energy costs due to construction. up to the official value limit.
Analysts recommend that costs could reach as high as 50% when the cap is adjusted in April. The duration of this increase will be announced in early February.
Last fall, after temporarily postponing calculations on the so-called “triple lock”, the government demonstrated that it would accrue a diversity of public benefits from April 2022 on top of the September 2021 CPI figure of 3. 1%.
For 2022-2023, the total state pension will increase from its current rate of £179. 60 per week to £185. 20 per week (£9630 per year).
From April, allowances for working age, allowances for subsequent wishes arising from a disability and allowances for carers will also be increased at the same rate of 3. 1 per cent.
Other bills expected to accumulate include the Universal Credit, Personal Independence Payments, Family Allowances, Jobseeker Allowance, Income Support and Retirement 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 the price of fuel had risen significantly, “bringing the average value of gasoline to a higher level than we had noticed before. “and new tobacco taxes.
According to Canada Life, evolving inflation is forcing roughly 40 million families in the UK to collectively add an additional £39. 6 billion a year to their average standard of living compared to 12 months ago.
Andrew Tulley, technical director at Canada Life, said: “The most recent inflation figures leave us with little hope for festive monetary cheer. We are all feeling the effects of this and the truth is that the average UK family will have to look for an extra thousand pounds next year to their current standard of living.
The U. K. figures are in line with recent U. S. inflation data, which showed customer prices in November rose at their fastest speed in nearly 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 imposes its energy price cap in April 2022, raising 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 in charge of financial policy, Ben Broadbent, said: “Two-thirds of the way through, 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 effect 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 rate (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 be made 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 fuels expectations that the Bank will raise its key interest rate in December in a bid to cool the economy, a move that will most likely cause higher 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 Oct. 1, emerging stocks at the pump, and inflationary pressures across the economy as businesses grapple with the emerging costs of raw curtains.
Prices in hotels and restaurants are also higher than last year, as hotel companies no longer take advantage of the VAT reduction.
Economists warn that any increase in the bank rate will not leave a trail of inflation for several months. Dan Boardman-Weston of BIS Wealth Management said: “Inflation will continue to worsen in the coming months as sources remain scarce and demand is physically sustained. “Powerful, base effects are technically driving inflation higher.
“This will put pressure on the Bank of England to raise rates, which we think it will want to do in the coming months given high levels of inflation and the strength of the labour market. “
Inflation in the United States topped 6% in October. As with the UK, the reasons for the sharp rise in prices are expected to be “transitory”, but global supply chain issues such as increased demand as economies emerge from the Covid-19 crisis are translating into gloomy forecasts in some sectors. .
However, Boardman-Weston 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 by 3. 1% in September 2021, after 3. 2% in August.
The ONS said higher shipping values contributed the most to the overall increase in value, along with household goods, food and furniture.
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 is still well above the Bank of England’s (BoE) 2% target.
September’s inflation figures are unlikely to influence the Bank of England’s next interest rate decision, due in early November, as a pause in rate hikes had been anticipated.
Commentators say the drop in inflation in September is just one incident and that additional increases are expected in the coming months. In fact, the latest figures still don’t take into account either the recent surge in energy costs or the gas pump crisis that has been going on for several weeks. behind.
Laith Khalaf, head of investment research at brokerage AJ Bell, warned: “Inflation is going to get even worse before it gets better. Inflation is widely felt, as the main determinants are housing and shipping 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 in line with the top of 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 awareness of the earnings skyrocketed due to other people returning to work after their furlough program ended.
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 is above the Bank of England’s (BoE) official 2% target.
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 increase the cap on popular variable rate default price lists by 12% to £1,277, its highest point to date. The new cap will come into effect on October 1, when the cap on prepayment rates will increase from £153 to £1,309.
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 most recent figures from the Office for National Statistics (ONS).
The Customer Value Index (CPI) increased by 2% in July, up from 2. 5% in the previous month. The drop, driven by the declining value of clothing, footwear and recreational items, means the inflation figure is now in line with the Bank of England’s official figure. 2% target.
Jonathan Athow, from the ONS, said: “Inflation eased in July across a wide range of goods and services, adding clothing, which has eased with the return of summer sales after the pandemic hit the sector last year.
“This was offset by a sharp increase in the value of used cars amid increased demand, following a shortage of new models. “
Commentators say a 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: “Relief from the slowdown in inflation will most likely be short-lived as upward pressures remain 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 net you up to 1. 3 percent, which will especially offset the damage caused by inflation,” he added.