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Introduction: Bank of England to raise rates today
Good morning, and welcome to our rolling coverage of business, the world economy, and the financial markets.
All eyes are on the Bank of England this morning. The UK central bank is on track for its biggest interest rate rise in decades, as it tries to get a grip on stubbornly high inflation.
The BoE is expected to raise its key rate by three-quarters of a percent, taking Bank Rate from 2.25% to 3%, the highest since autumn 2008, at one of the most eagerly anticipated monetary policy meeting for many years.
It would be the eighth rate hike in a row, driving up borrowing costs even as the country risks falling into recession.
A 75 basis-point rise would be the biggest rate hike since 1989 (if you exclude the mayhem on Black Wednesday when rates were briefly hiked skyward from 10% to 12%, in vain).
The Bank will be determined to tighten monetary policy after seeing consumer price inflation hit a 40-year high of 10.1% in September, five times higher than its 2% target, driven by soaring food prices as well as the energy crunch.
It fears that high inflation will set off a wage-price spiral, with workers (understandably) seeking pay rises to protect them from the cost of living squeeze.
Shweta Singh, senior economist at fund manager Cardano, says the Bank faces a very difficult task:
The BoE is faced with an incredibly difficult balancing act of orchestrating large rate hikes in a recessionary economy. Markets are pricing in a terminal rate of 480 bps by September 2023, which is 100bps lower than during early October, but is pretty punchy nonetheless.
The Bank also wants to reassure markets, after the turmoil caused by the disastrous mini-budget which sunk the pound and drove up government borrowing costs.
But policymakers are operating in the dark, after chancellor Jeremy Hunt’s fiscal statement outlining tax rises and spending cuts was delayed until November 17th.
It has been scheduled for three days ago, so the lack of clarity over government policy makes the BoE’s task harder.
Singh explains:
“If September’s fiscal uncertainty was centred around how loose government policy would become, November’s uncertainty is centred around how tight it is set to become.
And, if September’s dilemma for the Bank was that they might not be doing enough tightening, November’s dilemma is that they end up doing too much. It seems therefore that the MPC is still stumbling around in the dark.
The markets are already jittery, after the US central bank raised its key lending rate by another three-quarters of a percent last night, and dampened hopes that it might ease off soon.
Wall Street sank after Federal Reserve chair Jerome Powell warned that US interest rates may peak higher than expected, and remain high longer than hoped to squeeze out inflation.
Powell warned that it was “very premature” to be thinking about pausing rate hikes, and cautioned that:
“Data since our last meeting suggests that the ultimate level of interest rates will be higher than expected.
We also find out how the UK and US services sectors fared during October, plus the latest eurozone unemployment stats.
The agenda
9am GMT: Nowway’s Norges Bank interest rate decision
9.30am GMT: UK service sector PMI for October
10am GMT: Eurozone unemployment rate for September
Noon GMT: Bank of England interest rate decision
12.30pm GMT: Bank of England press conference
2pm GMT: US service sector PMI for October
Key events
Reeves: rate rise will be blow to families and businesses
Labour’s shadow chancellor Rachel Reeves warns that another interest rate rise today will hurt businesses and households, and hit growth in the economy.
She’ll tell the Anthropy conference in Cornwall that the government’s failure to tackle weak growth, low productivity, underinvestment and widening inequality has left the UK particularly expose to economic shocks.
Reeves is expected to warn that:
“Rising interest rates will mean families with already stretched budgets will be hit by higher mortgage payments.
“It will mean higher financing costs for businesses.
“For many firms who have had a tough couple of years this will mean desperately difficult decisions about whether to carry on.
“And it will mean profound implications for growth as demand is sucked out of the economy and even those firms who are keeping their head above water face difficult decisions about whether to invest or expand.
Rate rise would drive up mortgage costs
Phillip Inman
Mortgage rates are expected to jump on Thursday in response to the largest increase in the Bank of England’s base rate since 1989, as the central bank tries to bring down an inflation rate expected to remain in double figures until at least next spring.
Homebuyers with tracker or variable rate mortgages will feel the pain of the rate rise immediately, while the estimated 300,000 people who must remortgage this month will find that two-year and five-year fixed rates remain at levels not seen since the 2008 financial crisis.
The average two-year fixed rate has fallen to 6.47% from 6.65% in mid-October – as the effects of the disastrous Kwasi Kwarteng mini-budget ease – but remains three times the rate offered by lenders earlier this year.
A five-year fixed rate mortgage that could be bought for 6.51% on 20 October has slipped only marginally to 6.31%.
Introduction: Bank of England to raise rates today
Good morning, and welcome to our rolling coverage of business, the world economy, and the financial markets.
All eyes are on the Bank of England this morning. The UK central bank is on track for its biggest interest rate rise in decades, as it tries to get a grip on stubbornly high inflation.
The BoE is expected to raise its key rate by three-quarters of a percent, taking Bank Rate from 2.25% to 3%, the highest since autumn 2008, at one of the most eagerly anticipated monetary policy meeting for many years.
It would be the eighth rate hike in a row, driving up borrowing costs even as the country risks falling into recession.
A 75 basis-point rise would be the biggest rate hike since 1989 (if you exclude the mayhem on Black Wednesday when rates were briefly hiked skyward from 10% to 12%, in vain).
The Bank will be determined to tighten monetary policy after seeing consumer price inflation hit a 40-year high of 10.1% in September, five times higher than its 2% target, driven by soaring food prices as well as the energy crunch.
It fears that high inflation will set off a wage-price spiral, with workers (understandably) seeking pay rises to protect them from the cost of living squeeze.
Shweta Singh, senior economist at fund manager Cardano, says the Bank faces a very difficult task:
The BoE is faced with an incredibly difficult balancing act of orchestrating large rate hikes in a recessionary economy. Markets are pricing in a terminal rate of 480 bps by September 2023, which is 100bps lower than during early October, but is pretty punchy nonetheless.
The Bank also wants to reassure markets, after the turmoil caused by the disastrous mini-budget which sunk the pound and drove up government borrowing costs.
But policymakers are operating in the dark, after chancellor Jeremy Hunt’s fiscal statement outlining tax rises and spending cuts was delayed until November 17th.
It has been scheduled for three days ago, so the lack of clarity over government policy makes the BoE’s task harder.
Singh explains:
“If September’s fiscal uncertainty was centred around how loose government policy would become, November’s uncertainty is centred around how tight it is set to become.
And, if September’s dilemma for the Bank was that they might not be doing enough tightening, November’s dilemma is that they end up doing too much. It seems therefore that the MPC is still stumbling around in the dark.
The markets are already jittery, after the US central bank raised its key lending rate by another three-quarters of a percent last night, and dampened hopes that it might ease off soon.
Wall Street sank after Federal Reserve chair Jerome Powell warned that US interest rates may peak higher than expected, and remain high longer than hoped to squeeze out inflation.
Powell warned that it was “very premature” to be thinking about pausing rate hikes, and cautioned that:
“Data since our last meeting suggests that the ultimate level of interest rates will be higher than expected.
We also find out how the UK and US services sectors fared during October, plus the latest eurozone unemployment stats.
The agenda
9am GMT: Nowway’s Norges Bank interest rate decision
9.30am GMT: UK service sector PMI for October
10am GMT: Eurozone unemployment rate for September
Noon GMT: Bank of England interest rate decision
12.30pm GMT: Bank of England press conference
2pm GMT: US service sector PMI for October