Introduction: Bank of England sets interest rates today
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The Bank of England finds itself on the horns of dilemma this week, as it sets UK interest rates.
Should it pause its cycle of interest rate rises, and risk inflation racing out of control? Or should it keep raising them, despite signs that the economy is teetering close to a recession?
And if it plumps for a hike, how sharp should it be?
We’ll find out at noon, and get the reasoning for the decision from the BoE governor, Andrew Bailey, 30 minutes later.
13:00 CET #BoE interest rate decision imminent, @bankofengland is leaning toward a 25bp hike, chart @ReutersBiz https://t.co/IJyHSJKYZE pic.twitter.com/qOZpAxVARL
— ACEMAXX ANALYTICS (@acemaxx) August 3, 2023
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City economists believe the Bank is nailed on to raise borrowing costs for the 14th time in a row, to the highest since 2008.
The money markets suggests a small, quarter-point increase is most likely, from 5% to 5.25%, but a larger, half-point rise to 5.5% can’t be ruled out.
Next Up: Bank of England 🇬🇧 Rate Decision
🤔 Market pricing in:
+0bp 0% chance
+25bp hike 62% chance
+50bp hike 38% chance✔️ Another hike would be 14th straight rise
✔️ Highest since 2007/2008 crisis💡 Watch inflation expectations & votes ➡️ June was 7-2 for +50bp pic.twitter.com/L3JeIJW7dC
— Kathy Lien (@kathylienfx) August 3, 2023
","url":"https://twitter.com/kathylienfx/status/1686905048658317312","id":"1686905048658317312","hasMedia":false,"role":"inline","isThirdPartyTracking":false,"source":"Twitter","elementId":"1e18892a-6c72-498b-9115-07fd3251244d"}}”>
Next Up: Bank of England 🇬🇧 Rate Decision
🤔 Market pricing in:
+0bp 0% chance
+25bp hike 62% chance
+50bp hike 38% chance✔️ Another hike would be 14th straight rise
✔️ Highest since 2007/2008 crisis💡 Watch inflation expectations & votes ➡️ June was 7-2 for +50bp pic.twitter.com/L3JeIJW7dC
— Kathy Lien (@kathylienfx) August 3, 2023
Kim Crawford, global rates portfolio manager at JP Morgan Asset Management (JPMAM), predicts a 25bp hike to 5.25%, but warns it won’t be the last BoE rate rise….
Crawford says:
“There has been some relief that inflation hasn’t gotten worse, but there is still a lot of progress that needs to be made.
The level of wage growth and services inflation is still high, and the labour market remains tight.
The Bank has been urged not to do this, though. Yesterday, the TUC said it should hold borrowing costs unchanged, as the UK was “teetering on the brink of recession”.
But, the Bank remains concerned that UK inflation is four times its 2% target, at 7.9% in June, and higher than in other advanced economies.
Prime minister Rishi Sunak added to the political heat on the BoE yesterday, by saying inflation was not falling as fast as he would like.
But there are also jitters in Westminster that the Bank of England could go too far.
Last week, Bloomberg reported that advisers to Chancellor of the Exchequer Jeremy Hunt are increasingly concerned that the Bank of England risks raising interest rates too much in the coming months, triggering a recession.
A majority of Hunt’s seven-member Economic Advisory Council believes that the bank should slow its fastest cycle of rate increases in three decades, according to people familiar with the discussions.
That view is being taken by seriously by top Treasury officials in the wake of better-than-expected inflation figures and other data that suggest a broader slowdown, said the people, who asked not to be named discussing internal deliberations.
The Bank will also release new forecasts today, showing how it expects the UK economy to perform in the next few years.
They should show if BoE economists see a recession on the horizon, and if they believe Sunak will hit his target of halving inflation by the end of the year.
Bank of England poised to raise UK interest rates to 5.25% https://t.co/tJGV3oW0cp
— Guardian news (@guardiannews) August 3, 2023
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In the corporate world, we’ll also hear from retailer Next, engineering firm Rolls-Royce and carmaker BMW this morning.
UK companies posting earnings – Hikma, LSE, Morgan Sindal, Rolls Royce, Serco, NEXT, Smith & Nephew – US companies – Amazon, Apple, Alibaba, Conoco-Phillips, Amgen, Airbnb, Cigna
— David Buik (@truemagic68) August 3, 2023
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UK companies posting earnings – Hikma, LSE, Morgan Sindal, Rolls Royce, Serco, NEXT, Smith & Nephew – US companies – Amazon, Apple, Alibaba, Conoco-Phillips, Amgen, Airbnb, Cigna
— David Buik (@truemagic68) August 3, 2023
The agenda
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7am BST: German trade data for June
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9am BST: Service sector PMI report for the eurozone
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9.30am BST: Service sector PMI report for the UK
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Noon BST: Bank of England interest rate decision
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12.30pm BST: Bank of England press conference
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1.30pm BST: US weekly jobless report
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3pm BST: Service sector PMI report for the US
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3pm BST: US factory orders for June
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Recent increases in UK interest rates have been blamed for a fall in shoppers on the high street last month.
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Retail analysts Springboard have reported that footfall at UK retailers fell by 0.3% month-on-month in July.
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This is the first July since MRI Springboard started publishing its data in 2009 that footfall was lower than in June.
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It blamed “ever-rising interest rates” for dampening consumer demand, as well as bad weather last month and ongoing disruption on the UK railways.
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Springboard says:
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July appeared to demonstrate the harsh reality of the impact of interest rate rises on consumers, combined with rain and a rail overtime ban on several days in the month.
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This meant that footfall across UK retail destinations was -0.3% lower than June 2023, which is the first month on month decrease since March 2023, when consumers deferred shopping trips until Easter which was then followed by a rise of +7.2% from March to April.
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High street retailers were worst hit, with shopper numbers there falling by 1.7% compared with June, and were 15.5% lower than pre-Covid-19 levels in 2019.
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“It’s a bloodbath, that’s the way I’d like to describe it,” says one father of two struggling with the ever-increasing interest rate on his home loan.
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He is one of the 1.4 million people in the UK on a variable rate residential mortgage, who have watched the monthly payments soar after the Bank of England raised the base rate 13 times in a row to 5%.
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Policymakers are widely forecast to add another 0.25 percentage points to that figure when they meet on Thursday, leaving homeowners such as John having to find hundreds more pounds to cover future bills.
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The software engineer, who lives in Slough, Berkshire, says that could leave him with no choice but to get a second job to make ends meet, so he is looking into zero-hours options such as delivering for Uber Eats so he can still spend some time with his family.
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More here:
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UK ministers are set to announce another delay to post-Brexit border controls on animal and plant products coming from the European Union, to avoid pushing up prices in the shops.
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The Financial Times reports this morning that the government has decided to again delay the introduction of a post-Brexit border control regime for goods entering the UK from the EU.
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This latest can-kicking comes amid fears that extra bureaucracy on imported goods will fuel inflation.
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Britain’s fresh produce industry had warned that the plan risks further pushing up food prices – potentially undermining the government’s push to bring down inflation. They said estimated additional annual costs stemming from import charges would have to be passed on to consumers.
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The decision to delay the new import regime at Britain’s ports, which had been due to start in October, will also give companies and port operators yet more time to implement the arrangements.
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But it also maintains the unequal playing field, as British exports to the EU are already subject to full checks.
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A new timetable has not yet been signed off by ministers, but the start of the new regime is expected to slip into next year, the FT adds.
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Thursday’s @FT
7 years after Brexit, the U.K. government *still* isn’t in a position to import border control measures for checks on food.So much for “taking back control”. pic.twitter.com/zJgo2OBwtx
— John O’Brennan (@JohnOBrennan2) August 2, 2023
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Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
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The Bank of England finds itself on the horns of dilemma this week, as it sets UK interest rates.
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Should it pause its cycle of interest rate rises, and risk inflation racing out of control? Or should it keep raising them, despite signs that the economy is teetering close to a recession?
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And if it plumps for a hike, how sharp should it be?
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We’ll find out at noon, and get the reasoning for the decision from the BoE governor, Andrew Bailey, 30 minutes later.
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13:00 CET #BoE interest rate decision imminent, @bankofengland is leaning toward a 25bp hike, chart @ReutersBiz https://t.co/IJyHSJKYZE pic.twitter.com/qOZpAxVARL
— ACEMAXX ANALYTICS (@acemaxx) August 3, 2023
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City economists believe the Bank is nailed on to raise borrowing costs for the 14th time in a row, to the highest since 2008.
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The money markets suggests a small, quarter-point increase is most likely, from 5% to 5.25%, but a larger, half-point rise to 5.5% can’t be ruled out.
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Next Up: Bank of England 🇬🇧 Rate Decision
🤔 Market pricing in:
+0bp 0% chance
+25bp hike 62% chance
+50bp hike 38% chance✔️ Another hike would be 14th straight rise
✔️ Highest since 2007/2008 crisis💡 Watch inflation expectations & votes ➡️ June was 7-2 for +50bp pic.twitter.com/L3JeIJW7dC
— Kathy Lien (@kathylienfx) August 3, 2023
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Kim Crawford, global rates portfolio manager at JP Morgan Asset Management (JPMAM), predicts a 25bp hike to 5.25%, but warns it won’t be the last BoE rate rise….
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Crawford says:
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“There has been some relief that inflation hasn’t gotten worse, but there is still a lot of progress that needs to be made.
\n
The level of wage growth and services inflation is still high, and the labour market remains tight.
\n
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The Bank has been urged not to do this, though. Yesterday, the TUC said it should hold borrowing costs unchanged, as the UK was “teetering on the brink of recession”.
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But, the Bank remains concerned that UK inflation is four times its 2% target, at 7.9% in June, and higher than in other advanced economies.
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Prime minister Rishi Sunak added to the political heat on the BoE yesterday, by saying inflation was not falling as fast as he would like.
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But there are also jitters in Westminster that the Bank of England could go too far.
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Last week, Bloomberg reported that advisers to Chancellor of the Exchequer Jeremy Hunt are increasingly concerned that the Bank of England risks raising interest rates too much in the coming months, triggering a recession.
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A majority of Hunt’s seven-member Economic Advisory Council believes that the bank should slow its fastest cycle of rate increases in three decades, according to people familiar with the discussions.
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That view is being taken by seriously by top Treasury officials in the wake of better-than-expected inflation figures and other data that suggest a broader slowdown, said the people, who asked not to be named discussing internal deliberations.
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The Bank will also release new forecasts today, showing how it expects the UK economy to perform in the next few years.
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They should show if BoE economists see a recession on the horizon, and if they believe Sunak will hit his target of halving inflation by the end of the year.
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Bank of England poised to raise UK interest rates to 5.25% https://t.co/tJGV3oW0cp
— Guardian news (@guardiannews) August 3, 2023
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In the corporate world, we’ll also hear from retailer Next, engineering firm Rolls-Royce and carmaker BMW this morning.
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UK companies posting earnings – Hikma, LSE, Morgan Sindal, Rolls Royce, Serco, NEXT, Smith & Nephew – US companies – Amazon, Apple, Alibaba, Conoco-Phillips, Amgen, Airbnb, Cigna
— David Buik (@truemagic68) August 3, 2023
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The agenda
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- \n
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7am BST: German trade data for June
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9am BST: Service sector PMI report for the eurozone
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9.30am BST: Service sector PMI report for the UK
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Noon BST: Bank of England interest rate decision
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12.30pm BST: Bank of England press conference
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1.30pm BST: US weekly jobless report
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3pm BST: Service sector PMI report for the US
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3pm BST: US factory orders for June
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Key events
Filters BETA
The City of London is in a nervous mood ahead of the Bank of England’s interest rate decision at noon.
The FTSE 100 index of blue-chip shares has fallen by 101 points, or 1.3%, in early trading to a two-week low of 7,460 points.
Markets have been roiled by Fitch downgrading the US credit rating on Tuesday evening.
Clifford Bennett, chief economist at ACY Securities, says:
The US is losing its long held safe credit mantle. This is long overdue. Credit agencies are notorious for being slow to act. More may follow. It is simply irresponsible to suggest the USA is a triple A credit.
At AA+, this is still a very generous appraisal for a government which is keenly allowing debt to balloon at an alarming pace. Debt to GDP is likely already well over 130%, but we just haven’t got the data yet. This is a catastrophe. Especially, when the nation involved is continuing to borrow and spend like there is no tomorrow.
The huge leap in government spending on the advent and excuse of Covid, has not been wound back. Instead, debt spending is continuing to grow.
There is no end in sight to the deterioration in the US fiscal position. Now with interest rates alarmingly higher, things are only going to get worse. And quickly.
But there are also concerns over Japan today, where the central bank has launched an emergency bond-buying operation today, after yields (interest rates) on Japanese government debt rose.
BoJ Announces Unscheduled Bond Buying, Second Time This Week
— LiveSquawk (@LiveSquawk) August 3, 2023
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BoJ Announces Unscheduled Bond Buying, Second Time This Week
— LiveSquawk (@LiveSquawk) August 3, 2023
High Street shoppers put off by interest rate rises, rain and rail strikes
Recent increases in UK interest rates have been blamed for a fall in shoppers on the high street last month.
Retail analysts Springboard have reported that footfall at UK retailers fell by 0.3% month-on-month in July.
This is the first July since MRI Springboard started publishing its data in 2009 that footfall was lower than in June.
It blamed “ever-rising interest rates” for dampening consumer demand, as well as bad weather last month and ongoing disruption on the UK railways.
Springboard says:
July appeared to demonstrate the harsh reality of the impact of interest rate rises on consumers, combined with rain and a rail overtime ban on several days in the month.
This meant that footfall across UK retail destinations was -0.3% lower than June 2023, which is the first month on month decrease since March 2023, when consumers deferred shopping trips until Easter which was then followed by a rise of +7.2% from March to April.
High street retailers were worst hit, with shopper numbers there falling by 1.7% compared with June, and were 15.5% lower than pre-Covid-19 levels in 2019.
Mike Riddell, head of Macro Unconstrained at Allianz Global Investors, is also predicting a quarter-point rise today.
He says:
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We expect the Bank of England (BoE) will hike by 0.25% to 5.25%, rather than 0.5% that was previously feared by markets.
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UK economic growth continues to falter. Higher mortgage rates are starting to weigh on the UK housing market where prices are falling by the most since 2009.
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We believe the BoE will be able to curb growth and drive down inflation. If it does so, the BoE should be in a position to cut rates next year.
Today’s decision on interest rates is unlikely to be unanimous, City economists predict.
There are nine members of the Bank’s monetary policy committee, who all vote on where interest rates should be set.
A majority are expected to vote for a quarter-point rise, to 5.25%. But, RBC Capital Markets predict that as many as three MPC members will vote for a 50bp hike, to 5.5%.
On the other side, though, economist Swati Dhingra may vote for no change. She has opposed earlier interest rate rises this year.
Another rise in UK interest rates would put more pressure on the UK housing market, where prices are already falling at the fastest rate in 14 years (-3.8% in the year to July).
Peter Truscott, chief executive of housebuilder Crest Nicholson, says sales volumes have suffered from rising interest rates.
Truscott told Radio 4’s Today Programme that underlying demand remains “very strong”, but there has been “some pause” in people coming into its offices and reserving homes.
A lot of people are standing on the sidelines….
It’s tending to be volumes which are taking the strain, rather than price. There is a little downward pressure on price.
Full story: UK homeowners on variable mortgages fear another rate rise
Jess Clark
“It’s a bloodbath, that’s the way I’d like to describe it,” says one father of two struggling with the ever-increasing interest rate on his home loan.
He is one of the 1.4 million people in the UK on a variable rate residential mortgage, who have watched the monthly payments soar after the Bank of England raised the base rate 13 times in a row to 5%.
Policymakers are widely forecast to add another 0.25 percentage points to that figure when they meet on Thursday, leaving homeowners such as John having to find hundreds more pounds to cover future bills.
The software engineer, who lives in Slough, Berkshire, says that could leave him with no choice but to get a second job to make ends meet, so he is looking into zero-hours options such as delivering for Uber Eats so he can still spend some time with his family.
More here:
Deutsche Bank strategist Jim Reid has told clients to expect an interest rate rise of a quarter of one percent at noon, and two more in the coming months too:
Turning to the UK, prime minister Rishi Sunak was reported stating that he felt inflation was not falling as fast as he would like. This came ahead of the BoE monetary policy decision later today.
Our economists are expecting a 25bps hike to bring the policy rate to 5.25% and looking ahead, we see two further quarter point rate hikes, with the terminal rate at 5.75%.
The financial markets currently expect UK interest rates to peak around 5.75% next spring, up from 5% today (well, until lunchtime, anyway).
A month ago, the markets had forecast a higher peak of 6.5%, but expectations have fallen after UK inflation dropped in June.
Julien Lafargue, chief market strategist for Barclays Private Bank, explains:
After pencilling in a peak base rate above 6% a month ago, the market is now anticipating the BoE to stop hiking once it reaches 5.75%. This seems justified at this particular point in time.
We are more sceptical about the market’s view that rates could stay at this level for much of 2024.
FT: Post-Brexit UK border food checks delayed again on inflation fears
UK ministers are set to announce another delay to post-Brexit border controls on animal and plant products coming from the European Union, to avoid pushing up prices in the shops.
The Financial Times reports this morning that the government has decided to again delay the introduction of a post-Brexit border control regime for goods entering the UK from the EU.
This latest can-kicking comes amid fears that extra bureaucracy on imported goods will fuel inflation.
Britain’s fresh produce industry had warned that the plan risks further pushing up food prices – potentially undermining the government’s push to bring down inflation. They said estimated additional annual costs stemming from import charges would have to be passed on to consumers.
The decision to delay the new import regime at Britain’s ports, which had been due to start in October, will also give companies and port operators yet more time to implement the arrangements.
But it also maintains the unequal playing field, as British exports to the EU are already subject to full checks.
A new timetable has not yet been signed off by ministers, but the start of the new regime is expected to slip into next year, the FT adds.
Thursday’s @FT
7 years after Brexit, the U.K. government *still* isn’t in a position to import border control measures for checks on food.So much for “taking back control”. pic.twitter.com/zJgo2OBwtx
— John O’Brennan (@JohnOBrennan2) August 2, 2023
","url":"https://twitter.com/JohnOBrennan2/status/1686848083731111936","id":"1686848083731111936","hasMedia":false,"role":"inline","isThirdPartyTracking":false,"source":"Twitter","elementId":"6e7ca309-10f3-4d9a-bd22-23fc4a33a59d"}}”>
Thursday’s @FT
7 years after Brexit, the U.K. government *still* isn’t in a position to import border control measures for checks on food.So much for “taking back control”. pic.twitter.com/zJgo2OBwtx
— John O’Brennan (@JohnOBrennan2) August 2, 2023
Introduction: Bank of England sets interest rates today
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The Bank of England finds itself on the horns of dilemma this week, as it sets UK interest rates.
Should it pause its cycle of interest rate rises, and risk inflation racing out of control? Or should it keep raising them, despite signs that the economy is teetering close to a recession?
And if it plumps for a hike, how sharp should it be?
We’ll find out at noon, and get the reasoning for the decision from the BoE governor, Andrew Bailey, 30 minutes later.
13:00 CET #BoE interest rate decision imminent, @bankofengland is leaning toward a 25bp hike, chart @ReutersBiz https://t.co/IJyHSJKYZE pic.twitter.com/qOZpAxVARL
— ACEMAXX ANALYTICS (@acemaxx) August 3, 2023
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City economists believe the Bank is nailed on to raise borrowing costs for the 14th time in a row, to the highest since 2008.
The money markets suggests a small, quarter-point increase is most likely, from 5% to 5.25%, but a larger, half-point rise to 5.5% can’t be ruled out.
Next Up: Bank of England 🇬🇧 Rate Decision
🤔 Market pricing in:
+0bp 0% chance
+25bp hike 62% chance
+50bp hike 38% chance✔️ Another hike would be 14th straight rise
✔️ Highest since 2007/2008 crisis💡 Watch inflation expectations & votes ➡️ June was 7-2 for +50bp pic.twitter.com/L3JeIJW7dC
— Kathy Lien (@kathylienfx) August 3, 2023
","url":"https://twitter.com/kathylienfx/status/1686905048658317312","id":"1686905048658317312","hasMedia":false,"role":"inline","isThirdPartyTracking":false,"source":"Twitter","elementId":"f0b68be3-3435-4c4b-b64b-a968570304cf"}}”>
Next Up: Bank of England 🇬🇧 Rate Decision
🤔 Market pricing in:
+0bp 0% chance
+25bp hike 62% chance
+50bp hike 38% chance✔️ Another hike would be 14th straight rise
✔️ Highest since 2007/2008 crisis💡 Watch inflation expectations & votes ➡️ June was 7-2 for +50bp pic.twitter.com/L3JeIJW7dC
— Kathy Lien (@kathylienfx) August 3, 2023
Kim Crawford, global rates portfolio manager at JP Morgan Asset Management (JPMAM), predicts a 25bp hike to 5.25%, but warns it won’t be the last BoE rate rise….
Crawford says:
“There has been some relief that inflation hasn’t gotten worse, but there is still a lot of progress that needs to be made.
The level of wage growth and services inflation is still high, and the labour market remains tight.
The Bank has been urged not to do this, though. Yesterday, the TUC said it should hold borrowing costs unchanged, as the UK was “teetering on the brink of recession”.
But, the Bank remains concerned that UK inflation is four times its 2% target, at 7.9% in June, and higher than in other advanced economies.
Prime minister Rishi Sunak added to the political heat on the BoE yesterday, by saying inflation was not falling as fast as he would like.
But there are also jitters in Westminster that the Bank of England could go too far.
Last week, Bloomberg reported that advisers to Chancellor of the Exchequer Jeremy Hunt are increasingly concerned that the Bank of England risks raising interest rates too much in the coming months, triggering a recession.
A majority of Hunt’s seven-member Economic Advisory Council believes that the bank should slow its fastest cycle of rate increases in three decades, according to people familiar with the discussions.
That view is being taken by seriously by top Treasury officials in the wake of better-than-expected inflation figures and other data that suggest a broader slowdown, said the people, who asked not to be named discussing internal deliberations.
The Bank will also release new forecasts today, showing how it expects the UK economy to perform in the next few years.
They should show if BoE economists see a recession on the horizon, and if they believe Sunak will hit his target of halving inflation by the end of the year.
Bank of England poised to raise UK interest rates to 5.25% https://t.co/tJGV3oW0cp
— Guardian news (@guardiannews) August 3, 2023
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In the corporate world, we’ll also hear from retailer Next, engineering firm Rolls-Royce and carmaker BMW this morning.
UK companies posting earnings – Hikma, LSE, Morgan Sindal, Rolls Royce, Serco, NEXT, Smith & Nephew – US companies – Amazon, Apple, Alibaba, Conoco-Phillips, Amgen, Airbnb, Cigna
— David Buik (@truemagic68) August 3, 2023
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UK companies posting earnings – Hikma, LSE, Morgan Sindal, Rolls Royce, Serco, NEXT, Smith & Nephew – US companies – Amazon, Apple, Alibaba, Conoco-Phillips, Amgen, Airbnb, Cigna
— David Buik (@truemagic68) August 3, 2023
The agenda
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7am BST: German trade data for June
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9am BST: Service sector PMI report for the eurozone
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9.30am BST: Service sector PMI report for the UK
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Noon BST: Bank of England interest rate decision
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12.30pm BST: Bank of England press conference
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1.30pm BST: US weekly jobless report
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3pm BST: Service sector PMI report for the US
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3pm BST: US factory orders for June
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