Separate figures released today by the Office For National Statistics, showed that the UK’s economy as measured by its GDP (Gross Domestic Product) shrank in April by 0.3%, due to services, production and construction sectors all retracting. It marks the second consecutive month that the economy has shrunk, having retracted by 0.1% in March, and is fuelling fears of a recession. The latest increase follows a half-percentage point hike in interest rates announced last month. The last time the Bank Rate exceeded 1% was in 2009 when Gordon Brown was Prime Minister and the world economy was emerging from the global financial crisis.
Speaking in Marrakech, where the IMF and the World Bank are holding their annual meeting, Huw Pill pointed out that much of the Bank’s earlier rate hikes have yet to “come though” and affect the real economy. Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. The BoE will also update its growth and inflation forecasts alongside the rate decision, both of which are likely to be lower than in May due to higher market rate expectations – an important component of the forecast. Wage growth excluding bonuses held at an annual rate of 7.3% in the three months to May, the joint highest since records began in 2001.
Petrol is now selling for around £1.75 a litre, whereas in July it topped £1.90 a litre in some cases. UK inflation now stands at more than five times the 2% target set by the government for the Bank of England (BoE). The BoE recently forecast that inflation will peak at around 13% by the end of this year and will continue at “elevated levels” through 2023.
US inflation accelerated to a new 40-year high in the year to June 2022, according to the latest figures from the US Bureau of Labor Statistics (BLS), writes Andrew Michael. Today’s announcement from the ECB came in the wake of the earlier resignation of Italian Prime Minister, Mario Draghi, terminating a national unity government that had been created to tackle unpopular reforms in the country. Inflation in the United States slowed by more than expected last month, in a sign that the recent understanding responsive web design and responsive design testing spike in prices might have passed its peak, writes Andrew Michael. The economy actually grew by 0.4% in May following growth of 0.8% in the first quarter of the year. But economists agree that the long-term trend for the economy is towards a recession – generally seen as being when the economy shrinks for two quarters in a row. Yesterday, in another consequence from steepling inflation levels, it emerged that real levels of UK pay fell at the fastest rate for more than 20 years.
Earlier this week, the Reserve Bank of India and Reserve Bank of Australia both announced interest rate hikes. The move, the BoE’s fourth rate rise since December last year, followed yesterday’s decision by the US Federal Reserve to raise its interest rates ceiling by 50 basis points to 1%. The latest inflation surge is being driven by soaring energy and fuel prices, coupled with the economic impact from the war in Ukraine.
To our minds, that was a signal from the Committee that, even though they continue to be data led, they think they are close to the end of the current hiking cycle. As a result, we lower our terminal rate forecast from 5.75% to 5.50%, which we expect to be reached at the September meeting. They should show if BoE economists see a recession on the horizon, spreadex forex broker review and if they believe Sunak will hit his target of halving inflation by the end of the year. The Bank of England finds itself on the horns of a dilemma this week, as it sets UK interest rates. 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.
- US inflation has also broadly edged down in recent months, in contrast to the UK where consumer prices have continued to rise.
- The result of the BoE’s next rate-setting meeting will be announced on 15 September 2022.
- Today’s increase in the consumer price index, as reported by the US Bureau of Labor Statistics, was caused by rising costs for energy, food and accommodation as the impact of Russia’s invasion of Ukraine began to take effect.
- In recent months the UK, along with many countries worldwide, has felt the brunt of inflationary headwinds as a result of surging energy prices, a squeeze in the post-pandemic global supply chain and the war in Ukraine.
- The latest numbers from the US will assuage concerns among investors that the country’s central bank, the Federal Reserve, will continue its policy of aggressive interest rate hikes at its next policy meeting in September.
Although the UK has returned to growth, the economy is still weak, warns Suren Thiru, economics director at ICAEW. That would mean two consecutive quarters of contraction – the technical definition of a recession. Ruth Gregory, their deputy chief UK economist, predicts the UK economy will shrink in the July-September quarter, and again in October-December. August’s pick-up in GDP will not prevent the UK economy contracting over the third quarter of 2023, fears City consultancy Capital Economics. Lenders also reported that overall demand for unsecured lending increased in April-June, and was expected to increase slightly in Q3.
December: Funds Rate Ceiling Up To 4.5% In Battle Against Rising Prices
Yesterday, the US Federal Reserve – the Bank of England’s equivalent – imposed a 0.25 percentage point rise on its Funds Rate, taking it to a range between 4.5% and 4.75% (see story below). In contrast, the lowest rates were recorded by Luxembourg (5.8%), Spain (5.9%), Cyprus and Malta (both 6.8%). Across the 28-nation EU as a whole, inflation stood at 10% this January, down from 10.4% in December, but nearly double the figure of 5.6% reported in January 2022. In June, it chose to hold these at 5% – 5.25%, but there is speculation that it might increase them when it next meets on July 25-26.
- This advisory will promote responsible practices in the maritime oil industry and enhance compliance with the price caps on crude oil and petroleum products, they say.
- UK inflation has burst through the double figure mark once again with a reading of 10.1% in the year to September 2022, according to the Office for National Statistics (ONS), writes Andrew Michael.
- In recent months the UK, along with many countries around the world, has felt the brunt of inflationary economic headwinds thanks to surging energy prices, a squeeze in the post-pandemic global supply chain, and the ongoing war in Ukraine.
Only a quarter of economists polled by Reuters late last month thought the MPC would vote to raise Bank Rate again on Nov. 2. Standard Digital includes access to a wealth of global news, analysis and expert opinion. Premium Digital includes access to our premier business column, Lex, as well as 15 curated newsletters covering key business themes with original, in-depth reporting. Fed officials have not pushed back against those expectations in their remarks, a sign they may not disagree with them at the moment. Fed’s actions and projections remain disconnected from each other
Powell needs to make bonds attractive in order to keep the US economy going ahead
Meanwhile, a bearish steepening has made it even…
August: Rising Wages May Fuel Further Bank Of England Hike
The ONS says the largest contributors to the latest increase in the monthly rate came from transport, household goods and furniture, while the cost of food and non-alcoholic drinks was also higher. UK inflation as measured by the Consumer Price Index (CPI) jumped to a 30-year high of 6.2% in the year to February 2022. In recent months, rising inflation has been driven by soaring global prices for energy, petrol, food and durable goods. Retail inflation in India last month rose to a 17-month high of 6.95% from 6.07% in February 2022.
Bank of England Interest Rate Decision: What to know in markets on Thursday, August 3
Bailey says the Bank is “very cognisant” of the fact that some people are very seriously affected by rate increases. Yesterday, the TUC said it should hold borrowing costs unchanged, as the UK was “teetering on the brink of recession”. The survey of purchasing managers at UK companies found that growth in activity levels and new work both slowed last month, indicating a drop in demand. A protest is taking place outside the Bank of England ahead of today’s interest rate decision at noon.
UK economy: Growth prospects ‘stymied’ as inflatio…
The dip, driven by an easing in the price of clothing, footwear and recreational goods, means the inflation figure is now in line with the Bank of England’s official target of 2%. Next month’s data, covering September’s inflation figures, will determine the level at which the state pension will be uprated from April 2022 under the new, temporary ‘double lock’ recently introduced by the government. The 1.2 percentage point rise is the largest recorded by the CPI National Statistic 12-month inflation rate series, which began in 1997. While mortgage customers will view the latest inflation figures with concern, savers may see a glimmer of hope that they may earn a better rate on their accounts – although any improvement would need to be set into the context of rising prices. Last week, the US Bureau of Labor Statistics reported that its consumer price index had risen by 6.8% in the year to November. Consumer prices increased at an annual rate of 5.5% in January 2022, up from 5.4% the previous month and well above the figure of 0.7% recorded in January last year.
June: Eurozone Faces First Interest Rate Rise Since 2011
GDP rose by 0.2% in August, the Office for National Statistics reports, which matches City expectations. The UK economy returned to growth in August, as activity picked up after a worst-than-expected the white coat investor slump in July. “Our initial estimate suggests GDP grew a little in August, led by strong growth in services which was partially offset by falls in manufacturing and construction.
Last week, the European Central Bank hiked interest rates across the eurozone by the same amount, the second rise of this size in two months. In an expected move, the decision by the Bank’s rate-setting Monetary Policy Committee (MPC) to raise the Bank rate by 0.75% percentage points to 3% is the largest hike of its type since policymakers scrambled to defend sterling on Black Wednesday in 1992. With inflation already in double figures from September, a further hike to the latest rate will be a difficult pill to swallow for households already embroiled in a severe cost-of-living crisis. Mr Fitzner added that increases to a range of food items also pushed up the inflation figure, although this was partially offset by a decline in motor fuels including a fall in the cost of petrol.