UK recession a 50% risk, Bank of England warns, after leaving interest rates unchanged – business live | Business

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BANK OF ENGLAND DECISION

Newsflash: the Bank of England has voted to leave UK interest rates on hold.

For the second meeting running, the Bank’s Monetary Policy Committee has decided to leave interest rates unchanged at 5.25%, a 15-year high.

This follows the 14 increases in borrowing costs from December 2021 to August this year, as the Bank tried to tame infation.

The move suggests the MPC is sticking with the ‘Table Mountain’ approach to fighting inflation – leaving borrowing costs at their current high levels until it is confident that inflation will fall back on a sustainable basis to its 2% target.

More to follow….

Key events

Most indicators of UK employment growth are softening, warns BoE governor Andrew Bailey.

The number of vacancies have fallen, while unemployment has ticked up, he adds.

This weakening in the labour market has been driven, in part, by lower supply of labour not just demand, Bailey says.

That explains the continued strength in pay growth, even as employment growth has eased.

Bailey adds that there are ‘upside risks’ to the inflation outlook from energy, following the ‘tragic events in the Middle East’.

That’s a reference to the increase in oil and gas prices following Hamas’s attack on Israel last month.

Bailey: Inflation probably just below 5% in October

Andew Bailey then predicts there was a large fall in UK inflation last month.

Bailey tells the press conference that inflation is forecast to drop to just below 5% in October, down from 6.7% in September.

A chart showing UK inflation
A chart showing UK inflation Photograph: Bank of England

That’s fall will be driven by the drop in energy bills last month, due to the drop in Ofgem’s price cap at the start of October.

Inflation is expected to stay around that level for the rest of the year, Bailey predict.

(if so, that would mean Rishi Sunak could claim success in his target of halving inflation in 2023, as annual CPI inflation was 10.5% last December.)

Governor Andrew Bailey then says the Bank will be watching closely to see if further interest rate increases are needed.

But even if they are not needed, it is “much too early” to be thinking about rate cuts, he adds (a point we flagged earlier).

BoE press conference begins

The Bank of England is holding a press conference to explain today’s decision.

Governor Andrew Bailey begins by saying that inflation is falling, and the Bank expects it to keep falling this year and next.

Our increases in interest rates are working to bring inflation back to the 2% target.

So today we have voted to maintain Bank Rate at 5.25%.

Bailey says that monetary policy remains restrictive.

There is absolutely no room for complacency, he insists, adding:

Inflation is still too high. We will keep interest rates high enough for long enough to make sure we get inflation all the way back to the 2% target.

Bank holds interest rates: snap reaction

It’s another day, another pause and another fight at the Bank of England, says George Lagarias, chief economist at accountancy group Mazars.

Lagarias says:

As expected, the UK central bank retained its key interest rate for the second time in a row, mirroring the Fed’s decision yesterday.

It is clear that the Bank’s board members are looking outside the window at an economy that has barely grown in the past year. Unlike the US, the holder of the world’s reserve currency, the UK can’t fiscally support its economy without risking a backlash in the bond market, similar to last September’s.

Further hiking would risk tipping a barely growing economy into a recession. External members seem to disagree, possibly adhering to stricter economic dogma. However, the Bank’s intention is now clear, and the scale has been tipped for growth rather than for controlling inflation.”

The nation will be breathing a sigh of relief that the Bank of England has followed expectations and held interest rates for the second month in a row, says Laura Suter, head of personal finance at AJ Bell.

Suter explains:

Maintaining rates at 5.25% will raise hopes that we have finally hit peak interest rates – and that the only route from here is down.

“But anyone hoping for a drop in rates as steep and swift as the climb up will be disappointed. Markets are pricing in no cuts until Autumn next year. It means that rather than a traditional ‘mountain’ shaped rise and fall in rates we’re expecting a table-top mountain, where rates tick along at the same level for almost a year before a slower drop back down. The Bank itself says the market expects rates to only hit 4.25% by the end of 2026 – showing how glacial the path down could be. With risks like the conflict in the Middle East and a potential spike in oil prices, not to mention the potential for a surprise in inflation numbers or another economic data point, we can’t entirely rule out any further rate hikes.

And the Bank has certainly not ruled it out, if it sees ‘more persistent inflationary pressures’. The fact that a third of the MPC voted for a rate hike today shows there is still appetite among the committee to tighten monetary policy further.

Neil Shah, executive director at Edison Group, says the Bank’s decision adds to evidence that the interest rate rise cycle is reaching its peak.

“The Bank of England doves will hope their decision to hold interest rates does not come home to roost, given the evident division among the MPC.

The global consensus in pausing interest rates, mirrored by the Fed and ECB over the last two weeks, is an encouraging sign for investors seeking stability in the market and all indications certainly point to the rate rise cycle reaching its peak, with current interest rate levels seen as proving effective in the recent fall in inflation.

Governor Bailey: Much too early to consider cutting rates

Andrew Bailey, the Bank of England’s governor, has declared that it is “much too early to be thinking about rate cuts”.

In a statement issued as the Bank left borrowing costs on hold, Bailey adds:

“Higher interest rates are working and inflation is falling. But we need to see inflation continuing to fall all the way to our 2% target.

We’ve held rates unchanged this month but we will be watching closely to see if further rate increases are needed.”

BREAKING: Bank of England v hawkish PAUSE in the face of v anaemic growth forecasts.6-3 split

New line: “MPC’s latest projections indicate that mon policy is likely to need to be restrictive for an extended period of time”

Bailey: “much too early to be thinking about rate cuts” pic.twitter.com/nx7HO9pCj6

— Joumanna Nasr Bercetche 🇱🇧 (@CNBCJou) November 2, 2023

BoE: 50-50 chance of recession by next summer

Richard Partington

Richard Partington

The Bank of England has warned the economy will be on the brink of recession in an election year.

The warning comes as the Bank signals interest rates will need to remain high for an extended period to tackle stubborn inflationary pressures, our economics correspondent Richard Partington reports from the Bank.

Issuing updated forecasts as Rishi Sunak’s government comes under growing pressure over his economic management in the run-up to an election expected next year, the central bank said it anticipated flatlining growth throughout 2024.

Giving a 50-50 chance of a recession by the middle of next year – beginning around the time a spring election could be held – it forecast four consecutive quarters of zero growth in gross domestic product, should interest rates follow the path expected by financial markets.

Here’s the full story:

BoE: Higher interest rates are working

Having left rates on hold today, the Bank of England insists that higher interest rates are helping to bring inflation down.

It says:

This means the speed at which prices rise is slowing. We expect inflation to fall further this year.

Bank gloomier over UK economy

The Bank of England is more pessimistic about the UK economy than three months ago.

It predicts the economy stagnated in the last quarter, and will only grow narrowly in the final three months of this year.

The minutes of today’s interest rate decision say:

UK GDP is expected to have been flat in 2023 Q3, weaker than projected in the August Report. Some business surveys are pointing to a slight contraction of output in Q4 but others are less pessimistic.

GDP is expected to grow by 0.1% in Q4, also weaker than projected previously.

Bank split 6-3 on rate decision

The Bank of England’s policymakers were split 6-3 on today’s decision.

The majority, who wanted to leave interest rates unchanged, were governor Andrew Bailey, deputy governors Sarah Breeden, Ben Broadbent, and Dave Ramsden, chief economist Huw Pill and external committee member Swati Dhingra.

The hawkish trio who pushed for higher borrowing costs were all external members of the committee – Megan Greene, Jonathan Haskel and Catherine Mann. They voted for a rise to 5.5%.

BANK OF ENGLAND DECISION

Newsflash: the Bank of England has voted to leave UK interest rates on hold.

For the second meeting running, the Bank’s Monetary Policy Committee has decided to leave interest rates unchanged at 5.25%, a 15-year high.

This follows the 14 increases in borrowing costs from December 2021 to August this year, as the Bank tried to tame infation.

The move suggests the MPC is sticking with the ‘Table Mountain’ approach to fighting inflation – leaving borrowing costs at their current high levels until it is confident that inflation will fall back on a sustainable basis to its 2% target.

More to follow….

Stand By Your Desks! Bank of England up next so lets have some markers…
£/$ 1.2195
ten-year yield 4.43%
FTSE 100 +90 at 7432

— Shaun Richards (@notayesmansecon) November 2, 2023

Less than 10 minutes to go until the Bank releases its decision on interest rates…

James Smith, developed markets economist at ING, argues it was unlikely that a majority of Bank of England policymakers will vote for a rise this month.

Smith pointed out that September’s decision to hold rates had been a 5-4 split, with four policymakers pushing for higher rates.

“It would only take one committee member to change their mind to tip the balance in favour of more tightening – but we’re doubtful,”

Smith said that there had been little new data since the last vote, so those who voted against hiking rates are unlikely to change their minds.

He added that one of those who voted to hike last time – Jon Cunliffe – has since left the MPC, replaced by new member Sarah Breeden.

The pound and the euro have both now gained ground against the US dollar during this session, with 30 minutes until the Bank of England’s interest rate decision being announced.

Traders are judging that America’s central bank may have reached its peak for interest rates, after the Fed left borrowing costs on hold last night.

So sterling has gained almost half a cent to $1.2196, with the euro up two-thirds of a cent at $1.0634.

Raffi Boyadjian, lead investment analyst at XM, says:

The Bank of England will be next to announce its policy decision later today (12:00 GMT) and is widely anticipated to keep rates unchanged at 5.25%.

For pound traders, the highlight will be the updated economic projections, particularly the inflation forecasts and how quickly it’s expected to fall to the 2% target.

Consumer confidence could be damaged, in the run-up to the festive spending season, if the Bank of England was to surprise us with an interest rate rise today.

Antony Antoniou, CEO of real estate firm Robert Irving Burns, says the Bank should be thinking about when starting to lower rates.

“Such high interests rates risk seriously tarnishing retail’s Golden Quarter. As the penultimate vote before Christmas, this decision will further impact consumer confidence in what should be the most profitable months of the year for the high street.

“Household wealth has already plummeted thanks to interest rates rising so quickly, which is causing the UK economy to buckle; with a cooling jobs market, reduction in consumer spending and drop in property transactions. The MPC needs to take into consideration the 1.6 million people due to remortgage in 2024 who are in for an enormous shock; we’ve already seen mortgage approvals sink in September to the lowest level since January 2023.

“How many profit warnings or administrations will it take before the Bank of England acts to protect and facilitate growth across our economy? Until rates start to come down, businesses will continue to take a more conservative approach, focusing on repaying debt rather than investing in growth. We simply can’t afford for the economy to remain stagnant; the Bank of England should be thinking about starting to lower rates, rather than walking straight into a recession.”

BoE rate decision approaches….

Anticipation is building ahead of the Bank of England’s big reveal in under an hour, at noon today.

As flagged in the introduction, the BoE is expected to keep interest rates on hold at 5.25%.

Stephen Innes, managing partner at SPI Asset Management, says:

The economic data has been inconclusive, with high inflation levels and an elevated risk of recession. The voting pattern within the Monetary Policy Committee (MPC) is unclear, as seen in the split vote in September.

The BoE will release new forecasts alongside its policy decision, providing potential insights into the situation.

A misty day in the City ahead of today’s rate decision. Markets were last night poised for a hold, with a more than 90% probability. pic.twitter.com/t7eYM20fZC

— Richard Partington (@RJPartington) November 2, 2023

The macroeconomic challenges in the UK, characterized by stagflation, have significant political implications for Rishi Sunak and the Conservative Party, Innes adds:

The most recent YouGov polling data reveals a significant skew in general election voting intentions, favouring the Labour Party by 24 percentage points.

It’s worth noting that before Liz Truss’s brief tenure as Prime Minister, the spread between the two major parties was only 8 percentage points. However, during the peak of the October 2022 gilt crisis, this margin expanded to 36 percentage points. Since then, it has never narrowed to less than 13 percentage points. These numbers highlight a significant shift in public sentiment and political dynamics during this period.





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