BoE tightening will keep mortgage rates high Financial Times

Countries like Spain have kept energy prices lower, temporarily limited rent increases and tackled excessively high profits through taxation. Last month, the Fed raised interest rates from 0.25% to 0.5% – their first increase in four years. Along with other central banks, such as the Bank of England, the Fed has an inflation target of 2%. The BLS reported that consumer prices rose to 8.6% last month, an increase of 0.3 percentage points on the 8.3% reported in the year to April 2022, putting them at their highest level since December 1981.

• So if you put £100 into a savings account with a 1% interest rate, you’d have £101 a year later.
• “Today’s decision could be framed as a pause,” says Martin Beck, chief economic advisor to the EY ITEM Club.
• Despite the positive news, there is still a great deal of uncertainty over the future of the economy and the direction of interest rates.
• The figure is up from 8.9% the previous month, according to an estimate from Eurostat, the statistical office of the European Union.
• 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.
• Today’s announcement by the BoE is the latest in a series of attempts by central banks around the world to tackle the inflationary headwinds being felt in many countries.

The decision to hold echoed the Fed’s actions in June this year when it also maintained borrowing costs at prevailing rates. This contrasted with a month later when a quarter point hike propelled rates to their present level. As expected, the core CPI figure, which strips out volatile food and energy prices, rose by 0.3% in September, taking the 12-month figure to 4.1%, down from 4.3% in August. 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.

As motorists struggle to get hold of new models, many are turning to the second-hand car market, and as a results, demand is rising and so are prices. Savers, in contrast, would benefit from a hike if they have money deposited in variable-rate paying accounts where a provider decided to pass on any rate rise to its customers, in full or in part. The drop in US CPI may be welcomed by markets with investors starting to hope that peak inflation has now passed.

BoE tightening will keep mortgage rates high

A greater proportion of surveyors are reporting falling UK residential property prices than at any time since after the financial crisis, the Royal Institution of Chartered Surveyors (RICS) reported this morning. The energy index decreased 0.5% for the 12 months ending September, and the food index increased 3.7% over the last year. Ikea, the flat-pack furniture giant, has announced it has started cutting prices – a sign that inflationary pressures and supply chain disruption are easing.

• However, as the BoE has said it is taking a “different path” to achieve the same end result, implying that the risk is for later and/or shallower cuts than we currently expect.
• The economy has been grappling with high inflation and borrowing costs but has so far managed to skirt recession.
• The Fed recently increased its interest rates ceiling from 0.5% to 1% and did not rule out similar moves during the remainder of this year.
• The steep rise from October to November could contribute to a potential hike in interest rates when the UK’s central bank reveals its final decision of the year on the subject later this week.
• Mortgage lenders have already been raising rates in recent days in anticipation of a Bank Rate hike.
• “PMIs are perhaps a stark reminder that bringing inflation down from double-digits to just 2% was never likely to be pain free. At face value, they suggest the risk of recession is growing,” noted Simon Wells at HSBC.

The news will heap added pressure on household finances already stretched to breaking point as consumers grapple with the worst cost-of-living crisis in years. UK inflation rose to a 40-year high of 9.4% in the year to June 2022, according to the latest figures from the Office for National Statistics (ONS). The Dow Jones Industrial Index rose by over 530 points to 32,291 while the S&P 500 rose by almost 3% to 4,037. “While the Bank expected a slight contraction in Q2 GDP, the mounting weakness in the UK economy may give it pause for thought before continuing to lift rates higher”. The economic contraction in the second quarter may influence the Bank when it meets in September to decide whether to increase the Bank interest rate from its present 1.75%. The Bank of England says the figure will reach deep into double-digit territory in the coming months.

September: Falling Pump Prices Trim Rate But Food Costs Still Soaring

The Bank of England has raised interest rates for the eighth time in less than a year in a bid to shield the UK economy from the damaging effects of soaring inflation, writes Andrew Michael. Earlier this month, the Fed further attempted to rein in soaring levels of inflation by raising its target benchmark interest rate by 0.75 percentage points, a history-making fourth increase of that size in a row. The pound rose sharply to just over $1.16 following the news of a surprise cooling in US inflation. Today’s data boosted hopes that the US Federal Reserve will ease off from further aggressive interest rate rises putting pressure on the dollar. The Bureau said that housing, fuel and food each contributed to the latest month-on-month increase. But it added that once items such as food and energy were stripped out, so-called ‘core’ inflation rose by 0.3% in October, half the figure recorded for the same measure a month earlier.

November: Dollar Slides As Fears Of Aggressive Rate Hikes Subside

The ONS says there has also been a continued slowing in the rolling three-month rate, with GDP for the three months to August also down 0.3% on the three months to May. Inflation in the United States continued to edge lower last month, but at a slower than expected rate, writes Andrew Michael. Assuming the government sticks to the triple lock arrangement, today’s is the limefx forex broker safe to do trades with figure – which is the largest of the three measures – means that state pensions will rise by 10.1% from the start of the tax year next April. The government will give an Autumn Statement the following day, reviewing the public finances and setting out policy objectives. This may include details of government support for energy consumers from April 2023 onwards.

The Bank of England (BoE) has been forced into taking emergency action on the bond markets today amid market turmoil that has seen the cost of government borrowing rise sharply, Andrew Michael writes. This discrepancy in the Gross Domestic Product figure – a measure of a country’s output generated by products and services – appears slight but makes an important difference to its economic status. This is because a recession is usually defined as two consecutive quarters of contraction. Sterling rose against the dollar to $1.116 this morning, having retreated from its low of just over how does psychology affect trade $1.03 at the start of the week caused by a rout on the markets in response to the government’s recent proposals for a mammoth series of unfunded tax cuts. The pound has risen back to pre mini-budget levels against the dollar today, as the UK’s official forecaster revised its calculations showing that the country entered a recession during the summer, writes Andrew Michael. September’s CPI reading is important because it is one of the three measures used by the government – alongside wage growth and a minimum uplift rate of 2.5% – to determine the pension triple lock guarantee.

October: Next Rates Decision Remains Difficult To Call

Eurostat, the statistical office of the European Union (EU), said that the 20–nation eurozone’s inflation figure stood at 5.6% in January 2022. With the dial only moving down in small increments, commentators say US inflation has remained resolutely sticky, suggesting the Fed has more to do to bring prices under control. Deposits held in UK banks are protected by the government-backed Financial Services Compensation Scheme. On a monthly basis, CPIH climbed by 1.0% in February 2023, compared with a rise of 0.7% in February 2022. Higher energy costs are a lingering consequence of Russia’s invasion of Ukraine in February last year. In contrast, today’s rate increase could generate mixed feelings among the UK’s savers seeking better returns.

What is Quantitative tightening (QT) and how does it affect the Pound Sterling?

The trajectory echoed a similar path to the US inflation figure reported yesterday (see story below) and could be a sign that the recent spike in prices might have peaked. But it said inflation in the US remains elevated, reflecting supply and review mastering bitcoin demand imbalances related to the coronavirus pandemic, higher food and energy prices, and what it called “broader price pressures”. The revision contradicts a recent pronouncement from the Bank of England declaring that this was the case.

More UK households defaulted on their secured loans, such as mortgages, in the April-June quarter, and the situation is expected to worsen in the July-September quarter. The BoE has raised interest rate 14 times since December 2021, to a 15-year high of 5.25%. “As we see supply chain costs start to ease, we have a clear commitment to lowering prices accordingly. It is understood that the cost cutting plan is focused on the group’s US business and will not affect plans in the UK where Boots sales rose 12.5% for the year helped by high inflation, a 4% increase in visitors to stores and strong growth online. 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. Tellor price has broken out of leash after almost three weeks of confinement within a bearish technical formation.

Both the US Fed – where inflation currently stands at 6% – and the BoE are required to maintain inflation at 2% over the long-term. A hike in the base rate is generally good news for customers with cash in savings accounts. But the announcement neither guarantees that providers will boost any or all of their returns straightaway, nor necessarily apply universally across all products. Households with fixed-rate home loans will not experience a monthly change in their monthly payments immediately but could be faced with more expensive mortgages when they reach the end of current deals. The Bank’s Monetary Policy Committee (MPC) raised the influential Bank Rate by 0.25 percentage points to 4.25%, its highest level in 15 years.

In recent days, the pound has weakened dramatically against the dollar and the price of gilts has plunged as the market digested the government’s recent wide-ranging tax-cutting plans that require substantial borrowing to be executed successfully. The BoE has launched a surprise and potentially enormous intervention in government bonds, also known as gilts, to stop what it described as “a material risk to financial instability” in the wake of last Friday’s mini-budget. In a statement, the BoE said it was “prepared to deploy (this) unused capacity to increase the maximum size of the remaining five auctions above the current level of up to £5 billion in each auction. The service sector saw an 0.1% fall in August after growing 0.3% in July while construction grew by 0.4% on the back of a 1.9% increase in new building projects. Infrastructure (5.3% growth), private industrial (4.3%) and private housing new work (1.7%) were the main contributors to the positive construction sector number. Georgia Meloni, Italy’s recently-elected prime minister, said recently that tighter monetary policy was “considered by many to be a rash choice”.

It remains to be seen how the above changes will affect the ONS inflation figures for October, due for release on 16 November 2022. Lower unit prices are a result of the government-funded Energy Price Guarantee for domestic consumers and the Energy Bill Relief Scheme for non-domestic consumers. The latest inflation data follows immediately in the wake of the US mid-term elections that have been taking place this week and where the anticipated ‘red wave’ of support for the Republican party has failed to materialise.