The BoE expects GDP to grow by 0.5 per cent this year, unchanged from its last forecast, but downgraded its outlook for 2024 from 0.5 per cent to 0 per cent…reports Asian Lite News
The Bank of England (BoE) on Thursday left its key interest rate untouched at 5.25 per cent, a day after the US Federal Reserve took the step to pause further hikes as global inflation eases.
However, the interest rate in the UK still remains the highest in more than 15 years, with the country reeling from the highest rate of inflation among the G7 advanced nations.
BoE Governor Andrew Bailey said it was “much too early” to think about cutting rates.
“We’ve held rates unchanged this month, but we’ll be watching closely to see if further rate increases are needed,” Bailey said in a statement.
The BoE expects GDP to grow by 0.5 per cent this year, unchanged from its last forecast, but downgraded its outlook for 2024 from 0.5 per cent to 0 per cent.
Holding the rate at 5.25 per cent will be positive news for homeowners as when the rates go up, the cost of borrowing increases.
The pause in the US Fed Reserve interest rate hike and now the BoE following in the same footsteps is expected to have a positive impact on the Indian stock markets and the rupee as foreign funds are less likely to exit.
The US Fed kept the benchmark lending rate between 5.25 per cent and 5.50 per cent.
The European Central Bank last week left Eurozone interest rates unchanged after raising them in each of its previous 10 meetings.
Inflation in the UK peaked at 11.1 per cent in October 2022, stoked by rising oil prices after the Ukraine war but has come down to 6.7 per cent since then.
Official figures on Wednesday showed a surprise fall in inflation in August, and brought to a halt the central bank’s most aggressive round of rate increases in decades…reports Asian Lite News
Mortgage holders have been offered relief after the Bank of England kept interest rates on hold for the first time in almost two years, raising the prospect that a peak in borrowing costs has been reached in the battle against inflation.
In a knife-edge decision as the economy comes under growing pressure, the Bank’s monetary policy committee (MPC) voted by a narrow majority to hold its key interest rate at 5.25% – already the highest level since the 2008 financial crisis.
Official figures on Wednesday showed a surprise fall in inflation in August, and brought to a halt the central bank’s most aggressive round of rate increases in decades – 14 consecutive rises since the end of 2021.
Exposing a split within the Bank’s most senior ranks, the nine-strong MPC was divided 5-4 with a minority pushing for a further quarter-point rise. The Bank’s governor, Andrew Bailey, cast the decisive vote in favour of a pause.
“Inflation has fallen a lot in recent months, and we think it will continue to do so. That’s welcome news. But there is no room for complacency,” he said, indicating that the Bank stood ready to take further action if required. “We need to be sure inflation returns to normal and we will continue to take the decisions necessary to do just that.”
Financial markets bet the central bank had reached the end of its round of rate increases, while Britain’s biggest high street lenders – including Nationwide – cut the rate on their mortgage products amid the anticipation of no further changes.
The chancellor, Jeremy Hunt, said Britain was “starting to see the tide turn against high inflation”, while saying the government was on track to meet its promise to halve inflation this year. “Now is the time to see the job through,” he said.
However, borrowing costs are expected to remain at high levels for a lengthy period as the central bank attempts to return inflation to the 2% target set by the government without tipping the economy into recession.
Threadneedle Street said risks to the economy were gathering as the impact from previous rate increases weighs heavily on households and businesses, saying it foresaw only a slight rise in output in the third quarter of the year and “weaker than expected” growth in the second half.
Financial markets had been finely balanced in the run-up to the decision, with the City predicting a near-even chance of a quarter-point rise, reflecting the difficulty for the Bank in steering through a period of high inflation and deteriorating economic growth.
The Bank, the chancellor and City investors were wrongfooted by the unexpected fall in UK inflation in August, to 6.7%, while separate figures showed a cooling jobs market and weaker levels of economic activity.
Central banks around the world are approaching the end of the rate-hiking cycle, which started after the inflation shock triggered by the Covid pandemic and Russia’s war in Ukraine. The US Federal Reserve left borrowing costs unchanged on Wednesday, while the European Central Bank raised interest rates last week in a move many economists said could be its final increase.
Get set for the working day – we’ll point you to all the business news and analysis you need every morning
Highlighting divisions within the MPC, the Bank’s outgoing deputy governor Jon Cunliffe broke ranks to join three of the independent economists on the nine-strong panel in calling for a further quarter-point rate rise. His decision is considered unusual because the five Bank insiders on the MPC typically move as a bloc.
Cunliffe, who will leave the committee after completing his final term at the Bank this autumn, was joined in the minority by the independent economists Megan Greene, Jonathan Haskel and Catherine Mann. The other external member, Swati Dhingra, voted with the majority to leave rates on hold.
The decision to leave rates unchanged will come as a rare piece of welcome economic news for Rishi Sunak as the prime minister comes under fire over his plans to water down the government’s net zero promises.
However, millions of mortgage holders are yet to refinance from cheaper deals agreed before the Bank started raising borrowing costs, a ticking timebomb for households in the run-up to the next election.
Rachel Reeves, the shadow chancellor, said: “Households coming off fixed rate mortgages will be paying an average of £220 more a month and inflation remains high because of the Conservatives’ disastrous mini-budget.”
Inflation is due to fall from 7 per cent recorded in the March quarter this year to 3.25 per cent in 2023-24, before returning to the Reserve Bank of Australia (RBA)’s target band the year after…reports Asian Lite News
Australia’s Treasurer Jim Chalmers on Wednesday said that no state or territory in the country was immune from economic headwinds, including the challenge from inflation.
In an address, Chalmers said inflation and interest rate increase along with global challenges, will significantly slow the economy, with the growth expected to fall from 3.25 per cent this year to 1.5 per cent next year, reports Xinhua news agency.
Inflation is due to fall from 7 per cent recorded in the March quarter this year to 3.25 per cent in 2023-24, before returning to the Reserve Bank of Australia (RBA)’s target band the year after.
“In the Northern Territory (NT), consumer price index (CPI) reflects these national trends, and you, along with the rest of the country, have been impacted by the response,” he said.
“The 400-basis point increase in rates since before the election last year is the most significant tightening cycle the RBA has undertaken since the inflation targeting era began.”
Chalmers also said Australia’s first budget surplus in over a decade will come in bigger than previously forecast.
The improvement has been driven by low unemployment and high commodity prices resulting in higher tax receipts.
“Today, I can reveal that we’re expecting the surplus will be bigger than forecast in May,” he said.
“We welcome this because it means delivering on what we’ve set out to do — rebuilding our buffers — and taking more heat out of the economy just as it’s needed to combat inflation.”
His speech came as data from the Australian Bureau of Statistics (ABS) on Wednesday revealed the rate of inflation fell.
The monthly CPI indicator rose by 5.6 per cent in the 12 months to May this year — down from 6.8 per cent in April and the smallest increase since April 2022, according to ABS.
Influential think tank the Institute for Fiscal Studies (IFS) warned higher rates would result in a drop of more than 20% in disposable income for 1.4 million mortgage holders…reports Asian Lite News
Interest rates are expected to rise again after UK inflation remained much higher than expected for the fourth month in a row. Inflation, which measures the rate of rising prices, stuck at 8.7% in May.
The shock figure was driven by higher prices for flights and second-hand cars but supermarket food prices also continued to rise rapidly. In a heated exchange at PMQs, Rishi Sunak and Labour leader Keir Starmer clashed over who was to blame.
Sir Keir accused the Conservatives of being to blame for “the mortgage catastrophe”. But Prime Minister Sunak hit back, citing “the global macroeconomic situation” and saying it had spent “tens of billions” supporting people with the cost of living.
Interest rates are widely expected to rise by 0.25% to 4.75% on Thursday but some suggest they could now go up to 5%. Rising rates mean homeowners are facing big increases in mortgage payments.
Influential think tank the Institute for Fiscal Studies (IFS) warned higher rates would result in a drop of more than 20% in disposable income for 1.4 million mortgage holders.
Karen Ward, a member of chancellor Jeremy Hunt’s economic advisory council, said the Bank had “been too hesitant” in its interest rate rises so far and called on it to “create a recession” to curb soaring prices.
“It’s only when companies feel nervous about the future that they will think ‘Well, maybe I won’t put through that price rise’, or workers, when they’re a little bit less confident about their job, think ‘Oh, I won’t push my boss for that higher pay,'” she said.
But Andrew Selley, chief executive of Bidfood UK, a wholesale food supplier said increasing interest rates was “not the right thing to do”.
“It’s stifling the economy. They need to look at other ways to support businesses so they can weather the storm,” he said.
Chancellor Jeremy Hunt appeared to back further interest rate rises saying it would not “hesitate in our resolve to support the Bank of England as it seeks to squeeze inflation out of our economy.”
The Bank is tasked with keeping inflation at 2% but the current inflation rate is four times higher than this. It has been steadily raising interest rates since the end of 2021. This makes it more expensive to borrow money and theoretically encourages people to borrow less and spend less, meaning price rises should ease.
Homeowners – a third of adults in the UK – are facing large increases in repayments when fixed-term deals come to an end. First-time buyers are also at risk of being priced out of the market as lending conditions become tighter.
The average two-year fixed rate mortgage on Wednesday hit 6.15%, while five-year deals were 5.79%. In May, increases to flight fares, second-hand car prices, live music events and video games all drove prices higher.
One analyst said it was possible the release of Nintendo’s new Zelda had helped boost the sale of computer games. So-called “core” inflation, which strips out volatile factors such as direct energy and food prices, along with alcohol and tobacco prices, continued to rise last month rising at its fastest rate for 31 years.
Economists said this made the UK stand out from other countries such as the US and Germany where inflation is falling,
Grant Fitzner, chief economist at the Office for National Statistics (ONS), which produces figures on the UK economy, said the increase was being driven by rising service prices in cafes, restaurants and hotels. “That’s probably driven, at least in part, by the increase we’ve seen in wages,” he added.
Yael Selfin, chief economist at KPMG UK, also said rising core inflation suggested firms might be passing on rising costs from higher wage bills to consumers,” she said.
UK wages have risen at their fastest rate in 20 years, excluding the pandemic, but are still lagging behind the rate of inflation.
Pay failing to keep up with price rises has led to many households come under financial pressure in recent months. Food price inflation, which is the rate at which prices for groceries have risen compared to the year before, was 18.3% in May, down slightly from 19% in April.
The quarter of a percentage point rise to 4.5 was expected, but the 12th increase in a row brings concerns…reports Asian Lite News
The Bank of England has raised interest rates to their highest level since late 2008 as it continues to combat stubbornly high inflation in the United Kingdom.
The decision on Thursday by the bank’s nine-member Monetary Policy Committee to lift its main interest rate by a quarter of a percentage point to 4.5 percent was widely anticipated in financial markets.
The increase was its 12th in a row. Just two members of the bank’s nine-member panel voted to keep interest rates unchanged.
Bank of England Governor Andrew Bailey told reporters in London after the rate changed: “The rise in bank rates since December 2021 will weigh more on the economy in the coming quarters and the [Monetary Policy Committee] factors this into its policy decisions.”
Like other central banks around the world, the Bank of England has sought to keep a lid on inflation, which over the past year has been fuelled by Russia’s invasion of Ukraine.
That sent energy prices soaring, a development that then led to price increases across a wide array of goods and services.
The Bank of England started raising interest rates in late 2021 from a low of 0.1 percent in order to keep a lid on price rises that were first largely stoked by bottlenecks resulting from the lifting of coronavirus lockdown restrictions and subsequently by the war in Ukraine.
Tasked with keeping inflation at about 2 percent, the bank said inflation would likely fall to about 5 percent by the end of this year.
But it warned there were “considerable uncertainties” over when inflation would return to its target, citing “significant” upside risks.
“If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required,” the bank said.
Inflation currently stands at just over 10 percent. In documents accompanying its decision, the bank said food prices have stayed higher for longer than expected. As a result, it said, consumer price inflation is expected to decline less rapidly than previously thought.
The interest rate hike will pile more pressure on borrowers, particularly those who have mortgages that track the bank’s headline rate.
Many homeowners will be cushioned from the recent increases because they fixed their mortgages when interest rates were ultra-low during the coronavirus pandemic.
However, those whose fixed-rate terms expire over the coming months will face much higher borrowing rates when they look to lock in new deals.
Serious crisis
Meanwhile, For the past two years, British nationals have faced a consistent cost of living crisis, making it difficult for households to meet their needs. The cost of living increased sharply across the UK between 2021 and 2022. This situation has increased the number of shoplifting incidents in the UK.
According to The Metro, one in 10 young adults has admitted to stealing items from supermarket self-checkouts to cope with the cost of living crisis. Inflation has stubbornly remained in the double digits for months (the latest figure was a gruelling 10.4%), keeping food and fuel costs sky-high.
“Families struggling under the burden of higher price tags have seen the cost of food and non-alcoholic drinks rise by 19.1%; some have doubled in a year. Imported food rose by a quarter in the last year, according to the latest data from the Office for National Statistics (ONS).”
Essentials like the children’s medication Calpol are among the most often stolen goods in the UK, according to a report. Security tags are becoming more frequent on specific products, such as milk and cheese.
The Independent reported that the latest Office of National Statistics figures for England and Wales show that shoplifting rose by 22 percent in the year to September. The British Retail Consortium figures suggest the same, with 7.9 million cases last year, five million more than in 2016/17.
Meanwhile, a 2022 study by the Centre for Retail Research found that shoplifting cost the British economy 660 million pounds in 2021-22.
A report by Oxford Economics and financial services company Hargreaves Lansdown found that while almost 90 per cent of the UK’s lowest-income families had poor financial resilience when inflation hit record highs last year, many of those on middle incomes now find themselves squeezed as higher mortgage costs bite.
The most recent forecast by the National Institute for Economic and Social Research showed that middle-earning households will see their real incomes fall by around 6.2 per cent, or £1,077 per year, in 2023-24.
In its Autumn Statement last year, the government announced additional cash payments totalling up to £900 for families on lower incomes, in 2023-24. According to NIESR, this will help offset some inflationary pressures, resulting in a 2.3 per cent net income gain for the poorest households.
But wealthier households receive less help to defray rocketing prices. “Of course [low-income families] are still facing an incredibly difficult situation. Let’s not pretend it’s easy, but that cash help will make a difference to those poorest households [. . .] whereas middle-income earners don’t have the help but face all the costs,” said Adrian Pabst, economist at NIESR.
