Closing post
Time for a recap:
Inflation may have peaked, the Bank of England believes, but this didn’t prevent the UK’s central bank raising interest rates today to the highest level since the aftermath of the financial crisis.
The BoE’s monetary policy committee voted, by 7 to 2, to lift Bank Rate to 4%, from 3.5% today, its 10th rate rise in a row.
Announcing the move, the Bank said:
Global consumer price inflation remains high, although it is likely to have peaked across many advanced economies, including in the United Kingdom.
Wholesale gas prices have fallen recently and global supply chain disruption appears to have eased amid a slowing in global demand.
But, Bank of England governor Andrew Bailey said it was too early to declare victory in the battle against inflation.
He told a press conference in London that:
“We’ve seen the first signs that inflation has turned the corner. But it’s too soon to declare victory just yet, inflationary pressures are still there.”
Stocks rallied in London, with the UK-focused FTSE 250 index jumping by 3.6%. The pound has weakened against the dollar, though, down 1% at $1.225.
The Bank is concerned that pay growth in the private sector, and inflation among services companies, has been higher than forecast three months ago. It wants to sqeeze these inflationary pressures out of the economy.
It also fears that UK productivity will suffer from the rise in over 50s workers who have left the labour force.
The Bank has revised its economic growth forecasts up – it now predicts the UK economy avoided recession at the end of last year, with modest growth in Q4 2022. It still expects the economy to shrink this year, but by less than before – and less than in previous recessions.
Top Bank officials told reporters in London that the hit from Brexit had arrived sooner than expected, and that interest rates could continue to rise if pay rises remained high.
The financial markets now expect just one more interest rate rise, from 4% to 4.25%, this spring.
Here’s the full story:
And analysis of the Bank’s thinking:
And an explanation of how it will affect you:
Plus here are today’s other main stories:
FTSE 250 index soars on hopes interest rates near peak
In the City, shares have ended the day higher as traders welcome signs that central banks may be slowing their interest rate increases.
The UK’s blue-chip FTSE 100 index has closed 59 points higher, or +0.76%, at 7820 points – approaching January’s four-year highs.
The smaller FTSE 250 index, which is more domestically-focused, surged by 3.6% to its highest level since last May. Cruise operator Carnival (+13.2%) and consumer publishing group Future (+13%) led the risers.
Michael Hewson, chief market analyst at CMC Markets UK, explains:
European markets have moved strongly higher after the Bank of England and European Central Bank both raised rates by 50bps which was in line with expectations, with the DAX moving to a new 11-month high, while the FTSE250 has outperformed the FTSE100.
While the tone of both press conferences would appear to suggest that both central banks have further to go in raising rates, markets appear to be taking the view that we’re near a peak as far as rates are concerned, and even if they aren’t done yet, they are close, sending bond yields falling sharply across the board.
What the Bank of England interest rate rise means for you
Today’s interest rate rise is yet more bad news for the approximately 2.2 million people on a variable rate mortgage, who are also grappling with higher fuel and energy bills, my colleague Zoe Wood explains.
Many now face paying hundreds of pounds extra a year.
About half of those 2.2 million are either on a base rate tracker or discounted-rate deal. The other half are paying their lender’s standard variable rate (SVR).
A tracker directly follows the base rate, so your payments will almost certainly soon reflect the full rise. On a tracker now at 4.5%, the interest rate would rise to 5%, adding £41 a month to a £150,000 repayment mortgage with 20 years remaining. The monthly payment on such a mortgage would rise from £949 to £990.
Of course, for those with bigger mortgages, the numbers will be bigger. On a £500,000 mortgage the monthly payment will rise by £139 to £3,301.
Those who must remortgage their home loans this year also face an increase in borrowing costs. Higher interest rates wil also affect those with credit cards and loans. Here’s the full story:
Bank of England Governor Andrew Bailey has told Bloomberg TV that the bank has a “long way to go” in its fight against inflation.
He also (again) flagged the bank’s decision to drop the word “forcefully” from its forward guidance on rate hikes, saying:
“We are going to react to the information and the evidence that we see. We haven’t pre-announced an intention.”
Following today’s interest rate decision, Andrew Bailey has been interviewed by several news outlets including CNBC.
He’s told them that he’s not saying the Bank is done raising interest rates, as the world is too uncertain.
Bailey says:
“I’m not saying ‘This is it, we’re done’, because the world is too uncertain in our case.
“There is an encouraging downward path of inflation in our central projection. But there’s a big risk. We’ve got the biggest risk in our forecast on inflation on the upside that we’ve ever had.
Tune into @cnbci at 4pm GMT for my interview with BOE Governor Andrew Bailey
— Joumanna Nasr Bercetche 🇱🇧 (@CNBCJou) February 2, 2023
I start off by asking him if we are at the end of the hiking cycle.. stay tuned@cnbcipr pic.twitter.com/IVw5hDuwwM
Updated
UK's Royal Mail workers to strike on February 16
Postal workers at Britain’s Royal Mail will strike for 24 hours on February 16 in a long-running dispute over pay, the Communication Workers Union has announced.
The CWU said on Twitter that:
“We have served notice on Royal Mail Group for a 24-hour strike commencing for all shifts starting after 12:30pm on Thursday 16th February,”
🚨BREAKING: We have served notice on Royal Mail Group for a 24 hour strike commencing for all shifts starting after 12:30pm on Thursday 16th February.
— The CWU (@CWUnews) February 2, 2023
We cannot and will not sit back as they destroy our members jobs. #WeAreStillHere
The impending recession could leave borrowers struggling to repay their debts, the high street bank Santander UK warned today, as it put aside more cash to protect itself from potential defaults.
The UK arm of the Spanish bank said on Thursday that while the outlook for the British economy remained uncertain, a recession in 2023 was likely.
It said that despite government support for energy bills, rising prices would continue to eat away at disposable income, which “could impact lending repayments”.
The warning was issued alongside the bank’s full-year results, which showed the lender put aside £321m in 2022 to cover potential defaults, compared with the £233m it released a year earlier as Covid restrictions began to lift.
More here:
Santander also warned house prices are set to tumble back to 2021 levels, PA Media reports.
The Spanish-owned group is pencilling in a 10% fall in house prices this year as interest rate hikes knock homebuyer demand and a 1.3% contraction in the wider UK economy over 2023.
The pound has hit its lowest level against the US dollar since mid-January, as traders ponder whether the Bank of England has taken UK interest rates towards their peak today.
Sterling dropped as low as $1.223, down from as high as $1.24 early this morning, before recovering a little to $1.229.
Neil Mehta, BlueBay portfolio manager at RBC BlueBay Asset Management says the Bank is now at a ‘difficult juncture’, having raised base rate to 4%.
While dropping language around forward guidance will allow flexibility at coming meetings, more than just caution is required before declaring victory.
The improved growth and inflation seem premature - the full effect on higher mortgage payments and higher energy costs have yet to be fully digested by consumers, with real incomes set to deteriorate further.
Ongoing strike action and a depleted labour pool will keep wage pressures high, with politicians having little manoeuvrability.
Slumpflation is becoming entrenched and the balancing act between core inflation and growth will become harder to maintain over the coming months.
Moreover, policy and political uncertainty is set to remain high, with lower GBP the release valve for market participants.
Analysis: Bank of England hints at a brighter future after rate rise
The message from the Bank of England today is that things are going to be bad, but not as bad as previously feared, our economics editor Larry Elliott explains.
He writes:
Interest rates may be near their peak. Inflation will be close to zero in a couple of years. Recent shocks have damaged the economy’s supply potential.
Those were the main messages from the Bank of England as it raised interest rates for a 10th successive time.
Threadneedle Street is still expecting a recession but a mild one by UK standards, and less severe than it was predicting in the immediate aftermath of Liz Truss’s brief period as prime minister.
Here’s Larry’s analysis:
Full story: Bank of England raises UK interest rates to 4%
The Bank of England has blamed the inflationary impact of higher than expected wage rises for an increase in interest rates from 3.5% to 4%, my colleague Phillip Inman writes.
The move, announced at noon today, piles more pressure on mortgage payers and businesses struggling to pay off their loans, he points out.
Amid calls from unions for higher wages to protect against the worst falls in living standards for 100 years, a majority of the Bank’s monetary policy committee (MPC) said the 0.5 percentage point rise was needed after a jump in private sector wages above the central bank’s previous forecasts.
Marking its 10th consecutive rate increase, the Bank said the economy would enter a shorter and shallower recession than it predicted last year – with output falling by 1% from peak to trough compared with a 3% drop it said in November.
Bank staff now expected GDP to have grown by 0.1% in the final quarter of 2022, stronger than predicted in November. That would mean the UK did not enter a technical recession in 2022, as previously thought after the economy shank by 0.3% in the third quarter.
The UK economy is forecast to shrink in each quarter of 2023 and the first quarter of 2024 before staging a modest recovery.
The Bank said the hit to trade from Brexit was being felt sooner than previously expected.
“The effects of Brexit on trade are now estimated to be emerging more quickly than previously assumed, and that lowers productivity somewhat.”
More here:
Updated
PA Media have a good take on the Bank of England’s warning today that the hit to the UK economy from Brexit is coming through faster than had previously been expected.
Speaking at a press conference following the Bank’s latest interest rate hike, Ben Broadbent, the deputy governor for monetary policy, said they had not changed their overall assessment of the economic impact of Brexit (as covered here).
He acknowledged, however, that they had not expected to see the effect on growth figures to come through quite so quickly.
“Brexit … has been something that has pulled on our potential output in our country and that’s been our assessment for many years.
“We’ve not changed our estimate of the long-running effects, but we’ve brought some of them forward and we think they’re probably coming in faster than we first expected.”
He added:
“Yes it (Brexit) is having some effect on growth, although ultimately no bigger effect than we assessed some years ago.
“Based on the numbers for trade and some degree for the numbers on investment, we think these effects are coming through faster than initially envisaged.”
Although the Bank has forecast a shallower recession than feared, its growth projections are still rather weak, as Sky’s Ed Conway shows here:
This isn’t one of the main charts in the @bankofengland forecasts today but it might be one of the most important.
— Ed Conway (@EdConwaySky) February 2, 2023
Come 2026 the UK economy will still be smaller than it was in 2019.
Another seven years of lost growth. (I added the red dotted line) pic.twitter.com/aLOZbO4X7I
Bank raises interest rates to 4%: the City reacts
Reaction to the Bank of England’s decision has been flooding in.
Here’s some of the best so far.
Moody’s Analytics economist Thomas Sgouralis says today’s rate rise won’t be the last in this cycle.
“The Bank of England has raised rates from 3.5% to a 14 year high of 4%, the tenth consecutive increase in the policy rate since December 2021, underscoring its fight against inflation in the UK, which is the highest among G7 economies.
Despite inflation showing signs of moderation, and with an economy that is vulnerable, today’s meeting is unlikely to be the end of the tightening cycle. We expect the BoE to take the policy interest rate to 4.5% before it pauses, since inflation is expected to start declining significantly from the middle of the year forward as the energy costs and consumption ease.”
Alexander Batten, fixed income portfolio manager at Columbia Threadneedle Investments predicts the Bank of England is close to ending its interest rate increases – perhaps after one more hike, to 4.25%, next month
The Bank’s forward guidance has been watered down even further. Language around forceful hikes, i.e 50bp or higher, has been removed, and more tightening has been tied to evidence of more persistent inflationary pressures appearing. The Bank have indicated the data they are looking at for this point – wages, services inflation and inflation expectations.
The soft data suggests a significant weakening of the labour market ahead but we suspect this may not come soon enough to prevent one final 25bp hike in March.
Paul Dales, chief UK Economist at Capital Economics, doesn’t see the Bank cutting interest rates during 2023:
While raising rates by 50 basis points (bps) today, from 3.50% to 4.00%, the Bank of England implied that rates are very close to their peak.
We still think that rates may rise to 4.50%, but perhaps via two 25bps increases rather than one 50bps rise. Either way, we think that lingering domestic inflation pressures will force the Bank to keep interest rates at their peak for all of this year.
ING’s Developed Markets Economist James Smith and Senior Rates Strategist Antoine Bouvet are sceptical that today’s rate hike will be the last.
They say:
“Below-target inflation forecasts, more muted language on future tightening, and a warning about the impact of past rate hikes, all signal that Bank Rate is close to peaking. We expect one further 25bp rate hike in March, though we think a rate cut is unlikely for at least a year.
“For several months now, the Bank has been warning that it expects to continue hiking and that it could do so forcefully. The minutes of the last meeting confirmed that “forcefully” can be understood as meaning 50bp rate hike increments. So the fact that the Bank has dropped this reference suggests any future rate rises are likely to be smaller – and that’s further reinforced by an admission that the impact of past rate hikes is still largely to feed through to the economy.
Martin Beck, chief economic advisor to the EY ITEM Club, thinks the Bank is still too pessimistic about the economic outlook, despite predicting a shallower recession.
The economy is still expected to shrink in 2024 on a calendar-year basis, despite pressure from high inflation fading. Households being expected to continue saving substantially more than pre-COVID-19 norms is one reason behind this.
But this may be a questionable assumption given the significant savings accumulated by households during the pandemic and the likelihood that the mood-music around the economy will steadily improve, boosting consumers’ appetite to save less and spend more.
Paul Diggle, deputy chief economist at abrdn, explains how the Bank of England has changed the language in its announcement today:
“As was widely expected, the Bank of England raised interest rates by 50 basis points to 4%. More interesting than the decision itself, however, was the vote split, changes to the Banks forecasts, and its guidance.
“Indeed, the Committee remains divided, with 2 of the 9 members voting for no change at this meeting. Revised forecasts see slightly stronger GDP growth and slightly lower inflation. That’s because activity data has been a little more resilient since the previous forecasts, while energy prices have fallen back. Nonetheless, the Bank is still forecasting a recession and inflation above target until well into next year.
“The Bank’s guidance on the future path of policy was watered down a touch. It now reads “if there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required”. That’s a little more caveated than the previous “should the economy evolve broadly in line with the November Monetary Policy Report projections, further increases in Bank Rate may be required”.
“Taken together, this may indicate the Bank thinks it is getting close to the end of its hiking cycle.”
Q: What is the Bank’s message to financial markets today – they may be tempted to declare victory for you on inflation now, and start loosening financial conditions….
The mssage for everyone, including financial markets, is that there is a very clear path downward on inflation, Andrew Bailey replies firmly.
But, the BoE governor says there is also a lot of uncertainty around it, over the degree of risk and the timing.
Bailey explains:
The message I would give to financial markets is, we all have to watch this very carefully, and we will set policy to reflect how the economy evolves and how those risks evolve.
Q: Is the Bank concerned that the tight labour market means inflation doesn’t fall to your 2% target for a long time?
Governor Andrew Bailey agrees that there is tightness in the jobs market, so “yes, that is a big risk”.
But other factors – such as government efforts to encourage people back into the jobs market – are also factors, he adds.
The Bank’s top brass are wary of committing too much about the long term (perhaps remembering John Maynard Keynes famous quote)
Deputy governor Ben Broadbent grins, and reminds the press conference that:
Over the long term, we will set policy to ensure inflation is at the target.
Bailey: Brexit hit has arrived faster than thought
Back on Brexit…. governor Andrew Bailey says it is very hard to separate out the effects of Brexit, Covid and the energy crisis.
These shocks have held back both productivity and labour supply, he said.
But the Bank’s best judgement is that the long-run impact pf Brexit seems to have arrived more quickly than expected [as deputy governor Ben Broadbent said earlier].
Updated
The Bank of England’s forecasts for potential supply growth in the UK economy are “unbelievable grim”, says Torsten Bell of Resolution Foundation.
Unbelievable quite how grim @bankofengland are. Perma-stagnation as we keep the productivity disaster of the 2010s without the offsetting growth in the workforce. The result? "Normal" growth:
— Torsten Bell (@TorstenBell) February 2, 2023
- 2.7% pre-financial crisis to
- 1.7% in 2010s
- 0.7% in 2020s pic.twitter.com/vQBdUflNfc
That sitting behind the short term good news in terms of recession being significantly shallower pic.twitter.com/GGDq33ccql
— Torsten Bell (@TorstenBell) February 2, 2023
Q: The Bank’s agents predict a 6% increase in pay settlements – is that sustainable, with your inflation target?
Deputy governor Ben Broadbent says the simple answer is that “obviously no” – 6% pay growth is not consistent with a 2% inflation target, with productivity growth of 1%.
But pay growth is not expected to remain at that level.
Q: Were you happy to set today’s inflation forecast aside [by raising interest rates even though you think inflation is falling]?
Bailey repeats his earlier point that the Bank has changed the language in its statement today, and also wants to see more evidence that the UK has really turned the corner on inflation.
He doesn’t accept he’s ignoring the inflation forecast – saying it was an important factor in today’s decision.
Updated
Bank suggests high pay rises would push interest rates higher
Q: What would have to happen for the Bank to declare victory in the war against inflation, my colleague Larry Elliott asks.
Would it be a moderation in private sector pay claims, or a rise in unemployment – and wouldn’t that be a curious victory for those affected?
Good question, governor Andrew Bailey replies – before saying the Bank is watching pay rises closely.
He says the Bank has been surprised by how high private sector pay rises have been since November, but there are signs that this could be flattening. Some surveys suggest pay pressures are weakening.
The Bank will watch this very closely, Bailey says – pay settlements will have an important influence.
Deputy governor Ben Broadbent wades in on this point, saying the Bank is also concerned about pricing, such as the jump in services inflation to a 30-year high in December.
Broadbent says:
It’s not simply about wages. And the truth is, when they bid each other up, we don’t end up better off.
He adds that the UK faces a massive real income squeeze, due to the pandemic and the Ukraine war.
It’s not possible for firms to maintain the real value of their profits and for employees to maintain the real value of their wages, Broadbent says:
Collectively that’s not possible. Our real national income is inescapably lower as a result of these shocks.
Updated
ECB lifts interest rates
Over in Frankfurt, the European Central Bank has followed the Bank of England by raising interest rates by 50 basis points.
The ECB also says it expects to raise them further, and pledged to “stay the course in raising interest rates significantly at a steady pace”, and keep them there to bring inflation down to its 2% target.
Q: Does the Bank agree with the IMF’s forecasts this week that the UK will be the only advanced economy to shrink this year?
Deputy governor Ben Broadbent says the Bank’s forecasts for the UK are weaker than for the eurozone or US.
But we should be careful about taking a ‘snippet of time’, Broadbent says, as the UK appears to have grown faster than the eurozone in 2021 and 2022.
But there are some specific reasons why the UK economy is weaker. The first is the fall in labour force participation in Britain, and secondly the UK is even more dependant on gas than Europe, Broadbent says. Tighter monetary policy may also have been transmitted to the real economy faster in the UK.
Q: How about Brexit?
Broadbent says the Bank hasn’t changed its view that Brexit has pulled down potential output in the UK. But that doesn’t explain why UK growth is weaker than the eurozone this year, having been stronger in 2022.
But, the Bank does think the impact on trade and investment have come through faster than previously thought.
Updated
Q: Given your concerns about the rise in economic inactivity, are government efforts to get people back to work futile?
Governor Andrew Bailey says it’s still early days in terms of government policy on this issue.
[it emerged just before Christmas that the government was considering plans to coax middle-aged retirees back into work to boost the economy].
What the Bank sees, he explains, is that the population is ageing. But secondly, in the UK the fall in labour market participation early in the pandemic has not reversed (as it has reversed in other countries).
Happily, the Bank of England has revised down its forecast for unemployment over the next few years.
Unemployment is now expected to be just over 5% by the end of Bank’s forecast period (early 2026), down from around 6% forecast in November.
This is one reason the Bank now expects a much shallower recession this year (with a peak-to-trough drop of less than 1%).
Deputy governor Dave Ramsden says:
A key driver of why it’s milder is we have changed our judgement on how much unemployment is going to rise.
But, Ramsden adds, things will still be “challenging and tough”.
Q: Food inflation is currently at a record high (16.7% in January) how does that feed into your thinking?
Deputy governor Ben Broadbent says the Bank doesn’t forecast components of inflation.
But, he points to very steep increase in food commodity prices, over 30% in 2021, but these have recently levelled out.
In time, one would expect these very high rates of food inflation to start dissipating and start to level off, Broadbent predicts.
Onto questions…
Q: Is the Bank of England’s assumption that interest rates may have peaked, unless you get worse than expected news?
Bailey says the Bank has changed the language in its communications – previously, it has said there was a presumption of further interest rate increases if the economy evolved as expected. The word ‘forceful’ has also been dropped (when talking about future rate increases).
He repeats his point about ‘turning the corner’ on inflation.
But, if wage increases or service sector price rises come in above the Bank’s forecasts, it will have to respond – as that would show that inflationary risks were ‘crystallising’.
Deputy governor Ben Broadbent reiterates that the risks to inflation are to the upside. It’s not clear, he insists, that the Bank knows it’s reached a peak, or that there’s an equal chance of the next move being up or down.
The committee remains ‘very watchful’ he says.
Updated
Looking ahead, Andrew Bailey says the MPC will monitor inflationary pressures closely.
If there is evidence of more persistent pressures, then further tightening of monetay policy would be required, he warns.
On the labour market, the Bank of England now expects firms to cut vacancies and house worked, as demand weakens.
There could also be a lesser increase in redundancies and unemployment.
So, if firms hold onto workers, households may worry less about job losses, leading to less precautionary saving and more spending.
UK recession likely to be shallower than feared
The UK is now expected to only suffer a shallower recession than feared, Bank of England governor Andrew Bailey says.
He explains that the squeeze on real incomes from high energy prices, and higher interest rates, is likely to conintue to weigh on demand.
As such, economic outlook is expected to fall slightly through 2023 and into 2024.
This is, nevertheless, a much shallower decline than expected in November, Bailey tells today’s press conference.
He produces a chart, showing that while it will still technically be a recession, the projected downturn will be “significantly milder than past recessions”.
Economic output is expected to fall, from peak to trough, by less than 1%, compared to 3% or more in 1980, 1990 and 2008 recessions.
In part, this reflects the fall in energy prices, and the drop in market expectations for interest rate increases.
Updated
Bailey warns about rising inactivity amongst 50 to 65 year olds
Bank of England governor Andrew Bailey then warns that the increase in people leaving the labour market is hurting the UK economy.
Since the start of the COVID pandemic, he tells reporters in London, there’s been a large increase in the number of people who do not take an active part in the labour market.
Some of this rise in economic inactivity is caused by the population ageing. But, there’s also been a marked increase in inactivity amongst 50 to 65 year olds – many choosing to retire early for lifestyle reasons.
But many other people report that they’re affected by long term illness. A number of these people say they are unlikely to come back into the labour markets.
Bailey warns:
This significance and lingering fall in the labour supply is weighing on the UK economy’s potential.
Updated
Bailey: Too early to declare victory on inflation
Bank of England governor Andrew Bailey is giving a press conference now, to explain today’s interest rate rise.
Bailey tells reporters that the Bank has seen “the first signs that inflation has turned the corner” since its last Monetary Policy Report in November.
He points out that UK consume price inflation fell to 10.5% in December, from 11.1% in October.
That’s got a lot to do with energy prices, says Bailey, pointing to sharp falls in gas spot prices.
But also, global price pressures are easing as supply chain disruptions lesson, he explains. That has pulled down core goods inflation – although services inflation hit a 30-year high in December.
And Bailey insists it is too early to declare victory on inflation – warning that current high inflation could lead to higher wage or price-setting than the Bank estimates.
We need to be absolutely sure that we really are turning the corner on inflation.
So that’s why the Bank has increased interest rates today.
Dean Turner, chief eurozone and UK economist at UBS Global Wealth Management, predicts that UK interest rates are near their peak.
Turner says the Bank of England could potentially cut interest rates before the end of the year.
As expected, today’s 50 basis-point hike was a split decision. It looks as though the appetite for further outsized hikes is fading but given the BoE’s revised outlook for growth and inflation, this hiking cycle is unlikely to be over just yet.
We look for one further increase of 25 basis points in March which should mark the top of the cycle. Furthermore, we believe the door remains open for rate cuts before the year is out.
Updated
UK families are facing numerous challenges, and an interest rate hike is the last thing they need, says Tara Flynn, personal finance expert of Choosewisely.co.uk, a financial comparison site.
The Bank of England argues that increasing interest rates helps control inflation but appears indifferent to the impact this will have on millions of homeowners whose mortgages are due for renewal, credit card holders, and those seeking loans.
“It’s widely acknowledged that the cost of living crisis has led to a significant increase in credit card usage, as families have been compelled to use them to cover escalating expenses such as energy bills, fuel, and food. However, they are now being penalised for something they would prefer not to do; it’s absolutely heartbreaking”.
The Bank of England have tweeted the key points from their new Monetary Policy Report.
They explain that inflation is expected to fall quickly this year, and that higher interest rates make it more expensive for people to borrow money and encourage them to save.
If they spend less, the Bank says, prices will tend to rise more slowly, lowering the rate of inflation.
The Monetary Policy Committee voted by a majority of 7-2 to raise #BankRate to 4%. Find out more in our #MonetaryPolicyReport: https://t.co/n7j94kKQlp pic.twitter.com/wudQD5gZy5
— Bank of England (@bankofengland) February 2, 2023
Inflation has begun to fall, but it’s still well above our 2% target. https://t.co/n7j94kKQlp #MonetaryPolicyReport pic.twitter.com/1RbfGuNPBP
— Bank of England (@bankofengland) February 2, 2023
We expect inflation to fall quickly this year. It’s our job to make sure that inflation returns to our 2% target. Low and stable inflation is vital for a healthy economy. https://t.co/n7j94kKQlp #MonetaryPolicyReport pic.twitter.com/9XfXUvEpVc
— Bank of England (@bankofengland) February 2, 2023
We’ve put up interest rates to make sure inflation falls and stays low. Raising interest rates is the best way we have to bring inflation down. https://t.co/n7j94kKQlp #MonetaryPolicyReport pic.twitter.com/c426VMTnP5
— Bank of England (@bankofengland) February 2, 2023
UK recession expected to be much shallower than feared
The Bank of England has lifted its UK growth forecasts, and now sees a shallower recession than previously feared.
Bank staff now expected GDP to have grown by 0.1% in the final quarter of 2022, stronger than predicted in November. That would keep the UK out of a technical recession, after the economy shank by 0.3% in the third quarter.
But, the Bank cautions that underlying output has remained weak, with the small rise in GDP in October-December partly due to the recovery in activity following the Queen’s state funeral.
The economy is expected to shrink a little in the current quarter, though, by 0.1%.
Growth is expected to be held back by falling real household incomes, and hence consumer spending, due to high global energy and tradeable goods prices.
And the broader picture, Reuters says, is that the Bank of England thinks Britain is still on course for a recession but it was likely to be “much shallower” than it feared in its last forecasts in November, thanks largely to a fall in energy prices as well as lower market rate expectations.
Gross domestic product was now seen contracting by 0.5% in 2023, compared with the 1.5% shrinkage forecast in November, and close to the IMF’s forecast of a 0.6% contraction earlier this week.
The Bank now thinks the recession would last five quarters, cutting output by less than 1%, rather than eight quarters.
Updated
Jeremy Hunt welcomes increase in interest rates
UK chancellor Jeremy Hunt says the government supports the Bank of England’s decision to lift UK interest rates by half a percentage point to 4% today.
Hunt says the rate rise will help bring inflation down:
Inflation is a stealth tax that is the biggest threat to living standards in a generation, so we support the Bank’s action today so we succeed in halving inflation this year.
“We will play our part by making sure government decisions are in lockstep with the Bank’s approach, including by resisting the urge right now to fund additional spending or tax cuts through borrowing, which will only add fuel to the inflation fire and prolong the pain for everyone.”
UK inflation was 10.5% in December, over five times above the BoE’s target of 2%.
Why did the Bank raise interest rates today?
The minutes of this week’s BoE meeting show that most policymakers on the MPC were concerned that wages and prices in the UK could keep climbing even as inflationary pressures ebbed.
They say:
Seven members judged that a 0.5 percentage point increase in Bank Rate, to 4%, was warranted at this meeting.
Economic activity had weakened, but there had been some signs of greater resilience in the most recent data. Headline CPI inflation had begun to edge back and was likely to fall sharply over the rest of the year, as a result of past developments in energy and other goods prices. However, the labour market had remained tight and domestic price and wage pressures had been stronger than expected, suggesting risks of greater persistence in underlying inflation.
Measures of inflation expectations were still at elevated levels. The risks to the inflation outlook in the medium term were both large and asymmetric, with a skew towards greater persistence. This warranted additional weight being put on recent strength in the labour market and inflation data, and relatively less on the medium-term projections. A 0.5 percentage point increase in Bank Rate at this meeting would address the risk that domestic wage and price pressures remained elevated even as external cost pressures waned.
But Swati Dhingra and Silvana Tenreyro argued, in vain, against a 10th consecutive increase in UK borrowing costs.
They pointed out that the real economy remained weak, as a result of falling real incomes and the tightening in financial conditions over the past year. They also pointed to forward-looking indicators suggesting that the downturn was affecting the labour market, the minutes say.
Updated
Bank: inflation likely to have peaked
The Bank of England believes inflation has probably peaked, in the UK and other advanced economies too.
In a summary of today’s decision, the Bank says:
Global consumer price inflation remains high, although it is likely to have peaked across many advanced economies, including in the United Kingdom.
Wholesale gas prices have fallen recently and global supply chain disruption appears to have eased amid a slowing in global demand. Many central banks have continued to tighten monetary policy, although market pricing indicates reductions in policy rates further ahead.
Policymakers split 7-2 over rate rise
The Bank of England was split over today’s decision.
The Monetary Policy Committee voted by a majority of 7–2 to increase Bank Rate by 0.5 percentage points, to 4%.
Two members, Swati Dhingra and Silvana Tenreyro, preferred to maintain Bank Rate at 3.5% [they had both voted for no change in December as well].
Bank of England Interest Rate Decision
Newsflash: the Bank of England has lifted UK interest rates to 4%, the highest level in over 14 years, as it continues to battle inflation.
The increase from 3.5%, which was broadly expected by economists, puts more pressures on mortgage payers and businesses struggling to pay off their loans.
This is the 10th meeting in a row at which the Bank’s Monetary Policy Committee has voted to raise UK borrowing costs.
UK rates are now at the highest level since October 2008, when the Bank had only just started cutting rates in response to the financial crisis.
Stand By Your Desks! The Bank of England is up next....
— Shaun Richards (@notayesmansecon) February 2, 2023
Tension is rising in the City, with less than 15 minutes until the Bank of England announces its decision on UK interest rates.
The money markets indicates that a hike of 50 basis points, or half a percent, to 4% is seen as most likely (around an 86% chance).
But the pound is still weaker today, down half a cent against the US dollar at $1.232.
Marios Hadjikyriacos, senior investment analyst at XM, says the Bank of England has a tricky task, as it tries to strike a balance between reining in double-digit inflation while business surveys point to a rapidly deteriorating economy.
Hadjikyriacos explains:
Markets have almost fully priced in a 50bps rate hike, but the decision might contain a dovish twist if the vote is heavily split or the updated forecasts continue to point to a recession this year.
The days of ultra-low interest rates are behind us, former Bank of England policy maker Michael Saunders says.
Speaking on Bloomberg TV this morning, Saunders said people shouldn’t expect rates to return to the “very low levels that we saw before the pandemic”, even if the BoE do start to cut rates next year.
UK interest rates were cut to 0.5% in 2009 after the financial crisis, then a record low, but were then lowered to 0.25% after the Brexit referendum in 2016. They then hit 0.1% in March 2020 once the pandemic hit, before the Bank began hiking in December 2021.
Saunders says that the UK won’t return to such low interest rates in the “foreseeable future”.
He says:
Those were exceptional conditions, very low, global, neutral interest rates, a long period of spare capacity, a long period of very low inflation.
And I think having been through the pandemic, and then the experience of last year of very high inflation rates, inflation expectations are likely to be persistently higher, requiring a slightly higher nominal interest rate.
"The days of ultra low interest rates are behind us"
— Bloomberg UK (@BloombergUK) February 2, 2023
Former Bank of England policy maker Michael Saunders looks ahead to the central bank's decision with @flacqua https://t.co/i15FAPA8r2 pic.twitter.com/iz8AfycIYB
Bloomberg also point out that (as flagged earlier) a half-point rate isn’t completely priced in – there’s a chance of a smaller, quarter-point rate rise.
Money markets haven’t fully priced in a half-point hike at this Bank of England meeting
— Bloomberg UK (@BloombergUK) February 2, 2023
That indicates some doubt https://t.co/i15FAPA8r2 pic.twitter.com/c6W2tjClzs
Equity markets have made a strong start to trading this morning, after the US Federal Reserve slowed its interest rate hike cycle last night.
The UK’s FTSE 100 index has gained 48 points, or 0.6%, to 7,809, back towards the four-year highs set last month.
European markets are also higher, with Germany’s DAX gaining 1.5%.
Europe ↗️ and liking pending rate hikes, apparently$DAX 15411 +1.5% ⬅️🔝$FTSE 7801 +0.5%$CAC 7123 +0.65%$AEX 758 +1.3%$IBEX 9216 +1.3%$MIB 26922 +0.8%$SMI 11220 +0.15%$MOEX 2239 +0.4%$VSTOXX 17.38 🔻$DAX range = 15007 - 15408 ♉️
— Ted Darling (@tdarling1) February 2, 2023
Craig Erlam, senior market analyst at OANDA, says Fed chair Jerome Powell cheered investors last night by talking about progress being made bringing down inflation pressures, after the Fed lifted rates by just 25 basis points.
Erlam says:
While Powell was determined not to overplay the shift in the Fed’s views on inflation and interest rates, certain comments were well received by the markets.
The acceptance that the disinflation process has begun, being one obvious comment, but this was also paired with him stressing that they need substantially more evidence and to hike a couple more times before monetary policy is appropriately restrictive.
Borrowers will be hit hard if the Bank of England raises interest rates again at noon today, says William Marsters, senior UK sales trader at investment platform Saxo.
“Today the Bank of England looks set to raise interest rates for the 10th time in a row, expected to be up from 3.5% to 4%.
With inflation currently at 10.5% the Bank has been stuck between a rock and a hard place for a long time with little to no choice but to hike rates again with a target of reducing inflation to as low as 2%.
This rise in interest rates has hit borrowers hard and those with large mortgages or credit card loans in particular will continue to feel the squeeze with the cost of living already tightening any kind of consumer purchasing power. Some homeowners have even decided to roll the dice and apply floating rates to their mortgages, taking the pain now in the hope that inflation will soon reduce and rates turn lower again later in the year.
The UK is still likely to enter a recession in the coming months, something the BoE would have had to factor into their decision, and in the long term this should see consumer prices pressured, though many businesses will be negatively affected with costs already proving difficult to manage.”
Ofgem launches urgent investigation into British Gas over prepayment meters
UK energy regulator Ofgem has announced it will launch an investigation into British Gas after an investigation found its debt collectors broke into customers’ homes to force-fit pay-as-you-go meters, even when they are known to have extreme vulnerabilities.
An undercover reporter from The Times worked for Arvato, a company used by British Gas to pursue debts, and found they worked with a locksmith to break into the home of a single father of three young children and switched it to a prepayment meter.
According to job notes seen by The Times, other British Gas customers who have had prepayment meters fitted by force in recent weeks include a woman in her fifties described as “severe mental health bipolar”, a woman who “suffers with mobility problems and is partially sighted” and a mother whose “daughter is disabled and has a hoist and [an] electric wheelchair”.
AFS employees are incentivised with bonuses to fit prepayment meters. But if families with these gas meters cannot afford to top up, their heating is cut off.
An Ofgem spokesperson says:
“These are extremely serious allegations from The Times which we will investigate urgently with British Gas and we won’t hesitate to take firm enforcement action.
“It is unacceptable for any supplier to impose forced installations on vulnerable customers struggling to pay their bills before all other options have been exhausted and without carrying out thorough checks to ensure it is safe and practicable to do so.
“We recently announced a major market-wide review investigating the rapid growth in prepayment meter installations and potential breaches of licences driving it. We are clear that suppliers must work hard to look after their customers at this time, especially those who are vulnerable, and the energy crisis must not be an excuse for unacceptable behaviour towards any customer – particularly those in vulnerable circumstances.”
British Gas has suspended the use of court warrants to force the installation of prepayment meters, following The Times’ investigation.
Chris O’Shea, the chief executive of the owner of British Gas, Centrica, said the allegations around Arvato were unacceptable.
The pound is a little weaker this morning, as traders await the Bank of England’s interest rate decision at noon.
Sterling has lost 0.3%, or a third of a cent, against the US dollar to $1.234, and a similar amount against the euro to €1.122.
The euro is at a 10-month high against the dollar, at $1.099, with the markets expecting the European Central Bank to lift its interest rates by a half-point this afternoon, after the US Federal Reserve slowed the pace of its rises to 25 basis points (a quarter-point) last night.
Updated
Just in: Heathrow Airport is looking for a new CEO.
Heathrow has told the City that chief executive John Holland-Kaye has decided to step down sometime this year.
This follows nine years as the boss of Britain’s biggest hub, a time which included the disruption caused by the Covid-19 pandemic when passenger numbers hit a 50-year low, followed by chaotic scenes last year as passengers missed flights and lost their luggage.
There were also tensions with airlines over the charges which Heathrow is allowed to levy on them:
The board has started a process to select his successor, it says, with Holland-Kaye holding off his departure until the new CEO starts.
The Chair of Heathrow Airport, Lord Deighton said Holland-Kaye had been “an extraordinary leader of Heathrow”, adding:
During the past nine years, he has worked tirelessly and collaboratively with shareholders, Ministers, airlines and other stakeholders to ensure the country can be proud of its ‘front door’. The Board would like to put on record our gratitude to John for his dedication and commitment to Heathrow throughout his tenure as CEO.”
Updated
Miliband: Shell record profits are 'windfalls of war'
Calls for a tougher windfall tax on energy companies are growing louder today, after Shell smashed its profit record by making almost $40bn last year.
Labour MP Ed Miliband, shadow secretary of state for Climate Change and Net Zero, says Shell’s earnings are the “windfalls of war”.
He insists the government must close the loophole in the current windfall tax which lets companies offset tax against spending on new investment in the North Sea.
Miliband told Radio 4’s Today Programme that “people are sick and tired of the way this country is run”.
Because at one in the same time, you’ve got millions of people who cannot afford heat and power.
You’ve got a government that is saying, there’s nothing we can do. Prices are going to go up by another 40% in April and at the same time, Shell is making record profits, the windfalls of war in unexpected unearned profits, and the government fails to levy a proper windfall tax with massive loopholes for fossil fuel companies.
That is why this country has to change and and and why, in my view, the government has to change.
Shell reported this morning that it has taken a $1.9bn charge related to windfall taxes in the EU and UK but did not break down how much it had paid for each one [Shell makes most of its profits outside the UK, which would not be subject to the levy].
Stuart Lamont, investment manager at RBC Brewin Dolphin, says Shell’s record profits will only intensify calls for more to be done to claw back profits from energy companies in the current environment.
The politics of it all aside, the events of the last year have seen Shell’s earnings, cashflow, and debt position improve significantly and shareholders are benefitting through another share buyback programme and an increased dividend.
Global Justice Now are calling for a polluters tax. Dorothy Guerrero, their head of policy, says:
“It’s sickening to see that in a year where people can’t afford to heat their homes because of rising energy bills, Shell is announcing record annual profits of $39.9bn. As thousands of people went out to the streets yesterday to protest and strike against low pay and the rising cost of living, oil giants like Shell are lining the pockets of shareholders with profits made from a global energy crisis.
These profits are made off the destruction of our planet and there are communities all over the world who are already paying the price for that right now. It’s time to bring in a polluters tax, end this facade and finally make them properly pay up for their climate-wrecking damages.”
The weakening UK housing market might encourage Bank of England policymakers towards a smaller increase in interest rates than expected.
Derek Halpenny, head of research for global markets at Japanese bank MUFG, suggests that the decision between raising UK interest rates by a half-point or a quarter-point, is ‘more finely balanced’ than the European Central Bank’s own decision later today (where a 50-basis-point hike seems inked in).
Halpenny says:
The macro outlook does not look as bad and the depth of the contraction the BoE forecast in November is likely to be revised to something less severe.
But the UK housing market has taken a more notable turn weaker and retail sales remains depressed, Halpenny points out:
The RICS House Price Index fell to -42, worse than during covid and the weakest print since 2010. The balance has dropped from +50 four months ago, a faster drop than in the run in to the GFC. The MPC is also more divided and less predictable.
The last vote saw two MPC members vote for no change (Dhingra and Tenreyro) which skews the balance of risks to a smaller move than expected today.
The Bank of England may be split over today’s interest rate decision.
In December, the nine membes of its Monetary Policy Committee split three ways – with six members plumping for a half-point rise, from 3% to 3.5%. But two, Swati Dhingra and Silvana Tenreyro, voted for no change, while Catherine Mann pushed for a three-quarter-point hike to 3.75%.
Michael Hewson, chief market analyst at CMC Markets, says:
The MPC is on the horns of a dilemma as the UK economy continues to struggle with double digit inflation, although the economy may well not be as bad as perhaps was thought at the end of last year, which could prompt a modest tweak to some of its economic forecasts.
The slide in energy prices in recent months has alleviated some of the pressure on wage packets, when it comes to petrol prices, however with food price inflation still at 16%, they will also be acutely aware that a weak pound will make headline inflation much sticker than it needs to be if they show any indication, they are going soft when it comes to hit its inflation target.
We are likely to see a split again, Hewson predicts, with Tenreyro and Dhingra likely to be the most averse to another hike given that they voted for no change in December.
Catherine Mann is likely to push for another 50bps, while the rest of the committee are expected to split between 25bps and 50bps, from the current 3.5%, he adds, warning:
With core prices looking sticky and wages rising at over 7% any procrastination on the MPC’s part when it comes to forward guidance could well do more harm than good.
Analysis: Weaker economy, higher inflation: Bank of England’s dilemma
The Bank of England faced an ‘acute policy dilemma’ this week, as policymakers weigh up whether (as expected) to hike interest rates today – the 10th rise in a row.
Our economics editor Larry Elliott explains:
On the one hand, the economy is showing signs of weakening. Higher mortgage costs have taken the heat out of the housing market, with the Nationwide building society reporting a fifth monthly fall in property prices. Business failures are rising as tougher financing conditions wipe out “zombie” companies only viable while rates were at ultra-low levels.
The International Monetary Fund said this week the economy would contract by 0.6% this year and the UK would be the only member of the G7 group of leading industrial nations to go backwards. Faced with this scenario in previous years, the Bank would have been cutting interest rates, not raising them.
Yet, after peaking at a 40-year-high of just over 11%, inflation as measured by the consumer prices index has fallen back only slightly and is still above 10%. The Bank’s legally mandated job is to bring inflation back sustainably to its 2% target and the MPC is concerned that if it allows price pressures to become embedded they will be hard to shift.
Larry also point out that “anything other than a half-point increase would be a surprise”, at a time when other leading central banks are raising rates, adding:
Assuming that is the case, attention in the markets will turn to whether an 11th and even a 12th successive rate rise is in prospect.
Here’s the full analysis:
Progressive thinktank the IPPR says Shell’s whopping profit transfers are “inexcusable and demands action”.
They say energy customers will be ‘rightly appalled’ by this morning’s news that Shell made $9.8bn (£7.9bn) profits in the final quarter of 2022, and total profits of $39.9bn(£32.2bn) for last year – and announced another $4bn of share buybacks.
Dr George Dibb, head of the Centre for Economic Justice at IPPR, said:
“Bill-payers will be rightly appalled to hear that oil giants like Shell are still seeing sky-high profits. Instead of re-investing those profits in the transition to net zero, they’re spending billions on enriching their own shareholders and executives, announcing a further £3.2bn of share buybacks this morning.
The sheer scale of that transfer of wealth - from bill-payers to shareholders - is inexcusable and demands action from the government.
The UK should follow the example set by the USA and Canada and fairly tax these share buybacks to raise hundreds of millions for the exchequer.”
TUC: Shell profits are “an insult” to working families
The head of the TUC has described Shell’s $40bn of profits last year as “obscene” and “an insult to working families”.
TUC General Secretary Paul Nowak said the government must beef up its windfall tax, so that energy firms pay ‘their fair share’.
“As households up and down Britain struggle to pay their bills and make ends meet, Shell are enjoying a cash bonanza.
“The time for excuses is over. The government must impose a larger windfall tax on energy companies. Billions are being left on the table.
“Instead of holding down the pay of paramedics, teachers, firefighters and millions of other hard-pressed public servants, ministers should be making Big Oil and Gas pay their fair share.
“There is nothing stopping Rishi Sunak and Jeremy Hunt from making that political choice.”
Unite union calls for emergency windfall tax on banks
Trade union Unite is calling for an emergency windfall tax on banks, saying they have enjoyed a profits bonanza from the increase in interest rates last year.
Unite said its research showed that in the first nine months of 2022, leading banks generated £19.8bn of profits.
Higher interest rates boost bank profitability, by increasing the earnings on their cash balances. Since the end of 2021, big banks’ bank net interest income has increased by 37%, the union reports.
Unite general secretary Sharon Graham said:
“It’s time the truth was told. Interest rate rises are putting the fear of death into households across Britain, but we know now that at the same time they are delivering billions in excess profits to the big City banks.
“Our economy is broken. Nothing symbolises that better than the spectacle of politicians demanding pay cuts from nurses whilst doing nothing to get City noses out of the ‘banking-billions’ trough.
“That’s why I am calling for a windfall tax on the excess profits of the big banks. Workers did not create this crisis and they should not be the ones to pay for it.
“It’s time the profiteers and their friends in the city were told profiteering won’t pay and it’s time they paid their fair share.”
Shell makes record $40bn in profits on back of surging gas prices
Oil giant Shell has reported record earnings of almost $40bn for 2022 this morning.
The surge in profits caps a tumultuous year – and one that was extremely profitable for oil majors, as Russia’s invasion of Ukraine drove up wholesale energy prices.
My colleague Alex Lawson has the details:
Shell’s annual profits have more than doubled to a record of nearly $40bn (£32.3bn) after a surge in wholesale gas prices linked to the war in Ukraine boosted its performance, as consumers struggled to pay huge energy bills.
The oil and gas company posted profits of $9.81bn in the final quarter of last year, compared with $6.4bn a year earlier. That took annual adjusted profits to $39.87bn, outstripping the $19.3bn notched up in 2021.
Analysts had expected Shell’s chief executive, Wael Sawan, to report adjusted earnings of $7.97bn for the fourth quarter and $38.17bn for the year, in his City debut. It represented an increase on the $9.45bn registered in the third quarter.
Shell shareholders will continue to benefit from the earnings surge: the company has announced a new share buyback scheme, with $4bn to shareholders over the next three months.
Here’s the full story:
Updated
The money markets suggest there’s an 87% chance that the Bank of England votes to raise interest rate to 4%, from 3.5%, today.
A smaller rise, to 3.75%, is a 13% chance.
But looking further ahead, the markets are expecting UK interest rates to start falling by the end of this year. Rates are now seen peaking below 4.5% this summer. In the chaotic days after last September’s mini-budget, they were forecast to hit 6%.
Update on market expectations for UK @bankofengland interest rates.
— Ed Conway (@EdConwaySky) January 25, 2023
Investors are now pricing in a peak of barely more than 4.25% by the middle of the year, and think rates will actually be falling by the end of the year…(!) pic.twitter.com/AawlJM4dS4
Bank of England expected to raise interest rates to 14-year high
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Despite the risk of a looming recession, the Bank of England is expected to raise UK interest rates for the 10th time in a row today as it continues to battle inflation.
Economists predict the BoE will lift Bank Rate by another half a percent, up to 4%, the highest since autumn 2008 – as this chart from December shows:
UK consumer price inflation eased slightly to 10.5% in December, having hit 11.1% in October, offering hopes that price pressures may have peaked.
But last month, the Bank of England’s chief economist warned that high rates of UK inflation could persist for longer than expected.
Huw Pill said:
“The distinctive context that prevails in the UK – of higher natural gas prices with a tight labour market, adverse labour supply developments and goods market bottlenecks – creates the potential for inflation to prove more persistent.”
Those concerns could spur policymakers on the Monetary Policy Committee to keep tightening policy. All nine MPC members get a vote, and their decision is released at noon.
Another interest rate rise would push up borrowing costs for the approximately 2.2 million people on a variable rate mortgage. More than a million households must renew their fixed-rate deals this year, and already face a jump in repayments.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains:
In one hand, the double-digit inflation continues taking a toll on the UK economy and on people’s lives. According to the latest data, food inflation in Britain hit the eye-watering level of 16.7% in the 4 weeks to January 22.
On the other hand, the rising rates take a toll on the British housing market.
Yesterday, Nationwide reported that house prices in the UK fell again in January, sliding for the fifth month in a row.
The Bank will also give its latest assessment of the UK economy. Three months ago, it warned the UK faced a lengthy recession, but it could upgrade its outlook today, as the market chaos following last September’s mini-budget has eased.
The BoE isn’t the only central bank battling inflation, of course. The European Central Bank sets its interest rates today too, and is also expected to raise borrowing costs by 50 basis points, or half a percent.
Last night, America’s Federal Reserve lifted its key rate by a mere quarter-point (25 basis points), and signalled a slowdown in its tightening programme.
Fed chair Jerome Powell said:
“We covered a lot of ground, and the full effects of our rapid tightening so far are yet to be felt. Even so, we have more work to do.”
But, Powell also tried to dampen expectations that the Fed could unwind some of its hefty interest rate increases, cautioning:
“If the economy performs broadly in line with those expectations, it will not be appropriate to cut rates this year.
The agenda
7am GMT: Germany’s trade balance for December
Noon GMT: Bank of England releases interest rate decision, and publishes Monetary Policy Report
12.30pm GMT: Bank of England press conference
1.15pm GMT: European Central Bank interest rate decision
1.30pm GMT: US jobless claims data
1.45pm GMT: European Central Bank press conference
Updated
