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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

City braces for sharp hike in UK interest rates; Roubini predicts ‘long, ugly’ recession – as it happened

Mike Ashley Kingfisher Frasers DIY United States Michael Murray Fuller BQ Frasers Group Thierry Garnier
The Bank of England, in the City of London. Markets think the Bank of England will unveil the biggest hike in interest rates for over three decades when its decision makers gather for a delayed meeting
The Bank of England, in the City of London, as markets anticipate the biggest hike in interest rates for over three decades when its decision makers gather for a delayed meeting Photograph: Yui Mok/PA

Closing summary

Time for a recap

Pressure is building on the Bank of England for hike UK interest rates sharply this week, as it faces the highest inflation rate in decades and a government keen to cut taxes to stimulate the economy.

The money markets are pricing in a 75 basis-point hike on Thursday, the biggest in over 30 years, which would lift Bank Rate from 1.75% to 2.5%.

Traders are also anticipating large rate rises at the BoE’s meetings in November and December, taking Bank rate to 3.75% by Christmas.

Investors say the weak pound could force the Bank to act aggressively.

Katharine Neiss, chief European economist at PGIM Fixed Income, explains:

“With the UK economy weakening, there is a case to be made for the Bank of England (BoE) to stay focussed on the medium-term outlook for inflation and on replenishing its toolkit. This would speak to continuing with its measured pace of tightening, alongside a well-telegraphed active run-off of its balance sheet.

“But with inflation continuing to rise and the prospect of a sizable fiscal expansion on the horizon, there are many that would argue for a more aggressive rate rise at the BoE’s next policy meeting.

“Indeed, if we were to see further downwards pressure on sterling pushing inflation ever higher, we could see the BoE having to respond more aggressively – despite a deteriorating economic situation at home.”

In other news…

Economist Nouriel Roubini has predicted that a “long and ugly” recession could hit the US, and the global economy, at the end of 2022. That downturn could last all of 2023, he fears, knocking the US stock market by 40%.

Joe Biden has criticised ‘trickle-down’ economics, ahead of a meeting with Liz Truss, who is aiming to cut taxes to lift UK growth.

Jitters have hit stocks on both sides of the Atlantic, as investors await Wednesday’s interest rate decision by the US Federal Reserve. The Fed could hike its benchmark rates by 75 basis points for the third meeting in a row, after US inflation remained stubbornly high last month.

This has hit US, UK and eurozone government bonds too. The UK’s short-term borrowing costs hit their highest level since 2008, with thirty-year bond yields now the highest since 2014.

Sweden’s Riksbank has shown its hawkish side, voting to raise interest rates by a full percentage point.

German factory prices have rocketed at a record pace. Producer prices soared by 45% in the year to August, primarily driven by soaring energy costs.

Russia stock market has fallen sharply, with the Moex index down 7% as the Kremlin moved to hastily annex the regions it still occupied, following Ukraine’s sweeping counteroffensive.

UK unions have launched a legal challenge against the government’s new laws which allow firms to use agency workers to replace staff on strike.

Unions are also organising more strikes, as the summer of discontent moves into the autumn.

Workers across the rail industry will join train drivers in strikes on 1 October, targeting the start of Conservative party conference.

The number of “ultra high net worth” (UHNW) individuals around the world swelled by 46,000 last year to a record 218,200 as the world’s richest people benefited from “almost an explosion of wealth” during the recovery from the pandemic.

The chief executive of Saudi Aramco has said European governments’ efforts to tackle the energy crisis through price freezes and windfall taxes are “not helpful”.

Mike Ashley is to step down from the board of Frasers Group, which owns high street brands including Sports Direct and House of Fraser, 40 years after he opened his first sports shop in Maidenhead.

Profits at the B&Q owner Kingfisher fell by almost a third in the first half of the year as the pandemic DIY boom came to an end, but the company is benefiting from soaring demand for home insulation.

E-card seller Moonpig and mattress firm Eve Sleep also saw their shares slide today, as the cost of living crisis hits consumers.

Updated

BBC: Treasury refuses to publish UK economic forecast

In a fairly astonishing development, the Treasury is refusing to publish a forecast of the UK’s economic outlook alongside this Friday’s mini-Budget.

Independent forecaster, the Office for the Budget Responsibility (OBR), has already provided a draft to Chancellor Kwasi Kwarteng, but it appears it won’t be published.

That means there won’t be an independent assessment about whether permanent tax cuts and some one-off spending increases are consistent with the government’s Budget rules.

The BBC’s Faisal Islam explains:

The draft forecast the OBR has provided does not include the impact of the energy bill help. It has offered to provide a forecast including this impact, but that has been rejected.

The fact the offer has not been taken up is raising some concerns about whether the government’s tax and spending policy is “flying blind”, given predictions that the UK is facing a lengthy recession.

MPs on the Treasury Select Committee wrote to the chancellor on Tuesday seeking assurance that an OBR forecast would be published.

More here: Treasury refuses to publish UK economic forecast

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