Summary
Here’s a quick summary of what happened today:
The US Federal Reserve cut interest rates by a sizeable half-point, the first cut since rates hit zero in 2020.
Though there was much anticipation for the cut, Wall Street opened with a shrug toward the upcoming announcement, staying relatively flat on Wednesday.
Fed chair Jerome Powell, in remarks after the announcement, said that the cut marks the start of a “recalibration” of Fed policy. For the last two years, the central bank has been focused on price increases. Now, Fed officials see inflation has stabilized and are paying close to the unemployment rate, which has increased over the last few months.
Powell also responded to criticisms that the rate cut seems politically motivated since it’s happening so close to the election. Donald Trump in particular has suggested that the Fed is politically motivated and that he would want a stronger say in interest rates as president. “We’re going into this meeting in particular and asking what is the right thing to do for the people we serve,” Powell said. “That’s always what it is, it’s never about anything else”.
Powell also said the likelihood of a recession from his standpoint is low. “I don’t see anything in the economy that suggests the likelihood of a downturn is elevated,” he said.
We’re closing this blog for the day. Thanks for reading.
Fed chair Jerome Powell just wrapped up the press conference by saying that he sees inflation well-balanced with the labor market right now and the possibility of a recession is low.
“I don’t see anything in the economy that suggests the likelihood of a downturn is elevated. I don’t see that,” Powell said. “You see growth at a solid rate. You see inflation coming down and see a labor market that is still at very solid levels. So I don’t really see that, no.”
Powell says rate cut timing has nothing to do with US election
Powell responded to a question about accusations that an interest rate two months before the election as political motivations, something that Donald Trump has suggested over the last few months.
“This is my fourth presidential election at the Fed and it’s always the same. We’re going into this meeting in particular and asking what the right thing to do for the people we serve. And we do that and we make a decision as a group and then we announce it. That’s always what it is, it is never about anything else,” Powell said.
He also noted that “the things that we do really affect economic conditions, for the most part, with a lag.”
In other words, much of the impacts of this rate cut won’t even be felt until after the election.
Updated
US labor market 'at a strong place', says Powell
Powell is fielding multiple questions about the labor market. One reporter asked why why the Fed thinks the labor market will stabilize around 4.4% when historically, the unemployment rate continues to rise if it goes up at that pace.
“The labor market is in solid condition and our intention with our policy today is to keep it there. You can say that with the whole economy. The US economy is in a good shape. It’s growing at a solid pace, inflation is coming down, the labor market is at a strong place. We want to keep it there. That’s what we’re doing,” he said.
Another reporter asked if Fed officials were too late in cutting rates with rising layoffs. Powell ended up taking a defensive stance, saying that officials are seeing a strong labor market that has cooled from an overheated period.
“The level of conditions is pretty close to what I would call maximum employment,” Powell said. “We’re not seeing rising claims, we’re not seeing rising layoffs and we’re not hearing that from companies.”
Updated
Powell says any future rate cuts will depend on 'evolving outlook' and 'balance of risks'
When asked whether it seems like there will be another rate cut in the future, Fed chair Jerome Powell said a pretty standard response: “We’re going to be making decision meeting by meeting based on the incoming data, the evolving outlook and the balance of risks.”
But Powell pointed out that the Fed’s economic projections after this meeting point to a “process of recalibrating our policy stance away from where we had it a year ago when inflation was high, unemployment low, to a place that’s more appropriate,” he said.
“There’s nothing to suggest the committee is in a rush,” he added, suggesting officials are still taking a cautious approach. Powell also noted that all 19 Fed officials behind the Fed’s economic projections indicated they expect there to be multiple rate cuts this year.
Updated
Fed chair Jerome Powell confirmed that the Fed has been attuned to changes in the labor market seen over the last few months. Unemployment went above 4% this summer for the first time in two years and is currently sitting at 4.2%. Inflation meanwhile was 2.5% in August.
“Our primary focus had been on bringing down inflation and appropriately so,” Powell said. “As inflation has declined and the labor market has cooled, the upside risks to inflation have diminished and the downside risks to unemployment have increased. We now see the risks to achieving our employment and inflation goals as roughly in balance, and we are attentive to the risks to both sides of our dual mandate.”
Updated
Fed chair Jerome Powell holds press conference after interest rate cut
Fed chair Jerome Powell is delivering remarks right now about the half-point rate cut. Powell suggests, essentially, that the Fed is working toward a so-called “soft-landing” – bringing inflation down without hurting the jobs market.
“This decision reflects our growing confidence that within appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate growth and inflation moving sustainably down to 2,%” Powell said.
Powell said that the labor market has “cooled from its formerly overheated state” and inflation has “eased substantially” – a marked difference in tone from press conferences over the last year, where Powell mostly spoke on concerns about price increases.
Updated
The Fed’s so-called “dot plot”, which shows Fed officials’ predictions on where they think the interest rate will end up in the long run.
The new dot plot, released with the Fed’s rate cut announcement, shows the predictions average at rates going down to 4.25% to 4.5% by the end of the year, showing that while there may be more rate cuts to come this year, some officials may be skeptical of a succession of cuts of large cuts.
JUST IN: Federal Reserve cuts interest rates 50 bps, the first rate cut since 2020.
— Heather Long (@byHeatherLong) September 18, 2024
The new interest rate target is 4.75 to 5%.
—>The “dot plot” signals interest rate down to 4.25 to 4.5% by the end of the year
Vote today was 11 in favor and 1 against pic.twitter.com/YySCvkfvkl
The Fed has two meetings before the end of the year – one in November and a second in December.
Fed cuts interest rates by a half-point
The Federal Reserve just announced that it’s cutting rates by a half-point, bringing rates down to 4.75% to 5%.
“The committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the Fed’s Open Market Committee said in a statement.
This is the first time the Fed has cut rates since the start of the pandemic, when it dropped rates to zero.
Fed chair is expected to hold a press conference about the rate cut at 2:30 pm ET. Stay tuned.
Updated
It’s hard to ignore the fact that the first interest rate cut is taking place less than two months before the US presidential election, especially if you’re Donald Trump.
Trump has been struggling to frame the upcoming rate cuts, sometimes railing against the Fed and suggesting that the central bank is politically motivated. At a town hall in Flint, Michigan on Tuesday night, Trump said that a rate cut would mean “the economy now is not good”.
“Otherwise, you wouldn’t be able to do it,” Trump said.
The Fed of course operates independently from politics. Trump appointed Jerome Powell in 2017, and Biden re-nominated him again in 2021. It uses data, largely around inflation and the jobs market, to decide whether to tighten or loosen rates.
But for Trump, that might not be enough. Trump in August said that he thinks the president should have a say in interest rates, and while he wouldn’t fire Powell, he wouldn’t reappoint him.
“I think that, in my case, I made a lot of money. I was very successful,” Trump said in August. “And I think I have a better instinct than, in many cases, people that would be on the Federal Reserve or the chairman.”
Trump’s response to today’s rate cut will likely give another clue as to how he’s viewing the Fed, as more foe than friend.
A Harris poll for The Guardian earlier this year – which found almost three in five Americans wrongly believed the US was in recession – underlined the gap between how the world’s largest economy is doing, and how people think it’s doing.
“If you stopped the average person in the street, they would have no idea” how many jobs had been created, or how many people were out of work, in any given month, Stephanie Kelton, a professor of economics and public policy at Stony Brook University, noted recently.
Ahead of the US presidential election, voters consistently rank the economy as a top issue. But even those who do follow the latest official data reports are unlikely to base their decision in November on their contents.
An interest rate cut might be different. “Perhaps at the margin, in the tiniest of ways”, it could make some people start to feel better about the economy, Kelton suggested. “Maybe there’s a little bit of a vibe shift in having the rate-cutting cycle begin, and knowing it’s under way.”
The most recent official inflation and employment releases broadly reinforced confidence that the Fed would cut rates today.
The latest consumer price index, released last week, showed that price growth softened in August to its lowest level since February 2021.
The latest jobs report underlined how the labor market’s growth has slowed this year, 142,000 jobs in August.
Policymakers will have carefully scrutinized both these reports ahead of the decision.
Ahead of the Fed’s announcement, it’s worth noting why Wall Street is so confident that this time around – having kept rates on hold at the past eight consecutive meetings – it will finally act.
Jerome Powell, the central bank’s chair, all but declared last month it would cut rates when policymakers convened for their September meeting.
“The time has come for policy to adjust,” he told an annual symposium for central bankers at Jackson Hole in Wyoming.
While Powell added that the “timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks”, he said: “The direction of travel is clear.”
Many investors have heard enough. Money markets currently put the chances of a 50 basis-point cut at 55%, according to CME’s FedWatch tool.
Why is the Fed cutting rates?
The Federal Reserve is expected to announce an interest rate cut for the first time in four years at 2pm. Many economists see this moment as the end of an era, and the beginning of the end of the central bank’s fight against inflation.
It primarily looks at two things when considering the interest rate: price growth and the labor markets.
Following years of pandemic-related turmoil in the economy, inflation began to rapidly increase. The Fed hiked rates 11 times over a period of about a year and a half, from March 2022 until July 2023, the last time it increased rates.
Since then, inflation has slowed significantly. The labor market has remained strong, but has started to cool.
As the most recent inflation and jobs data seemed to both show cooling, Fed officials started signaling late in the summer that it was time to cut rates.
Wall Street is still calm, with under two and a half hours until the Fed’s decision hits the wires.
The Dow Jones industrial average is currently down 0.08%, or 34 points, at 41,571 points.
The broader S&P 500 index is down 6 points or 0.11%. at 5,628 points, and the Nasdaq Composite is also very slightly lower.
And with that, I’m handing over to my colleague Lauren Aratani…. GW
Updated
A survey published yesterday by CNBC found that 84% of the 27 respondents, including economists, fund managers and strategists, thought the Fed would cut by a quarter percentage point.
That left 16% predicting a half-point decrease.
So again, that clashes with the pricing in the futures market, where a half-point cut is more likely.
CNBC says:
The major difference could be that survey respondents appear less worried about the economy overall than futures markets, and more convinced the Fed has time to enact gradual rate cuts.
Seventy-four percent said the September rate cut comes in time to preserve a soft landing, with just 15% saying it’s too late.
Updated
Analysts at Oxford Economics reckon fears of a US recession have been overcooked.
They told clients today:
The Fed will begin its long-telegraphed pivot today, but we think one-year ahead rates pricing by markets is too dovish and inconsistent with our soft-landing view.
Growing concerns that the US might be slipping towards a recession are unfounded and we think recent data remain consistent with a more orderly and benign growth slowdown.
A dovish performance from the Federal Reserve today could drive the gold price to new highs, analysts say.
Gold has already hit a series of record highs this year, as it climbed by 25% since the start of January to almost $2,600/ounce this week.
Ricardo Evangelista, senior analyst at ActivTrades, suggests a steep cut to US interest rates could drive gold higher, as it would weaken the dollar (in which gold is priced).
Attention is now firmly on today’s Fed rate decision, with a growing number of traders anticipating a 50-basis-point cut. If this scenario materializes, it would likely weaken the dollar, boosting gold prices.
The extent of the upside for precious metals will depend on how dovish Jerome Powell’s tone is during his post-announcement address. Should the Fed Chair signal the possibility of further rate cuts later in the year, gold could be poised to reach new record highs.
US housing starts rebound
Construction of single-family US homes rebounded sharply in August, new data shows.
Housing starts – a measure of how many construction projects got underway – jumped by 9.6% in August to an annual rate of 1.356 million units, the Commerce Department’s Census Bureau reported.
The increase was driven by a near-16% jump in single-family housing starts.
The increase suggests building work got underway again last month after Hurricane Beryl disrupted the sector in July.
US housing starts increased last month at the fastest pace since April, as beginning home construction rose 9.6% to a 1.36 million annualized rate.
— Bloomberg TV (@BloombergTV) September 18, 2024
Michael McKee reports https://t.co/TwvYorNc1I pic.twitter.com/0oATmgskmn
Updated
Bloomberg report that futures traders have made a record number of wagers that the Federal Reserve will make an “outsized cut” to rates today.
That means there could be sharp losses if the Fed only lowers borrowing costs by a quarter of one percentage point (25 basis points) today.
Bloomberg explain:
Bond investors that have been frantically wagering on the size of the Federal Reserve’s first interest-rate cut in four years are about to find out whether they made the right trade.
The market is fully pricing in a quarter-point rate reduction on Wednesday, when the US central bank is expected to kick off its rate-cutting cycle, with the chance of a bigger move viewed as a coin-flip. Treasuries have rallied into the decision, climbing for a fifth-straight month and driving short-dated yields — those most sensitive to Fed policy — to their lowest in two years.
Updated
Deutsche Bank poll: 50bp cut would be a shock
Just in: A majority of financial experts polled by Deutsche Bank today expect the Fed will only cut US interest rates by a quarter of one-percent.
Ir’s a slighly imprompu poll, conducted by Deutsche’s market strategist Jim Reid since 7am UK time among readers of his morning research note (highly recommended, by the way).
1,400 people took part – and the poll showed that they are expecting an average of 34.4 basis points of cuts today. That’s less than the futures market is predicting [it’s also not going to happen; the Fed will either do 25bo or 50bp].
Reid says:
62% [of respondents] expect 25bps and 38% expect 50bps. This suggests 50bps would be a bigger shock than 25bps to a broader global financial market audience, the opposite way round in terms of biases to what Fed fund futures contracts are telling us.
As flagged earlier, the futures market reckons a 50bp cut is more likely than a 25bp one – so there’s a disconnect between that and the Deutsche survey…
Updated
The US dollar could rally if the Federal Reserve only cuts interest rates by a quarter of one percent, or sink if the Fed plumps for a half-point cut.
And that movement will have implications for other assets, including shares, oil and gold.
Rania Gule, senior market analyst at XS.com, explains how it could pan out:
If the dollar drops significantly due to a large rate cut, it could lead to higher prices for dollar-denominated commodities such as gold and oil. A weaker dollar makes these assets cheaper for foreign investors, boosting demand for them. This scenario could lead to a rise in gold prices, as gold is considered a haven during times of economic uncertainty. Similarly, a weaker dollar could support oil prices, especially with continued strong demand from emerging markets and reduced supply from OPEC.
Regarding equities, the impact of a rate cut on the dollar could be twofold. On one hand, lowering interest rates reduces borrowing costs, enhancing companies’ ability to invest and expand, which supports stock markets. On the other hand, if commodity prices like oil rise due to a weaker dollar, companies that heavily rely on importing raw materials may face pressure on their profit margins.
Latest CME FedWatch odds:
— Storm Trading (@TheStormTrading) September 18, 2024
• 50bps: 65%
• 25bps: 35%
For the first time in over a year, there isn’t a clear-cut consensus heading into this FOMC, with no option priced in over 90%.
This meeting is set to be a volatile one, as the market will not only need to react to the… pic.twitter.com/J0W38nMamJ
The US dollar has dropped to a three-week low against the British pound.
Sterling has gained 0.6%, or three-quarters of a cent, against the dollar today to hit $1.3253, the strongest level since late August.
There is a risk that Fed chair Jerome Powell disappoints market expectations today, warns Matthew Ryan, head of market strategy at global financial services firm Ebury.
Ryan suggests that those expecting a large cut to US interest rates today by the Federal Open Market Committee (FOMC) will be disappointed, saying:
While we think that the Fed is perhaps somewhat behind the curve in lowering rates, we do not think that conditions are bad enough to warrant panic stations.
“A 50 basis point cut does not appear to be in the offing, nor do we think that the FOMC will be prepared to fully endorse market pricing for rates.
For now, we see a total of three 25 basis point cuts this year, in September, November and December, with another four or five to follow in 2025, depending on incoming data. Any indication from the Fed that a gradual pace of cuts remains their base case could provide some near-term upside for the dollar, particularly given the dovish market pricing.
“On the other hand, a set of communications that flags heightened concerns over the labour market, while indicating that rates may need to be cut at every meeting deep into 2025, could trigger a fresh sell-off in the US currency. Clearly, however, the most bearish scenario for the dollar would be an immediate 50 basis point cut, which cannot be completely ruled out with the utmost of conviction.”
Updated
Wall Street trading begins, calmly
The Wall Street opening bell has been rung, and – as expected – trading had begun calmly.
The S&P 500 index of US stocks has risen by 0.09%, or 5.2 points, to 5,639.8 points, towards the record high set earlier this week.
The tech-focused Nasdaq index is almost 0.2% higher.
But the Dow Jones industrial average, which tracks 30 large US companies, dipped by 0.04% at the open.
What a Fed rate cut means for you....
My colleague Lauren Aratani has analysed the impact of a cut to US interest rates, here:
Updated
Not every Wall Street expert expects a bumper 50 basis point cut to US interest rates today.
Bob Savage, head of markets strategy and insights at bank BNY, predicts the Federal Reserve will start its easing cycle today with a more modest 25 basis point (or quarter-point) cut to rates.
He says there are three reasons for the Fed to take a more cautious approach – including that a 50bp cut might scream ‘panic’.
Savage told BNY clients today that the logic of the BNY call for 25bps has three legs.
First that the politics of doing 50bps will hurt the independence of the Fed as it will blow into the US election if it sends asset prices higher; second is that the market prices in easy policy already so any recalibration of front-end cuts will likely only lead to rethinking the back-end so economic effects are small, and third that the 50bps would be a signal of panic - something reserved for bigger troubles of recession or disaster.
Updated
Investors expect cut to US interest rates today
Although Wall Street looks subdued, investors are expecting a cut to US interest rates today, and possibly a large cut.
According to CME’s Fedwatch tool, there’s a 65% chance that the Federal Reserve cuts US interest rates by half a percentage point today.
That leaves a 35% chance of a smaller, quarter-percentage-point, cut.
Currently, the Fed’s target rate is 5.25%-5.5%.
CME FedWatch Tool this morning at 65.0% for 50bps and 35.0% for 25bps pic.twitter.com/wX0MUQNiMv
— Wolf of My Street🏡 (@Ryan__Rigg) September 18, 2024
This level of uncertainty means there’s likely to be a strong market reaction when the Fed announcement is made at 2pm Eastern time (7pm UK time).
You’d have to go back over 15 years to find such an uncertain situation this close to the decision, says Jim Reid, market strategist of Deutsche Bank.
He told clients:
A lot of money will be made and lost today.
I’ve waivered both ways over the last few days and I’m surprised the Fed has left pricing so uncertain at this stage. However in an era of heavy forward guidance it’s refreshing to see a little less certainty. If that was more widespread I think it would be more rather than less helpful.
If you think you know exactly what the central bank will do it is likely to promote more over exuberance in markets which in turn requires a bigger opposite reaction later. I’m sure they’ll be those taking the opposite view though.
Updated
The rates on US mortgages have been falling as the markets have anticipated cuts to US interest rates – leading to a pick-up in demand.
The average contract rate on a 30-year fixed-rate mortgage dropped 14 basis points last week to 6.15%, the Mortgage Bankers Association reported today. That’s the lowest rate since September.
The MBA has also reported that mortgage applications for new home purchases increased 4.4% compared with a year ago, but were flat compared with July.
Joel Kan, MBA’s vice president and deputy chief economist, says:
“Applications for new home purchases continue to show year-over-year growth, increasing by more than four percent and extending the annual growth streak to 19 consecutive months.
Homebuyers, including a growing share of first-time buyers, continue to favor newly built homes, as declining mortgage rates in August contributed to the uptick in new home sales activity.”
Updated
Wall Street subdued ahead of Fed decision
The US stock market is on track to open slightly higher in an hour’s time, as traders brace for the Federal Reserve’s interest rate decision later today.
The Dow Jones Industrial Average, the S&P 500 and the Nasdaq are all slightly higher in pre-market trading.
Both the Dow and the S&P 500 touched new alltime highs this week, on hopes that the US economy will achieve a ‘soft landing’ (lowering inflation while avoiding a recession).
Trevor Greetham, head of multi asset at Royal London Asset Management, says Fed rate cuts are bullish for stocks… in a soft landing scenario:
The Federal Reserve is cutting rates for the first time since March 2020. What happens to financial markets in the months to come will depend on the macro backdrop.
Rate cuts amid disinflationary growth are bullish for stocks. If a US recession takes hold however, rate cuts don’t prevent a bear market and you could look to buy stocks on the Fed’s last rate cut, not the first.
There’s a more consistent pattern for government bonds, which typically perform strongly either way.
Aslef train drivers vote to back pay deal and end two-year stand-off
Newsflash: Train drivers have voted overwhelmingly to accept a multi-year pay deal,
The decision resolves the last remaining conflict between rail operators and unions after two years of strikes that have brought misery for passengers.
Members of the driver’s union Aslef voted overwhelmingly to support the pay offer put forward by the Department for Transport (DfT) last month, which would result in a pay rise of almost 15% over three years.
The approval by 97% of Aslef’s more than 20,000 members brings an end to the union’s dispute with 16 train operating companies in England, which began in July 2022.
Drivers have taken 18 days of strike action since then, resulting in a near complete shutdown of English lines and some cross-border services, as well as a run of overtime bans that have caused widespread disruption.
More here:
Although the headline rate of UK inflation was unchanged last month, there were some significant price swings among the items in the “basket” that tracks the cost of living.
The biggest movement was in the cost of air travel, with average prices jumping by 11.9% in the year to August, having fallen by 10.4% in the 12 months to July, PA Media reports.
Butter and low-fat milk both saw similar swings from negative to positive inflation, with the price of butter up 0.9% in the year to August after falling 3.9% in the year to July, and low-fat milk rising 0.3% in August after dropping 0.4% in July, according to figures published by the Office for National Statistics (ONS).
Inflation accelerated for a range of everyday items, including the cost of cinema, theatre and concert tickets, which rose 9.2% in the year to August compared with a jump of 4.4% in the 12 months to July; the price of pizza and quiche, up 4.3% in August after a rise of 0.8% in July; chocolate, up 10.0% last month compared with 6.7% in July; women’s clothes (up 3.9% in August, up 2.6% in July); and bread (up 2.2% in August, up 1.1% in July).
Some items saw prices falling less slowly last month than in July, most notably second-hand cars, the average cost of which dropped by 6.6% in the year to August, having fallen by 8.4% in the 12 months to July.
The price of household furniture was down 1.0% in August, a smaller annual drop than 2.4% in July, and there were similar trends for the average cost of fish (down 3.0% in August after falling 4.2% in July), fruit and vegetable juices (down 0.4% in August, down 1.3% in July) and rice (down 2.3% in August, down 2.7% in July).
By contrast, the rate of inflation eased last month for tea (up 3.5% in the year to August compared with a jump of 8.4% in July), mineral water (up 2.8% in August, up 5.2% in July), ready meals (2.1% August, 4.2% in July), train travel (2.2% August, 3.7% July) and men’s clothes (1.2% August, 2.6% July).
Rents and house prices in London diverged this summer.
The capital saw the fastest rental increase of any area of England, with rents jumping by 9.6% year-on-year in August.
But… London was also the only area where house prices fell in the year to July:
Economists: Next UK interest rate cut likely in November
Today’s inflation report should ‘“dispel the remaining hopes” held by some in the market that the Bank of England might move on interest rates ahead of its November meeting, say analysts at RBC Capital Markets.
Luke Bartholomew, deputy chief economist at abrdn, agrees, saying:
“It is hard to see this inflation report changing many minds at the Bank of England, with the data coming in pretty much exactly as expected.
Certainly the fact that headline inflation is a touch above target will come as no surprise to policymakers. Of greater focus will be the fact that various measures of underlying inflation are still quite elevated. That helps explains why the Bank of England is likely to be somewhat more cautious than the US Federal Reserve in its easing cycle over the next few months.
Indeed, the Bank of England now looks extremely likely to keep rates on hold tomorrow with the next cut probably coming in November.”
Updated
ING: Core services inflation is slowing
Looking, back at the UK inflation report…. ING have calculated that ‘core services inflation’ dropped last month.
As we reported earlier, service sector inflation jumped from 5.2% to 5.6% in August – but ING’s maths suggests the underlying picture is better.
James Smith, ING’s developed markets economist, explains:
Beneath the surface of the latest UK CPI report, there are signs that the inflation story is slowly but surely moving in the right direction. That might sound weird, given that services inflation rose from 5.2% to 5.6% in August. Remember this is the guiding light for the Bank of England when it comes to rate cuts, and although today’s move was widely predicted, it looks like it is moving in the wrong direction.
Appearances can be deceiving. The fact is that the recent nudge higher in services inflation is largely thanks to base effects and higher inflation in price categories the BoE appears to care less about. We’ve calculated a measure of “core services” inflation, based on something the Bank put in its May Monetary Policy Report.
That excludes volatile categories like airfares, package holidays, and rents, arguably less relevant for monetary policy decisions. If our maths is correct, that’s now fallen to 4.9% from 5.5% just two months ago.
That would please the Bank – although probably not enough to prompt an interest rate cut tomorrow, though….
Post Office CEO Nick Read will leave the organisation on 15 March next year, the company says.
That means he’ll be able to testify to the next phase of the Horizon inquiry on behalf of the Post Office, and in a personal capacity.
In a statement, the Post Office says:
In November 2019, Nick led the settlement with the Group Litigation claimants, beginning the journey to address the wrongs of the past and to reset the relationship with Postmasters that continues today.
He championed the appointment of two serving Postmasters to the board and focused on increasing Postmaster remuneration, investing in training, expanding field teams and supporting Postmasters as part of a broader initiative to place today’s Postmasters at the heart of Post Office.
TGI Fridays owner to file for administration
The company behind the TGI Fridays chain is calling in administrators, a week after a attemped takeover of US-based franchisor TGI Fridays failed.
Hostmore has decided to appoint administrators from Teneo, and will also suspend trading in its shares, whose value has fallen to almost zero.
Hostmore has told the City that it is trying to find a buyer for its sites in the UK, and expects to conclude a sale by the end of September. However, it does not expect to recover enough money to cover its borrowings.
Its sites remain open.
IMF postpones Russia mission after EU backlash
The International Monetary Fund (IMF) has postponed plans to visit Moscow to review the Russian economy, following a backlash from European capitals.
The Tass news service has reported that the IMF has “indefinitely postponed” its first planned consultations with Russia.
According to Tass, Alexei Mozhin, Russia’s director at the IMF, blamed “technical unpreparedness”, saying:
“The Fund’s management notified the Russian side and the board of directors that the mission’s work would be postponed indefinitely.
“Technical unpreparedness of the mission to conduct consultations was mentioned as the reason for postponing the mission.”
Last week, the finance ministers of Lithuania, Latvia, Estonia, Finland, Sweden, Iceland, Denmark, Norway and Poland expressed their “strong dissatisfaction” with the IMF’s plans to visit Russia.
On the 8.4% jump in UK rents in the year to August, ONS head of housing market indices Aimee North says:
Rental prices continue to climb at a near-record rate, although the pace of the increase has slowed slightly.
London again saw the fastest growth in rents, with the slowest rise in the South West of England.
Post Office chief executive Nick Read to step down
Post Office boss Nick Read is set to step down from the role next year, the company has said.
Read says it has been a “great privilege” to have worked as Post Office chief executive in an “extraordinarily challenging time for the business and for postmasters”, adding:
“It has been a great privilege to work with colleagues and postmasters during the past five years in what has been an extraordinarily challenging time for the business and for postmasters.
“There remains much to be done for this great UK institution but the journey to reset the relationship with postmasters is well under way and our work to support justice and redress for postmasters will continue.”
Today’s announcement comes after more than a year dominated by the fallout from the Horizon IT scandal, in which hundreds of post office operators were wrongfully inprisoned.
In July, Read said he was temporarily stepping back from the CEO role so he could give his “entire attention” to the next stage of the inquiry into Horizon.
Read became CEO of the Post Office in September 2019, succeeding Paula Vennells, who forfeited her CBE for “bringing the honours system into disrepute” over her handling of the Horizon IT crisis.
In February, the business and trade committee of MPs expressed a lack of confidence in Read’s leadership, accusing him of giving misleading evidence.
Read also denied a claim made by the former chair of the Post Office Henry Staunton that he had threatened to resign unless he was paid more. He was “exonerated of all misconduct allegations” following a report into his behaviour earlier this year.
Snap! Inflation across the euro area was 2.2% in August, matching the UK’s inflation rate.
Data provider Eurostat reports that inflation across the euro area fell last month, from 2.6% in July.
Inflation across the European Union was higher, at 2.4%.
Eurostat adds:
The lowest annual rates were registered in Lithuania (0.8%), Latvia (0.9%), Ireland, Slovenia and Finland (all 1.1%). The highest annual rates were recorded in Romania (5.3%), Belgium (4.3%) and Poland (4.0%). Compared with July 2024, annual inflation fell in twenty Member States, remained stable in one and rose in six.
Euro area annual #inflation at 2.2% in August 2024 https://t.co/pfx1CxDhIt pic.twitter.com/WKyaY9aKbL
— EU_Eurostat (@EU_Eurostat) September 18, 2024
Google wins challenge against €1.49bn EU antitrust fine
Google has won a legal challenge against a €1.49bn antitrust fine for hampering competition in the online search advertising business.
The Luxembourg-based General Court has annulled the fine, despite also mostly agreed with the European Union competition enforcer’s assessments of the case five year ago.
The judges said:
“The court (...) upheld most of the commission’s assessments, but annulled the decision imposing a fine of almost 1.5 billion euros on Google, on the grounds in particular that it had failed to take into account all the relevant circumstances in its assessment of the duration of the contractual clauses that it had found to be unfair.”
Back in 2019, the EC ruled that Google had abused its market dominance in online advertising, by forcing web publishers not to accept adverts from its rivals or making them reserve the most profitable space on their search results pages for Google’s adverts.
Updated
UK rents soar by 8.4%
UK tenants continue to be hit by inflation-busting rental increases.
Average UK private rents increased by 8.4% in the 12 months to August, the ONS reports.
That’s down from 8.6% in the 12 months to July, but still almost four times faster than the headline rate of inflation.
The ONS adds:
Average rents increased to £1,327 (8.5%) in England, £752 (8.5%) in Wales, and £969 (7.6%) in Scotland, in the 12 months to August 2024.
In Northern Ireland, average rents increased by 9.9% in the 12 months to June 2024.
In England, rents inflation was highest in London (9.6%) and lowest in the South West (6.4%), in the 12 months to August 2024.
Updated
UK house price inflation slowed in July
Just in: UK house price inflation has slowed.
The average UK house prices increased by 2.2% to £290,000 in the 12 months to July, new data from the Office for National Statistics shows.
Average UK house prices increased by 2.2%, to £290,000 in the year to July 2024, up from £288,000 in June 2024.
— Office for National Statistics (ONS) (@ONS) September 18, 2024
Read the release ➡️ https://t.co/21oFb1o4O5 pic.twitter.com/ao26eVMHi1
That’s down from 2.7% in the 12 months to June 2024, and is the fifth monthly rise in annual house price infation in a row.
The ONS reports that average house prices increased in England to £306,000 (a rise of 1.6%), in Wales to £218,000 (2.0%), and in Scotland to £199,000 (6.0%) in the last year.
As summer beckoned & election results were called, house price growth slowed. The uncertainty surrounding when the next base rate cut would come, restraining growth causing it to slow in July 2024 to 2.2% from 2.7% in the 12 mths to June. This made the AVG home around £290,000,… pic.twitter.com/3yZfDEQcnW
— Emma Fildes (@emmafildes) September 18, 2024
Updated
A UK interest rate cut tomorrow is “completely off the table”, reckons Sam North, Market Analyst at trading platform eToro:
North explains:
“UK services inflation slightly exceeded expectations in August at 5.6% year-on-year, prompting a brief hawkish lift in GBP [the pound].
“However, the release is unlikely to significantly impact the BoE’s upcoming policy decision, with an unchanged Bank Rate still expected.
“The consensus for tomorrow is for a 7-2 vote split, and while I don’t think this will change that, the BoE will hope this is not the start of a new upwards inflation trend.”
Stuart Rose takes control at struggling Asda
Newsflash: There’s a leadership shake-up at struggling retailer Asda.
Asda has announced that veteran retailer Sir Stuart Rose, currently its chairman, is to lead the business, taking over from co-owner Mohsin Issa, as it tries to reverse a sales decline.
Issa will now focus on running EG Group, the petrol station and convenience store chain which he and his brother Zuber built their fortunes.
Lord Rose, the former CEO and chairman of Marks & Spencer, says:
We respect Mohsin’s decision to move on from his role at Asda where his work is complete to be the sole CEO of EG Group.
We are very grateful to Mohsin for the role he has played in overseeing Asda, including launching into the growth market of convenience stores and introducing a loyalty app now used by more than six million customers. He has laid the foundations to deliver a world-class IT infrastructure, strengthening Asda for the long term. I look forward to continuing to benefit from his insight as a non-executive director on our Board.”
The move comes after Asda lost market against rivals, with sales falling by over 6% in the three months to mid-August.
Rose told the Telegraph last month that he was “embarrassed” by Asda’s performance, and that he would urge Mohsin Issa to permanently step back from the day-to-day running of the business. That urging seems to have come to fruition today.
Asda says Rose will assume Mohsin Issa’s executive responsibilities alongside Rob Hattrell, a partner at TDR Capital, the private equity firm who bought Asda alongside the Issa brothers in 2020.
Following reports, which have been denied, of a rift between the brothers, Zuber sold his Asda stake to TDR this summer.
Asda adds that it is still looking for a CEO to lead the business “in the next phase of its strategy”.
Updated
The pound has risen this morning, as the odds of a surprise interest rate cut tomorrow fade.
Sterlging has gained almost a third of a cent against the US dollar to $1.319, towards the one-week high it touched yesterday.
Today’s UK CPI inflation figure inline with expectations but sticky services inflation points to rates on hold at next meeting rather than a cut. US rate cuts likely to be more aggressive than U.K. which makes for a strengthening GBP v Dollar.
— Jason Hollands (@jasonhollands) September 18, 2024
Daniel Casali, chief investment strategist at wealth manager Evelyn Partners, says:
The broader trend of lower UK inflation should encourage the BoE to cut interest rates this year, but at a relatively slower pace compared to the US. Potentially, this should provide upside for the sterling exchange rate against the US dollar.
There is some good news for households and the Bank of England in today’s inflation report, says Sanjay Raja, chief UK economist at Deutsche Bank Research:
But, today’s data won’t be enough to trigger a surprise UK interest rate cut tomorrow, Raja predicts, explaining:
Headline CPI came in line at 2.2% y/y. But core CPI edged higher to 3.59% y/y, and services CPI ticked higher to 5.56% y/y – both a tenth above our own projections.
The strength in services inflation came down to stronger than expected airfares, which shot up 22% m/m, offsetting the bigger fall in accommodation prices. The good news is that despite the stronger services and core goods prints, food and energy inflation surprised to the downside.
Today’s UK inflation report “cements” the view that the Bank of England will pause tomorrow and leave interest rates unchanged, says Ruth Gregory, deputy chief UK economist at Capital Economics.
She adds:
We continue to assume the next 25 basis point rate interest rate cut will take place in November and that rates will be cut at alternative BoE meetings until June.
Chart: UK inflation
On the face of it, today’s inflation rate of 2.2% gives the BoE confidence towards lowering interest rates further this year.
But, says professor Costas Milas of the University of Liverpool, it’s not that simple. He argues that recent public sector pay deals could push up inflation.
He tells us:
Services inflation, a good proxy for domestic pressures has gone up to 5.6% in August.
I still believe that the latest public sector wage increases of 5.5% (plus ) will push up services inflation (and therefore CPI inflation) further within the next 9 months as I pointed out in a recent London School of Economics Business blog. This suggests the Bank’s MPC should, for the time being, keep interest rates unchanged.
There is an extra reason for doing so, he adds:
The Fed is largely expected to lower US interest rates by 25 to 50 basis points this week. Academic research points out to significant positive spillover effects to international growth (including the UK one) from such a cut since it will look “co-ordinated” with the recent interest rate cut by the ECB.
In short, the BoE could allow for cuts in international interest rates to strengthen UK growth without taking action itself!
Darren Jones: millions of families are struggling
It’s important to remember that although the rate of price rises has slowed this summer, the level of prices is sharply higher than before the cost of iving crisis began.
Darren Jones, chief secretary to the Treasury, makes this point:
“Years of sky-high inflation have taken their toll; and prices are still much higher than four years ago.
“So, while more manageable inflation is welcome, we know that millions of families across Britain are struggling, which is why we are determined to fix the foundations of our economy so we can rebuild Britain and make every part of the country better-off.”
Ian Stewart, chief economist at Deloitte, isn’t ruling out a cut to UK interest rates tomorrow.
Stewart says:
“The big picture in the UK is of receding inflation pressures. While core inflation nudged higher in August, softer wage growth and falling commodity prices suggest that this will reverse in coming months.
With UK growth flatlining in June and July, and the Federal Reserve looking set to reduce US interest rates today, the Bank of England may well follow suit at their rate setting meeting tomorrow.”
At 2.2%% in August, inflation in the UK was running at the same rate as France.
Germany, though, saw a lower inflation rate of 2% last month.
Jake Finney, economist at PwC, explains why we didn’t see a Taylor Swift-powered jump in hotel prices last month (see earlier post):
“The main area of concern continues to be services inflation, which increased from 5.2% to 5.6%. The Taylor Swift effect might not explain the whole story this time, as most of the inflation data for this month was collected on or around the 13 August, which does not coincide with any of the Eras tour dates.
However, it could help to explain part of the upward rise in ‘Cinemas, theatres and concerts’ price inflation, which more than doubled, from 4.4% to 9.2%.
The Resolution Foundation predicts the Bank of England will leave rates unchanged tomorrow.
They say:
CPI inflation held steady in August, with the second-biggest monthly rise in airfares on record (since 2001) and slower falls in second-hand car prices offset falls in hotels and restaurant prices. Disappointingly, the closely-watch services inflation rose to 5.6 per cent after a surprise dip last month.
And that means the Bank is likely to leave interest rates on hold at 5%, argues Lalitha Try, economist at the Resolution Foundation:
“Inflation held steady in August, with even Taylor Swift’s arrival in London failing to move the dial on price changes. Disappointingly, services inflation rose after a surprise fall in July, with prices now back in line with the Bank’s expectations.
“Amid a busy period for central banks, with the Fed gearing up for its first interest rate cut in years following a cut by the ECB last week, it’s likely to be a steady-eddie week for the Bank of England.”
The head of the TUC, general secretary Paul Nowak, argues that the Bank of England should cut UK interest rates tomorrow.
Nowak says a rate cut would help the economy;
“With inflation unchanged and broadly at target, and GDP growth at zero for three of the last four months, the time is right for the Bank of England to make another rate cut.
“Households are in desperate need of relief, with several years of steep price rises coming on top of the longest pay squeeze in modern history.
“Inflation is now falling across most high-level categories, and the economy needs the boost that a further rate cut would bring.
“The new government’s plans for growth are welcome.
“Long-overdue investment will revitalise UK industry, start to address the Tories’ manufacturing decline and help deliver good jobs and improve pay.
“But rate setters need to do their bit too.”
Updated
Odds of an interest rate cut tomorrow fall
The Bank of England is less likely to cut interest rates tomorrow, the City believes, after this morning’s inflation report showed a rise in core inflation in August.
The money markets show that the odds of the BoE making no change to borrowing costs at noon on Thursday have risen to 73% this morning.
That’s up from 65% before we learned that headline inflation stuck above the Bank’s target in August, at 2.2%.
Monica George Michail, associate economist at research institute NIESR, says the Bank will have noted that underlyinng inflation “remains elevated”, even though headline CPI inflation was unchanged:
“Annual CPI inflation in August remains unchanged from July at 2.2%. Core and Services inflation rates have slightly gone up, after an encouraging fall in July, recording 3.6% and 5.6%.
Given that inflation is set to gently rise towards the end of the year, and that underlying inflation remains elevated, this reduces chances of a rate cut tomorrow, and new developments will be closely monitored by the MPC”
⚡️Our reaction to today's #inflation figures is out now ⚡️@MichailMonica @_maxmosley @RoyalEconSoc pic.twitter.com/VXFHFsYoJp
— National Institute of Economic and Social Research (@NIESRorg) September 18, 2024
Updated
Factory gate inflation slows
Inflation at the UK factory gate slowed last month, which may feed through to consumers in coming months.
The output prices charged by UK producers rose by 0.2% in the year to August, the Office for National Statistics reports, down from 0.8% in July.
Producers saw their own input prices fall, by 1.1% year-on-year, thanks to a drop in the oil price.
Factory gate prices rose by 0.2% in the year to August, down from an increase of 0.8% in the year to July.
— Office for National Statistics (ONS) (@ONS) September 18, 2024
Meanwhile, the cost of raw materials fell 1.2% in the year to August, down from a revised increase of 0.2% in the year to July.
Read the release ➡️ https://t.co/RVyWiQG2T9 pic.twitter.com/wjC7d5c8PL
Services inflation rises, but goods prices keep falling
Services inflation accelerated to 5.6% in August, from 5.2% in July, the inflation report shows.
Conversely, goods prices continued to fall, and at a faster rate. The CPI goods annual rate fell from -0.6% to -0.9%.
Core inflation rises
Worryingly, underlying inflation across the UK has risen.
The Core CPI, which excludes energy, food, alcohol and tobacco, rose by 3.6% in the 12 months to August 2024, up from 3.3% in July.
Economists had expected a smaller rise in core inflation, to 3.5%.
Annual inflation rate for restaurants and hotels lowest since July 2021
Despite fears of a Taylor Swift effect, hotel and restaurant prices actually fell last month.
Today’s inflation report shows that prices at restaurants and hotels fell by 0.7% in August, compared with July.
This pulled the annual inflation rate for restaurants and hotels down to 4.4% in August 2024, down from 4.9% in the year to July, and the lowest rate since July 2021.
The ONS reports that the prices of various alcohol products at pub and restaurants rose by less than a year ago.
Some economists have suggested that strong demand from Swifties attending concerts this summer could have had an upward affect on inflation, as hotel owners reacted to higher demand by whacking up prices.
In August, Taylor Swift played five dates at Wembley Stadium.
Updated
Motor fuel prices fell last month
The cost of petrol and diesel fell last month, countering the impact of higher air fares and keeping inflation at 2.2%.
Today’s UK inflation report shows that motor fuel prices fell by 3.4% in the year to August, compared with a rise of 1.8% in the year to July.
According to the ONS, the average price of petrol fell by 2.1p per litre between July and August to 142.3p per litre. That’s down from 148.5p per litre in August 2023.
Diesel prices fell by 2.6p per litre in August to 147.8p per litre, down from 151.1p per litre in August 2023.
Updated
ONS: Rising air fares hit consumers
ONS chief economist Grant Fitzner says:
“Inflation held steady in August as various price fluctuations offset each other.
“The main movements came from air fares, in particular to European destinations, which showed a large monthly rise, following a fall this time last year.
“This was offset by lower prices at the pump as well as falling costs at restaurants and hotels. Also, the prices of shop bought alcohol fell slightly this month, but rose at the same time last year.
Updated
On a monthly basis, inflation rose by 0.3% in August 2024, the same rate as a year earlier.
The ONS says the largest upward contribution to the monthly change in inflation came from air fares, which rose this year but fell a year ago.
The largest offsetting downward contributions came from motor fuels, and restaurants and hotels, they add.
UK INFLATION STICKS AT 2.2%
Newsflash: UK inflation remained unchanged last month, above the UK’s official target.
The Consumer Prices Index, which tracks cost changes across the economy, rose by 2.2% in the year to August, data just released by the Office for National Statistics shows.
That means prices are rising a little faster than the Bank of England’s target of 2%.
CPI rose by 2.2% in the 12 months to August 2024, unchanged from July 2024.
— Office for National Statistics (ONS) (@ONS) September 18, 2024
Read the release ➡️ https://t.co/3rW4NgMQNJ pic.twitter.com/AvTfVmsj53
Updated
Rise in chocolate prices could spook shoppers this Halloween
Shoppers may face a choccy horror show this Halloween after the price of chocolate shot up 11% in the past year – far outstripping increases for other foods across UK supermarkets.
Britons opening their doors to trick-or-treaters could decide to cut back on spending for 31 October, as the cost of chocolate rose sharply in the year to the end of August, way above wider grocery inflation of 2.7% over the same period, according to research by the consumer group Which?
The price has risen after cocoa prices more than doubled on world markets in the face of tree disease and adverse weather in growing countries aggravated by the climate crisis.
Tupperware Brands files for bankruptcy protection
While we wait for the UK inflation report… Tupperware, the manufacturer of food storage containers, has filed for bankruptcy protection.
Tupperware announced this morning it has voluntarily begun Chapter 11 proceedings in the United States Bankruptcy Court for the District of Delaware.
Laurie Ann Goldman, president and chief executive officer of Tupperware, blamed a “challenging macroeconomic environment” (costs of raw materials have jumped, and the pandemic boom in home cooking has faded, hurting sales).
Goldman added:
“Whether you are a dedicated member of our Tupperware team, sell, cook with, or simply love our Tupperware products, you are a part of our Tupperware family. We plan to continue serving our valued customers with the high-quality products they love and trust throughout this process.”
Updated
Economists at wealth management firm Investec predict UK inflation will dip to 2.1%, thanks to a drop in fuel prices.
But Sandra Horsfield, an economist at Investec, suggests hotel prices may have risen in August:
“Similarly, to the extent the jump and then fall in hotel price inflation in June and July this year was indeed linked to temporary extra demand for accommodation for the first UK leg of Taylor Swift’s Eras tour, the second leg of that tour falling into August could have boosted hotel and thereby services price inflation once more.”
Today’s UK inflation report may show a resurgence in price pressures across the key services sector.
PA Media reports:
The figures are set to reveal a marked jump in services inflation – covering prices in areas such as hotels, package holidays, hospitality and culture – with a possible impact of the last leg of Taylor Swift’s UK tour.
Economists are pencilling in a rise in services inflation to 5.6% in August, up from 5.2% in July.
Updated
Introduction: UK inflation and US interest rate decision today
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Inflation and interest rates are top of the agenda today.
Firstly, we’re about to learn how fast prices rose across the UK last month, when the latest official inflation report is released at 7am.
Economists predict the consumer prices index rose by 2.2% in the year to August, matching July’s figure.
That would mean prices were rising slightly faster than the Bank of England’s 2% target, but at a much slower pace than during the height of the cost of living crisis in autumn 2022, when inflation hit 11.1%.
A weak inflation reading might give the Bank of England confidence to cut interest rates on Thursday, while a higher rate would make policymakers lean towards maintaining borrowing costs.
As things stand, the money markets indicate there’s a 65% chance that the BoE leaves rates on hold tomorrow, and just a 35% chance of a cut.
Interest rates across the Atlantic will probably be cut later today – the question is by how much. Investors are split over whether the US Federal Reserve will start its easing programme modestly, with a cut of a quarter of one percent (25 basis points), or go big with a half-point reduction.
Currently, the markets think a bumper 50 basis-point cut is more likely. But we’ll see at at 7pm.
Kit Juckes, currency expert at French bank Société Générale, says:
Is the Fed a hare or a tortoise? Whether we get a 25bp or a 50bp cut from the Fed tomorrow matters less than the destination of rates. Reaching the right destination is more important than how fast you start. Just ask the hare!
The agenda
7am BST: UK inflation report for August
9.30am BST: UK house prices and rental costs data
10am BST: Eurozone inflation report for August (final reading)
7pm BST: Federal Reserve sets US interest rates
7.30pm BST: Federal Reserve press conference
Updated
