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UK service sector growth hits nine-month high, but inflation pressures mount – business live Bank of England sets interest rates and unveils new forecasts – business live
(35 minutes later)
11.42am GMT
11:42
My colleague Katie Allen has captured some photos of the Positive Money protest against the Bank of England’s stimulus programme this morning:
As explained earlier, Positive Money want to stop the Bank of England’s quantitative easing programme, and hand the government control of the money-creation process.
Positive Money’s Executive Director, Fran Boait says the BoE and the government should rethink monetary policy, rather than relying on QE and ultra-low interest rates.
She told CNBC that:
Since the crash we’ve had low interest rates, and they’ve created one of the slowest recoveries in history.
#StopQE. QE makes the rich richer - @franboait via @CNBC https://t.co/dq90ZVdfib #qeforpeople
11.32am GMT
11:32
Bank of England: A preamble
Just 30 minutes to go until the Bank of England announces its decision on interest rates, and unveils its new economic forecasts.
Here’s what to watch for:
And then the City will hang on governor Mark Carney’s every word at the press conference, from 12.30pm.
Dean Turner, economist at UBS Wealth Management, says:
The market is eagerly awaiting the Bank of England’s Inflation Report, which should bring further clarity as to likely path of monetary policy in the months ahead.
We expect the BoE to leave policy unchanged at the midday announcement.”
11.21am GMT
11:21
City traders believe that the High Court ruling on article 50 will trigger even more wild drama in the currency markets.
Mihir Kapadia, CEO and Founder of Sun Global Investments, predicts that the pound will be volatile.
“The historic announcement that the UK government has lost the Brexit case in High Court means that Parliament must vote on whether to trigger Article 50. Theresa May claims this is a subversion of justice whilst ‘In’ campaigners will be thrilled; one thing is for certain that current market volatility will be heightened.
The government will appeal to the Supreme Court, however if they agree with the High Court judgement there could be a big impasse with no clear route for resolution. The pound which was already rising spiked further on the news and no doubt there will be further repercussions in the markets, as we await the Bank of England’s announcement at midday today.”
11.16am GMT
11:16
Today’s rally has pushed the pound to its highest level since last month’s ‘flash crash’, when sterling slumped alarmingly in Asian trading to just $1.15.
But as this chart shows, sterling is still weaker than in September - before the Conservative Party conference ignited fears that Britain could lose membership of the single market after Brexit:
At these low levels, the pound appears to be priced for a ‘hard Brexit’
Mike Bird of the Wall Street Journal tweets:
Sterling $1.50 was the 'No Brexit' level. Sterling $1.35 seemed to be the rate cut + softish Brexit level. Still ten cents below there.
10.52am GMT10.52am GMT
10:5210:52
One thing is certain - it’s mighty difficult to have much faith in the Bank of England’s new economic forecasts in the current political climate.One thing is certain - it’s mighty difficult to have much faith in the Bank of England’s new economic forecasts in the current political climate.
How can its finest minds predict UK growth and inflation in such an uncertain climate?How can its finest minds predict UK growth and inflation in such an uncertain climate?
Given the political atmosphere, Carney may as well use a tombola for his predictions at the QIRGiven the political atmosphere, Carney may as well use a tombola for his predictions at the QIR
(reminder, the Bank releases the quarterly inflation report at noon)(reminder, the Bank releases the quarterly inflation report at noon)
UpdatedUpdated
at 10.53am GMTat 10.53am GMT
10.51am GMT10.51am GMT
10:5110:51
Neil Wilson of ETX Capital explains why sterling has spiked this morning - and why the City is struggling to decide what happens next:Neil Wilson of ETX Capital explains why sterling has spiked this morning - and why the City is struggling to decide what happens next:
“The High Court ruling on Article 50 is a body blow for Theresa May and the Brexit-leaning ministers at the heart of government. It’s made triggering Brexit a lot trickier and has given sterling a massive shot in the arm.“The High Court ruling on Article 50 is a body blow for Theresa May and the Brexit-leaning ministers at the heart of government. It’s made triggering Brexit a lot trickier and has given sterling a massive shot in the arm.
The stage is now set for a fresh battle over Brexit and there is the prospect that Parliament will block Britain’s withdrawal from the EU, albeit a dim and distant one for now. We need to get more clarity on what MPs think and intend to do about this now they have a say.The stage is now set for a fresh battle over Brexit and there is the prospect that Parliament will block Britain’s withdrawal from the EU, albeit a dim and distant one for now. We need to get more clarity on what MPs think and intend to do about this now they have a say.
In a year of political surprises, who would bet against another one? A massive grass-roots Remain campaign could tilt the balance.In a year of political surprises, who would bet against another one? A massive grass-roots Remain campaign could tilt the balance.
The news sent the pound roaring through $1.24 before gains were pared as markets digest the news – the fact is no one really knows what the implications of this decision are yet. An appeal is coming in early December, so this is not final. Cable was last at $1.2432, its highest level in almost a month.The news sent the pound roaring through $1.24 before gains were pared as markets digest the news – the fact is no one really knows what the implications of this decision are yet. An appeal is coming in early December, so this is not final. Cable was last at $1.2432, its highest level in almost a month.
Even if Article 50 is triggered as planned, this judgment could underpin sterling for some time and assuage fears about a ‘hard Brexit’ if the pro-EU camps in Parliament start to dictate terms to the government in return for voting with the people. We could see this create a floor under the pound around $1.25. Politics and uncertainty continue to drive the currency markets.”Even if Article 50 is triggered as planned, this judgment could underpin sterling for some time and assuage fears about a ‘hard Brexit’ if the pro-EU camps in Parliament start to dictate terms to the government in return for voting with the people. We could see this create a floor under the pound around $1.25. Politics and uncertainty continue to drive the currency markets.”
And here’s our diplomatic editor:And here’s our diplomatic editor:
If courts and this parliament does not give executive the right to start Brexit talks, executive will seek a new parliament in an election.If courts and this parliament does not give executive the right to start Brexit talks, executive will seek a new parliament in an election.
UpdatedUpdated
at 10.51am GMTat 10.51am GMT
10.39am GMT10.39am GMT
10:3910:39
The pound is trading at a three-week high against the US dollar, as everyone ponders the ramifications of the government’s defeat (which we’re liveblogging here)The pound is trading at a three-week high against the US dollar, as everyone ponders the ramifications of the government’s defeat (which we’re liveblogging here)
Some experts are predicting that parliament would give its approval for Article 50 be triggered, rather than ignore the result of June’s referendum. But that’s not definite.Some experts are predicting that parliament would give its approval for Article 50 be triggered, rather than ignore the result of June’s referendum. But that’s not definite.
The court ruling may make it harder for Theresa May to start the process by March 2017, and could even encourage the PM to hold an early general election...The court ruling may make it harder for Theresa May to start the process by March 2017, and could even encourage the PM to hold an early general election...
The FT’s Alex Barker sums it up:The FT’s Alex Barker sums it up:
My Q's on Art50 decision: 1) will debate delay March trigger? 2) does it imply parl must approve negotiating mandate too? 3) early election?My Q's on Art50 decision: 1) will debate delay March trigger? 2) does it imply parl must approve negotiating mandate too? 3) early election?
10.14am GMT10.14am GMT
10:1410:14
Government loses case over Article 50Government loses case over Article 50
Newsflash: The government has lost the Brexit case in the high court.Newsflash: The government has lost the Brexit case in the high court.
Judges have ruled that Theresa May does not have the power to trigger article 50 without a parliamentary vote.Judges have ruled that Theresa May does not have the power to trigger article 50 without a parliamentary vote.
Government does not have pregative power to give notice: government losesGovernment does not have pregative power to give notice: government loses
This sent the pound surging over $1.24, before swiftly dropping back... as the Supreme Court will now hear an appeal, in early December.This sent the pound surging over $1.24, before swiftly dropping back... as the Supreme Court will now hear an appeal, in early December.
10.02am GMT10.02am GMT
10:0210:02
UK economy growing at 0.4-0.5%UK economy growing at 0.4-0.5%
Here’s Chris Williamson, chief business economist at IHS Marki, on today’s Service sector PMI report:Here’s Chris Williamson, chief business economist at IHS Marki, on today’s Service sector PMI report:
“An encouraging picture of the economy gaining further growth momentum in October is marred by news that inflationary pressures are rising rapidly.“An encouraging picture of the economy gaining further growth momentum in October is marred by news that inflationary pressures are rising rapidly.
“Business activity is growing at a rate consistent with solid economic growth of 0.4-0.5% in the fourth quarter (the surveys suggest the initial 0.5% GDP growth estimate for the third quarter could be revised slightly lower). What’s especially reassuring is that growth is also becoming more balanced. Manufacturing is leading the expansion as exporters benefit from the weaker pound, but services growth is also reviving and construction is being boosted by renewed house building.“Business activity is growing at a rate consistent with solid economic growth of 0.4-0.5% in the fourth quarter (the surveys suggest the initial 0.5% GDP growth estimate for the third quarter could be revised slightly lower). What’s especially reassuring is that growth is also becoming more balanced. Manufacturing is leading the expansion as exporters benefit from the weaker pound, but services growth is also reviving and construction is being boosted by renewed house building.
But...But...
“The ugly flip-side of the weaker pound is clearly evident, however, with the rate of increase of service providers’ costs showing the largest monthly acceleration seen in 20 years of survey data collection. Costs are consequently rising at the fastest rate for over five years. If sustained, the increase in prices threatens to curb both corporate hiring and consumer spending, as firms seek to reduce staff costs and households see their pay eroded by rising inflation.“The ugly flip-side of the weaker pound is clearly evident, however, with the rate of increase of service providers’ costs showing the largest monthly acceleration seen in 20 years of survey data collection. Costs are consequently rising at the fastest rate for over five years. If sustained, the increase in prices threatens to curb both corporate hiring and consumer spending, as firms seek to reduce staff costs and households see their pay eroded by rising inflation.
As such, Williamson doesn’t think the Bank of England will launch any new stimulus measures soon - and will keep its powder dry in case the economy deteriorates.As such, Williamson doesn’t think the Bank of England will launch any new stimulus measures soon - and will keep its powder dry in case the economy deteriorates.
UpdatedUpdated
at 10.03am GMTat 10.03am GMT
9.59am GMT9.59am GMT
09:5909:59
This jump in service sector growth means that all three sectors of the UK economy expanded in October.This jump in service sector growth means that all three sectors of the UK economy expanded in October.
We’d already learned this week that manufacturing growth slowed sightly, while construction activity surged.We’d already learned this week that manufacturing growth slowed sightly, while construction activity surged.
Altogether, it shows that growth is accelerating - as firms put the immediate shock of June’s referendum behind them, and get a boost from the weaker pound.Altogether, it shows that growth is accelerating - as firms put the immediate shock of June’s referendum behind them, and get a boost from the weaker pound.
UK economy starts Q4 better than it ended Q3 according to the latest Markit PMIs, driven by the service sector. More food for policy thought pic.twitter.com/nZYm6SHQxCUK economy starts Q4 better than it ended Q3 according to the latest Markit PMIs, driven by the service sector. More food for policy thought pic.twitter.com/nZYm6SHQxC
9.45am GMT
09:45
UK service sector growth hits nine-month high
Breaking: Britain’s service sector has just posted its fastest growth since January, but there are also worrying signs that inflation is building.
Data firm Markit says that total business activity accelerated in October, as did new business expansion. Firms also kept hiring more workers, to deal with a flurry of new business.
Companies reported that they are seeing more demand from overseas thanks to the weak pound.
This drove up the services PMI, Markit’s measure of activity, up to 54.5 in October - up from 52.6 in September.
That’s the highest reading since January, suggesting the economy is continuing to grow fairly solidly.
Good News! Markit UK Service sector growth accelerates in October
David Noble, group CEO at the Chartered Institute of Procurement & Supply, says it’s an encouraging sign:
Concerns over the EU referendum result showed some signs of dissipating as respondents commented on a re- focus on opportunities and ramped up marketing and sales promotions.
“However, business optimism remained lukewarm in spite of the spike in new orders and was below the long-term average of the survey’s history. Staffing levels showed a moderate improvement but at weaker levels than seen over the past three years.
However... firms also reported that import costs are rising very steeply. Input price inflation surged to the highest since March 2011 -- and with the biggest month-on-month jump ever.
That’s due to the weak pound, and is another sign that UK inflation is going to spike in the months ahead -- as firms pass these costs onto consumers.
#UK service sector input cost #inflation highest in 5+ years, linked in many cases to the weak #GBP https://t.co/lZhrsdL3oK pic.twitter.com/yfzlZPGQSU
Noble explains:
“The exchange rate on the pound continued to be a blessing and a curse as opportunities for more export-related activity such as tourism improved.
On the other hand, input price inflation accelerated to a level not seen since March 2011 as healthy margins were challenged. Higher food and fuel prices were highlighted.
Updated
at 9.49am GMT
9.33am GMT
09:33
Our Politics Live blog is tracking the article 50 ruling:
My colleague Alice Ross is braving the autumn chill....
I'm at the RCJ for the #Brexit judgment. No protesters so far, just feral beasts of the media looking a tad chilly pic.twitter.com/NyDsTyx05j
9.31am GMT
09:31
Today will be a crucial day for the pound.
It’s bound to be volatile at noon, when the Bank of England’s new growth and inflation forecasts hit the wires.
Mark Carney could also move sterling, when he speaks to the press at 12.30pm.
Lee Hardman, Currency Analyst at MUFG, say the pound could rally if the Bank suggests further rate cuts are unlikely:
“We expect Governor Carney to reiterate in the accompanying press conference that the BoE is not indifferent to weakness in the pound.
Delivering a rate cut in the near-term could prove counter-productive if it further destabilises the pound and triggers another lurch lower increasing upside risks to inflation.”
And in just 30 minutes time, the High Court will rule on whether MPs must get a vote on whether to trigger article 50.
Hardman says the pound will spike if judges say parliament should have its say:
“We believe that a judgement in favour of requiring a vote in parliament to trigger Article 50 could trigger a sizeable short squeeze higher for the pound in the near-term. It would help ease the market’s current elevated level of pessimism regarding the risk of a harder Brexit.”
9.05am GMT
09:05
Demonstrations outside the Bank of England
A small protest is taking place outside the Bank of England, by campaigners who oppose its bond-buying quantitative easing programme.
The group, called Positive Money, believe that the government should take back the ability to make and distribute money from the commercial banks (who currently create money whenever they issue a loan).
Here are some photos:
Outside BoE supporting Positive Money! pic.twitter.com/laGtsfn1bb
Positive Money are outside the Bank of England now campaigning vs QE for multinationals and for QE for people pic.twitter.com/KkJh4k1ABx
What do want? pic.twitter.com/buquTLV4Rt
Positive Money argue that the current levels of inequality, personal debts, and high government borrowing all stem from the banks’ control of the money-printing.
As they put it:
We believe the power to create money must be removed from the banks that caused the financial crisis and returned to a democratic, transparent and accountable body. New money must only be created and used to benefit the public and society as a whole, rather than just financial sector.
City economist and author George Cooper isn’t convinced you can actually create money without debt*, but still welcomes their contribution to the debate....
While I believe debt free money is an impossibility I fully support @PositiveMoneyUK 's efforts to press rethink of monetary policy https://t.co/Vv0r2P9pXZ
* - basically because money is (among other things) transferrable credit (as explained here)
Updated
at 9.22am GMT
8.48am GMT
08:48
This chart shows how the Bank of England only expected the UK to grow by 0.1% in the last three months; data last week showed growth of 0.5%.
But Bloomberg also show how the public are already anticipating higher prices in the shops:
8.36am GMT
08:36
Kallum Pickering of Berenberg expects the Bank of England to say that growth and inflation in 2017 will both be higher than previously forecast.
This charts shows his new charts, vs the Bank’s August forecasts:
He also expects Mark Carney to ‘take stock’ of the UK economy today, rather than announce any more stimulus moves.
The BoE’s decision to provide extra liquidity around the vote and then to announce a suitably large monetary stimulus in response to the sharp downgrades in the market’s assessment of the UK’s economic outlook was appropriate.
A central bank needs to satisfy the markets’ need for liquidity during periods of stress to limit the risk that a modest crisis turns into a severe one. But the UK’s better-than-expected economic performance since the vote has removed the need for the BoE to act again.
8.21am GMT
08:21
Economists: BoE to forecast inflation overshoot
Samuel Tombs of Pantheon Macroeconomics believes the Bank of England will predict that inflation will rise to 2.2% in 2017, up from the 1.9% it forecast in August.
That’s more than double September’s reading of 1.0%.
For 2018, he thinks the BoE will forecast inflation of 2.6%, up from 2.3% three months ago, and some way above its 2% target.
It’s unusual for the Bank to predict that it will miss its own inflation target; it usually calculates that it will have adjusted monetary policy to get CPI in line (it doesn’t always achieve this, of course).
Tombs says:
“The [Bank’s] forecast for CPI inflation in two years’ time will be the highest since it began forecasting the CPI 12 years ago”.
Labour MP Angela Eagle fears that living standards are about to be squeezed.
Big squeeze on living standards in the pipeline: Bank of England to highlight looming Brexit inflation hit for UK https://t.co/LVoi7kRN8G
8.06am GMT
08:06
Sterling is rising in early trading, as investors await news from the Bank of England at noon.
It’s up 0.3% at $1.2345, on track for its fifth ‘up day’ in a row.
Pound Gains Before Brexit Court Ruling, BOE Policy Announcement https://t.co/0McDjVZrbW via @aragaomarianna pic.twitter.com/K1IWkStls0
8.04am GMT
08:04
A few months back, many City economists were predicting the Bank would cut interest rates to a fresh record low today.
But, with the economy performing better than feared since June – and signs that the weak pound is pushing up inflation – almost everyone expects the BoE to leave borrowing costs at 0.25%.
Kathleen Brooks of City Index explains:
Only 2 out of 58 economists polled by Bloomberg expect the BOE to cut interest rates at this meeting.
The market is currently pricing in a mere 5% chance of a rate cut on Thursday, back in September there was a 25% chance of a cut. As UK inflation and growth have both beat forecasts in recent weeks, UK interest rate expectations have drifted higher.
7.42am GMT
07:42
The agenda: Bank of England Super Thursday
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It’s Super Thursday - the time each quarter when the Bank of England sets interest rates, issues its new assessment of the UK economy, and submits its governor for a grilling from the UK economics press.
And Mark Carney may have a lot of explaining to do.
That’s partly because the Bank is expected to revise up its short-term growth forecasts; an admission it was too gloomy about the impact of the Brexit vote. Back in August, the BoE said growth would slow sharply to just 0.1% in July-September; actually, it was a robust 0.5%.
Carney could say the stimulus measures taken by the Bank are having an effect, but critics will continue to argue that he were too gloomy about Brexit.
Some economists expect the BoE to lower its medium-term growth forecasts, as it tries to assess the impact of Britain leaving the EU. That’s a tricky calculation, as we don’t know what kind of deal the UK will end up with.
The Bank may also hike its inflation forecasts, as the slump in the pound since June continues to push up the cost of imports. That could show the Consumer Prices Index smashing through the official 2% target next year. If that happens, how long will the Bank be prepared to ignore the rising cost of living?
And of course, Carney can expect several questions about his decision to extend his term by an extra 12 months, to summer 2019. Has the criticism from pro-Brexit MPs deterred him from staying until 2021? And has the Bank’s independence been undermined?
Ranjiv Mann, head of global sovereign research & Strategy at Rogge Global Partners, expects Carney to revise up his 2016 growth forecast, but still sound cautious.
He says:
The interest rate decision comes at noon, along with the quarterly inflation report
Mark Carney’s press conference begins at 12.30pm, and runs for an hour.
Also coming up today....
There will be high drama at 10am, when the UK high court rules on whether Theresa May can start the process of exiting the EU without a parliamentary vote.
Owen Bowcott, our legal affairs correspondent, sets the scene:
The lord chief justice is to deliver the high court’s momentous decision on whether parliament or the government has the constitutional power to trigger Brexit.
After less than three weeks considering the politically charged case with two other senior judges, Lord Thomas of Cwmgiedd will read out a summary of their decision at 10am on Thursday to a packed courtroom in London’s Royal Courts of Justice.
In order to prevent leaks of the market-sensitive ruling, which involves a large number of parties, preliminary drafts of the judgment have unusually not been sent out in advance to the lawyers.
The outcome of the case, which ventures into constitutionally untested ground, will resolve whether MPs or ministers have the authority to formally inform Brussels about whether the UK intends to leave the European Union.
On the corporate front, supermarket Morrisons, insurance chain RSA gold miner Randgold and food group Tate & Lyle are all reporting to the City.
At 9.30am, we find out how fast Britain’s services sector grew last month.
And there’s a flurry of US economic data this afternoon, including a healthcheck on the Service sector for October, and factory orders for September.
Updated
at 8.44am GMT