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Bank of England leaves interest rates unchanged and raises growth and inflation forecasts – business live
Bank of England leaves interest rates unchanged and raises growth and inflation forecasts – business live
(35 minutes later)
12.17pm GMT
12.53pm GMT
12:17
12:53
BoE: UK is doing better than we expected
Q: UK bond yields are up sharply since your stimulus package in August, so has it failed - and has monetary policy shot its bolt?
The Bank of England admits that the UK economy has outperformed its expectations in the three months since it slashed rates.
No, Carney replies. He argues that the Bank could still buy more British gilts if needed.
It says:
12.51pm GMT
In the three months since then, indicators of activity and business sentiment have recovered from their lows immediately following the referendum and the preliminary estimate of GDP growth in Q3 was above expectations [reminder: it was 0.5%, not 0.1%].
12:51
These data suggest that the near-term outlook for activity is stronger than expected three months ago. Household spending appears to have grown at a somewhat faster pace than projected in August, and the housing market has been more resilient than expected. By contrast, investment intentions have continued to soften and the commercial property market has been subdued.
Carney denies that the Bank has got ahead of itself and been “presumptuous” by trying to predict the kind of Brexit deal that Britain will end up with.
That’s a victory for Brexit campaigners who claimed the BoE was too gloomy about Brexit, argues The Sun’s Steve Hawkes.
Carney on what kind of Brexit UK will get: negotiations not begun and "it's all to play for"
Bank of England ups growth forecasts for 2016 and 2017 Jacob Rees Mogg 1 Mark Carney 0
@bankofengland Carney says made no change to hard/soft Brexit assumptions but hit to supply comes through harder later.
12.12pm GMT
12:12
This chart shows how the Bank has hiked its inflation forecast, and is also more optimistic about growth next year:
BoE sees scope for inflation to overshoot up to around 5% next year, while uncertainty around future GDP growth has increased markedly. pic.twitter.com/Fru9DRlUlW
(these fan charts show the relative likelihood of various eventualities, with darker areas showing what’s most likely)
12.09pm GMT
12:09
Bank sees inflation spiking
OUCH! The Bank of England sees inflation spiking sharply over the next couple of years.
It now believes inflation will hit 2.7% in a years time (that’s up from 2.0% back at the August report)
And the consumer prices index is expected to peak at 2.83% in the second quarter of 2018.
12.07pm GMT
12:07
Bank raises growth forecasts
The Bank of England has also hiked its growth forecasts for this year, and next year.
It now says the UK economy will grow by 2.2% in 2016, up from 2% previously.
And for 2017, it now sees growth of 1.4% -- sharply higher than the 0.8% it initially expected.
It’s not all good news, though. It has cut its 2018 growth forecast to 1.5%, from 1.8%.
12.03pm GMT
12:03
MPC holds #BankRate at 0.25%, maintains government bond purchases at £435bn and corporate bond purchases at £10bn #SuperThursday pic.twitter.com/dzj4x197M2
12.00pm GMT
12:00
BANK OF ENGLAND DECISION
Breaking! The Bank of England has voted to leave interest rates on hold, at the current record low of 0.25%.
The MPC has also left its quantitative easing programme unchanged, at £425bn.
Both decisions was unanimous, with the committee voting 9-0.
Updated
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at 12.02pm GMT
at 12.53pm GMT
11.58am GMT
12.50pm GMT
11:58
12:50
Positive Money’s Fran Boait wrote about the idea of ‘People’s QE’ for the Guardian last month.
Q: The bank has cut its growth forecasts for 2018, so is the pain of Brexit simply being delayed?
Here’s a flavour:
Carney replies that the Bank sees “very modest real income growth” in 2017 and 2018, as inflation eats into wages.
An idea that is gaining traction is that monetary and fiscal policy could work together to deliver “monetary financing”. Under this proposal, new money would be created by the Bank as with QE, but instead would be spent into the economy by the government to boost investment, employment and incomes. It’s an idea known as people’s QE.
12.45pm GMT
This might sound radical, but currently, it’s considered good if banks create money, regardless of whether they use it to lend to businesses or to blow up property bubbles. However, it’s considered taboo if the central bank creates money to finance government spending for the real economy. It’s time to break that taboo.
12:45
11.42am GMT
Carney: Article 50 ruling adds to uncertainty
11:42
Onto questions....
My colleague Katie Allen has captured some photos of the Positive Money protest against the Bank of England’s stimulus programme this morning:
Q: Does this morning’s court Article 50 court ruling [saying parliament must vote on the issue] add to the uncertainly overshadowing the UK economy?
As explained earlier, Positive Money want to stop the Bank of England’s quantitative easing scheme, which is now creating £425bn of new money.
It is an example of the uncertainty that will characterise this process, Carney replies.
Instead, it wants the government to control the money-creation process.
The negotiations haven’t even begun. There will be volatility as those negotiations proceed. I see it as one of the examples of that uncertainty.
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
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11.32am GMT
12.43pm GMT
11:32
12:43
Bank of England: A preamble
Some instant reaction:
Just 30 minutes to go until the Bank of England announces its decision on interest rates, and unveils its new economic forecasts.
Bank of England governor Carney presenting latest forecasts: UK is highly flexible, dynamic economy
Here’s what to watch for:
Carney #BoE in short - don't expect rates to change much chaps - so more of the same - not apt to alter policy much.
And then the City will hang on governor Mark Carney’s every word at the press conference, from 12.30pm.
Shorter Carney - we were too pessimistic about the economy.
Dean Turner, economist at UBS Wealth Management, says:
12.42pm GMT
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.
12:42
We expect the BoE to leave policy unchanged at the midday announcement.”
In conclusion, Carney says that Britain has a dynamic, flexible economy, and that will help it handle the Brexit process.
11.21am GMT
12.42pm GMT
11:21
12:42
City traders believe that the High Court ruling on article 50 will trigger even more wild drama in the currency markets.
Carney says that the Bank of England can look through the prospect of inflation jumping over its target, for the wider good of the economy.
Mihir Kapadia, CEO and Founder of Sun Global Investments, predicts that the pound will be volatile.
Shorter Carney: You want higher prices or fewer jobs?
“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.
But it cannot ignore inflation indefinitely.
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.”
12.39pm GMT
11.16am GMT
12:39
11:16
The fall in sterling appears to reflect market expectations that Britain will have a ‘less open’ trading relationship with Europe, Carney continues.
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.
The governor warns that the slump in the pound will have more significant implications for inflation than for growth [in other words, it’s a net negative].
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:
The fall in sterling will have more significant implications for inflation than str growth for the rest of 2016- #BOE's Carney
At these low levels, the pound appears to be priced for a ‘hard Brexit’
And Carney then warns that people are going to be hit in the pocket, saying:
Mike Bird of the Wall Street Journal tweets:
Modest supply growth ultimately means lower real income growth.
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.
12.36pm GMT
10.52am GMT
12:36
10:52
12.36pm GMT
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.
12:36
How can its finest minds predict UK growth and inflation in such an uncertain climate?
The stimulus package announced by the Bank of England in August is working, Carney declared.
Given the political atmosphere, Carney may as well use a tombola for his predictions at the QIR
He says credit is widely available, mortgage borrowing costs are lower, and unemployment is still low.
(reminder, the Bank releases the quarterly inflation report at noon)
But... financial markets have taken a ‘less sanguine’ view of Brexit, he adds, pointing to the slump in the pound (down around a sixth since the referendum), and rising UK bond yields (a measure of government borrowing costs.
Updated
12.33pm GMT
at 10.53am GMT
12:33
10.51am GMT
Mark Carney's press conference begins
10:51
Mark Carney begins by telling reporters that the terms of Britain’s exit from the EU is the most important single factor affecting the UK economy.
Neil Wilson of ETX Capital explains why sterling has spiked this morning - and why the City is struggling to decide what happens next:
That UK’s new relationship with the EU will be the “biggest driver” of medium-term prosperity, he adds.
“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.
And he points out that economic demand has been stronger than expected in August.
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.
12.31pm GMT
In a year of political surprises, who would bet against another one? A massive grass-roots Remain campaign could tilt the balance.
12:31
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 Bank of England is holding a press conference right now.
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.”
You can watch it here.
And here’s our diplomatic editor:
12.30pm GMT
If courts and this parliament does not give executive the right to start Brexit talks, executive will seek a new parliament in an election.
12:30
Updated
Pound heads towards $1.25
at 10.51am GMT
Sterling has hit a new three-week high, and is now up almost two cents at $1.249.
10.39am GMT
Traders are calculating that there is less chance of the BoE cutting interest rates further.
10:39
Indeed, the Bank of England now points out that it could raise rates, not cut them, in future:
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)
It says:
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.
Monetary policy can respond, in either direction, to changes to the economic outlook as they unfold to ensure a sustainable return of inflation to the 2% target.
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:
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 GMT
10:14
Government loses case over Article 50
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.
Government 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.
10.02am GMT
10:02
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:
“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.
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.
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.
Updated
at 10.03am GMT
9.59am GMT
09:59
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.
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/nZYm6SHQxC