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| Bank warned not to raise interest rates amid squeeze on households | Bank warned not to raise interest rates amid squeeze on households |
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| The Bank of England has been warned against raising interest rates from as early as November, as a monthly Guardian analysis of the economy indicates pressure growing on households in the aftermath of the Brexit vote. | The Bank of England has been warned against raising interest rates from as early as November, as a monthly Guardian analysis of the economy indicates pressure growing on households in the aftermath of the Brexit vote. |
| One year since Threadneedle Street’s emergency rate cut to 0.25% from 0.5% to avert a post-Brexit vote recession, the Guardian’s tracker of economic news paints a tougher picture for consumers. As the Bank prepares to reverse the cut with the first rate hike in a decade, senior economists have warned against raising the cost of borrowing for consumers pinched by low wage growth. | One year since Threadneedle Street’s emergency rate cut to 0.25% from 0.5% to avert a post-Brexit vote recession, the Guardian’s tracker of economic news paints a tougher picture for consumers. As the Bank prepares to reverse the cut with the first rate hike in a decade, senior economists have warned against raising the cost of borrowing for consumers pinched by low wage growth. |
| Writing in the Guardian, David Blanchflower, a former member of the Bank’s rate-setting monetary policy committee, said there was “absolutely no basis” for an increase in borrowing costs given weak readings on the economy. “The enhanced uncertainty over the form Brexit will take will constrain growth even further. Cut the stupid stuff. Britain is the sick man of Europe,” he said. | Writing in the Guardian, David Blanchflower, a former member of the Bank’s rate-setting monetary policy committee, said there was “absolutely no basis” for an increase in borrowing costs given weak readings on the economy. “The enhanced uncertainty over the form Brexit will take will constrain growth even further. Cut the stupid stuff. Britain is the sick man of Europe,” he said. |
| Although the economy has so far avoided the downturn predicted by remain campaigners at the time of the referendum, households are coming under pressure from rising inflation due to the weak pound, while wages are failing to rise as fast. This is despite the economy posting its lowest levels of unemployment since the mid-1970s. | Although the economy has so far avoided the downturn predicted by remain campaigners at the time of the referendum, households are coming under pressure from rising inflation due to the weak pound, while wages are failing to rise as fast. This is despite the economy posting its lowest levels of unemployment since the mid-1970s. |
| Set against a backdrop of disappointing economic news, the sharp language used by the Bank this month to signal a potential hike in the “coming months” is surprising, according to analysts at the investment bank Goldman Sachs. “Our measure of macro data ... shows a well-below-average flow of positive macro news over this period relative to the post-Brexit referendum period as a whole,” they said. | Set against a backdrop of disappointing economic news, the sharp language used by the Bank this month to signal a potential hike in the “coming months” is surprising, according to analysts at the investment bank Goldman Sachs. “Our measure of macro data ... shows a well-below-average flow of positive macro news over this period relative to the post-Brexit referendum period as a whole,” they said. |
| According to economists at the banking group Credit Suisse: “Such a hike against the backdrop of weak growth, high-currency-generated inflation but weak wage pressures and uncertainty is likely to be a policy mistake.” | According to economists at the banking group Credit Suisse: “Such a hike against the backdrop of weak growth, high-currency-generated inflation but weak wage pressures and uncertainty is likely to be a policy mistake.” |
| France, Italy and Germany are expected to grow faster than Britain as uncertainty from Brexit continues to hit consumer confidence and deters business investment, according to the Organisation for Economic Co-operation and Development. The group of wealthy nations forecasts the UK’s GDP growth will drop from 1.6% this year to 1% next year. | France, Italy and Germany are expected to grow faster than Britain as uncertainty from Brexit continues to hit consumer confidence and deters business investment, according to the Organisation for Economic Co-operation and Development. The group of wealthy nations forecasts the UK’s GDP growth will drop from 1.6% this year to 1% next year. |
| Blanchflower said growth was unlikely to pick up any time soon. “The UK was the slowest-growing economy in the EU28 in the first quarter of 2017 and joint last in the second quarter. Pathetic growth of 0.5% for the first half of the year wins the UK the wooden spoon,” he said. | |
| To gauge the impact of the Brexit vote on a monthly basis, the Guardian has chosen eight economic indicators, along with the value of the pound and the performance of the FTSE 100. Economists made forecasts for seven of those barometers ahead of their release, and in five cases the outcome beat expectations. | To gauge the impact of the Brexit vote on a monthly basis, the Guardian has chosen eight economic indicators, along with the value of the pound and the performance of the FTSE 100. Economists made forecasts for seven of those barometers ahead of their release, and in five cases the outcome beat expectations. |
| The latest dashboard shows some bright spots, as consumer spending remains robust despite rising prices, and as manufacturers report increased export demand helped by the weak pound, giving the Bank ammunition for raising the cost of borrowing. | The latest dashboard shows some bright spots, as consumer spending remains robust despite rising prices, and as manufacturers report increased export demand helped by the weak pound, giving the Bank ammunition for raising the cost of borrowing. |
| However, another former MPC member, Andrew Sentance, backed an interest rate rise. Writing in the Guardian, he said there had been news of a “more positive flavour” over the past month that should encourage the Bank to raise interest rates. | However, another former MPC member, Andrew Sentance, backed an interest rate rise. Writing in the Guardian, he said there had been news of a “more positive flavour” over the past month that should encourage the Bank to raise interest rates. |
| He said: “[A rate hike] should be seen as a positive development, reflecting the resilience of the economy. A quarter-point rise in the Bank rate would only take it back to the 0.5% level which was set from 2009 to 2016 – and is most unlikely to derail the economic recovery.” | He said: “[A rate hike] should be seen as a positive development, reflecting the resilience of the economy. A quarter-point rise in the Bank rate would only take it back to the 0.5% level which was set from 2009 to 2016 – and is most unlikely to derail the economic recovery.” |
| The deficit – the difference between state expenditure and income – came in better than expected last month at £5.56bn, as Britain recorded its smallest budgeting gap for any August since the financial crisis. The boost to the public finances will strengthen the case for raising public sector pay, as it helps the chancellor, Philip Hammond, find wiggle room ahead of his November budget. | |
| The pound recovered to its highest level since the day after the Brexit vote, buoyed by Threadneedle Street’s preparations to raise the cost of borrowing. With sterling still more than 9% lower than before the referendum, manufacturers are reporting increased export demand as their products become more competitive for foreign buyers. | The pound recovered to its highest level since the day after the Brexit vote, buoyed by Threadneedle Street’s preparations to raise the cost of borrowing. With sterling still more than 9% lower than before the referendum, manufacturers are reporting increased export demand as their products become more competitive for foreign buyers. |
| But the same weakness in sterling has pushed up the cost of imports. The consumer price index (CPI) rose to 2.9% in August, from 2.6% in July, while the MPC expects it to peak above 3% in October. That would force Mark Carney, the Bank’s governor, to write a letter to the chancellor to explain his failure to target CPI at 2%. | But the same weakness in sterling has pushed up the cost of imports. The consumer price index (CPI) rose to 2.9% in August, from 2.6% in July, while the MPC expects it to peak above 3% in October. That would force Mark Carney, the Bank’s governor, to write a letter to the chancellor to explain his failure to target CPI at 2%. |
| Despite prices rising in non-food stores and online at the strongest annual growth rate since 1992, consumers continued shopping in August. Growth in retail sales volumes rose by 1% in August, beating analysts’ expectations for a 0.2% rise. | Despite prices rising in non-food stores and online at the strongest annual growth rate since 1992, consumers continued shopping in August. Growth in retail sales volumes rose by 1% in August, beating analysts’ expectations for a 0.2% rise. |
| While retail sales growth still remains lower on an annual basis than in recent years, Sentance said this was “consistent with an economic growth slowdown, rather than something worse”. | While retail sales growth still remains lower on an annual basis than in recent years, Sentance said this was “consistent with an economic growth slowdown, rather than something worse”. |
| Key barometers of sentiment among companies about business activity were disappointing in August, barring the manufacturing sector, which stands to benefit from the drop in the value of the pound. The UK’s biggest sector, services, missed expectations amid uncertainty over the Brexit talks, while construction also missed expectations. | Key barometers of sentiment among companies about business activity were disappointing in August, barring the manufacturing sector, which stands to benefit from the drop in the value of the pound. The UK’s biggest sector, services, missed expectations amid uncertainty over the Brexit talks, while construction also missed expectations. |
| Without a turnaround over the coming months, analysts said the UK could record another quarter of 0.3% GDP growth, while the annual figure could also struggle to get above 1%. | Without a turnaround over the coming months, analysts said the UK could record another quarter of 0.3% GDP growth, while the annual figure could also struggle to get above 1%. |
| In a positive signal that the UK is still able to fill jobs despite fears over Brexit, the jobless rate fell to 4.3% from 4.4%, the lowest figure for 42 years. However, wage growth remains stubbornly below inflation, with average earnings increasing by 2.1% in the three months to July. The Office for National Statistics estimates that workers are suffering a 0.4% real-terms fall in the value of their pay packets. | In a positive signal that the UK is still able to fill jobs despite fears over Brexit, the jobless rate fell to 4.3% from 4.4%, the lowest figure for 42 years. However, wage growth remains stubbornly below inflation, with average earnings increasing by 2.1% in the three months to July. The Office for National Statistics estimates that workers are suffering a 0.4% real-terms fall in the value of their pay packets. |