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| Bank of England leaves interest rates on hold but hints rise is coming - business live | Bank of England leaves interest rates on hold but hints rise is coming - business live |
| (35 minutes later) | |
| Economist James Smith of Dutch bank ING says the Bank of England could potentially raise interest rates twice this year - perhaps once in May, and once in the autumn. | |
| But that could be undone if Brexit negotiations hit problems, Smith adds: | |
| By alluding to the need for “ongoing tightening”, policymakers have kept the door open to a second rate hike later this year. We certainly wouldn’t rule it out, and markets are increasingly coming around to this view – there’s now not far off two hikes priced in for this year. | |
| But if Brexit talks – which are due to be wrapped up in October to allow time for ratification – get particularly noisy, then this could get in the way of a second rate rise in the autumn. | |
| We're not going to rule out a second rate hike in 2018 says ING's @smitheconomics and other key takeaways from the Bank of England meeting.https://t.co/rVwZOjSbMM | |
| The City was surprised that two MPC policymakers wanted to raise interest rates today, says Ben Brettell, senior economist at Hargreaves Lansdown. | |
| He suspects that Brexit angst is helping to split the monetary policy committee: | |
| Ian McCafferty and Michael Saunders are worried that inaction now will mean rates will need to rise faster and further in future. Sterling jumped on the news, hitting a seven-week high against the dollar. | |
| The Bank faces a delicate balancing act. Inflation seems to be falling back towards the target of 2%, as the effect of the weaker pound starts to filter out of the calculation. But a pick-up in wage growth points to an erosion of slack in the labour market. This raises the prospect that a wage-price spiral could push inflation back up in future. Throw in a hefty dose of Brexit-related uncertainty and it’s easy to see why the committee is divided at present. | |
| The Institute of Director’s senior economist, Tej Parikh, reckons the Bank made the right decision this month. | The Institute of Director’s senior economist, Tej Parikh, reckons the Bank made the right decision this month. |
| “Business leaders will welcome the Bank of England’s decision not to spring any surprises this month, but firms and households will be on tenterhooks for what comes in May. | “Business leaders will welcome the Bank of England’s decision not to spring any surprises this month, but firms and households will be on tenterhooks for what comes in May. |
| “The Bank has been paving the way for a rate rise, but must tread lightly until there is richer evidence of growing inflationary pressures, to avoid unnecessarily placing a speed bump in the way of economic activity. | “The Bank has been paving the way for a rate rise, but must tread lightly until there is richer evidence of growing inflationary pressures, to avoid unnecessarily placing a speed bump in the way of economic activity. |
| UK savers and borrowers should prepare for interest rates to rise in May, warns Ed Monk, associate director for Personal Investing at Fidelity International: | UK savers and borrowers should prepare for interest rates to rise in May, warns Ed Monk, associate director for Personal Investing at Fidelity International: |
| Monk says the recent pick-up in UK wage growth (to 2.8%, if you include bonuses) means the Bank is worried that the economy could overheat. | Monk says the recent pick-up in UK wage growth (to 2.8%, if you include bonuses) means the Bank is worried that the economy could overheat. |
| “The message from the Bank of England to borrowers couldn’t really be clearer: get ready for higher rates now. Two members voted for a rate rise this month and the Bank said nothing to dispel expectations that rates will rise in May. | “The message from the Bank of England to borrowers couldn’t really be clearer: get ready for higher rates now. Two members voted for a rate rise this month and the Bank said nothing to dispel expectations that rates will rise in May. |
| “The rate rise made in November felt like a straightforward reversal of the emergency post-Brexit cut, but this now feels more like we’re entering a genuine tightening phase at the Bank. | “The rate rise made in November felt like a straightforward reversal of the emergency post-Brexit cut, but this now feels more like we’re entering a genuine tightening phase at the Bank. |
| The minutes of this week’s meeting show that the Bank of England expects to raise interest rates over the coming months, having left them at 0.5% today. | The minutes of this week’s meeting show that the Bank of England expects to raise interest rates over the coming months, having left them at 0.5% today. |
| It says: | It says: |
| Given the prospect of excess demand over the forecast period, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a more conventional horizon. | Given the prospect of excess demand over the forecast period, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a more conventional horizon. |
| All members agreed that any future increases in Bank Rate were likely to be at a gradual pace and to a limited extent. | All members agreed that any future increases in Bank Rate were likely to be at a gradual pace and to a limited extent. |
| However, there was a split among the Monetary Policy Committee over when to take the plunge and hike borrowing costs. | However, there was a split among the Monetary Policy Committee over when to take the plunge and hike borrowing costs. |
| Ian McCafferty and Michael Saunders pushed for a rise today, arguing hawkishly that it would be reckless to wait: | Ian McCafferty and Michael Saunders pushed for a rise today, arguing hawkishly that it would be reckless to wait: |
| The minutes say: | The minutes say: |
| These members noted the widespread evidence that slack was largely used up and that pay growth was picking up, presenting upside risks to inflation in the medium term. A modest tightening of monetary policy at this meeting could mitigate the risks from a more sustained period of above-target inflation that might ultimately necessitate a more abrupt change in policy and hence a greater adjustment in growth and employment. | These members noted the widespread evidence that slack was largely used up and that pay growth was picking up, presenting upside risks to inflation in the medium term. A modest tightening of monetary policy at this meeting could mitigate the risks from a more sustained period of above-target inflation that might ultimately necessitate a more abrupt change in policy and hence a greater adjustment in growth and employment. |
| But governor Mark Carney, deputies Ben Broadbent, Dave Ramsden and Jon Cunliffe, chief economist Andy Haldane, and external members Silvana Tenreyro and Gertjan Vlieghe weren’t convinced. | But governor Mark Carney, deputies Ben Broadbent, Dave Ramsden and Jon Cunliffe, chief economist Andy Haldane, and external members Silvana Tenreyro and Gertjan Vlieghe weren’t convinced. |
| They argued that it would be better to wait until they have new economic forecasts in May. | They argued that it would be better to wait until they have new economic forecasts in May. |
| There had been few surprises in recent economic data and the February Inflation Report projections, conditioned on a gently rising path of Bank Rate, had appeared broadly on track. The May forecast round would enable the Committee to undertake a fuller assessment of the underlying momentum in the economy, the degree of slack remaining and the extent of domestic inflationary pressures. | There had been few surprises in recent economic data and the February Inflation Report projections, conditioned on a gently rising path of Bank Rate, had appeared broadly on track. The May forecast round would enable the Committee to undertake a fuller assessment of the underlying momentum in the economy, the degree of slack remaining and the extent of domestic inflationary pressures. |
| GBP Intraday (Following BOE Decision): 7-2 in favor of no change, 2 wanted a hike pic.twitter.com/nRcXgtNfI4 | GBP Intraday (Following BOE Decision): 7-2 in favor of no change, 2 wanted a hike pic.twitter.com/nRcXgtNfI4 |
| The pound has jumped, following the news that two policymakers - Ian McCafferty and Michael Saunders - voted to raise UK interest rates today. | The pound has jumped, following the news that two policymakers - Ian McCafferty and Michael Saunders - voted to raise UK interest rates today. |
| Sterling has hit €1.151 against the euro, the highest level since June 2017. | |
| It’s also up against the US dollar at $1.420, a new seven-week high. | It’s also up against the US dollar at $1.420, a new seven-week high. |
| That means traders are anticipating that the next rate hike will come soon - quite possibly at May’s meeting. | That means traders are anticipating that the next rate hike will come soon - quite possibly at May’s meeting. |
| NEWSFLASH: The Bank of England has left UK interest rates unchanged at 0.5%. | NEWSFLASH: The Bank of England has left UK interest rates unchanged at 0.5%. |
| Two members of the MPC voted to hike rates, but were outvoted by the other seven policymakers. | Two members of the MPC voted to hike rates, but were outvoted by the other seven policymakers. |
| More to follow.... | More to follow.... |
| Five minutes to go, until we learn whether the Bank of England has voted to leave rates on hold.... | Five minutes to go, until we learn whether the Bank of England has voted to leave rates on hold.... |
| Britain’s FTSE 100 shares index has fallen below the 7,000 point mark for the first time in 15 months. | Britain’s FTSE 100 shares index has fallen below the 7,000 point mark for the first time in 15 months. |
| Worries over trade wars, plus the strength of the pound, have combined to pull the index of blue-chip companies down to 6,983, a drop of 55 points. | Worries over trade wars, plus the strength of the pound, have combined to pull the index of blue-chip companies down to 6,983, a drop of 55 points. |
| The team at Deutsche Bank believe the Bank of England will raise rates in two months time... | The team at Deutsche Bank believe the Bank of England will raise rates in two months time... |
| Deutsche Bank 1/2: @bankofengland decision due out at 12pm GMT today. The consensus is for no change in policy while market pricing also assigns a low 16% probability of a hike. #forex #fx #BoE #forextrading #centralbanks | Deutsche Bank 1/2: @bankofengland decision due out at 12pm GMT today. The consensus is for no change in policy while market pricing also assigns a low 16% probability of a hike. #forex #fx #BoE #forextrading #centralbanks |
| DB 2/2: bigger question is whether or not we see a more hawkish #BoE centre in light of yesterday’s stronger than expected wages numbers. Indeed, pricing for a May hike is over 80% & our #UK economists yesterday changed their view to a rate hike (from a hold) for 2 months’ time | DB 2/2: bigger question is whether or not we see a more hawkish #BoE centre in light of yesterday’s stronger than expected wages numbers. Indeed, pricing for a May hike is over 80% & our #UK economists yesterday changed their view to a rate hike (from a hold) for 2 months’ time |
| Here’s an explanation of how the Bank of England sets interest rates: | Here’s an explanation of how the Bank of England sets interest rates: |
| One of Gordon Brown’s first moves as chancellor in 1997 was to hand control of interest rates to an independent Bank of England. Previously the cost of borrowing had been decided between the chancellor and the governor of the Bank. | One of Gordon Brown’s first moves as chancellor in 1997 was to hand control of interest rates to an independent Bank of England. Previously the cost of borrowing had been decided between the chancellor and the governor of the Bank. |
| Rates are set by the Bank’s monetary policy committee (MPC), which consists of nine members – the Bank of England governor, the three deputy governors for monetary policy, financial stability and markets and banking, the chief economist and four external members appointed directly by the chancellor. | Rates are set by the Bank’s monetary policy committee (MPC), which consists of nine members – the Bank of England governor, the three deputy governors for monetary policy, financial stability and markets and banking, the chief economist and four external members appointed directly by the chancellor. |
| The four external members are appointed to bring thinking and expertise from outside the Bank to the meetings. A Treasury representative also attends the meetings and can discuss policy issues but is not allowed to vote. | The four external members are appointed to bring thinking and expertise from outside the Bank to the meetings. A Treasury representative also attends the meetings and can discuss policy issues but is not allowed to vote. |
| The committee meets monthly to discuss whether to cut, raise or leave interest rates unchanged, as well as other measures such as quantitative easing. The decisions are made after a vote by each committee member; in the event of a tie, the governor has the casting vote. | The committee meets monthly to discuss whether to cut, raise or leave interest rates unchanged, as well as other measures such as quantitative easing. The decisions are made after a vote by each committee member; in the event of a tie, the governor has the casting vote. |
| Minutes of the meetings are published after the rates decision has been announced. | Minutes of the meetings are published after the rates decision has been announced. |
| The pound is pushing higher as traders get ready for the Bank of England decision, in under 50 minutes. | The pound is pushing higher as traders get ready for the Bank of England decision, in under 50 minutes. |
| Sterling has risen to €1.1489 against the euro, its highest levels since January 25th. | Sterling has risen to €1.1489 against the euro, its highest levels since January 25th. |
| The City may be preparing for a hawkish announcement from the BoE, paving the way for a rate rise in May (a hike today would be a real shock...) | The City may be preparing for a hawkish announcement from the BoE, paving the way for a rate rise in May (a hike today would be a real shock...) |
| Another sterling morning for the Pound, BoE likely to take GBP/EUR through €1.15 pic.twitter.com/CjyBFgO2eg | Another sterling morning for the Pound, BoE likely to take GBP/EUR through €1.15 pic.twitter.com/CjyBFgO2eg |
| Craig Erlam of trading firm OANDA says: | Craig Erlam of trading firm OANDA says: |
| While a rate hike is not expected today, it is heavily priced in for May when the central bank will also release its inflation report containing new macro-economic projections. | While a rate hike is not expected today, it is heavily priced in for May when the central bank will also release its inflation report containing new macro-economic projections. |
| The Monetary Policy Committee has become notably more hawkish recently and the reference to rate hikes needing to come “somewhat earlier and by a somewhat greater extent” than it expected in November, last month was a clear reference to an upcoming meeting. If the MPC is still planning to raise in May, I would expect another clear hint from the central bank today. | The Monetary Policy Committee has become notably more hawkish recently and the reference to rate hikes needing to come “somewhat earlier and by a somewhat greater extent” than it expected in November, last month was a clear reference to an upcoming meeting. If the MPC is still planning to raise in May, I would expect another clear hint from the central bank today. |