Hello and welcome to our continued coverage of the global economy, financial markets, euro area and business.
Will the Bank of England raise interest rates today for the first time since the pandemic? And should they?
This month’s monetary policy decision is on a razor’s edge as policymakers debate whether to raise borrowing costs now in an effort to curb inflation.
With inflation expected to soon exceed 4% (double the Bank’s target), many city economists predict that the Monetary Policy Committee will increase the bank rate today to 0.25%, up from the current record low of 0.1%.
But others argue that the MPC will wait until the December meeting. By then, they will have data showing whether the end of the job protection scheme on leave this fall has started to drive unemployment up.
A rate hike could ease inflationary pressures, by raising the cost of borrowing on credit, and also increase mortgage costs for those without fixed rate agreements, at a time when rising energy costs already weighs on households.
It could also weaken the economic recovery, at a time when supply chain problems are already weighing on growth.
As Laith Khalaf, responsible for investment analysis at AJ Bell, Put the:
The Bank may well decide that pouring more cold water on the situation at this point could lead to an economic freeze.
We know MPC members are divided on the issue. The Falcon Michal saunders households had to prepare for interest rate hikes “considerably earlier” last month.
Governor Andrew Bailey rekindled speculation about an interest rate hike in October, saying the Bank of England “will have to act” if it sees a risk to medium-term inflation and medium-term inflation expectations.
Corn Silvana tenreyro recently argued that the Bank should wait because some of the factors that drive inflation up, such as commodity shortages and soaring gas prices, are temporary – so a rate hike could be “destructive.” Catherine mann, who recently joined the committee, also argues that the bank could wait.
An estimate from Refinitiv based on interest rate futures suggests that a rate hike today is around 63%, so could be a hectic morning in the city.
Matthew Ryan, senior market analyst at Ebury, predicts that borrowing costs will rise.
“We still believe the hawks will win the day and impose a 15 basis point rate hike to 0.25% this week, although we have a little less conviction in this regard than about a week ago.
We would then expect an additional 25 basis point movement to follow in February, depending on the tone of the bank’s communications on Thursday afternoon. “
Corn Thomas Pugh, economist for RSM UK, predicts that the bank will barely resist a rate hike …
“The markets have started to anticipate the onset of the long term to return to a semblance of normalcy in interest rates. The futures market anticipates a 63% chance of a Bank of England (BoE) rate hike at Thursday’s Monetary Policy Committee (MPC) meeting and a total of four hikes over the next 12 month.
“But at 63% chance, it’s still a close call. We expect the vote to be 5 to 4 in favor of keeping interest rates at 0.1%. This could involve a half-empty / half-full glass policy of keeping the BoE rate near zero for another MPC meeting, or two, with forward-looking indications preparing markets for a rate hike in December or in early 2022.
The Bank will also release its latest economic forecast at noon today.
Last night, the US central bank began cutting its stimulus package, cutting its purchases of $ 120 / month bonds by $ 15 billion per month.
But the Federal Reserve also insisted it was too early to start raising interest rates.
Chair Jerome Powell predicting that inflationary pressures will ease and that employment and economic growth will strengthen in the coming months.
He said last night:
We believe we can be patient. If an answer is required, we will not hesitate.
“We don’t think this is the right time to raise interest rates because we want to see the labor market recover more.
This cautious mood lifted Wall Street to record highs last night, and we expect European markets to hit new highs today.
The Opec + group holds its monthly meeting to set oil production. They currently add 400,000 barrels per day each month and are under increasing pressure from countries, including the United States, to increase production to alleviate the global energy crisis.
Ipek Ozkardeskaya, senior analyst at Swissquote, says:
The Saudis are unlikely to give in to this pressure in my opinion, but there is still hope that they will increase the supply by a little more than the actual 400,000 bpd, to win. a little more money and help us spend a better winter, without of course letting the prices go down much.
- 7 a.m. GMT: German factory orders for September
- 9am GMT: UK car sales figures for October
- 9:30 am GMT: UK construction PMI for October
- Noon GMT: Bank of England decision on interest rates and release of monetary policy report
- 12:30 GMT: Bank of England press conference