Graeme Wearden 

Bank of England accused of over-reacting after raising interest rates to 5.25% – as it happened

Protests take place outside the Bank as it increases rates again, although inflation is expected to drop to 5% by end of the year
  
  

Positive Money campaigners staging a protest outside Bank of England against interest rate hikes today.
Positive Money campaigners staging a protest outside Bank of England against interest rate hikes today. Photograph: Tayfun Salcı/Zuma/Shutterstock

Full story: Sunak under pressure as Bank attaches tough message to rate rise

And finally, here’s our news story on today’s rise in UK interest rates, and the political implications:

Sunak under pressure as Bank attaches tough message to rate rise

Rishi Sunak is under mounting pressure from Conservative MPs to boost the UK’s struggling economy after the Bank of England signalled that there will be no respite from the high interest rates hitting households and businesses until well into next year.

Threadneedle Street prompted calls for tax cuts and a package of support for the housing market after it raised rates for a 14th time in a row, with the cumulative impact of dearer borrowing meaning a general election expected in late 2024 would take place against a backdrop of a barely growing economy.

The Bank announced a quarter-point increase in interest rates to 5.25% and gave a strong hint that further rises would be needed to combat inflation.

In a tough message that came as a further blow to households struggling with the highest interest rates in 15 years, the Bank said policy would need to remain “restrictive enough for long enough” to bring inflation – currently 7.9% – back sustainably to its 2% official target.

Financial markets are now assuming there will be at least one further quarter-point increase in interest rates in the coming months, and that the Bank will then leave them unchanged until late 2024 and bring them down slowly through 2025.

Sir John Redwood, a Conservative MP and former cabinet minister, argued that “targeted tax cuts would be extremely helpful” from the Treasury but said his main criticisms were directed at the Bank for lurching from low interest rates creating inflation to rates that “cause a housebuilding collapse and manufacturing recession”.

More here:

That’s all for today. Here’s our analysis of the increase in interest rates:

And here’s what it means for you:

Goodnight. GW

Afternoon summary

Time for a recap…

The Bank of England has been criticised after policymakers voted to raise UK interest rates to a new 15-year high of 5.25%.

The IPPR thinktank warned that the BoE was “overdoing it”, given the UK economy is weakening, the labour market is slowing down, and productivity is falling.

The IPPR said:

By raising interest rates to 5.25%, the Bank is tightening the screws too much and causing excessive harm for households and businesses. Interest rates might well be more than a percentage point too high now.

The IEA was also concerned, saying:

The UK economy is like a frog slowly being cooked by ever higher interest rates.

By raising the temperature further now, the Bank risks doing too much and, once again, only realising its mistake when it is too late.

And the TUC accused the government of hiding behind the Bank of England. The TUC fears that today’s rate rise will only heap more misery on households and businesses – and put many thousands more jobs and livelihoods at risk.

The Bank met City expectations today by lifting interest rates for the 14th time in a row. Its Monetary Policy Committee was split, though, with 6 members backing the 25bp rise, two voting for a larger, half-point hike, and one favouring no change.

The Bank warned that borrowing costs were likely to stay high for some time, saying:

The MPC will ensure that Bank Rate is sufficiently restrictive for sufficiently long to return inflation to the 2% target.

Interactive

Governor Andrew Bailey told a press conference it was “far too soon” to speculate about when the Bank might start to cut rates, and also gave little guidance about future rate increases.

Bailey predicted that inflation will fall to 7% later this month, in July’s CPI report, and then hit 5% in October’s data – which would meet Rishi Sunak’s goal of halving inflation this year.

Chancellor Jeremy Hunt said the government must not “veer around like a shopping trolley”, and should stick to its plan of fighting inflation.

Hunt said:

If we stick to the plan, the Bank forecasts inflation will be below 3% in a year’s time without the economy falling into a recession.

But there were protests outside the Bank of England ahead of the announcement, with campaign group Positive Money calling for a windfall tax on UK banks.

Hannah Dewhirst, head of campaigns at Positive Money, said:

We came out today to tell the Bank of England that we’ve had enough of senseless interest rate rises.

Rate rises are failing to bring down inflation fuelled by international fossil fuel prices and food prices disrupted by climate change. They will only continue to impoverish households and enrich banks.

What we need are better tools for dealing with inflation than blunt instruments like interest rates, and a windfall tax on bank profits to redress the harm done to workers and families by rate hikes.

Resolution Foundation warned that the Bank was predicting a rise in unemployment of about 350,000.

S&P Global Market Intelligence warned that high interest rates would push the UK into a shallow recession.

The financial markets lowered their forecasts for the peak in UK interest rate to below 5.75%.

Updated

Andrew Bailey has told CNBC that the Bank of England is cautious in its battle to tame stubbornly high inflation, as UK data continues to offer “unwelcome surprises.”

Here’s a video clip from this lunchtime’s press conference at the Bank of England, following its latest increase in interest rates:

BoE governor Andrew Bailey has defended the Bank against criticism that it has raised interest rates too high.

He’s been interviewed by ITV News, who ask if there is a risk that the Bank goes too far, as some former senior staff from the BoE fear.

Bailey replies that there are areas of the economy where the Bank has not yet seen evidence that inflation is reliably on the way down – such as in the services sector.

Bailey says:

I hope and believe we’ll get there pretty soon, because I do think we’re going to see quite a marked fall, but we haven’t got there yet.

Q: Andy Haldane, the Bank’s former chief economist, says raising rates runs the risk of propelling a brick towards the financially vulnerable – is that a risk you’re prepared to take?

Bailey says the Bank is “very cognisant” of the fact that some people are very seriously affected by rate increases.

But, he adds, UK banks are in a strong position to support their customers.

Bailey also takes a pop at some of the commentators on the sidelines – only a month or two ago, he says, some people were saying rates would have to hit 6% to cool inflation.

BNP Paribas’s Markets 360 team have cut their forecast for the peak in UK interest rates to 5.5%, from 5.75% previously.

But they also predict that rates may fall less slowly than previously expected:

The shift in emphasis from the level of restrictive rates to their duration suggests that the Bank of England’s Monetary Policy Committee is guiding towards the end of the tightening cycle.

As a result, we lower our terminal rate forecast from 5.75% to 5.50%, which we expect to be reached at the September meeting.

However, as the BoE has said it is taking a “different path” to achieve the same end result, implying that the risk is for later and/or shallower cuts than we currently expect.

Updated

Ed Conway of Sky News points out that the UK’s growth outlook is miserable.

That’s unlike the US where the economy has, excitingly, returned to its trend levels before the financial crisis 15 years ago:

Updated

Forecasts continue to pour in, with Rabobank predicting the BoE will raise interest rates one more time, in September, before pausing its hiking cycle.

RBC Capital Markets say there was “little in the way of explicit guidance” today from the Bank of England on the near-term path of Bank Rate.

But they suspect that the BoE is close to ending its cycle of interest rate rises which began back in December 2021 (when it raised Bank rate from 0.1% to 0.25%).

RBC Capital Markets says:

There was though a significant insertion into the policy summary and minutes of the sentence “Given the significant increase in Bank Rate since the start of this tightening cycle, the current monetary policy stance is restrictive”.

To our minds, that was a signal from the Committee that, even though they continue to be data led, they think they are close to the end of the current hiking cycle.

In the press conference Deputy Governor Ben Broadbent avoided giving a definitive level for where neutral or r* may be but did say that the MPC “think we are seeing evidence” that interest rates are “above that neutral level because we are seeing an impact on demand”.

Updated

HSBC UK and first direct have also announced plans to raise some savings rates from 10 August.

Among the increases, first direct’s Savings Account and HSBC UK’s Flexible Saver rates will both increase by 0.25 percentage points, from 1.75% to 2.00%. Both deals are instant access accounts.

Updated

NatWest Markets has cut its forecast for the peak in Bank of England interest rates to 5.5%, down from 6%, after the BoE’s announcement today.

NatWest Markets’ chief UK economist, Ross Walker, wrote in a note to clients:

We are revising our Bank Rate forecast and now look for just one more 25bp hike to 5.5% in September.

The apparent rowing-back in the MPC’s policy-tightening guidance leaves us comfortable maintaining our negative bias on sterling.

Updated

The Bank of England may not start to cut interest rates until the third quarter of next year, predicts Andrew Goodwin, UK chief economist at Oxford Economics:

We think the projection for pay growth looks a little too low. Our proprietary sentiment data developed in collaboration with Penta suggests the momentum behind pay growth is likely to remain stronger. Also, as we argued in a recent note, there’s good reason to think that second round effects will prove persistent. Inflation expectations may not fully decline in line with headline inflation because of the scarring effects on inflation psychology from recent high inflation rates. Moreover, even if inflation expectations fall, pay growth may stay above a target-consistent pace as workers seek to recoup lost real wages. Core inflation may also be slow to fall if firms seek to rebuild margins.

We think the scope for further upside surprises for pay growth means that one final 25bps hike in September is likely, taking Bank Rate to a peak of 5.5%. Financial markets temporarily repriced after the announcement, cutting their expectations for peak Bank Rate by around 15bps.

But the press conference encouraged them to reconsider and, at time of writing, markets fully price in two more 25bps hikes, as they had prior to the meeting.

The MPC also cut its forecast for GDP growth next year to 0.5%, bringing it close to our own projection. It also lowered its forecast for GDP growth in 2025 by 0.5ppts to just 0.25%. In our view, this looks exceptionally weak, but it reinforces the idea that the BoE views virtually any growth as being inflationary. Against this backdrop, we retain our call that the first UK rate cut will come in Q3 2024, several months later than the Fed and ECB.

Updated

Today’s increase in interest rates is likely to spark concerns for businesses across the UK who have already experienced a challenging few years, warn Dr Arun Singh, global chief economist at Dun & Bradstreet.

Our recent research shows that businesses are still dealing with weak consumer demand. This economic uncertainty calls for more resilience, and it’s important for businesses to have a detailed view of their ecosystem to help navigate the current environment.

Having access to data that provides more visibility of supply chains, financial pipeline and customer needs is critical for businesses to predict, prepare and secure their future success.

Updated

BoE governor Andrew Bailey was insistent at today’s press conference that the Bank of England was data-dependent – further interest rate moves will depend on the path of the economy.

Melanie Baker, senior economist at Royal London Asset Management, explains:

With domestically driven inflation pressure still looking strong, I continue to think we aren’t quite at peak rates in the UK and pencil in another 25bp rate rise this year.

Much, of course, will depend on how the data evolves – as it will for all the major central banks.

July’s inflation report will be a crucial factor, especially now that Bailey has predicted the CPI index will fall to around 7%, from 7.9% in June:

Updated

Investec, the bank and wealth manager, says today’s UK interest rate rise is the latest phase of the sharpest monetary policy tightening cycle since UK inflation targeting began (in 1992, I believe).

Investec economist Philip Shaw argues that rates are approaching their peak (or ‘terminal rate’, in City jargon):

The level of the Bank rate is now at a 15½ year high and, as the BoE points out, the stance of policy is undoubtedly restrictive.

Unless labour market pressures turn out to be considerably more durable than we believe them to be, further spare capacity should be opened up in due course and we should be close to the terminal level of the Bank rate.

We stand by our view that the peak in Bank rate will occur at 5.75%, although we have now shifted the timing of this out to Q4 from Q3.

Some financial firms have announced they are increasing their savings rates following today’s Bank of England rate rise.

Nationwide building society says current account customers on its Flex Instant Saver 2 account will see the rate increase by 0.25% to 3.25%, matching the increase in Bank rate.

Its Triple Access Online Saver will see an increase of 0.75%, with it now paying 4.25%.

Marcus by Goldman Sachs also notified savers of immediate rate increases.

It told customers the underlying rates on its Online Savings Account, Cash Isa and Maturity Saver have increased from 3.64% to 3.94%. Holders of an Online Savings Account or Cash Isa with a bonus rate will receive a new total rate of 4.30%.

Updated

Chancellor Jeremy Hunt has welcomed the Bank of England’s forecast that inflation will fall.

In an interview with Sky News, Hunt says any rise in interest rates is a worry for families with mortgages, and for businesses with loans.

But, he adds, underneath today’s decision is a forecast that inflation will be 2.8% this time next year, and the economy will avoid recession.

Hunt also offers his analysis of the Bank of England’s comments, saying:

What the Bank of England governor is saying is that we have a plan that is bringing down inflation, solidly, robustly and consistently.

Hunt says the government’s plan is working, but it must stick to that plan, and not “veer around like a shopping trolley” [which, incidentally, is how Dominic Cummings described Boris Johnson’s style of government].

Updated

This won’t please mortgage borrowers: Nicolas Sopel, head of macro research & chief strategist at Quintet Private Bank, believes UK interest rates will rise to 6%.

Sopel explains:

The BoE noted some progress on the inflation front, “falling but still too high”. However, the Bank’s projections, which were revised slightly lower for 2023 and 2024, still revealed that inflation will remain above the 2 per cent target and only return to that target by the second quarter of 2025.

This underscores the MPC’s view that the Bank Rate must remain restrictive for longer.

While economic data has turned more mixed and despite slowing growth, we think that the Bank of England will continue to raise the Bank Rate in 2023, bringing it to 6 per cent. This is because underlying price pressures remain elevated, driven by strong wage growth.

The BoE will likely be the last central bank in developed markets to pause its tightening cycle.

Bank forecasts are 'bad news for Rishi Sunak'

The Bank of England’s latest economic forecasts, released today alongside the interest rate rise, may alarm the government.

The Bank’s forecasts suggest that the backdrop to the election next year will be rising unemployment, average increases in mortgages of around £3,000 as households move off fixed-rate deals, and weak GDP – with growth for 2024 the weakest for an election year since 1992.

That may take the shine off today’s prediction that inflation may halve during 2023, meaning the PM would hit one of his targets.

James Smith, research director at the Resolution Foundation, said:

The Bank’s decision to raise interest rates for a 14th meeting in a row – continuing the largest tightening cycle in more than 30 years – was expected. But this will provide little comfort for mortgagors facing an increase of around £3,000 in repayments next year.

While there is good news from the Bank of England that the real-pay squeeze will end sooner than expected, the price for taming inflationary pressures from Britain’s tight labour market is an increase in unemployment of around 350,000.

Today’s gloomy outlook from the Bank of England is particularly bad news for Rishi Sunak with the Bank’s forecasts suggesting that the likely backdrop to an election next year will be falling GDP, higher unemployment and big increases in mortgage repayments.

Updated

Laith Khalaf, head of investment analysis at AJ Bell, argues that the Bank of England should now resist any further interest rate rises.

Another day, another interest rate hike. It’s business as usual for the Bank of England’s rate setting committee, with two zealous members actually wanting to raise rates to 5.5%.

However, its own numbers show that more interest rate hikes will make almost no difference to inflation in the medium term. But they will of course inflict more pain on consumers and businesses, and in particular mortgage holders. Sometimes doing nothing is the hardest approach, but there is increasing evidence that’s the path the Bank should now be following.

Based on their own projections, inflation will fall to 1.5% in three years’ time if the Bank hikes rates to 6% and then trims them back to 4.5%. At the same time its forecasts say CPI will fall to 1.4% if interest rates just stay where they are.

This supports a pause in rate hikes, especially because the cost-of-living crisis engulfing consumers is currently being exacerbated by high interest rates.

The full effect of monetary policy takes around 18 to 24 months to ripple out into the economy, so a hiatus in rate activity would also give the bank more time to assess the impact of its past actions.

Updated

UK interest rates may not start to be cut until late next year, predicts Paul Dales, chief UK economist at Capital Economics.

But Dales also believes rates could then be cut quickly, if Britain falls into recession:

The Bank’s new forward guidance suggests it has learnt the lessons from the 1970s and 1980s that core inflation falls from its peak only slowly and that cutting interest rates too soon risks reigniting inflation.

We’re not expecting rates to be reduced until late in 2024. That said, if we’re right in expecting higher interest rates to trigger a mild recession and eventually significantly reduce wage growth/core inflation, then the next big surprise may be how quick the Bank cuts rates in late 2024 and 2025.

Conservative government is “flirting with a recession”, says TUC

The Trades Union Congress has accused the UK government of hiding behind the Bank of England, as the economy “runs into a wall”.

Following today’s quarter-point increase in UK interest rates to 5.25%, TUC general secretary Paul Nowak said:

This Conservative government is flirting with a recession.

Instead of delivering a real plan to get us out of this living standards nightmare, ministers are hiding behind the Bank of England.

This interest rate hike will only heap more misery on households and businesses – and put many thousands more jobs and livelihoods at risk.

It’s the last thing working people need in the middle of a cost of living crisis.

The government needs to deliver strong, shared growth, rather than an economy that is stagnating or shrinking.

Make no mistake. The chancellor is sitting on his hands while the economy runs into a wall and it will be working people who pay the price.

Setting us on course for another economic shock is reckless – not responsible.

Updated

'Shallow recession' looming, with monetary policy 'too restrictive'

S&P Global Market Intelligence predict the Bank will raise interest rates again at its next meeting on 21 September, up to 5.5%.

Recessionary pressures are accumulating with many UK households having to endure a steep climb in mortgage costs, they warn.

Raj Badiani, principal economist at S&P Global, says:

We believe that monetary policy is now too restrictive, we expect interest rates to be higher for longer, with the first rate cut unlikely before mid-2024. Therefore, economy is likely to buckle further, with shallow recession anticipated around the start of next year.

The Bank of England could be forced to cut rates quickly next year, if its recent programme of rate rises prove to be a mistake.

So says Orla Garvey, senior fixed income portfolio manager at Federated Hermes Limited, who explains:

Looking ahead, the BoE are still in the suboptimal position of having to be reactive to spot service prints and labour market data, given volatility in the gilt market this year.

This leaves them exposed to policy mistakes, and hence we continue to believe that there is a risk they will have to cut rates just as quickly through 2024 as tight policy starts to impact the economy.

Updated

This chart shows how UK inflation is expected to drop over the coming months:

Larry Elliott: More pain in store from tough-talking Bank

If it isn’t hurting it isn’t working. That was the message from John Major, then chancellor, in 1989 during a previous period when interest rates were being used to combat high inflation.

And it was the message rammed home by the Bank of England on Thursday, our economics editor Larry Elliott writes.

Any hard-pressed households or struggling business looking for comfort from Threadneedle Street would have been disappointed by news that the pain will continue and is likely to intensify. Interest rates may not yet have peaked.

In one sense, the latest decision by the Bank’s monetary policy committee (MPC) came as little surprise. As expected, it raised the official cost of borrowing for a 14th time in a row, and by 0.25 percentage points to 5.25% as anticipated by the City.

What will have raised a few eyebrows is the Bank’s language, which has noticeably toughened up. Previous increases in rates were already slowing the economy but the MPC said it would “ensure that Bank rate is sufficiently restrictive for sufficiently long to return inflation to the 2% sustainably in the medium term”.

More here:

Bank of England criticised over interest rate rise

The Bank of England is being criticised from both sides of the political spectrum over today’s interest rate rise.

The IPPR, the progressive thinktank, warns that the Bank is “tightening the screws too much” by lifting interest rates to a 15-year high of 5.25% today.

Carsten Jung, senior economist at IPPR, suggests rates could be more than one percentage point too high.

The UK economy is weakening. The labour market is slowing down, and productivity is falling. Increasingly there is a realisation that the Bank of England is already overdoing it.

By raising interest rates to 5.25 per cent, the Bank is tightening the screws too much and causing excessive harm for households and businesses. Interest rates might well be more than a percentage point too high now.

Instead of further rate rises, we need a more balanced approach to tackling inflation, using more government support. Countries like Spain have kept energy prices lower, temporarily limited rent increases and tackled excessively high profits through taxation. Their inflation rate has recently fallen back to target. The UK should take inspiration from their example.

The pro-free market Institute of Economic Affairs, is also concerned that the Bank is overreacting.

Julian Jessop, economics fellow at the IEA, says:

The Bank’s decision to raise rates again, albeit by just a quarter point, suggests that the MPC is still looking in the rear view mirror.

Money and credit growth have already slowed sharply and other leading indicators of inflation have weakened, including commodity prices and evidence from business surveys.

It would have made more sense to pause to assess the impact of the large increases in rates that have already taken place, as other central banks have done.

The UK economy is like a frog slowly being cooked by ever higher interest rates. By raising the temperature further now, the Bank risks doing too much and, once again, only realising its mistake when it is too late.

Updated

The financial markets have reduced their forecasts for how high UK interest rates will rise in the coming months.

The money markets are now suggesting that rates will peak at around 5.7% in March, down from over 5.75% before the Bank of England’s announcments at noon today.

Updated

That’s the end of the press conference – so here’s some reaction to the Bank of England’s interest rate decision, from the CBI:

Q: Will Russia’s withdrawal from the Ukraine grain deal have an impact on UK food inflation this year?

Andrew Bailey tells today’s press conference that he has spent a lot of time visiting food producers and retailers. They have told him that food price inflation is declining, and will continue to do so.

But it has taken longer than expected, due to high energy costs and also because farmers took out longer contracts for fertiliser, for example, due to supply worries.

Bailey doesn't see crash in housing market

Q: Will keeping interest rates at ‘restrictive levels’ add to the downturn in the housing market?

Andrew Bailey says there are signs of an ‘adjustment’ in the housing market.

House prices have fallen [down 3.8% in the year to July], but we also saw a small increase in net lending and mortgage approvals earlier this week, he says.

Bailey insists:

I would certainly not wish to talk this up into a crisis in the housing market, because there is plenty of evidence that suggests this is a process that has some moderating influences in it as well.

Updated

Q: Have you got interest rates right, or have you made a mistake? Should you have embraced a recession earlier, to bring inflation down faster?

Andrew Bailey says you can’t set monetary policy with the benefit of hindsight.

He explains that if the Bank had known that energy prices were going to surge after Russia invaded Ukraine, it would have had to make some “slightly eye-popping” policy decisions to keep inflation on target.

He adds that the UK economy has been hit by some huge shocks. There are lessons that can be learned, but that does not mean that the BoE got things wrong (he argues).

Q: Your forecasts suggest that growth is very close to falling into recession at the end of next year, but inflation is still over target. Does that mean there is less room to cut interest rates then?

Deputy governor Dave Ramsden explains that the Bank has raised its forecasts for how high interest rates will be, which will weigh on growth.

Ramsden warns that the economy isn’t expected to really grow next year, saying.

That is the impact of tighter financial conditions, from the market-implied [interest rate] curve and also the exchange rate being rather stronger in this forecast.

Bailey won't say when rates could be cut

Q: How soon could the Bank cut interest rates?

Andrew Bailey declines to make a prediction.

He repeats that there are “a number of paths” which interest rate could take from here, but it’s “far too soon to speculate” on when rates could be cut.

Updated

Q: We used to think it took 18 months to 2 years for an interest rate rise to have its full effect. Has that changed?

Deputy governor Ben Broadbent says the overall effect hasn’t changed.

But there may be some parts of the economy where the lag is longer, such as in the mortgage market (as more people are on fixed-rate deals).

On savings rate, Andrew Bailey says there is evidence that the previous half-point rate rise announced in June was passed on to savers pretty much in full.

That was not the case previously, he points out.

Q: In today’s monetary policy report, you’ve set out various ways in which the forecasts are more of a judgement call than usual. It seems there are various areas where the MPC don’t believe the numbers that come out of your models.

Is the Bank’s forecasting broken?

Andrew Bailey says the Bank’s model’s aren’t built to handle the series of shocks that have hit the economy – they don’t have data to show the impact of a global pandemic, or a war in Europe.

It’s not a fault of the modelling process, he insists. But he hopes the Bank will get “a lot of value” out a review of its forecasting, which will be led by former top US central banker, Ben Bernanke.

Deputy governor Ben Broadbent insists that real incomes are now rising (ie, pay is rising faster than inflation).

The Bank estimates that in this calendar year, real labour income will be higher than last year, and the same is true for next year.

[the latest official data, up to May, shows real wages falling, but Broadbent insists the picture is brighter right now].

Our economics editor, Larry Elliott, asks the Bank about its warning that policy will remain ‘restrictive’ to bring inflation down.

Q: Are you saying ‘if it isn’t hurting, it isn’t working’? And will the amount of pain depend on the willingness of workers to take a real pay cut?

The ‘if it isn’t hurting, it isn’t working’ line was populised by John Major in 1989 (see this speech in 1995).

Governor Andrew Bailey says he won’t use words like pain, reiterating that the economy has been more resilient than expected.

Defending the Bank’s policy of raising interest rates over the last 20 months, he says:

Inflation has a very serious effect, and particularly on the least well-off.

He adds that the Bank is not forecasting a recession.

We hope we can deliver the path that we set out in the [monetary policy] report, as that path does not have a recession in it. We will have to see.

Updated

Q: Last week, European Central Bank chief Christine Lagarde suggested that eurozone interest rates may be peaking. Are you saying the same in the UK?

Governor Andrew Bailey emphasises the Bank of England is ‘evidence-driven’. There has been “quite contrasting evidence” in recent months, so it isn’t time to declare that it’s all over.

Q: If policy is restrictive now, where would ‘neutral’ interest rates be?

Deputy governor Ben Broadbent takes this question – citing an economic paper arguing that you only tell in hindsight where the neutral rate of interest is [called r*, this is the level where rates neither stimulate the economy nor restrict it].

Right now, though, Broadbent suggests rates are above neutral rate, but he refuses to say what r* would be.

Updated

Bailey: Economy has been more resilient than expected

Q: How can you say there is good news, when we have slower growth, higher unemployment, higher bank rate. Inflation looks more challenging, and the wage-price spiral appears to be crystallising.

What’s gone wrong with the economy, and has the Bank lost control?

Governor Andrew Bailey doesn’t agree with this assessment, and pushes back.

He says there is a “much more assured path downwards” for inflation, with falls expected in July and October’s data (because of the UK’s energy price cap which changes on a quarterly basis).

Bailey reminds reporters that last November, the Bank was forecasting a long recession because energy prices were then so high.

The economy has been much more resilient. That’s good news. We have to then set policy to work with it.

And while unemployment has risen, it is still historically low.

Q: Why has the Bank used this new language about keeping interest rates ‘sufficiently restrictive for sufficiently long’? Are you worried that households expect rates will fall back?

Andrew Bailey says current policy is having an effect on inflation, and that rates are also at restrictive levels in the US and eurozone.

He explains:

In order to get inflation back to target, we are going to have to keep this stance of monetary policy.

But that stance can incorporate quite a lot of different paths of interest rates.

Onto questions… starting with Sky News’s Ed Conway.

Q: Many families are hoping that interest rates will fall – are you saying we need to prepare for interest rate to be higher for longer than expected?

Governor Andrew Bailey points out that the financial markets expect rates to fall, but they also predict they will rise higher first.

There are many potential paths for interest rates, Bailey says.

He points out that if rates were to remain constant, the Bank’s forecasts show inflation returning to target.

He says the Bank has to balance risks of inflation, against risks that economic activity weakens.

BoE governor Andrew Bailey warns that “further tightnening of monetary policy” will be needed if the Bank sees signs of more persistent inflationary pressures.

We will ensure that Bank rate is sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainable, in the medium-term.

On wages, Andrew Bailey predicts that pay growth will fall ‘more slowly’ than economic models would suggest.

It may take longer for ‘second-round effects’ (where inflation pushes up pay demands) to fall away than it took them to arrive, he suggests.

Services price inflation, though, is projected to remain high, Andrew Bailey tells reporters at the Bank of England press conference.

The MPC is watching this measure very carefully, he adds.

Updated

Governor Bailey cautious, though, that core goods inflation is broad-based, as it is taking time for falling energy costs to feed through supply chains.

But the Bank does expect core goods inflation to ease over the rest of this year.

Food and non-alcoholic drinks inflation has been “very high”, Bailey says, “but it does appear to have peaked”.

Bailey: Inflation expected to fall to 5% in October's data

Governor Andrew Bailey shows today’s press conference a chart outlining how inflation is expected to keep falling.

He predicts that inflation will fall to around in July, to around 7% (we get this data in around two weeks).

It will be followed by a larger drop in October’s inflation data, to around 5%, Bailey predicts.

If he’s right, that means Rishi Sunak could hit his target of halving inflation in November (when we get October’s inflation data).

Updated

Bailey: High interest rates are working

Governor Andrew Bailey begins his press conference by saying the fall in UK inflation to 7.9% in June was ‘good news’.

Bailey predicts that inflation will continue to fall over the coming months, as tighter monetary policy is working to bring inflation down.

Our job is to make absolutely sure that inflation falls all the way back to the 2% target, and stays low.

That is why the Bank has raised interest rates by a quarter of one percentage point, to 5.25%, he says.

Bailey points out that high inflation hurts the least well off the most.

The Bank of England is holding a press conference now to explain why it has raised interest rates for the 14th time in a row, to a 15-year high.

Full story: Bank of England warns interest rates will remain high for at least two years

The Bank of England has warned businesses and households that the cost of borrowing will remain high for at least the next two years as it raised interest rates for the 14th consecutive time to 5.25%, my colleague Phillip Inman reports from the Bank.

Ruling out the likelihood of a recession over the next two years, policymakers blamed strong wages growth in recent months for the need to increase interest rates by 0.25 percentage points to the highest level for 15 years.

In a three-way split on the Bank’s nine-strong monetary policy committee (MPC), officials said the economy had proved more resilient during a period of high interest rates than they expected when they last made an assessment of the UK economy in May.

Energy prices were expected to fall over the rest of the year, bringing inflation down below 5% in the fourth quarter, allowing the government to declare a victory in its mission to halve inflation by the end of 2023 from a peak of 10.5% at the start of the year.

However, the Bank said strong demand for workers, which is pushing wages higher, and a rise in the cost of services that has only just reached a peak were proving a persistent barrier to bringing down inflation.

More here:

Matt Smith, Rightmove’s mortgage expert, is hopeful that mortgage rates will fall in the coming weeks, despite today’s interest rate rise.

Smith explains:

“After a rollercoaster few weeks, the market position today is actually largely similar to six weeks ago, in that today’s rate increase was much anticipated by lenders and has been largely factored in already to mortgage rates, meaning we expect mortgage rates to continue their slow downward trajectory over the next few weeks.

June’s more positive inflation numbers have given the market renewed confidence that inflation will continue to fall, and the Base Rate won’t have to go as high as previously feared, meaning lenders can tentatively start to reduce rates.

All eyes are now on July’s inflation figures in a couple of weeks – more positive news could accelerate rate drops, while any surprises would temper the current renewed market optimism.”

The Bank of England says inflation is still too high, so it needed to take action to make it fall further.

But it also points to “some promising signs”, pointing out that inflation has begun to fall, the economy is growing, and unemployment is low.

Hunt: It's not easy for families facing higher mortgage bills

Chancellor Jeremy Hunt has acknowledged that today’s increase in interest rates will hurt families.

Hunt says:

“If we stick to the plan, the bank forecasts inflation will be below 3% in a year’s time without the economy falling into a recession.

“But that doesn’t mean it’s easy for families facing higher mortgage bills so we will continue to do what we can to help households.”

Shadow chancellor Rachel Reeves says:

“This latest rise in interest rates will be incredibly worrying for households across Britain already struggling to make ends meet.

“The Tory mortgage bombshell is hitting families hard, with a typical mortgage holder now paying an extra £220 a month when they go to re-mortgage.

“Responsibility for this crisis lies at the door of the Conservatives that crashed the economy and left working people worse off, with higher mortgages, higher food bills and higher taxes.”

Looking further ahead, the Bank of England is forecasting that inflation will hit its 2% target in the second quarter of 2025.

It then falls below the target in the medium term, the Bank says, “as an increasing degree of economic slack reduces domestic inflationary pressures, alongside declining external cost pressures”.

Government set to meet target to halve inflation, Bank of England says

The Bank of England believes Rishi Sunak is on track to hit his target of halving inflation by the end of the year.

It predicts inflation will have dropped to around 5% by the end of this year, down from 10.5% in December 2022.

The minutes of the Bank’s meeting say:

CPI inflation remains well above the 2% target. It is expected to fall significantly further, to around 5% by the end of the year, accounted for by lower energy, and to a lesser degree, food and core goods price inflation.

Services price inflation, however, is projected to remain elevated at close to its current rate in the near term.

[Reminder: Falling inflation does not mean that prices are falling, simply that they are rising less quickly]

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The Bank of England says there are signs that the UK’s labour market is loosening, although the jobs market remains tight.

It says:

The LFS unemployment rate rose to 4.0% in the three months to May, somewhat higher than expected in the May Report, and the vacancies to unemployment ratio has continued to fall, although the latter still remains above historical averages.

The Bank of England says it expects the UK economy to continue to grow, despite its latest increase in interest rates today.

Its economists expect underlying quarterly GDP growth of 0.2% in 2023 Q2 and Q3.

The minutes of this week’s MPC meeting say:

Underlying quarterly GDP growth has been around 0.2% during the first half of this year.

Bank staff expect a similar growth rate in the near term, reflecting more resilient household income and retail sales volumes, and most business surveys over recent months.

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BoE split three ways over rate rise

The Bank of England’s policymakers were divided over where to set UK interest rates today.

A majority of six policymakers voted to lift Bank rate from 5% to 5.25%, the move which the City had expected. They were governor Andrew Bailey, along with Ben Broadbent, Jon Cunliffe, Megan Greene (a new MPC member), chief economist Huw Pill and Dave Ramsden)

Two members, Jonathan Haskel and Catherine L Mann, preferred to increase Bank Rate by 0.5 percentage points, to 5.5%.

Swati Dhingra, the most dovish member of the MPC, preferred to maintain Bank Rate at 5%.

Bank of England raises interest rates to 5.25%

Newsflash: The Bank of England has raised UK interest rates to a new 15-year high.

Its monetary policy committee have voted to increase Bank rate to 5.25%, up from 5%, the 14th increase in a row, adding to the pressure on borrowers such as mortgage-holders.

The move shows the Bank continues to fight inflation, which dropped to 7.9% in June – four times over its target of 2%.

The rise, which will bring more pain to borrowers, comes despite signs that the UK economy recovery is slowing.

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Monetary policy acts with a lag, as the Bank of England is keen to point out.

That means that any change in interest rates today will take time to reach the ‘real economy’.

The New Economics Foundation point out that previous rate rises (there have been 13 since December 2021) have yet to fully have their effect; they’re urging the BoE to resist further rate rises today.

Darren Power, credit insurance and insolvency expert at Atradius UK, which provides credit insurance to companies, warns that the UK is already ‘on the edge of recession’, without another rise in borrowing costs.

Ahead of the Bank of England’s interest rate decision in 15 minutes…. Power says:

“After last week’s positive inflation rate news, I’m sure many of us were hoping that interest rates would follow suit. After a tough couple of years for businesses and consumers, the news that the Bank of England is likely to raise rates to a 15 year high – potentially as high as 5.5% - won’t be welcome. But the reality is that the inflation rate remains high, and so a 14th consecutive increase is unfortunately very likely.

“The government is ultimately teetering on the edge of recession, and we are all feeling the pressure. Our own data shows firms are already struggling with cash flow, with claims for late and failed payments continuing to creep up across the board with claims received in the second quarter of 2023 increasing 24% year-on-year.

These late and failed payments are one of the earliest warning signs that a business is at risk of insolvency and the increase indicates that there are still challenges ahead for businesses – coping not only with inflation and interest rates but the continued effects of the pandemic and supply chain issues adding to the burden.

With just 20 minutes to go… here’s the latest predictions for the Bank of England decision, from Matthew Ryan, head of market strategy at global financial services firm Ebury.

“We expect the Bank of England to revert back to a 25 basis point rate increase this week, with the June inflation miss and signs of a modest slowdown in the UK economy likely to warrant a smaller hike.

“Once again, however, the MPC is unlikely to be in total agreement, and we could see a three-way split vote, where one member (Dhingra) supports no change, while one or two plump for a 50 basis point move.”

The pound has dropped to a five-week low against the US dollar.

Sterling has lost half a cent to $1.265, its lowest level since 30 June, as traders await the noon announcement from the Bank of England.

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Here are more photos from the Positive Money protest outside the Bank of England this morning:

Tension is on the rise in the City, with just an hour to go until the Bank of England’s interest rate decision.

Investors still broadly expect the Bank to raise interest rates by a quarter of one percent, from 5% to 5.25%, but a larger increase to 5.5% can’t be ruled out.

Charalampos Pissouros, senior investment analyst at XM, explains:

According to the UK overnight index swaps (OIS), market participants assign a 63% probability for a quarter-point increase, with the remaining 37% pointing to 50bps. Therefore, should the Bank proceed with 25bps, those expecting more may be disappointed and the pound could initially slide.

However, considering that underlying inflation in the UK is still more than triple the BoE’s objective, allowing traders to believe that the end of this tightening crusade is drawing closer may be an unwise choice. Ergo, officials may have to sound hawkish and highlight the need for more action, which could help the pound rebound and perhaps extend its prevailing uptrend for a while longer.

Ed Conway of Sky News agrees that the messaging from the Bank today will be just as important as the decision on interest rates….

Hannah Dewhirst, head of campaigns at Positive Money, explains why the group are protesting outside the Bank of England today (see earlier post).

“We’re here to tell the Bank of England that we’ve had enough of senseless interest rate rises.

Rate rises will not bring down inflation being caused by international fossil fuel prices and food prices disrupted by climate change. They will only continue to impoverish households and enrich banks.

What we need are better tools for dealing with inflation than blunt instruments like interest rates, and a windfall tax on bank profits to redress the financial damage done to workers and families by rate hikes.”

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Rising interest rates will pile more pain onto borrowers, with mortgage-holders facing large increases in monthly payments when their existing fixed-term deals expire.

But they’re a boon to savers, of course, even though banks have been criticised for being slow to pass on higher rates to savings customers.

Torsten Bell, head of the Resolution Foundation, shows that this impact does not fall evenly across generations, or income groups:

Protest at Bank of England against rate rise

A protest is taking place outside the Bank of England ahead of today’s interest rate decision at noon.

Demonstrators wearing masks depicting the governor of the Bank of England, Andrew Bailey, and Prime Minister Rishi Sunak are outside the Bank in the City of London.

It is organised by Positive Money, the campaign group, which opposes the BoE’s “relentless” interest rate rises.

More rate hikes will hurt millions of people, they warn, while the big banks rake in billions of pounds in profits.

Positive Money are also calling for a windfall tax on the banking sector. Major banks have benefitted from increases in interest rates, as they have been slow to pass them onto savers while raising borrowing rates more quickly.

They are chanting:

Rate rises? No thanks.

It’s time to tax the banks.

They have organised a petition calling on chancellor Jeremy Hunt to bring in a windfall tax on the UK banking sector, which you can see here.

UK economy 'set to flatline' as service sector slows

Britain’s economy is set to flatline, a new survey shows, after growth weakened in July.

Data provider S&P Global reports that growth in the services sector slowed last month, to the slowest since February.

Its Services PMI Business Activity Index, which tracks the sector, fell to 51.5 in July from 53.7 in June, which indicates a slowdown in growth. Anything above 50 shows growth.

The survey of purchasing managers at UK companies found that growth in activity levels and new work both slowed last month, indicating a drop in demand.

Tim Moore, economics director at S&P Global Market Intelligence, explains:

The loss of momentum signalled by service providers in July suggests that the UK economy is set to flatline at best in the coming months as higher borrowing costs take a bigger toll on consumer spending and business confidence.

Service sector companies saw the weakest rise in new work for six months, while job creation slipped as some firms responded to softer market conditions by putting the brakes on hiring.

Short-term mortgage rates in the UK are unchanged today, for the second day in a row.

Data provider Moneyfacts has reported that the average 2-year fixed residential mortgage rate today is 6.85%, unchanged from Wednesday and Tuesday’s readings.

The average 5-year fixed residential mortgage rate has dropped slightly to 6.36%, down from 6.37% on Wednesday.

Victoria Scholar, head of investment at interactive investor, agrees that a large, more hawkish, interest rate rise from 5% to 5.5% isn’t out of the question today.

She explains:

With UK inflation still stubbornly high, much more persistent than inflation in the US or eurozone, more work needs to be done to tackle the ongoing price pressures.

Monetary policy is a notoriously blunt tool and is therefore not good at tinkering around the edges. The choice between 25bps and 50bps today is more about signalling how concerned the central bank is about inflation and growth. Late cycle rate hikes tend to work with a shorter lag suggesting a hike at this stage would have a greater economic impact than at the start of 2022.

The post covid supply chain bottlenecks have eased and wholesale energy prices have pulled back. On the other hand, food inflation is still stuck in double digits with supply issues in Russia and India key risks for commodity price inflation ahead. Plus, with wage growth at a record high, labour shortages, and heavy industrial action this year, there’s a resistance to lower wages, which raises the risk of further second round inflationary effects.

Not every investor believes the Bank of England will restrict itself to raising interest rates by just a quarter of one percentage point today, to 5.25%.

Some, such as Steve Matthews, fund manager at Canada Life Asset Management, predict the BoE will deliver another large, half-point rise at noon, taking Bank rate to 5.5%.

Matthews explains:

“Whilst the Federal Reserve and European Central Bank are showing signs that their hiking cycles are close to complete, the picture is far from clear in the UK.

“The decision to hike by 50bps last time around, was based on the stubborn inflation numbers fuelled by wage inflation and suggested that the Bank of England believed greater momentum is required to bring inflation under control.

“It is unlikely that there has been enough time for the last hike to have had a lasting impact and the BoE, wary of being out of sync with the US and Europe, will want to front-load their remaining moves for the greatest impact. With the resident dove, Silvana Tenreyro, leaving the committee there will be a more hawkish tone to the meeting and this could be the deciding factor in what will likely be a split vote.

“Markets have come down a long way from their peak hike expectations but are still pricing in a further three hikes before the end of the year. On balance we agree with this and expect a close call to raise the Base Rate by 50bps and see a September peak of 5.75%.”

The City of London is in a nervous mood ahead of the Bank of England’s interest rate decision at noon.

The FTSE 100 index of blue-chip shares has fallen by 101 points, or 1.3%, in early trading to a two-week low of 7,460 points.

Markets have been roiled by Fitch downgrading the US credit rating on Tuesday evening.

Clifford Bennett, chief economist at ACY Securities, says:

The US is losing its long held safe credit mantle. This is long overdue. Credit agencies are notorious for being slow to act. More may follow. It is simply irresponsible to suggest the USA is a triple A credit.

At AA+, this is still a very generous appraisal for a government which is keenly allowing debt to balloon at an alarming pace. Debt to GDP is likely already well over 130%, but we just haven’t got the data yet. This is a catastrophe. Especially, when the nation involved is continuing to borrow and spend like there is no tomorrow.

The huge leap in government spending on the advent and excuse of Covid, has not been wound back. Instead, debt spending is continuing to grow.

There is no end in sight to the deterioration in the US fiscal position. Now with interest rates alarmingly higher, things are only going to get worse. And quickly.

But there are also concerns over Japan today, where the central bank has launched an emergency bond-buying operation today, after yields (interest rates) on Japanese government debt rose.

High Street shoppers put off by interest rate rises, rain and rail strikes

Recent increases in UK interest rates have been blamed for a fall in shoppers on the high street last month.

Retail analysts Springboard have reported that footfall at UK retailers fell by 0.3% month-on-month in July.

This is the first July since MRI Springboard started publishing its data in 2009 that footfall was lower than in June.

It blamed “ever-rising interest rates” for dampening consumer demand, as well as bad weather last month and ongoing disruption on the UK railways.

Springboard says:

July appeared to demonstrate the harsh reality of the impact of interest rate rises on consumers, combined with rain and a rail overtime ban on several days in the month.

This meant that footfall across UK retail destinations was -0.3% lower than June 2023, which is the first month on month decrease since March 2023, when consumers deferred shopping trips until Easter which was then followed by a rise of +7.2% from March to April.

High street retailers were worst hit, with shopper numbers there falling by 1.7% compared with June, and were 15.5% lower than pre-Covid-19 levels in 2019.

Mike Riddell, head of Macro Unconstrained at Allianz Global Investors, is also predicting a quarter-point rise today.

He says:

  • We expect the Bank of England (BoE) will hike by 0.25% to 5.25%, rather than 0.5% that was previously feared by markets.

  • UK economic growth continues to falter. Higher mortgage rates are starting to weigh on the UK housing market where prices are falling by the most since 2009.

  • We believe the BoE will be able to curb growth and drive down inflation. If it does so, the BoE should be in a position to cut rates next year.

Today’s decision on interest rates is unlikely to be unanimous, City economists predict.

There are nine members of the Bank’s monetary policy committee, who all vote on where interest rates should be set.

A majority are expected to vote for a quarter-point rise, to 5.25%. But, RBC Capital Markets predict that as many as three MPC members will vote for a 50bp hike, to 5.5%.

On the other side, though, economist Swati Dhingra may vote for no change. She has opposed earlier interest rate rises this year.

Another rise in UK interest rates would put more pressure on the UK housing market, where prices are already falling at the fastest rate in 14 years (-3.8% in the year to July).

Peter Truscott, chief executive of housebuilder Crest Nicholson, says sales volumes have suffered from rising interest rates.

Truscott told Radio 4’s Today Programme that underlying demand remains “very strong”, but there has been “some pause” in people coming into its offices and reserving homes.

A lot of people are standing on the sidelines….

It’s tending to be volumes which are taking the strain, rather than price. There is a little downward pressure on price.

Full story: UK homeowners on variable mortgages fear another rate rise

“It’s a bloodbath, that’s the way I’d like to describe it,” says one father of two struggling with the ever-increasing interest rate on his home loan.

He is one of the 1.4 million people in the UK on a variable rate residential mortgage, who have watched the monthly payments soar after the Bank of England raised the base rate 13 times in a row to 5%.

Policymakers are widely forecast to add another 0.25 percentage points to that figure when they meet on Thursday, leaving homeowners such as John having to find hundreds more pounds to cover future bills.

The software engineer, who lives in Slough, Berkshire, says that could leave him with no choice but to get a second job to make ends meet, so he is looking into zero-hours options such as delivering for Uber Eats so he can still spend some time with his family.

More here:

Deutsche Bank strategist Jim Reid has told clients to expect an interest rate rise of a quarter of one percent at noon, and two more in the coming months too:

Turning to the UK, prime minister Rishi Sunak was reported stating that he felt inflation was not falling as fast as he would like. This came ahead of the BoE monetary policy decision later today.

Our economists are expecting a 25bps hike to bring the policy rate to 5.25% and looking ahead, we see two further quarter point rate hikes, with the terminal rate at 5.75%.

The financial markets currently expect UK interest rates to peak around 5.75% next spring, up from 5% today (well, until lunchtime, anyway).

A month ago, the markets had forecast a higher peak of 6.5%, but expectations have fallen after UK inflation dropped in June.

Julien Lafargue, chief market strategist for Barclays Private Bank, explains:

After pencilling in a peak base rate above 6% a month ago, the market is now anticipating the BoE to stop hiking once it reaches 5.75%. This seems justified at this particular point in time.

We are more sceptical about the market’s view that rates could stay at this level for much of 2024.

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FT: Post-Brexit UK border food checks delayed again on inflation fears

UK ministers are set to announce another delay to post-Brexit border controls on animal and plant products coming from the European Union, to avoid pushing up prices in the shops.

The Financial Times reports this morning that the government has decided to again delay the introduction of a post-Brexit border control regime for goods entering the UK from the EU.

This latest can-kicking comes amid fears that extra bureaucracy on imported goods will fuel inflation.

Britain’s fresh produce industry had warned that the plan risks further pushing up food prices – potentially undermining the government’s push to bring down inflation. They said estimated additional annual costs stemming from import charges would have to be passed on to consumers.

The decision to delay the new import regime at Britain’s ports, which had been due to start in October, will also give companies and port operators yet more time to implement the arrangements.

But it also maintains the unequal playing field, as British exports to the EU are already subject to full checks.

A new timetable has not yet been signed off by ministers, but the start of the new regime is expected to slip into next year, the FT adds.

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Introduction: Bank of England sets interest rates today

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The Bank of England finds itself on the horns of a dilemma this week, as it sets UK interest rates.

Should it pause its cycle of interest rate rises, and risk inflation racing out of control? Or should it keep raising them, despite signs that the economy is teetering close to a recession?

And if it plumps for a hike, how sharp should it be?

We’ll find out at noon, and get the reasoning for the decision from the BoE governor, Andrew Bailey, 30 minutes later.

City economists believe the Bank is nailed on to raise borrowing costs for the 14th time in a row, to the highest since 2008.

The money markets suggests a small, quarter-point increase is most likely, from 5% to 5.25%, but a larger, half-point rise to 5.5% can’t be ruled out.

Kim Crawford, global rates portfolio manager at JP Morgan Asset Management (JPMAM), predicts a 25bp hike to 5.25%, but warns it won’t be the last BoE rate rise….

Crawford says:

“There has been some relief that inflation hasn’t gotten worse, but there is still a lot of progress that needs to be made.

The level of wage growth and services inflation is still high, and the labour market remains tight.

The Bank has been urged not to do this, though. Yesterday, the TUC said it should hold borrowing costs unchanged, as the UK was “teetering on the brink of recession”.

But, the Bank remains concerned that UK inflation is four times its 2% target, at 7.9% in June, and higher than in other advanced economies.

Prime minister Rishi Sunak added to the political heat on the BoE yesterday, by saying inflation was not falling as fast as he would like.

But there are also jitters in Westminster that the Bank of England could go too far.

Last week, Bloomberg reported that advisers to Chancellor of the Exchequer Jeremy Hunt are increasingly concerned that the Bank of England risks raising interest rates too much in the coming months, triggering a recession.

They said:

A majority of Hunt’s seven-member Economic Advisory Council believes that the bank should slow its fastest cycle of rate increases in three decades, according to people familiar with the discussions.

That view is being taken by seriously by top Treasury officials in the wake of better-than-expected inflation figures and other data that suggest a broader slowdown, said the people, who asked not to be named discussing internal deliberations.

The Bank will also release new forecasts today, showing how it expects the UK economy to perform in the next few years.

They should show if BoE economists see a recession on the horizon, and if they believe Sunak will hit his target of halving inflation by the end of the year.

In the corporate world, we’ll also hear from retailer Next, engineering firm Rolls-Royce and carmaker BMW this morning.

The agenda

  • 7am BST: German trade data for June

  • 9am BST: Service sector PMI report for the eurozone

  • 9.30am BST: Service sector PMI report for the UK

  • Noon BST: Bank of England interest rate decision

  • 12.30pm BST: Bank of England press conference

  • 1.30pm BST: US weekly jobless report

  • 3pm BST: Service sector PMI report for the US

  • 3pm BST: US factory orders for June

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