Chief executives from the UK’s largest insurers have joined forces with the Prince of Wales to launch a new sector-wide taskforce aimed at tackling the climate crisis, writes our banking correspondent Kalyeena Makortoff.

The Sustainable Market Initiative Insurance Taskforce – comprised of bosses from 17 firms including Legal & General, Allianz, Hiscox and Axa – has pledged to support the transition to a less carbon-intensive economy by expanding insurance coverage for projects such as offshore windfarms, and partnering with governments to provide better disaster protection cover in countries facing serious risks like extreme weather caused by global heating.

“Climate change is already having an impact – you see this in wildfires in California and you see it in persistent droughts in Australia,” Bruce Carnegie-Brown, the chairman of insurance market Lloyd’s of London, which is chairing the taskforce, said. “So there is now increasing demand by customers for these kinds of protections and we need to respond to them.”

He said a number of individual companies have already started offering more climate-friendly insurance policies, but had failed to coordinate across the sector.

The Bank’s June meeting showed a measured response to stronger data, says Allan Monks, economist at JPMorgan. He says about the Bank’s warning against “premature tightening”:

We read this as a signal that the BoE is not yet prepared to vindicate market pricing which has recently seen expectations for the first hike creep into the first half of 2022.

While the MPC viewed the coming inflation overshoot as transitory, it did shift the dial in a more hawkish direction and indicated that forecast upgrades would be made in August.

In summary:

• MPC expects stronger growth and a higher peak in inflation compared to May, with more open mindedness about the persistence of the current CPI overshoot.
• But ultimately it still expects above target inflation to be transitory, and its rhetoric on policy is little changed.

Michael Pearce, senior US economist at Capital Economics, has looked at the US durable goods orders, which came in weaker than expected, as well as the the latest trade data.

The 2.3% m/m rise in durable goods orders last month was driven by another big increase in commercial aircraft orders reflecting the recovery in air travel, with underlying orders weaker than expected.

The latter is not too concerning, however, given how far orders are above their pre-pandemic trend, while the continued strength of shipments suggests that business equipment investment is on track for another strong gain in the second quarter.

Elsewhere, the slight widening in the trade deficit to $88.1bn from $85.7bn – which was driven by a slight drop in exports while imports rebounded – still leaves it narrower than its March peak. After being a big drag on economic growth in the first quarter, net exports will be closer to neutral in the second.

And the US economy grew by 6.4% in the first quarter from the previous quarter, according to the final estimate - the same as previously reported.

Ambrose Crofton, global market strategist at J.P. Morgan Asset Management, reckons that inflation will continue to rise faster than the Bank off England anticipates, so it may have to scale back its stimulus more quickly than other major central banks.

Today the Bank of England delivered a modestly dovish surprise as it acknowledged that despite recent growth and inflation surprises to the upside, these are still expected to be transitory...

Our own view is that inflation will continue to rise well above the Bank of England’s target in the coming months and that not all of this will prove transitory. We expect current signs of tightness in the labour market to persist. While this speaks to the furlough scheme having been a success we also expect persistent upward pressures on wages which will support medium-term inflation momentum.

We think that as inflation prints continue to come in higher than the Bank’s forecasts anticipate, pressure will increasingly grow to begin on its path to more normal policy. Of course easing off the accelerator is very different to touching the brake and so we expect that any change in course will still be gradual.

All this suggests the Bank may end up having to withdraw support more quickly than its international peers. It does however need to be mindful of not creating too much upward pressure on sterling which may further deepen our trade issues. The Fed was hawkish last week but it still expects to be raising rates only in 2023. The ECB is still full throttle.

James Smith, developed markets economist at ING, also expects the first rate hike in 2023.

The Bank of England’s latest statement is a little more upbeat than might have been expected, but crucially offers no new clues on rate hike timing. We’re still expecting the first rate rise in early 2023, on the assumption inflationary pressures ease through the middle of 2022.

On the QE side, despite Andrew Haldane’s vote, we very much doubt the Bank will curtail the programme early. The BoE remains on track to actively stop expanding its balance sheet at the end of the year – having tapered the pace of purchases last month. Unexpectedly, ending the scheme early would potentially set a precedent in the eyes of investors, and risks limiting the potency of future QE programmes.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, says the minutes suggest that the first rate hike won’t happen until 2023.

The vast majority of current MPC members continue to expect the upcoming bout of above-target CPI inflation to be fleeting, despite recent upside surprises to GDP, employment and inflation.

While the committee stated that the number of furloughed employees had dropped faster than it expected—suggesting that it will rise down its forecast for the peak rate of unemployment at its next meeting, from May’s 5.8% forecast—it remains concerned that labour market slack will increase when the CJRS (coronavirus job retention scheme) is wound down at the end of September.

Given that its guidance continues to state that it will not tighten monetary policy “at least until there was clear evidence that significant progress was being made in eliminating spare capacity and achieving the 2% inflation target sustainably”, the likelihood of a renewed increase in spare capacity in Q4 suggests that most MPC members do not envisage hiking Bank Rate next year, as evidence of subsequent progress must be “clear” and “significant”.

The committee also continued to emphasise that it should “lean strongly against downside risks” to the economic outlook, which were posed by the renewed rise in Covid-19 cases and the possible emergence of new virus strains which could undermine the effectiveness of current vaccines.

In a new turn of phrase, the Committee also said that its role was to ensure that “...the recovery was not undermined by a premature tightening in monetary conditions”. Given this overt dovishness, the economic recovery will have to be flawlessly strong for markets’ expectation that Bank Rate will rise to 0.25% in just 12 months’ time to be realised. We continue to expect the MPC to wait until the second half of 2023.

It was Andy Haldane’s last meeting, and (like in May) he was the lone dissenter on the MPC, voting to reduce the QE programme by £50bn. The Bank’s chief economist is leaving to become chief executive of the Royal Society for Arts think tank.

The FTSE 100 index has advanced 0.5%, a gain of 36 points, to 7,110. The Bank of England lifted its forecast for inflation to rise further above its 2% target, saying it was likely to peak above 3% with the economy also picking up, but added that it would be for a “temporary period”.

Sterling fell 0.4% against the dollar to $1.3907 and 0.5% against the euro to 85.9p as the Bank kept interest rates at a record low of 0.1%.

Last week, the US Federal Reserve began to move towards reducing its massive stimulus programme by signalling its first interest rate hike will come in 2023, a year earlier than previously projected.

The MPC concluded:

Policy should both lean strongly against downside risks to the outlook and ensure that the recovery was not undermined by a premature tightening in monetary conditions.

The committee did not intend to tighten monetary policy at least until there was clear evidence that significant progress was being made in eliminating spare capacity and achieving the 2% inflation target sustainably.

Here is our full story:

The Bank has also lifted its growth forecast.

Bank staff have revised up their expectations for the level of UK GDP in 2021 Q2 by around 1.5% since the May Report, as restrictions on economic activity have eased, so that output in June is expected to be around 2.5% below its pre-Covid 2019 Q4 level.

This recovery in activity has been most pronounced in the consumer-facing services for which restrictions were loosened in April. Output in a number of sectors is now around pre-Covid levels, although it remains materially below in others. The housing market remains strong, and indicators of consumer confidence have increased.

Policy makers have raised their inflation forecast, but said the rise would be short-lived.

Consumer price index (CPI) inflation rose to 2.1% in May from 1.5% in April, above the Bank’s 2% target and 0.3 percentage points higher than in the May inflation report. Core inflation has also jumped, to 2% from 1.3%, the MPC noted. Minutes of today’s meeting said:

CPI inflation is expected to pick up further above the target, owing primarily to developments in energy and other commodity prices, and is likely to exceed 3% for a temporary period.

The committee’s expectation is that the direct impact of rises in commodity prices on CPI inflation will be transitory. More generally, the committee’s central expectation is that the economy will experience a temporary period of strong GDP growth and above-target CPI inflation, after which growth and inflation will fall back.

The Bank of England has left interest rates on hold at an historic low despite concerns that inflation will accelerate this year as the economic recovery gathers pace, reports our economics writer Phillip Inman.

Policymakers on Threadneedle Street’s monetary policy committee (MPC) said rates should remain at 0.1% until it was clear how quickly the economy will recover and how much pressure there will be on firms to raise prices.

The central bank also said it would keep its programme of electronic money printing, known as quantitative easing, in place to keep the recovery on track through the autumn.

Chief economist Andy Haldane was the only member of the MPC to vote to taper the QE programme before it reached £895bn, in line with his vote at the MPC’s last meeting in May.

In May, the bank’s policymakers raised their estimate for UK GDP growth to 7.25% in 2021, up from a previous forecast in February for growth of 5%.

The MPC said the rapid progress with the Covid-19 vaccine and easing of restrictions paved the way for a surge in spending as consumers began to visit previously closed restaurants, cafes and leisure facilities.

Inflation has increased in recent months, with official figures estimating that it reached 2.1% in May, slightly above the central bank’s 2% target level.

European shares are holding on to their gains, with the pan-European Stoxx 600 up 0.6%, lifted by retail, bank and technology stocks. The move higher comes after losses yesterday, as mixed messages from the US Federal Reserve has left investors uncertain about central banks’ approach to tapering the stimulus programmes introduced during the pandemic, as inflation rises.

The FTSE 100 index in London is 23 points ahead at 7,096, a 0.3% gain. Investors are somewhat nervous ahead of the publication of the Bank of England’s policy decision and minutes at midday. We are not expecting any changes to interest rates or the bond purchase programme, but the minutes will be scrutinised for any signals of a shift towards stimulus withdrawal.

Dr Jonathan Pearson-Stuttard, partner & head of health analytics, at the investment management firm Lane Clark & Peacock (LCP), welcomes the news:

The biggest driver of obesity is the structural environment which shifts the balance towards health harming behaviours. Today’s announcement to introduce a 9pm watershed for junk food advertising is a bold and necessary step towards redressing that balance and making the healthy choice the easy choice.

The pandemic has made the links between public health and prosperity abundantly clear – the announcement today should be part of a comprehensive package that repositions the nation’s health as an asset.

Some reaction to the junk food advertising ban online and on TV before 9pm...

Shaw adds:

Another relevant point is that current MPC [monetary policy committee] guidance considers the evolution of the labour market and the effect of the end of the furlough scheme on underlying wage pressure to be a key piece in the jigsaw. It looks as though the autumn will be a critical point in the monetary policy conjuncture, with the effects of the winding down of the CJRS providing a clearer line of sight on pay trends and therefore on whether inflation pressures are transitory or longer-lasting.

A final point is on the timing of tightening moves. The Bank of England review on sequencing appears to be ongoing. Our working assumption is that the MPC begins to unwind some of its QE before it raises rates. We have based this view on Governor Andrew Bailey‘s comments several months ago, which appeared to favour this order, in contrast with the 2017/2018 period when the Bank rate was raised but the stock of asset purchases left alone.

Earlier this week Bailey remarked that managing the BoE balance sheet could be an issue, which appears to reinforce this view. Accordingly our expectations for monetary policy remain as before. We anticipate the MPC to tighten policy in mid-2022 by shrinking its balance sheet, followed by the first rate hike a year later.

Turning back to the Bank of England’s monetary policy decision and minutes, to be published at noon, Philip Shaw, chief economist at Investec, is expecting no change to the Bank rate, at 0.1%, and the asset purchase programme of £875bn.

The main point of interest from the perspective of markets will be the minutes from the meeting, published alongside the decision. We would expect members to acknowledge the positive activity data since early May. They may also conclude that the risks to this year’s GDP forecast of 7.25% lie to the upside, despite the four-week delay to Step 4 of the relaxation of the Covid restrictions. Meanwhile the discussion on inflation may reveal some differences among members. CPI inflation was firmer than the MPC expected in May, at 2.1%. Staff forecasts in last month’s Monetary Policy Report suggested that the targeted measure would not surpass the 2% target until August. Indeed a US-style situation may be developing, where inflation rises more rapidly than the central bank is forecasting.

Is inflation a longer-term problem? Typically inflation builds up when economies reach capacity during periods of rapid growth. While the pace of activity is indeed robust currently, significant economic slack remains. For example, unemployment stands at 4.7%, around 1% point above its trough in 2019. The firm global energy price background has of course been one source of the higher inflation figures domestically. Meanwhile, although the current burst of domestic demand is causing price pressures too, it is mainly inventory levels, not production capacity limits being reached, that are the problem.

It seems most likely that an expansion of output will follow in due course, helping to normalise price conditions. In addition, capacity is currently restrained in specific sectors such as hospitality and entertainment. As social distancing is eased further, supply in these areas should rise, capping price pressures. However we cannot be completely confident that the dynamics will play out in this fashion.

Here is our full story on the property developer St Modwen. It has accepted an increased offer from US investor Blackstone that values the company at £1.3bn, in the latest example of a private equity swoop for a mid-sized British firm.

Aviva Investors is backing the Blackstone offer for St Modwen. Aviva is the biggest shareholder with a 7.27% stake in the regeneration specialist. Reuters have a statement:

As major shareholders in St Modwen, we are supportive of the board and we intend to vote in favour of the revised offer from Blackstone.

Russ Mould, investment director at the stockbroker AJ Bell, has looked at the markets today.

The Bank of England will provide its latest view of inflationary pressures today. It is unlikely to make any drastic changes to its current policy at this stage, but market watchers will be looking for any signs as it when it could start reducing quantitative easing and raise interest rates.

Mining, industrials and financials were the key sectors catching investors’ attention on the UK market, with Rio Tinto, Ashtead and HSBC among the top movers.

A decision to ban junk food advertising online and before 9pm on TV from 2023 should in theory be negative for various UK stocks including ITV, Just Eat and Deliveroo but investors in these stocks shrugged off the news, expected to be confirmed by ministers today.

Advertising is a crucial source of income for ITV and its clients include many companies that sell products that fall under the ‘junk food’ banner, although they will still be allowed to promote their brand before 9pm on TV and online, just not specific junk food products. Just Eat and Deliveroo are also heavy advertisers and they will have to rethink their promotions to get round the rules.

Elsewhere, GlaxoSmithKline struggled to hang on to the gains it enjoyed yesterday, spurred by an investor day explaining its plans to spin off the consumer business, the details of which helped to make up for negative news of a dividend cut. [GSK slipped 0.1% today]

Analysts had already been expecting a reduction to GlaxoSmithKline’s dividend and the cost savings will be funnelled into research and development for new drugs, which ultimately could help drive earnings in the future.

The government is poised to announce a ban on junk food advertising online and before 9pm on TV from 2023, as Boris Johnson looks to deliver on his pledge to tackle the UK’s growing obesity crisis, reports our media correspondent Mark Sweney.

More reaction to the strong Ifo reading. Katharina Koenz, economist at the consultancy Oxford Economics, says:

The strong pick-up in retail sentiment is particularly encouraging, where conditions have improved by more than any time since the German reunification in 1990. And although the current situation in the hospitality sector remains subdued, growing optimism bodes well for the near-term outlook.

The improved sentiment data along with strong improvements in high-frequency mobility data supports our view that the German economy is picking up speed with GDP likely to jump by 2.5% quarter-on-quarter in Q2 and expand by 3.7% y/y in 2021.

Looking ahead, downside risks to the 2021 outlook are easing. The challenges the eurozone’s recovery faces are likely to be only temporary. The manufacturing sector is affected by shortages of input factors and continued supply-chain disruptions.

For the services sector it will be pivotal to maintain the high vaccination speed to limit the spread of the already prevalent delta variant, especially since we expect consumption to shift towards services. While we think that these factors won’t derail the rebound, they could delay some of the recovery.

“Another strong Ifo reading sets the bar for German growth even higher – Germany’s leading indicator reflects almost unstoppable optimism about the economic outlook, and the only thing that’s missing is for the hard data to catch up,” says Carsten Brzeski, global head of macro at ING.

Right now, the sky is the limit for confidence indicators in Germany and indeed, the entire eurozone. The end of lockdowns and the reopening of economies has clearly boosted expectations. In the case of Germany, despite anecdotal evidence, particularly in the automotive industry, of supply chain disruptions affecting activity, the impact apparently has not been strong enough yet, to dent growing optimism.

Looking ahead, the general outlook for the German economy has improved. The vaccination programme has picked up speed and with currently more than 50% of the population having had a first jab, the reopening of the economy has gained momentum, too. New variants of the virus, however, could still spoil the reopening party.

The only problem so far has been that hard data, which is only available until April, has not yet matched these expectations. On the contrary, the start to the second quarter was rather sluggish. If the past relationship between soft and hard data holds, this catch-up with the strong optimism should happen soon.

German football supporters have learned the hard way that strong optimism does not necessarily always lead to strong results. Let’s hope the economy can do better.

The German economy is shaking off the coronavirus crisis, said Ifo president Clemens Fuest.

In manufacturing, the index rose to its highest value since April 2018. Companies were notably more satisfied with their current business. Their expectations were somewhat less optimistic. Developments were generally very good across all industries, but especially for manufacturers of machinery and equipment and for the electrical and electronics industry. Many companies are concerned about increasing bottlenecks in intermediate products (which are used to make other goods).

In the service sector, the business climate index jumped higher. The indicators for the current situation and for expectations both rose appreciably. The logistics sector and IT service providers reported particularly good business. Service providers are expecting strong sales growth, even in the crisis-stricken hospitality industry.

In trade, the easing of restrictions improved the business climate greatly. This was due to a marked improvement in current business. Expectations also turned more optimistic. Sentiment rose particularly steeply in retail. Never has the indicator for the current situation seen such a steep rise.

In construction, the index rose a little. Assessments of the current situation were almost unchanged. Expectations improved, but remained pessimistic. Material shortages continue to pose major problems.

In France, confidence among businesses has reached its highest level since mid-2007.

The business climate index from Insee climbed 5 points to 113, above its pre-Covid crisis level of 105 and its long-term average of 100. The improvement was driven by higher confidence in the service industries.

In manufacturing, confidence was stable after five months of rises while in services, the optimism index gained six points, with the general business outlook measure soaring to its highest level since September 2000.

Spain’s economy shrank slightly less in the first quarter of this year than previously thought. GDP declined by 0.4% from the previous quarter, following a stagnation in the fourth quarter, according to official figures. The statistics agency INE had previously estimated a 0.5% decline.

On an annual basis, Spain’s GDP fell by 4.2% instead of the 4.3% drop previously estimated.

Spain’s economy is expected to return to stsrong growth in the second quarter, from April to June, when Covid-19 restrictions were relaxed – but the country won’t recover to pre-pandemic levels until early 2023, economists say.

House builders have done well out of the government’s stamp duty holiday and the help to buy programme. Business at Crest Nicholson is booming.

The Surrey-based builder, which constructs houses and flats in southern England, has swung to a half-yer profit before tax of £36m for the six months to 30 April from a £51m loss a year earlier, as it completed 1,017 homes, up 31% year-on-year.

However, it has taken another “combustible materials provision” of £8m, taking the total bill for replacing flammable cladding on its properties to £23m.

Crest Nicholson says it is confident that “the housing market will remain robust” even though the stamp duty holiday is being phased out. It has reinstated its dividend, at 4.1p a share.

Anthony Codling, property analyst at Twindig, says:

Crest had a tougher 2020 than most of its peers, but it has now had the jab and the vaccine is working. In the half-year, its home sales are up 31% and profit after tax up 700% and the outlook for the full year looks just as healthy. Crest has used the lockdowns to its advantage focusing on internal issues and as lockdown eases it has emerged all the better for it.