Back on the stock markets, the FTSE 100 has been barely moved by Andrew Bailey and pals at Threadneedle Street.

London’s blue-chip stocks are down 0.1% with just under two hours of the day remaining, at about 7,114 points. That is much where they were before midday.

There are not huge moves on Wall Street either after the opening bell.

Here are the opening snaps:

• S&P 500 UP 11.64 POINTS, OR 0.26%, AT 4,414.30
  
• NASDAQ UP 22.43 POINTS, OR 0.15%, AT 14,802.96
  
• DOW JONES UP 94.95 POINTS, OR 0.27%, AT 34,887.62

The Bank of England has predicted that UK inflation will hit 4% by the end of this year, as it left interest rates at their historic low of 0.1%, writes the Guardian’s Phillip Inman.

Central bank policymakers forecast that UK inflation would rise to 4% in the fourth quarter of 2021, double the Bank’s 2% goal, largely due to higher energy and other goods prices. Inflation hit 2.5% in June, and the Bank had predicted in June it would rise above 3% this year.

It also signalled that “some modest tightening of monetary policy is likely to be necessary” over the next couple of years.

But policymakers resisted pressure to increase the cost of borrowing to calm rising prices, saying the increase in inflation would prove temporary and was expected to fall back towards its 2% target next year.

You can read the full write-up of the Bank’s decision here:

Some experts question whether the rise in inflation can really be seen as temporary.

Ian Stewart, chief economist at Deloitte, an accountancy firm, said:

A supercharged recovery has hit supply bottlenecks earlier than the Bank expected. The pace of growth in inflation is challenging the view that rising prices are a temporary phenomenon.

Given the strength of the recovery it’s hardly surprising that the Bank has signalled that some tightening of policy is likely to be needed in the next two years. If there is no other major wave of Covid-19 during the winter and the economy performs in line with the Bank’s forecasts, the first rate rise is likely to come in the spring or early summer of next year.

Karl Thompson, an economist at the Centre for Economics and Business Research, a consultancy, said:

Bank forecasts however now show inflation rising to 4.0% in the fourth quarter of 2021 and remaining above target for longer in 2022. If projections for inflation continue to be revised upwards in the coming months, further MPC members will likely join emerging calls for quantitative easing to be clawed back.

However, Martin Beck of the EY Item Club, a forecaster run by another accountancy firm, said the case to “wait and see” was strong.

Despite hawkish elements to the MPC’s latest policy statement, the case for a ‘wait-and-see’ approach remains strong, both in assessing just how temporary higher inflation proves to be and the consequences of the end of the furlough scheme and other government support measures in the autumn.

Given this, the EY Item Club continues to expect no rise in bank rate until late 2022, when the economic impact of the pandemic will hopefully have faded and the economy is returning to its pre-pandemic trajectory.

Oh hang on, back for one final question in the Q&A: how will investing for net zero affect inflation?

Bailey says it will require investment. That will affect the supply side of economies, and will be a threat and an opportunity.

It will also affect how the Bank uses its balance sheet, he says.

Ramsden says the £20bn of corporate bond purchases - some of which include large polluters - is small compared to the overall quantitative easing scheme. But wait for adjustments after the summer, he says.

And with that the Q&A is over. The next meeting could feature an in-person press conference as well - now that would feel like a novelty!

Let’s break off from the press conference to get a bit more expert reaction.

James Smith, a developed markets economist at ING, an investment bank, said:

The big news is that the Bank of England could begin reducing the amount of government bonds it holds once rates reach 0.5% - so potentially in mid/late 2023. The change in threshold is not too surprising, but the finer details possibly hint at a more rapid unwind than might have been expected.

It was a “fairly upbeat” central message, he said. Despite the spread of the Delta variant over the summer, the Bank’s latest growth forecasts are barely changed from the May meeting.

The first rate hike is likely in early 2023, or perhaps a little earlier, based on reverse engineering forecasts, he said.

On the adjustments to the thresholds for unwinding QE, he added:

The speed of unwind has the potential to be a little quicker than we might have expected, assuming the Bank were to immediately stop all reinvestments - and indeed ultimately sell bonds back into the market.

Q8. How much of the slowdown in the third quarter of 2021 was to do with the ‘pingdemic’?

Bailey says the slowdown is not due to the “so-called pingdemic” first and foremost. It is due to the spread of the Delta variant, he says.

The economic impact of Covid has attenuated over time, he says, but has it contributed to a slight flattening, he says.

Q7. Would a 0.4% rise in interest rates be modest? And was shifting the threshold for unwinding QE lower difficult?

Bailey says there is not a precise definition of “modest”.

The threshold change was a decision of the committee, and it is appropriate, he says. There’s no precision in this, he says.

“We have to expect that things happen. We are struck by shocks... We’ve got to have tools in the box,” he says.

Q6. Is there a danger that the Bank is getting complacent on inflation?

Bailey says the Bank is not complacent because it has spent hours talking about inflation.

“There are risks both ways on this, risks both above and below,” he says.

“There is clear evidence of labour market shortages; vacancies are now high,” he says. “We are alert to that, we’re very alert to that.”

We do expect there will be a switch back from goods to services as the economy reopens, he says. Parts of the service sector are not operating or are only just coming back, but those factors are likely to be temporary.

Deputy governor Sir Dave Ramsden says he wants to emphasise the Bank’s vigilance on inflation. Longer-term inflation expectations are more stable than short-term pressures, he says.

There are disinflationary forces that could see inflation undershooting the target, says Ramsden.

Q5. Should financial markets assume that rates will tighten further because of the inflation forecast?

Broadbent says the Bank does not use inflation forecasts to send signals. Any overshoot in inflation forecasts of the 2% target is small.

Q4. Where is the new lower bound for interest rates? Can we assume it’s -1%?

Bailey says it isn’t useful to think of the lower bound as a single number. Having negative rates in the toolbox allows us to live with an effective lower bound that is negative, but that is conditioned on the circumstances of the time, he says.

He emphasises that the Bank could stop reducing its QE purchases or even buy more in future if necessary.

Q3. The Guardian’s Larry Elliott asks why the recovery has less economic scarring than previous recessions? He also asks what the new normal looks like on monetary policy?

Bailey says there is broad literature showing the worst recessions follow financial crises. The financial crisis was an important part of the 2008-09 crash, he says. One of the good things in the past 18 months was the lack of the a financial crisis.

On the second question Broadbent comes in: we did always think this would be a relatively rapid recovery. Policy support was an important part of that, particularly the furlough scheme (which paid workers), he says.

As soon as the health situation improved it removed a cap off the economy, allowing a more rapid recovery, Broadbent says.

“It is very difficult to say what normal means,” says Broadbent, in relation to what a normal equilibrium interest rate would be.

Q2. (a) how many members thought conditions were ripe for a rate rise? (b) to what extent does the Bank understand the inflation process given past forecasting errors? (Ouch!)

Bailey says if we look at the underlying drivers of inflation, what is new is the growing number of supply bottlenecks. We are seeing them across quite a range of markets.

Since June we’ve also seen more evidence of the increase of the stock of vacanices in the labour market, he says.

What is unusual about this period is that there has been a hit to both supply and demand, he says. We’ve learned a lot over the last year about this shock that has caused our understanding to evolve, he says.

On (a) there were two views as to whether the guidance was met or whether it was not yet met - and also if it was a “necessary but not sufficient condition” to raise interest rates, he says.

All members came together again on the appropriate stance of monetary policy, he says. “This is not a difference of voting, it’s not a difference on the fundamental views of monetary policy, it’s a difference of interpretation,” he says.

Q1. How will interest rate movements work together with QE on tightening?

Andrew Bailey says interest rate increases are their active tool in monetary policy, but it is also good to have a predictable path for the stock of assets on the balance sheet.

Lowering the threshold for reducing the asset purchases to 0.5% bank rate is important, he says. A lot has changed in recent years, meaning viewed from today a 1.5% threshold would mean no wind down in asset purchases.

Deputy governor Ben Broadbent emphasises that active sales will only kick in at 1%.

The recovery will be bumpy, says Bailey. The Bank takes rising inflation very seriously, he adds.

There are good reasons to believe the rise in inflation will be temporary, but the MPC will not hesitate to act if that judgement changes, says Bailey in conclusion.

Now on to the Q&A.

At some point the stance of UK monetary policy may need to tighten to achieve its 2% inflation target, Bailey says.

The committee’s preference is to use bank rate to try to affect the economy rather than other tools like quantitative easing (QE), he says.

QE asset purchases work better when markets are dysfunctional, he says.

The MPC intends to reduce the stock of assets when bank rate rises to 0.5%, he says.

That is lower than the previous threshold of 1.5%. That reflects the MPC’s judgement that setting a negative bank rate is now part of the Bank of England’s toolkit, he says.

There were different views as to whether the conditions for tightening policy had been met, Bailey says.

The committee will not put undue weight on capacity pressures that are frictional and likely to be temporary in nature, he says.

The committee will be monitoring unemployment, wider levels of slack, and wage pressures, he says.

“Some modest tightening of monetary policy over the forecast period is likely to be necessary,” Bailey says.

Bailey highlights oil prices and supply bottlenecks among the inflationary pressures.

Our view is that the pressures will reduce, Bailey says.

Bailey says the challenge of stopping unemployment has been replaced with labour market pressures.

Pay growth appears to have returned to near pre-Covid levels.

The most substantial news since the Bank’s May forecasts is the rise in inflation.

Bank of England governor Andrew Bailey is speaking now at the press conference.

More updates as he speaks.

There was a clear signal from the Bank of England that is will be thinking of how to tighten policy in the coming months. But that does not necessarily mean a move is imminent.

Ruth Gregory, senior UK economist at Capital Economics, said:

We still think it’s more likely that the MPC continues to sit tight until the middle of 2023 before tightening policy.

Yet the Bank’s statement was more hawkish than expected, she said.

As expected, the Bank used its economic forecasts to convey a more upbeat message about the economic outlook. Indeed, while the economy is still expected to regain its Q4 2019 pre-pandemic peak in Q4, the Bank now thinks that instead of peaking at 5.4% in Q3, the peak in the unemployment rate has already happened.

Most importantly, after stressing since the start of the pandemic that it wasn’t even thinking about tightening policy, the committee today said that “some modest tightening of monetary policy over the forecast period was likely to be necessary to be consistent with meeting the inflation target sustainably in the medium term”. In fact, some members of the committee already think that the “conditions of the existing guidance had been met fully”.

A brief interlude as we await the Bank of England press conference: casino consolidation rumours have sparked investor interest.

Ever since Las Vegas-based MGM Resorts walked away from a bid for Ladbrokes owner Entain in January, the question hasn’t been so much if it will return but when.

A six-month ban on an improved bid expired in mid July and expectation is building that an improved offer will come soon.

Back in January, Entain rebuffed an £8bn approach. Its stock market value has climbed steadily since then, to around £11.4bn this week, indicating the board were right to laugh off the US predator’s offer.

Shares in Entain are up 2% today and 11% since 20 July. Much of the recent surge can be put down to expectations that MGM Resorts is putting together a new offer at something more like what Entain shareholders will be looking for.

With the US sports betting market opening up rapidly - and promising even greater returns than first thought - a fresh tilt at Entain, at a significantly improved price, looks like a racing certainty.

The one dissenter at the Bank of England’s meeting who wanted earlier action to tighten policy was Michael Saunders.

He voted to reduce the target for the stock of UK government bond purchases from £875bn to £830bn.

(And a correction to an earlier post: 7-2 was not a possible result because new recruit Catherine Mann will not join the committee until next month. That meant there were only eight members at this week’s meeting.)

The pound is basically unchanged against the dollar after the Bank of England’s statement.

It has gained 0.2% today to reach $1.3920.

It’s a tricky one for foreign exchange analysts to work out. On the one hand there are some signs of tighter monetary policy coming. On the other hand the outlook for future interest rate rises is lower.

Another important clue in the MPC’s monetary policy report: it will cut back the stock of its quantitative easing bond purchases only when bank rate has risen to 0.5% - up from 0.1% now.

At first it would do that by not reinvesting the proceeds from maturing bonds, but it could also consider “actively selling” some of those bonds. However, don’t hold your breath just yet: it won’t sell those bonds until bank rate is at least 1%.

The Bank of England’s monetary policy committee has highlighted the rise of inflationary pressures around the world, but added that the Delta variant of the coronavirus has slowed global GDP growth.

In its statement on Thursday the MPC said:

Global price pressures have continued to build, reflecting the speed and unevenness of the recovery in activity, and disruptions to supply chains.

However, it said much of the inflationary pressure will be transitory.

The committee’s central expectation is that current elevated global and domestic cost pressures will prove transitory. Nonetheless, the economy is projected to experience a more pronounced period of above-target inflation in the near term than expected in the May Report. And, alongside temporary constraints on supply, the rapid recovery in demand has eroded spare capacity such that the economy is projected to have a margin of excess demand for a period.

There is still a split on the committee as to whether its 2% inflation target will be hit sustainably.

Some members of the committee judge that, although considerable progress has been made in achieving the conditions of that guidance, the conditions are not yet met fully. The other members judge that the conditions of the guidance have been met fully, but note that the guidance made clear that these have only ever been necessary not sufficient conditions for any future tightening in monetary policy.

[T]he committee will not put undue weight on capacity pressures that are frictional in nature and likely to be temporary.

You can read the MPC’s latest statement here.

The consensus is firmly that the Bank will keep its policy unchanged.

However, two policymakers - Sir Dave Ramsden and Michael Saunders - have signalled in speeches that they see growing reason for a withdrawal of some stimulus soon.

Kallum Pickering, a senior economist at Berenberg, an investment bank, wrote this week that there is an “outside chance” of the Bank opting to tighten. Could we be in for a surprise shortly?

He wrote:

Since the previous Bank of England monetary policy report in May, UK economic data have remained robust, inflation has surprised to the upside, financial conditions have become easier and the risks from the Delta wave of SARS-CoV-2 infections have faded somewhat.

Although the most likely outcome remains that the BoE will keep its main policies unchanged at this week’s monetary policy meeting (which would already imply a further reduction in weekly asset purchases), we think there is an outside chance that policymakers could surprise markets by announcing an early end to net asset purchases.

Also thanks to commenter Nohearted who pointed out that Next’s Simon Wolfson runs Frasers’ incoming chief executive close for the title of youngest chief executive of a large FTSE company.

Wolfson’s rise to the top was also aided by his family connections: he became Next’s boss at the tender age of 33 way back in 2001. Wolfson followed his father into the role.

Michael Murray, the anointed boss of Frasers, should still be younger when he takes over.

Frasers Group has moderated its earlier losses. Shares in the retailer are now down by only 0.9% (while the broader FTSE 250 has gained 0.4%).

Perhaps investors have been reassured that Mike Ashley will still be present at the company in the wings, even after handing control to his daughter’s fiancé in May 2022.

Ashley has been the defining force in the company since he founded it in 1982 as Sports Direct. He floated it in 2007, and in 2016 belatedly took the title of chief executive. He renamed it Frasers Group after taking over department store chain House of Fraser in 2019.

In that time the company has been the subject of significant controversies (as has Newcastle United, the football club he bought). In case you’re looking for some mid-morning reading, here is a round-up of some of the greatest hits in Mike Ashley’s time as boss:

A quick check in on the FTSE 100 reveals... not very much: the index is still down by less than 0.1% as investors wait for another hour for the Bank of England’s latest.

The biggest faller is Lloyds Banking Group, which is down 3.5% after Goldman Sachs, the US investment bank, cut its rating on the shares to “sell” and put its target price at 45p. Shares are at 45.5p, suggesting the market is in agreement.

Rolls-Royce is the biggest gainer, up 4.5% since its update on its cash burn.

On the mid-cap FTSE 250 Savills is the biggest gainer after its record first half: shares are up by 4.9%.

UK construction output was already back to its pre-Covid level in the second quarter of 2021, noted Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

He said:

Looking ahead, the decline in Covid-19 infections in recent weeks should help to boost builders’ staffing levels. But construction demand might falter when surging input prices hit customers.

In addition, new housing demand likely will ease after the threshold for stamp duty has returned to £125K at the end of September. Commercial property vacancies also probably will increase as firms seek to take advantage of the shift towards working-from-home by shrinking their office space, and as more high street retailers disappear, thereby dampening demand for new buildings.

That said, the government’s plans for relatively high levels of public sector investment, alongside low interest rates and the revival in business confidence, should ensure that construction activity inches higher next year.

It’s a problem companies like to have, but it’s nevertheless a problem: construction companies are working at full tilt so are having to leave orders on the table.

It was unsurprising that the industry was unable to maintain June’s 24-year high in output growth, particularly when “widespread supply shortages and constrained capacity to take on additional orders” were added to the mix, said Tim Moore, economics director at IHS Markit. He said:

July data marked the first real slowdown in the construction recovery since the lockdown at the start of this year.

The loss of momentum spanned all major categories of construction work and was most pronounced in the house building sector.

Long lead times for materials and shrinking sub-contractor availability were cited as factors holding back work on site. Around two-thirds of the survey panel experienced longer wait times for supplier deliveries in July, while just 2% reported an improvement since the previous month.

Another rapid increase in purchasing costs was linked to global supply and demand imbalances, but many firms also noted that local issues had amplified inflationary pressures. These included a severe lack of haulage availability, continued reports of Brexit trade frictions, and greater shortages of contractors due to exceptionally strong demand.

The Society of Motor Manufacturers and Traders (SMMT) has also cut its forecasts for UK car production this year: it reckons British factories will churn out 1.82m cars this year, down from the 1.86m it forecast in April.

However, on a brighter note the group expects battery electric vehicles to make up 9.5% of all UK registrations this year, up from 6.6% of sales in 2020.

Battery cars were 9% of registrations in July, while plug-in hybrids (PHEVs) reached 8.0%.

The march of the plug-ins is rapid - and it surely cannot be long before battery electrics overtake traditional diesel sales (although there may be a while before it takes over diesels and mild hybrids combined).

Rolls-Royce has reassured investors by sticking to its guidance on its cash burn after slowing its spending further.

The British jet engine manufacturer on Thursday reported a cash burn of £1.2bn in the first half of 2021. That is hardly a great result, but it’s an improvement in the context of the pandemic - which hit sales of new planes and the lucrative revenues it makes for servicing engines when they’re used.

The company’s shares gained 1.1% in the first hour of trading.

It was all about cutting cash needs - it slashed 7,000 jobs out of 19,000 across its global civil aerospace division - said Warren East, the chief executive. He said:

The benefits of our fundamental restructuring programme in civil aerospace are evident in our reduced cash outflow and improved operational efficiency. This leaner cost base together with a strong liquidity position gives us confidence in our ability to withstand uncertainties around the pace of recovery in international travel and benefit from the eventual rebound.

The FTSE 100 is basically flat after its first half hour, with investors likely eyeing the Bank of England later: London’s blue chip shares have lost less than 0.1%. It’s the same story on the FTSE 250.

There are not many big movers on either index, but there are some movers and shakers worth mentioning who reported this morning.

First up, estate agent Savills reported a record half-year performance for the first six months of 2021, thanks to the fast recovery in global property and the booming UK housing market.

Savills’ revenues rose by £141m to £933m, an 18% increase compared to the previous year. Profits before tax hit £63.8m, up from £7.7m in the first half of 2020 when the pandemic struck.

The bumper performance may help to assuage investors’ anger over executive pay. More than a quarter of its investors failed to approve the company’s remuneration report at its annual meeting in May. The company paid Mark Ridley, the chief executive, a £350,000 bonus despite failing to hit the minimum profit target required to trigger an award last year.

Savills said it had enjoyed a record UK residential transaction advisory revenues, amid an “exceptional recovery” since the summer of 2020.

The property sector has boomed since the pandemic freeze thanks to a heady combination of rock-bottom interest rates, pent-up demand, and of course a huge amount of UK government support in the form of tax breaks. The cuts to stamp duty, brought in by chancellor Rishi Sunak, are thought to have increased prices - going beyond their immediate aim of preventing a house price collapse.

Some more detail on Michael Murray, the fiancé of Mike Ashley’s daughter, Anna who must surely rank as one of the youngest ever prospective chief executives of a FTSE 250 company.

The Guardian’s retail correspondent, Sarah Butler, reports:

The Doncaster-born son of a property developer began by helping Ashley with personal property deals a few years after meeting his daughter Anna on holiday in 2011.

The former club promoter has become Ashley’s right-hand man, overseeing a revamp of Sports Direct stores as well as expanding Flannels, improving the group’s use of technology and building relationships with high-end brands.

However, Murray is not on the company’s board, or even an employee, but is employed as a consultant, and paid up to 25% of any value he creates from property deals.

That formula resulted in Frasers handing Murray £9.7m in total over 2019 and 2020. In the past year he was paid £2.5m related to his property services and a further £100,000 for his “elevation” work.

You can read the full report here:

Mike Ashley will officially be in the back seat when he takes his executive director role at Frasers Group, but he will still be a major presence at the company.

He holds 66.5% of its shares, a stake worth £2bn, according to S&P Global Market Intelligence.

Ashley has had a similar arm’s length relationship before: he was executive deputy chairman when Sports Direct floated in 2007 until 2016 when he became chief executive.

Yet through the title changes he has always been seen by outsiders as the face of the company he founded - for good or ill - and its guiding influence.

Shares in Frasers Group have dropped by 3.3% in the opening trades on Thursday, as investors digest its results plus the news that Mike Ashley will hand over day-to-day control of the company to his prospective son-in-law.

The response of stock markets to Ashley’s decision over the next few weeks will be interesting. There are not many examples of a 31-year-old being handed the reins of a FTSE 250 company (in fact, comments are welcome below if you can think of any at all).

Yet it may not be the worst time for a handover, given the performance of shares over the last year. Despite the pandemic Frasers shares are worth more than at any point since 2015.