There are different ways the increase in employers’ national insurance contributions announced in the budget could play out in the economy, BoE governor Andrew Bailey says.

It increases the cost of employment, he explains, and there are at least four potential margins of adjustments

• Firms could pass it on through higher prices paid by consumers

• They could absorb it through lower profit margins or higher productivity

• firms could increase wages by less than they would otherwise

• They could reduce employment.

Bailey won’t opine on the policy itself, but the Bank must respond to its consequences on inflation, he says.

The Bank of England are holding a press conference now to discuss today’s decision to cut interest rates. You can watch it here.

Governor Andrew Bailey is explaining that inflation has fallen more than expected over the last year.

Oil and gas prices have been significantly lower than expected a year ago, he points out. Lower than expected food, core goods and services prices inflation has also pulled inflation down.

But, he adds that inflation is “expected to rise somewhat” in coming months, to around 2.5% by the end of the year.

The Bank of England has calculated that Rachel Reeves’s budget last week will fuel inflation, but also lift the UK’s growth rate.

In its latest Monetary Policy Report, released at noon, the Bank says that measures such as a higher cap of £3 on bus fares, adding VAT on private school fees, and the increase in Vehicle Excise Duty from April, will push up the cost of living measure.

It estimates that the Budget is will boost CPI inflation (which was 1.7% in September) by just under ½ of a percentage point at the peak, “reflecting both the indirect effects of the smaller margin of excess supply and direct impacts from the Budget measures”.

The increase in employer NICs is also assumed to have a small upward impact on inflation.

The Bank explains:

In the near term, the direct effects of the rise in the cap on single bus fares from £2 to £3 and the introduction of VAT on private school fees from January, and the increase in Vehicle Excise Duty from April, push up the MPC’s projection for CPI inflation from 2025 Q1 and Q2.

The measures announced in the autumn budget are also expected to boost the level of GDP by around 0.75% at their peak in a year’s time, relative to the Bank’s August projections.

The Bank of England says it is appropriate to take a “gradual approach to removing policy restraint” – ie, cutting interest rates.

The minutes of this week’s meeting say:

Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.

The Committee continues to monitor closely the risks of inflation persistence and will decide the appropriate degree of monetary policy restrictiveness at each meeting.

Policymakers weren’t quite unanimous in deciding to cut UK interest rates today.

The Bank’s MPC voted by a majority of 8–1 to reduce Bank Rate by 0.25 percentage points, to 4.75%.

One member – the hawkish Catherine Mann – preferred to maintain Bank Rate at 5%, but was outvoted.

The Bank says:

At this meeting, eight members preferred to reduce Bank Rate to 4.75%. There had been continued progress in disinflation, particularly as previous external shocks had abated, although remaining domestic inflationary pressures were resolving more slowly. These members put different probabilities on and risks around the three cases, but they believed that a cut in Bank Rate was appropriate at this meeting. They would continue to assess the range of evidence over time.

One member preferred to maintain Bank Rate at 5%. For this member, structural factors in wage and price-setting dynamics continued to draw out the underlying disinflation process, and CPI inflation was projected to remain above the 2% target until the end of the forecast period.

Wage developments might continue to be more robust than projected as firms and workers incorporated past and upcoming adjustments in the National Living Wage and National Insurance contributions. This, along with prospects for more robust demand associated with the Budget, was likely to support pricing opportunities for firms. In the face of these uncertainties, maintaining the current level of Bank Rate would allow time to evaluate whether these upside pressures would materialise.

Newsflash: The Bank of England has cut UK interest rates for a second time this year.

As City experts had predicted (see opening post), the Bank’s monetary policy committee have voted to lower Bank Rate by a quarter of one percentage points, down from 5% to 4.75%.

It’s the second cut this year, following August’s reduction, and comes after inflation fell below its 2% target in September.

The Bank will have made the decision having assessed last week’s UK government budget and Donald Trump’s election as US president.

The average price of a home in the UK is at a record high but demand could slow as a result of policies in Rachel Reeves’s budget, Britain’s biggest mortgage lender has said.

Halifax’s monthly house price index found that the cost of the average home hit £293,999 in October, the highest ever recorded, outstripping the £293,507 reached in June 2022.

The 0.2% rise in October is the fourth consecutive month of growth, and brought the annual growth rateto 3.9%, from 4.6% in September.

The figures suggest homebuyers shrugged off concerns about what would be contained in the chancellor’s debut budget, delivered at the end of October. However, Halifax said measures included in the speech could affect future demand.

There’s drama in the central bank world already this morning!

In Stockholm, the Riksbank has cut Swedish interest rates by half a percentage point, down from 3.25% to 2.75%.

The Riksbank explains that there are “still few clear signs of a recovery”, so it has slashed borrowing costs to support economic activity. It says that if the outlook for economic activity and inflation remains the same, the policy rate may also be cut in December and during the first half of 2025.

The Riksbank adds that it is hard to assess economic developments at present, partly due to the US election, explaining:

There are risks linked to the geopolitical tensions, the economic policy abroad, the krona exchange rate and economic activity in Sweden that can affect the outlook for economic activity and inflation and lead to a different monetary policy stance.

Norway’s central bank has just voted to leave interest rates on hold, though, at 4.5%.

A rate cut in December is not likely either, with Norges Bank governor Ida Wolden Bache saying:

The policy rate will most likely be kept at 4.5 percent to the end of 2024.

The fortunes of the ten richest people in the world surged by a daily record yesterday after Donald Trump won a second term as president.

Bloomberg, who have crunched the numbers, explains:

The net worth of billionaires led by Tesla’s Elon Musk, the world’s wealthiest person, surged by $63.5 billion on Wednesday, according to the Bloomberg Billionaires Index.

Musk alone added $26.5 billion to his pot. Amazon.com’s Jeff Bezos and Oracle’s Larry Ellison were also among the top gainers. It’s the biggest daily increase since Bloomberg’s wealth index began in 2012.

Much of the gains for the ultra-rich come down to a surge in US stocks, underscoring bets that Trump, on his return to the White House, will implement an agenda favoring lower taxes and less regulation. The S&P 500 jumped 2.5% in the best post-election performance in history, while the US dollar also gained.

Taiwan will help companies relocate production from China to avoid the threat of tariffs imposed by Donald Trump next year, its economy minister Kuo Jyh-huei said today.

Speaking in parliament, Kuo said the impact of any Trump tariffs on China for Taiwanese firms manufacturing there would be “quite large”, Reuters reports.

Kuo added:

“We will as soon as possible come up with help for Taiwan companies to move their production bases.”

Trump has threatened to impose tariffs of 60% on US imports of Chinese goods, which would threaten growth at the world’s second-largest economy.

Donald Trump’s election victory and the threat of tariffs will force policymakers to be more cautious as they bring down interest rates, the European Central Bank’s vice president Luis de Guindos has said.

De Guindos said the heightened uncertainty following Trump’s recapture of the White House meant the threat of trade tariffs could be added to the uncertainty created by the war in Ukraine and the middle east conflict.

Speaking at University College London on Wednesday, he said the ECB was likely to take “small steps, short steps” in its approach to bringing down interest rates, scotching speculation of a cut in the cost of borrowing at the central bank’s next meeting by 0.5 percentage points from 3.75%.

Some analysts had speculated that the ECB would move quickly to bolster the eurozone economy ahead of threatened tariff increases on European and Chinese goods following Trump’s inaguration in January.

“Uncertainty is on the rise,” de Guindos said.

It is huge. And because of that you need to be prudent.

De Guindos, who was the first member of the ECB’s 26-strong governing council to respond to Trump’s electiion, said it will take time to assess how trade policies under Trump will affect the economy.

“If you ask me, are you going to react immediately? — No,” he said.

What we will do is we will incorporate into our projections the trade policy that is announced by the new US administration. And we will take into consideration all the elements. Trade policy, plus the evolution of demand, plus the evolution of energy prices.

But he added: “Tariffs will impact growth negatively and inflation negatively.”

In the meantime he said policymakers would continue to be guided by data and look particularly closely at its bank lending survey to determine whether firms are receiving the loans they need to boost investment.

He said bank lending was feeding through to the real economy following two cuts in interest rates by the ECB, but inflation and economic growth had slowed faster than expected.

He said it was clear from the US election that inflation had played a key role.

It’s quite clear that inflation is a tax the low income people, because it’s quite clear that they consume the large part of their incomes. And they consume the kind of items where prices have been rising the most.

And even though you know it’s clear that the inflation rate is declining, households and consumers, look at prices that are 20% or 30% higher than two years ago.

Investors and economists are bracing for further economic pain in Europe from a second Donald Trump presidency that could lead to hefty tariffs on European exports into the US.

Berenberg bank is warning this morning that Trump’s return to the White House implies “considerable trade policy risks and geopolitical uncertainty” for European businesses.

Germany – where the government has collapsed following the unexpectedly sacking of the finance minister yesterday – is particularly exposed.

Holger Schmieding, Berenberg’s chief economist, says:

We assume that Trump will initially impose only selective but headline-grabbing tariffs, while threatening to go much further if China and Europe do not offer him significant concessions in negotiations. That would be akin to his approach in 2017-20.

Viewed in isolation, such an escalation of trade tensions could lower 2025 growth in the Eurozone by c0.3 percentage points and in heavily exposed Germany by as much as c0.5 percentage points as uncertainty weighs on business confidence and investment.

However, the eurozone should benefit from the “temporary spillover from more US domestic demand” and a stronger US dollar, which makes euro-priced goods more competitive.

As a result, Berenberg has only trimmed its 2025 annual growth forecasts modestly. Growth in the eurozone next year has been lowered from 1.1% to 1.0%, for France from 0.8% to 0.7%, and for Italy from 0.9% to 0.8%.

Germany will likely be hit harder, with growth of just 0.3% instead of 0.5% next year, it adds.

A looming new trade war triggered by Donald Trump could push the eurozone economy from sluggish growth into “a full-blown recession”.

That’s the view of the investment bank ING, which fears the recession could begin even before Trump – who has said he wants to impose a 10% tariff on all non-US goods – is sworn in next January.

ING says:

The already struggling German economy, which heavily relies on trade with the US, would be particularly hard hit by tariffs on European automotives. Additionally, uncertainty about Trump’s stance on Ukraine and NATO could undermine the recently stabilised economic confidence indicators across the eurozone.

Even though tariffs might not impact Europe until late 2025, the renewed uncertainty and trade war fears could drive the eurozone economy into recession at the turn of the year.

ING also predicts that the European Central Bank will need to do the “heavy lifting” of protecting Europe’s economy by cutting rates, while politicians wait to see what policies Trump actually implements.

It explains:

With these election results, a 50bp rate cut at the ECB’s December meeting has become more probable, with expectations of the deposit rate dropping to at least 1.75% by early summer, possibly followed by further easing towards the end of 2025.

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

After yesterday’s election drama, monetary policy makes a welcome return to the stage with interest rate decisions in the UK and US.

The Bank of England is widely expected to cut base rate today; from 5% to 4.75%.

With CPI inflation and wage growth both continuing to cool, the Bank should feel confident it can adjust its restrictive policy stance.

To make the decision, the BoE must weigh up the implications of last week’s UK budget, which lifted taxes, spending and borrowing.

But investors are confident that its Monetary Policy Committee will vote to lower rates – a quarter-point cut is a 95% probability, according to the latest money market pricing.

Ranjiv Mann, senior fixed income portfolio manager at AllianzGI, says:

In the short term, although BOE governor Andrew Bailey indicated recently that it may be too early to declare victory on the fight against inflation given some concern about the stickiness of services inflation, we think that a majority of MPC members will still favour cutting rates in November.

The BoE will also be considering the outcome of the US election, and the implications of changes to US trade policy.

As must the Federal Reserve! It is also expected to cut borrowing costs by a quarter-point, when the US cental bank’s policymakers meets today.

Donald Trump’s pro-growth policies, such as tax cuts and tariffs, are likely to lead to higher inflation in the US, which ought to leave less room for interest rate cuts.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says:

The Federal Reserve is expected to announce a 25bp cut today, but the policy beyond today’s decision must be readjusted accordingly.

The expectation, so far, was that the Fed would cut today by 25bp, and deliver another 25bp cut in December, and a full point cut next year. Now, the December cut is on a slippery ground and the Fed should not consider more than 2-3 rate cuts next year. That’s – at least – the policy response that you would reasonably expect from a central bank as an economist.

The agenda

• 8.30am GMT: Eurozone construction PMI report for October

• Noon GMT: Bank of England interest rate decision

• 12.30pm GMT: Bank of England press conference

• 1.30pm GMT: US weekly jobless claims

• 7pm GMT: Federal Reserve interest rate decision

• 7.30pm GMT: Federal Reserve press conference