Graeme Wearden 

Bank of England leaves rates on hold, but could cut in November – as it happened

UK central bank decides against further stimulus measures, but hints that rates could be cut again soon.
  
  

The Bank of England, which is expected to leave interest rates on hold today.
The Bank of England, which is expected to leave interest rates on hold today. Photograph: Gareth Fuller/PA

That’s all for today, as the dust settles following the Bank of England’s meeting.

Here’s Katie Allen’s updated news story:

Back tomorrow. Cheers! GW

In other news....a double-dose of bad economic news from America just hit the wires.

Retail sales in the world’s largest economy shrank by 0.4% in August, twice as fast as in the UK during the same month.

And US industrial production shrank 0.4 per cent last month – dashing expectations of a 0.2% rise.

That’s the biggest monthly decline since March, and suggests America’s economy isn’t ready for an interest rate rise.

What about the savers?

Britain’s savers and pension fund holders may be irked by the prospect of another interest rate cut before Christmas.

Charles Cowling, director at pensions consultants JLT Employee Benefits, says that ultra-loose monetary policy will have serious implications:

“If markets are to be believed we could see interest rates stay at current record lows for the next 5 years, which is not good news for pension schemes.

This means there is no respite in sight from the record pension deficits caused by the Bank’s interest rate policy. As a result, there are going to be inexorable demands on employers for significant increases to cash funding of pension schemes. This will not be good news for share prices or dividends.”

Andrew Sentance, senior economic adviser at PwC, believes central banks are playing a dangerous game:

“Last month’s monetary stimulus package, however, dragged down bond yields and added to the funding problems of pension funds. These long-term consequences of a prolonged period of low interest rates require more consideration from the Bank of England and other central banks.

As we approach the 8th anniversary of the collapse of Lehmans, interest rates around the western world are still stuck close to zero. That is not a healthy situation for the long-term growth of economies - as we have seen in Japan.”

Tom Stevenson, investment director for Personal Investing at Fidelity International, shows how stock markets have outperformed bank accounts since 1996:

If anyone is unsure about the benefits of investing in the stock market over stashing cash under the mattress, our calculations show if you had invested £15,000 into the FTSE All Share index 20 years ago you would now be left with £55,105. If, however, you had invested £15,000 into the average UK savings account over the same period, you would be left with a paltry £20,100. That’s a difference of £35,005 – far too big for anyone to ignore.

Royal London: Expect a rate cut in November

Ian Kernohan, Economist at Royal London Asset Management, expects another rate cut in November:

Here’s his take:

“The Monetary Policy Committee had already cast doubt on the large fall in the July PMIs, so the economy’s bounce back in August should not have come as a surprise to them. There is enough evidence to suggest that while the economy may have slowed in Q3, it did not fall into recession, and the MPC note that data has actually been slightly stronger than they expected.

“However, the Bank sees these short term concerns as a side issue, noting that there has been no new information since the August Inflation Report relevant for the UK economy’s longer-term prospects.

“The Bank’s view is that the Brexit process will take some time, and will create uncertainties for households and firms. Specifically, they expect business spending to slow more sharply than consumer spending in response to this uncertainty. In my view, the news since the August Inflation Report should not have impacted this medium term assessment of the UK’s economic prospects, and I expect another rate cut in November.”

This was the last monthly meeting held by the MPC, which now moves to a new schedule of just eight meetings a year.

The next scheduled announcement on interest rates is 3 November, when the Bank will also publish new forecasts for inflation and growth and Carney will hold a press conference. This is widely seen as the most likely time for another interest rate cut.

The last scheduled MPC meeting for 2016 is on 15 December.

Another factor that could sway Bank policymakers deciding on whether to cut interest rates even lower is chancellor Philip Hammond’s autumn statement due on 23 November when he will set out the new government’s tax and spending plans. Bank governor Mark Carney has repeatedly urged ministers they need to play a role in helping shore up the economy rather than leaving all the work to interest rate-setters at the Bank.

Sterling is gloriously unrattled by the Bank of England’s announcement, and still hovering around the $1.322 mark.

BCC: Another rate cut won't do much good

Suren Thiru, head of economics at the British Chambers of Commerce (BCC), believes that the Bank of England could well cut interest rates again before Christmas.

But he also believes it won’t do much good; instead, chancellor Phillip Hammond needs to boost government spending in November’s autumn statement.

“UK interest rates already close to zero, further cuts will do little to stimulate growth and are likely to exacerbate the cost pressures that both businesses and consumers may face in the coming months from a weakening currency.

“With the monetary policy tools at the MPC’s disposal largely exhausted, it is vital that the government uses the upcoming Autumn Statement to deliver a fiscal environment that supports confidence and incentivises businesses to invest.”

Nancy Curtin, Chief Investment Officer at Close Brothers Asset Management, says government spending, not central bank firepower, is the key to boosting UK growth.

“In a world with zero bound growth, central banks will become increasingly judicious in choosing when, and how to act, and currently there is no pressing need for the MPC to show their hand again. Though trade data following Brexit reflects a positive narrative, there are still long-term considerations. The economy is still imbalanced, and investment has stumbled somewhat in light of uncertainty around the finer details of what a post-Brexit UK will look like.

Businesses and investors are likely to exercise caution in the meantime, looking ahead to a potentially changing fiscal agenda, and the timing and nature of the article 50 trigger. A trigger as early as Q1 2017 would ease uncertainty, but any longer will make businesses think twice about commencing long-term capex plans.”

Some snap reaction to the Bank’s announcement:

The Bank of England also reckons that business spending will suffer a bigger hit from Brexit uncertainty than consumer spending (a theory borne out by this morning’s strong retail sales figures).

It says:

While most business investment intentions surveys weakened further since the August Inflation Report, the near-term outlook for the housing market is less negative than expected and the indicators of consumption have been a little stronger than expected.

BoE: We could cut rates again

The Bank of England has dropped a clear hint that it could cut interest rates soon, perhaps as soon as November, unless the economy picks up.

The minutes of today’s meeting say:

“The committee’s view of the contours of the economic outlook following the EU referendum had not changed. News on the near-term momentum of the UK economy had, however, been slightly to the upside relative to the August inflation report projections.

The committee will assess that news, along with other forthcoming indicators, during its November forecast round. If, in light of that full updated assessment, the outlook at that time is judged to be broadly consistent with the August inflation report projections, a majority of members expect to support a further cut in Bank Rate to its effective lower bound at one of the MPC’s forthcoming meetings during the course of the year. The MPC currently judges this bound to be close to, but a little above, zero.”

The Bank minutes noted inflation had come in weaker than anticipated back in August.

They also noted that share prices had risen following last month’s interest rate cut and expansion to the electronic money-printing programme known as quantitative easing.

“The package of measures announced by the committee at its August meeting led to a greater than anticipated boost to UK asset prices,” the minutes said.

Updated

Bank expects less of a slowdown

The Bank of England says it is less pessimistic about the UK economy.

The minutes of today’s meeting state that “a number of indicators of near-term economic activity have been somewhat stronger than expected” since August’s rate cut.

“The committee now expect less of a slowing in UK GDP growth in the second half of 2016.

But policymakers said it was more difficult to use recent data to gauge the prospects for 2017 and beyond.

“Moreover, there had been no new information since the August inflation report for longer-term prospects for the UK economy.”

Ooooh, the two Bank of England policymakers who opposed expanding quantitative easing last month still think it was a bad idea.

Kristin Forbes and Ian McCafferty argued that the extra £60bn of bond purchases was “unwarranted”, but reversing the decision would be too costly and disruptive.

Here’s the news, hot off the Bank’s twitter feed:

Bank of England leaves interest rates on hold

Breaking: The Bank of England has voted to leave interest rates at 0.25%, an all-time low.

It has also left its quantitative easing programme unchanged, at £435bn.

Both decisions were unanimous, with the MPC voting 9-0.

More to follow!

Four minutes to go!

City traders are bracing for the Bank of England announcement at noon.

Anthony Cheung of Amplify Trading says investors will be scrutinising the minutes of today’s meeting for signs of a split within the Monetary Policy Committee.

Eight years since Lehman Brothers failed....

With 20 minutes until the Bank of England’s decision on interest rates, let’s take a moment to remember that eight years ago all hell was breaking loose in the markets.

Just after midnight US time on 15 September 2008, Lehman Brothers filed for bankruptcy. The news rocked Wall Street, triggering panic selling, and forcing policymakers to bail out a string of other financial firms to avoid complete meltdown.

It was a genuinely scary time -- financial workers have been reminiscing about how they raced to withdraw cash as they feared the game was up.

Eight years later, forecasts of a new great depression or massive market crashes have not come to pass. Instead, central banks have instead driven asset prices up, slashing borrowing costs and sending bond yields to record lows.

Have policymakers saved the day, or simply deferred the day of reckoning? Ask us in in another eight years.....

Here’s our news story about the UK retail sales figures:

Ex-deputy governor: No case for fresh rate cuts today

The recent run of strong economic data shows that confidence has bounced back after the immediate Brexit vote shock, says Sir John Gieve, former deputy governor of the Bank of England.

Speaking on Bloomberg TV, Gieve says that the BoE would probably claim some credit, as might Theresa May (for rapidly forming a new government).

Both things probably has an impact in stopping things escalating through the summer.

But there’s no case for fresh action from the Bank of England today, Gieve adds.

Former Bank of England policymaker Andrew Sentance is also on the show. He doesn’t believe Mark Carney should take credit for the economy’s resilience.

It takes six to nine months for interest rate changes to feed through to the economy.... the Bank of England has moved prematurely [by cutting rates last month].

Updated

UK consumers are saying “so much for Brexit, the sun is shining!”, writes Alan Clarke of Scotia Bank.

He reckons the UK economy may keep growing in the July-September quarter, despite the Brexit shock. But he also warns that retail sales growth may slow, especially if inflation and unemployment rise...

The risk is that there is such a thing as too much of a good thing. Good weather has been the main driver of spending growth in the last 2 months. But that might come unstuck in September - seasonal sales of warm clothing may suffer amid spectacular September weather.

I’d rather have the warm weather than a warm coat, but I’m trying to sell government bonds, not coats and jumpers.

The retail sales figures show that Britain’s economy is defying pessimistic predictions, says Ben Brettell, senior economist at Hargreaves Lansdown:

The vote to leave the EU appears to have had little to no effect on consumers’ willingness to spend, and the underlying trend in UK retail sales remains one of robust growth.

Surveys in the immediate aftermath of the referendum showed a sharp dip in consumer confidence, leading to predictions of weak sales over the coming months. However, the post-referendum landscape has been characterised by surveys forecasting a sharp weakening of activity, which have thus far failed to appear in the hard data. Today’s figures show that, so far at least, it appears to be business as usual for the UK consumer.

Here’s some more detail about the 6.2% year-on-year jump in retail sales in August:

  • all store types except textile, clothing and footwear, and household goods stores showed increases in the quantity bought and amount spent compared with August 2015
  • the quantity bought in household goods contracted year-on-year for the first time since May 2014
  • compared with August 2015 there were falls in average store prices across all store types, with the largest fall in petrol stations (2.5%); however, the fall of 1.9% in all retailing is the smallest fall we have seen since November 2014

Those strong August retail sales figures mean there’s even less reason for the Bank of England to slash interest rates again today.

UK retail sales show little Brexit impact

Boom! New retail sales figures show that British consumers haven’t been badly upset by the Brexit vote.

Retail sales dipped by just 0.2% in August, the Office for National Statistics says, and were 6.2% higher than in August 2015.

That beats City forecasts for a 0.4% monthly decline.

And July’s already-impressive figures have been revised even higher, from 1.5% to 1.9% during the month.

The ONS says:

Regarding the EU referendum in late June, our data on retail sales since the vote show little evidence of a departure from recent trends.

This chart shows how the City expects the Bank of England to cut interest rates again in the months ahead (but probably not today).

John Lewis has reported that the Brexit referendum hasn’t caused it any grief yet.

But the bellweather retailer is still finding life tough - profits have dropped by 15% in the last six months.

And the company’s pensions deficit has widened alarmingly - up by over £512m to £1.44bn. John Lewis blames the fall in government bond yields, which has cut the income generated from sovereign debt.

The foreign exchange markets are eerily calm this morning, as traders await the Bank of England’s announcement at noon.

The pound has dipped by 0.2%, and is bobbing around the $1.32 mark:

Swiss cut growth forecasts after Brexit

Newsflash from Zurich: the Swiss central bank has slashed its growth forecasts for the European economy, following the UK’s EU referendum.

The Swiss National Bank says:

The SNB still expects the moderate growth in the global economy to sustain over the coming quarters. However, the vote for the UK to leave the European Union has caused considerable uncertainty and makes an assessment of the global economic outlook more difficult.

The SNB has revised downwards its growth expectations for the UK and the euro area. As regards the global economy, the risks remain to the downside, owing to numerous structural problems.

The SNB also cut its inflation forecasts, and left interest rates on hold, at minus 0.75%.

Updated

Here’s the official tweet confirming that Hinkley is going ahead:

And here’s some early reaction:

Today’s Bank of England meeting follows a decent set of economic data this week.

For example, inflation remained at 0.6% in August, and the jobless rate remained at 4.9% in the May-July quarter.

That suggests the economy isn’t being spooked badly by June’s referendum.

But there’s still a serious risk of a downturn this autumn; confidence may slide as the process of actually leaving the EU gets underway

Ana Thaker, market economist at PhillipCapital UK, explains:

As MPC member Kristin Forbes warned in front of the Treasury select committee, the recent run of strong data must be taken cautiously with a potential downturn around the corner as Brexit negotiations begin and the economy processes the consequences.

Whilst many believe the bank may have acted too soon, lower rates will facilitate the economy if there is a downturn in data over September and October as we approach the end of the year and near closer to the expected triggering of Article 50.

Updated

Hinkley power station gets green light

Newsflash: After weeks of indecision, the UK government has decided to press on with the Hinkley Point C nuclear plant.

The decison was made after striking a new agreement with French energy firm EDF.

The government says:

The Government has decided to proceed with the first new nuclear power station for a generation. However, ministers will impose a new legal framework for future foreign investment in Britain’s critical infrastructure, which will include nuclear energy and apply after Hinkley.

More here:

Updated

Michael Hewson of CMC Markets predicts that Bank of England policymakers could clash over the impact of the Brexit vote at today’s meeting.

He writes:

While Bank of England governor Mark Carney has claimed that he is “serene” about the MPC’s “sledgehammer” actions last month he has already found himself in the uncomfortable position of having to defend the extent of the Bank’s response. This means that there is virtually no chance of any further policy action on the part of the central bank much before the Autumn Statement in November.

If anything the minutes could well show up robust debate particularly amongst those who voted against further QE at the last meeting, and who now have proved to have been correct in their assessment, that it wasn’t necessary, even though one of them Martin Weale has since been replaced by Citibank’s Michael Saunders.

Most City economists expect the Bank of England to leave interest rates on hold today.

But many also expect a fresh rate cut at November’s meeting.

A Reuters poll, just released, found that a majority believe borrowing costs will be cut to just 0.1% in two month’s time.

They are also less pessimistic about the impact of the Brexit vote on the economy, and now believe there is only a 35% chance of a recession over the next year. That’s down from 60% in July.

The agenda: Bank of England and UK retail sales

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

Mark Carney told MPs last week that he was gloriously ‘serene’ about the Bank of England’s approach to Britain’s Brexit vote.

And today, the governor will be corralled with fellow policymakers on the Monetary Policy Committee to discuss the state of the UK economy and decide if more stimulus measures are needed.

In truth, the Bank is very unlikely to take any fresh measures today - just a month after slashing interest rates to record lows and extending its quantitative-easing bond-buying programme by £60bn.

But the minutes of today’s meeting, which will be released at midday, will show the Bank’s thinking on Brexit -- and whether the MPC are split.

Last month, three hawkish members of the committee rebelled against Carney - voting against the £60bn QE boost. Might Ian McCafferty and Kristin Forbes give the governor a hard time today (Martin Weale has now left the MPC).

Forbes and McCafferty might point to recent economic data that has showed little immediate damage from the Brexit vote - and no sign of the recession which forecasters had predicted (yet anyway).

Analysts at RBC Capital Markets reckon the Bank will sit tight today, as the dust settles following June’s referendum. They say:

No change in policy is expected this time and if the recent Treasury Select Committee hearing on the August Inflation Report is anything to go by, there isn’t likely to be much of an elaboration on the Committee’s view about post-referendum economic performance.

We know the Committee are cautious about placing too much weight on the survey indicators after the vote so it is clear they are taking a longer-term approach.

Also coming up today...

Here’s the economic calendar:

  • 9.30am: The latest UK retail sales figures, for August
  • 10am: Eurozone inflation for August
  • 12pm: Bank of England interest rate decision & minutes
  • 1.30pm: US retail sales figures, for August

We’ll have an eye on Greece today too, as talks continue with its lenders over its bailout programme (and the slow pace of reforms).

It’s also a busy morning in the City, with retail group John Lewis and high street chain Next both reporting a drop in sales. But things may be improving for supermarket group Morrisons.

We’ll be tracking all the main events through the day...

Updated

 

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