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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The Bank of England is set to keep interest rates unchanged this week as it hunts for clearer signs that pay growth and services inflation are cooling sufficiently to permit a cut in the cost of borrowing. Financial markets are overwhelmingly betting that the BoE’s benchmark rate will be kept at 5.25 per cent when the Monetary Policy Committee announces its latest decision on Thursday. It would mark the fifth successive meeting that the rate is held unchanged, after 14 consecutive increases. Pricing in the swaps market — which reflects predictions of the future level of BoE interest rates — suggests the first downward move will only come by August, with one or two further cuts by the end of the year. Steady monetary policy in the UK this week would chime with the approach of big central banks including the Federal Reserve and the European Central Bank, which are making it clear they will start reducing rates only when they have enough evidence that inflation is heading durably lower. The ECB kept rates unchanged this month, while the Fed is tipped to do the same on Wednesday. “‘Not yet’ is the key phrase that unites the message of the Bank of England, the Federal Reserve and the ECB at present,” said Sandra Horsfield, economist at Investec. Official data this month pointed to softer conditions in the UK labour market, as slightly slower wage growth combined with a fall in job vacancies, stalling growth in the number of payrolled employees, and an increase in the number of claimants for jobless benefits. Excluding bonuses, annual wage growth slowed to 6.1 per cent in the three months to January, from 6.2 per cent previously. But the BoE is wary of putting too much weight on single labour market releases given continued quality problems with Office for National Statistics surveys. In any case the pace of pay growth remained well above levels consistent with the central bank’s 2 per cent inflation target, analysts said. A crucial question for the MPC will be the shape of pay deals struck by employers in March and April. The median pay increase across the economy has held steady at 5 per cent in the three months to January, according to analysis of pay awards by Incomes Data Research. However, a quarter of the 63 deals examined were worth 6 per cent or more. A key factor in April is the upcoming 9.8 per cent increase in the National Living Wage — a boost that will also have knock-on effects for the pay of some employees who earn somewhat more than the statutory floor. Andrew Goodwin, economist at consultancy Oxford Economics, said the recent data did not suggest pay would undershoot the BoE’s first-quarter forecast of 5.7 per cent. “We think the majority of the MPC will be keen to see more data on new year pay settlements before committing to rate cuts,” he added. Waiting has another benefit: it gives the BoE time to compile a full set of economic forecasts, next due at its May meeting. Officials at the central bank have also been closely watching growth in services prices, which rose 6.5 per cent in January compared with a year earlier. They see prices charged by the UK’s massive services sector as a key gauge of underlying pricing pressures in the economy. Although the MPC largely backed rate rises between November 2021 and last summer in an effort to tame inflation, the committee was split three ways when its nine members last met in February. While two policymakers, Catherine Mann and Jonathan Haskel, opted for an increase in rates to 5.5 per cent, fellow external member Swati Dhingra called for an immediate cut. The majority voted for no change.BoE governor Andrew Bailey said after the meeting that the central bank had seen “good news on inflation over the past few months”. But he cautioned: “We need to see more evidence that inflation is set to fall all the way to the 2 per cent target, and stay there, before we can lower interest rates.”Pressure for rate cuts is likely to rise in the coming months as headline inflation drops rapidly to the 2 per cent target, thanks to lower energy prices. Consumer price inflation is now at 4 per cent, compared with its 2022 peak of more than 11 per cent. Official inflation figures for February are due on Wednesday, with the headline rate of CPI inflation expected to drop further to 3.6 per cent, according to a Reuters survey of analysts. The BoE predicted in February that, after bottoming out in the second quarter, price growth would probably start trending higher later in 2024, bolstering arguments for the central bank to keep policy restrictive. Other forecasters including the Office for Budget Responsibility, the fiscal watchdog, question the idea that CPI inflation will quickly bounce back. Markets see both the Fed and ECB announcing rate cuts this summer. Officials at the BoE have been coy about the likely timing of their first reduction, with chief economist Huw Pill recently insisting that he thought the time for the first move remained “some way off”. “The BoE probably requires more convincing to actually start the ball rolling” on rate cuts, said Allan Monks, UK economist at investment bank JPMorgan. “It is aiming to avoid having to potentially retrace its steps after beginning to ease, and may struggle to contain expectations after it has started.” More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Investors are waiting to see if the Bank of Japan will lift interest rates next week, in a move that would end its eight-year experiment with sub-zero borrowing costs. The Japanese central bank is also expected formally to abandon its policy of capping the yields of 10-year Japanese government bonds, although analysts believe it is likely to stress that it will continue to buy JGBs to limit the impact on financial markets. The policy meeting comes after large Japanese companies agreed to increase wages by 5.28 per cent during this spring’s pay negotiations, the biggest increase since 1991. BoJ governor Kazuo Ueda has long argued that more evidence of wage growth is needed before the central bank becomes confident enough about sustainably achieving its 2 per cent inflation target. The rate decision is likely to be a close call, with UBS expecting the BoJ to keep policy on hold until April. Despite the robust outcome of the wage negotiations, economic performance has been weak due to sluggish consumption. UBS economist Masamichi Adachi said there were still uncertainties as to whether Japan’s inflation, which is well beyond its peak, will be sustainable. “Is the wage growth acceleration really leading to an acceleration in service inflation?” Adachi wrote in a report. “We do not think Japanese inflation expectations are anchored at 2 per cent.” That is likely to mean that rates stay very low for the foreseeable future and BoJ officials do not see the first rise as a signal that more will quickly follow. Kana InagakiWhat will the Fed say about the path of interest rates?Interest in the Federal Reserve’s latest policy meeting next week will focus on the so-called “dot plot”, which will show whether officials still expect to cut interest rates three times this year. After the Fed surprised markets in December with its projections, traders had been betting by the start of this year that it would be forced to cut rates much faster — between six and seven times in 2024, with the first cut as soon as March.However, those estimates have been drastically cut back in recent weeks as inflation’s move down has slowed, and no cut is now expected this month. Headline consumer price inflation has been hovering just above the 3 per cent mark since October. Meanwhile the rise in core consumer prices — a metric that strips out the volatile food and energy sectors — has slowed, though progress this year has been minimal. As of Friday, traders in the futures market were pricing in just three quarter-point cuts this year, in line with the Fed’s forecasts from its December dot plot. “My forecast is that the Fed will continue to show three cuts in the coming year, but there is some question about whether the median dot will show two or three,” said Eric Winograd, head of developed market economic research at AllianceBernstein. Kate DuguidWill the Bank of England hint at interest rate cuts? The Bank of England is forecast to keep interest rates at 5.25 per cent for a fifth consecutive meeting on Thursday, but rate-setters could soften their guidance if there are signs of inflation falling faster than it had expected. At the BoE’s February meeting, two of the nine-member monetary policy committee voted for a rate rise and one voted for a cut, with the other six opting to keep rates on hold. Investors expect at least seven votes in favour of no change in policy next week, with any deviation having the potential to move markets. Many analysts expect the bank to maintain its hawkish stance in policy guidance, given that multiple committee members have said that, while there has been progress in taming inflation, they need to see more evidence that it will stay low before starting to cut. But that could change on Wednesday when February inflation figures are published. Analysts expect the annual inflation rate to fall to 3.5 per cent in February from 4 per cent the previous month. “Our baseline is that policy guidance will be unchanged, although a particularly weak inflation print . . . may give members enough conviction to soften language further,” said Jack Meaning, an analyst at Barclays.  This week official figures showed that UK wage growth slowed slightly more than expected in the three months to January but remains high at 5.6 per cent. The BoE has made it clear that even though inflation is likely to fall to, or even below, its 2 per cent target within the next few months, it still thinks there are underlying price pressures in the economy. Mary McDougall More

WASHINGTON (Reuters) – Democrats in the U.S. Congress fended off some of the deepest cuts to housing and other social safety net programs sought by Republicans, but low-income Americans will nonetheless feel the brunt of reductions that were included in a new law.Washington’s efforts to address the availability of affordable dwellings for low-income families and rid aging structures of dangerous lead-paint contamination suffered funding setbacks in legislation enacted earlier this month as part of a wide-ranging government spending measure.As soon as Sunday, congressional leaders could unveil a deal on a second batch of legislation that may include funding for important health, labor and education programs. Lawmakers face a Friday deadline to pass these measures or risk a partial government shutdown. The bills would determine funding levels for an array of social programs, including teachers serving low-income students, reducing mortality for poor pregnant women, job training for disadvantaged youth and HIV prevention.The funding reductions in the appropriations bills already enacted into law come as housing advocates have warned that the needs of low-income families were not being met, especially following the COVID-19 pandemic and rising housing prices.Almost six months into the fiscal year that began on Oct. 1, Republicans, who control the House of Representatives, and Democrats, who hold a Senate majority and the White House, are still arguing about federal spending priorities amid a national debt of $34.5 trillion that is rising at a dizzying rate.”Today, it costs in some places 40% more than it did before the pandemic to produce affordable housing,” said Kevin Nowak, head of the nonprofit CHN Housing Partners, which develops affordable housing in Cleveland, Detroit and Pittsburgh, and is a lender for those who are left out of traditional mortgage markets. “In Cleveland, one of the highest concentrations of poverty in the country, it will be particularly harmful,” Nowak added.He was referring to the $250 million cut to the Housing and Urban Development Department’s “HOME” program. House Republicans had sought a $1 billion reduction to the program that helps state and local governments produce affordable rental and owner-occupied housing.About three-quarters of likely eligible households in the United States do not receive rental assistance, according to Sonya Acosta, a housing specialist at the left-leaning Center on Budget and Policy Priorities.Part of the reason is because applicants spend an average of nearly 2-1/2 years on wait lists because of the high demand for housing “vouchers” and limited government funding, Acosta said, citing U.S. Department of Housing and Urban Development data.Cleveland’s population of 361,607 is 46.6% Black and 38% white with 31.2% living in poverty, according to Census Bureau data.U.S. House Democrats estimate this new HOME budget will support around 21,000 new or rehabilitated units nationwide, an estimated 4,185 fewer than last year.The two political parties managed to cooperate this year on a federal housing voucher program providing around 2.3 million low-income families with rental assistance in the private market.The $32.4 billion appropriated, $2.1 billion above last year, aims to keep pace with inflation and help very low-income veterans and youth aging out of foster care, according to officials.”We stabilized and protected housing assistance for nearly 5 million low-income individuals and families,” said Representative Rosa DeLauro, the senior Democrat on the House Appropriations Committee. “We didn’t get everything that we wanted but we got most of it.”Republicans meantime won funding cuts to the Environmental Protection Agency, FBI and other agencies, although not as deep as originally sought by the House. House Appropriations Committee Republicans said the newly enacted package of bills “maintains housing assistance for vulnerable Americans,” while achieving the first overall spending reductions in “wasteful” programs in nearly a decade. Meanwhile, Republicans won a $130 million cut to efforts helping low-income families reduce or eradicate dangerous levels of lead paint in aging homes. That, however, was far below the more than $500 million in savings House Republicans originally had targeted. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The World Bank’s fund for the planet’s poorest nations is seeking a record financing haul to tackle mounting debt and climate crises.The International Development Association (IDA) is in need of the “largest replenishment ever” of financial resources to provide cheap loans and grants to 75 developing countries, Dirk Reinermann, the bank’s head of resource mobilisation, told the Financial Times. He did not specify a target, but IDA raised $23.5bn from donor countries in 2021, the last round of fundraising. That sum was raised to $93bn after tapping capital markets. A wave of sovereign debt crises and costs related to mitigating the effects of climate change will require big increases in development funding, analysts said, at the same time as elections and cuts to aid budgets limit the spending appetites of IDA’s biggest donor nations such as the US and UK. “Some of its biggest traditional donors have stuff going on that it makes it harder for them to cough up larger amounts [for IDA],” said Charles Kenny, senior fellow at the Center for Global Development think-tank.IDA, which has $235bn of total assets, is seen by governments and policy groups as one of the most effective aid providers in the global fight against poverty, both because it can leverage capital markets to triple its annual windfall and give those funds to poor countries at concessional or marginal rates.The fund “offers good value for money to donor countries, more than other grant-based facilities”, said Annalisa Prizzon, principal research fellow at development think-tank ODI.IDA has to turn to richer countries to raise capital every three years because its assistance generates little financial return.Many countries that face a debt crisis will have to pay back more to existing lenders and bondholders than they will receive in new loans. China, a major bilateral creditor, has stepped back from lending, reducing another source of funding for IDA recipient countries.“Because of the macroeconomic environment, more countries are in difficult economic situations, meaning that they get IDA funding at concession [rates], requiring IDA to deploy more strategic capital,” Reinermann said.According to Reinermann, this increased line of funding is set to cause IDA to reach the leverage ceiling imposed by its triple-A credit rating sooner than expected.When IDA raised donor money in 2021, “the zero point for being able to fully leverage our capital at triple-A was in 2034,” he said. “Because of higher levels of debt distress and debt disbursement, that point is now in 2030, or four years earlier.”Officials in some donor governments have called on the World Bank to use further leverage to eke out existing IDA resources, to the point of sacrificing its triple-A status. However, the bank has been cautious about moves that would lead to a downgrade of its rating.Meanwhile, political and economic uncertainty in its four biggest donors — the US, the UK, Germany and Japan — create new challenges. It will have to rely on “impressive increases from traditionally smaller donors, as well as impressive lobbying of larger donors” to meet its targets, said Kenny. Competition for funding is also adding pressure. From the second quarter of 2024 until the end of 2025, eight large development organisations, including the World Health Organization and the GAVI vaccine alliance, will be asking donor governments for an estimated $80bn, according to the CGD.China, India and South Korea are among the former IDA recipients who have become significant donors in recent years. Oil-rich Gulf states, such as Saudi Arabia, are also tipped to increase their contributions this year. Analysts cautioned, however, that these new sources will not be enough to fill the greater demand for grants in the years ahead.The World Bank could make money stretch further by reducing the relative share of grants given to countries that are at lower risk of default. But that would be unpopular with recipient countries, particularly those fighting the effects of climate change where IDA is seeking to target support.There are other ideas, such as the sale of forms of hybrid capital to investors, but it is less clear if instruments such as subordinated debt will help given their complexity, said Amy Dodd, policy director for development economics at the ONE Campaign. “IDA is a really simple instrument. Donors put in money, IDA takes that and leverages it with its resources and money coming back in,” she added. “There is value in the simplicity.” More

Brazil’s industry ministry has launched a number of investigations into the alleged dumping of industrial products by China as Latin America’s largest economy reels from a wave of cheap imported goods.At the request of industry bodies, the ministry has in the past six months opened at least half a dozen probes on products ranging from metal sheets and pre-painted steel to chemicals and tyres.The Brazilian measures come at a time when the world is bracing for a flood of exports from China as the world’s second-largest economy struggles with excess capacity amid a property sector slowdown and weak domestic demand.To stimulate its economy, China is investing in advanced manufacturing, especially in solar energy, electric vehicles and batteries.In addition to Brazil, China’s steel exports to Vietnam, Thailand, Malaysia and Indonesia have risen sharply in recent months.Developed markets have started taking extensive measures against imports from China, with the EU launching an anti-subsidy probe into Chinese EVs and the Biden administration recently raising security concerns over the Asian country’s vehicles.China’s exports grew 7.1 per cent in the first two months of this year, far outpacing growth in imports.“Prolonged declines in China’s export prices may cause trade tensions between China and some major economic powers to rise,” analysts at Nomura said in a research note on Friday.China’s exports to and imports from Brazil both rose by more than a third in the first two months of the year, according to Chinese customs data. “Last year saw one of the most critical situations in the entire history of the national chemical industry,” said André Passos Cordeiro, president of the Brazilian chemical industry association. “We see temporary increases in import tariffs as an indispensable regulatory tool for combating these predatory operations and preserving the domestic market.” The trade tensions create a dilemma for leftwing president Luiz Inácio Lula da Silva, who has sought to both nurture relations with Beijing and protect and develop Brazil’s national industries.Since returning to the presidency for a third non-consecutive term last year, Lula has put industrial policy at the heart of his economic strategy.But Brasília is also likely to try avoid a confrontation with Beijing, which is its largest trading partner and significant purchaser of commodities such as soyabeans and iron ore. Last year, Brazil exported more than $104bn worth of goods to China, while importing $53bn. Of the 101mn metric tonnes of soyabeans shipped from Brazil last year, 70 per cent, worth about $39bn, went to China.One of the most recent investigations was launched earlier this month following a request by CSN, a large Brazilian steel producer, which alleged that between July 2022 and June 2023 imports of particular types of carbon steel sheets from China rose almost 85 per cent.In opening the probe, which is scheduled to take 18 months, the industry ministry said there were “sufficient elements that indicate the practice of dumping in exports from China to Brazil . . . and damage to the domestic industry resulting from such practice”.Brazilian steelmakers have requested the government slap tariffs of between 9.6 per cent and 25 per cent on imported steel products. Overall imports of steel and iron from China rose from $1.6bn in 2014 to $2.7bn last year.Soaring steel imports are a particular sore spot for the Brazilian government as the Latin American nation is one of the world’s largest exporters of iron ore — a primary ingredient in steel production.Chemicals and tyres are also points of contention, with the industry ministry launching separate investigations in recent months. According to official data, imports from China of the chemical phthalic anhydride rose more than 2,000 per cent in volume terms between July 2018 and June 2023. In the same period, imports of tyres grew more than 100 per cent to 47mn units from 23mn units, with roughly 80 per cent coming from China.Brazil is not the only emerging market to voice concerns about the surge in industrial products from China. In Thailand, the government has accused Chinese companies of evading anti-dumping duties, while industry groups have warned of big losses from cheaper steel in the market.Vietnam’s government has launched investigations into dumping of wind towers and some steel products from China after complaints from the local industries.In August last year Mexico imposed tariffs of 5-25 per cent on imports of hundreds of goods from countries with which it does not have a free trade agreement, with China being one of the countries most affected.The tariffs were put in place amid increasing pressure from US officials, who have suggested that Mexico is not doing enough to clarify the origins of steel imports from third countries, in what trade experts say is a reference to China.The Chinese government did not immediately reply to a request for comment. It has consistently attacked what it calls “protectionism”, particularly by the US and the EU.Additional reporting by Christine Murray, Ciara Nugent and Joe Daniels More

For Melloney Grant, a single mother with two boys who works part-time, it is the school holidays that fill her with foreboding. That’s when the free school meals and breakfast club that help stretch her household budget during term-time are no longer available. It’s then she battles just to keep food on the table. “I have two boys, they’re eating all the time, and I dread it,” she says.Her two sons, Ethan, 11, and seven-year-old Isaac, are part of a growing slice of the UK population living in what the UK government calls “relative” child poverty — defined as living on less than £360 a week for a single parent with two children after housing costs, which is 60 per cent of the UK’s median household income. It is a broad measure, but in practice it is an indicator of a family’s ability to get by and “participate in the society in which they live”, according to the Child Poverty Action Group, which campaigns to eradicate child poverty. Child poverty conjures images of kids in rags on Victorian streets and in some cases it still means households choosing between food and electricity, but it also includes families where the relentless struggle to get by is slowly throttling opportunities. Or in the view of Chloe Russell, the deputy head of Monksdown Primary School in Liverpool where Isaac attends, it is the difference between a child “thriving or just surviving”. Melloney Grant, a single mother with two boys who works part-time, has to rely on her children receiving free school meals to help stretch her household budget More