Aurelia Butler

Ahead of the Bank of England’s 14th consecutive rate rise since 2021 on Thursday, Prime Minister Rishi Sunak claimed “there is light at the end of the tunnel” on Britain’s inflation fight. After justifiable criticism of the bank for falling behind the curve — with the UK’s high inflation making it an outlier in the G7 — a downward trajectory for price growth is now visible. Since the BoE’s hefty 50 basis point rate rise in June, a product of being too complacent earlier in the year, inflation data has cooled. The Monetary Policy Committee plumped for a less aggressive 25 basis point rise at its August meeting, taking rates to 5.25 per cent. Yet it does not seem confident on what it needs to do next.The mixed signals from the meeting are particularly concerning when the economy is already straining and the margin of error for causing a recession is small. The MPC’s updated view that persistent inflationary pressures may be crystallising indicates the need to keep its policy tight. But guidance that rates would stay “sufficiently restrictive for sufficiently long” — alongside a split vote, with two members voting for a more forceful 50 bps rise — points to uncertainty over how far and how fast the BoE thinks it ought to go.A 25 bps increase this month was sensible. Broader price pressures are abating. Food price inflation has slowed to its lowest in a year. Producer price inflation, a leading indicator of the prices shoppers face, has fallen rapidly. Prior rate rises are also squeezing demand. Last month, annual house prices fell by the most since 2009 amid higher mortgage rates. Bank lending has eased. But the MPC’s nemesis has been the jobs market, with wages still growing strongly.The UK’s robust labour market has kept core inflation, which excludes energy and food prices, too high at 6.9 per cent. Some further tightening looks inevitable. But modelling that showed the BoE reaching its 2 per cent inflation target in 2025 under different interest rate paths created some confusion. Some saw the August meeting as “hawkish”, others underscored more “dovish” tones — highlighting the broader problem the central bank has faced in communicating its plans.Just how the BoE proceeds matters greatly. Home buyers and those set to remortgage already face thousands of pounds more in annual payments, which will increasingly pinch demand. Business activity is falling sharply too. If the BoE is too dovish there is a risk that inflationary persistence feeds into wage resilience. But if it pushes rates too far, for too long, it risks crushing the economy. Part of the problem is that it is difficult to get a clear handle on just how much previous rate rises are squeezing the economy. Few central banks have got to grips with that. The MPC itself, as governor Andrew Bailey admitted, is not leaning much on its own internal model. The planned review by former Federal Reserve chair Ben Bernanke is very welcome, and will hopefully go some way to improving the BoE’s processes.For now, the BoE will need to tread carefully and keep a very close eye on the data. It was playing catch-up before, but now the economy is looking more delicate and price pressures are easing. A slow and steady approach from here would be wise to gain a clearer picture of where the economy is.Britain was the first major advanced economy to raise rates, but the last to leave double-digit inflation. The BoE would surely not want it to be the last to recover from a substantive interest rate-induced recession as well. The light at the end of the tunnel should not lead into a ditch. More

India has abruptly restricted the import of personal computers including laptops and tablets as the country works to boost local electronics manufacturing.In a notice issued on Thursday, the commerce ministry’s directorate general of foreign trade said companies would with immediate effect need a “restricted imports” licence to ship such devices into India. Analysts said the new rule would create a barrier that could slow the flow of imports.The directorate gave no reason for the sharp policy shift or say what it expected its impact to be, but India is trying to grow its electronics industry amid a shift away from manufacturing in China.“Today’s policy announcement is aimed at accelerating the ‘Make in India’ initiative,” said Prabhu Ram, head of industry intelligence at Indian consulting firm CyberMedia Research, referring to Prime Minister Narendra Modi’s flagship policy on domestic manufacturing.New Delhi in May launched a Rs170bn ($2.1bn) incentive scheme for IT hardware manufacturing that is designed to encourage companies to set up factories in India.“If the production-linked incentive schemes are a treat for companies that manufacture in India, the new import restrictions are the obstacle course [for those that do not],” said Ashutosh Sharma, head of Forrester Research India, a consultancy.Shares in local electronics companies jumped on news of the import licences. Dixon Technologies, which in 2021 partnered with Taiwanese hardware maker Acer to make laptops in India, gained 8 per cent on Thursday.But the new import restrictions could hit companies such as Apple, which has a 14 per cent share of India’s laptop market, according to analysis firm Canalys. Apple assembles iPhones in India as part of its effort to reduce reliance on China, but imports all its laptops and iPad tablets. Apple did not respond to a request for comment.India imported $1.5bn worth of personal computers between January and May this year, official trade statistics show, down from $2.7bn during the same period the previous year. Indian companies are starting to make their own laptops. Billionaire tycoon Mukesh Ambani’s digital unit Reliance Jio launched a new laptop model on Monday, priced at Rs16,499. Jio’s first laptop came out late last year. Primebook, a start-up based in New Delhi, is producing in India a laptop aimed at students.Many multinational computer companies already make laptops in India. HP, which commands 23 per cent of India’s market share according to Canalys, announced in 2021 it would make laptops in the southern Indian state of Tamil Nadu. Dell and Lenovo also manufacture in India.

But others such as Asus and Samsung produce all their laptops in other Asian countries such as China and Vietnam. Some analysts warned that India’s import restrictions could shake the computer market over the next few months, a period of religious festivals that is usually a busy sales time.“Laptops in inventory will likely see a hike in price due to product scarcity,” said Ashweej Aithal, analyst at Canalys. “Apple and Asus might find it tough getting a PC import licence, unlike others already manufacturing locally.” More

LONDON (Reuters) -The Bank of England raised its key interest rate by a quarter of a percentage point to a 15-year peak of 5.25% on Thursday, and gave a new warning that borrowing costs were likely to stay high for some time.Unlike the U.S. Federal Reserve or the European Central Bank – which also both raised rates by a quarter-point last week – the BoE’s Monetary Policy Committee gave little suggestion that rate hikes were about to end as it battles high inflation.”The MPC will ensure that Bank Rate is sufficiently restrictive for sufficiently long to return inflation to the 2% target,” the BoE said in fresh guidance about the outlook for borrowing costs.”Some of the risks of more persistent inflationary pressures may have begun to crystallise,” it added.Governor Andrew Bailey stressed that message to reporters after the announcement, even as the economy looked set to grow only minimally over the coming years.”I don’t think it is time to, sort of, declare it’s all over and we’re, sort of, sitting where we are for the moment,” he said. “We have to remain evidence-driven. We’ve continued to use language which we’ve used before, which is to say, if we get more evidence of more persistent inflation, then we will have to react to that.”Bailey also said it was far too soon to speculate about the timing of any rate cuts.Sterling briefly dipped after the data and financial markets moved to price in a roughly two-thirds chance of another quarter-point interest rate rise to 5.5% in September.Bailey said the pace of pay growth was “materially above” the BoE’s previous forecasts which suggested it would take longer for the knock-on effects of high inflation to fade than it did for them to appear. Wage rises had been a bigger driver of high inflation than companies’ profit margins, the BoE said.British inflation hit a 41-year high of 11.1% last year and has fallen more slowly than elsewhere, standing at 7.9% in June, the highest of any major economy.Economists polled by Reuters last week forecast BoE rates would peak at 5.75% later this year. The BoE’s own forecasts were based on recent market assumptions – which have now eased somewhat – that rates would peak at over 6% and average nearly 5.5% over the next three years.”One weak data point will not be enough for the Bank to be satisfied that inflation is now on a sustainable trajectory. We expect at least one more 25 bps rate hike in September,” said Thomas Pugh, an economist with accountancy firm RSM UK. THREE-WAY SPLITPolicymakers voted 6-3 for the increase, but were split three ways on the decision for the first time this year. Two MPC members – Catherine Mann and Jonathan Haskel – voted for a bigger, half-point increase, while Swati Dhingra again voted for no change, warning of the risk of smothering the economy.Markets had seen a roughly one-in-three chance of a bigger increase to 5.5%, which would have repeated June’s big rise.The BoE forecast inflation would fall to 4.9% by the end of this year – a faster decline than it had predicted in May.This will be a relief for Prime Minister Rishi Sunak, who pledged in January to halve inflation this year, a goal which had looked challenging.”If we stick to the plan, the Bank forecasts inflation will be below 3% in a year’s time without the economy falling into a recession,” finance minister Jeremy Hunt said after the BoE’s announcement.However, the BoE forecasts inflation will be slightly slower to fall from late next year. Inflation does not return to its 2% target until the second quarter of 2025, three months later than it forecast in May.The BoE said it was incorporating more of the upside risks to inflation which the MPC saw in May into its central or “modal” forecast, despite a bigger-than-expected fall in inflation in June.Services price inflation – which the BoE said offered a signal on longer-term price trends – was projected to stay high, and wage growth at the end of this year was expected to be 6%, up from May’s forecast of 5%.The BoE noted the economy’s recent “surprising resilience” but barely changed its growth forecasts from three months ago, with the economy due to expand a meagre 0.5% in 2023 and 2024, and just 0.25% in 2025.The jobless rate is predicted to rise to 4.8% by late 2025, up from a forecast of 4.4% in May and 4.0% in the latest data.Mortgage costs have hit their highest since 2008, weighing on house-building. The BoE forecast housing investment would fall 5.75% this year and 6.25% in 2024. More

China urges the U.S. to stop official U.S.-Taiwan contacts and to stop escalating U.S.-Taiwan “substantive” relations, the foreign ministry said in a statement.Taiwan Vice President William Lai will stop in New York and San Francisco in the United States on his way to and from Paraguay which is he visiting for the inauguration of its new president. More