Aurelia Butler

LONDON (Reuters) – The Bank of England is expected to raise interest rates to a 15-year high of 5.25% from 5% on Thursday, though there is a risk of a repeat of June’s surprise half-point increase as inflation remains the highest of the world’s major economies.The U.S. Federal Reserve and the European Central Bank increased rates by a quarter of a percentage point last week, but unlike the BoE, markets think they are at or near the end of their rate-tightening cycle.Bets on how high the BoE will go have swung in recent weeks as investors try to work out if Britain has a uniquely deep-rooted inflation problem.Market expectations for peak Bank Rate reached 6.5% on July 11 after data showed record wage growth before falling back to 5.75% after a sharp decline in consumer price inflation.But at 7.9% in June, annual price growth is nearly four times the BoE’s 2% target and more than double the U.S. rate.Prime Minister Rishi Sunak pledged in January to halve inflation this year, a goal which now looks challenging. Mortgage costs have hit their highest since 2008, weighing on house-building. A survey last week showed private-sector growth across the economy fell to a six-month low in July.Investors see a two-in-three chance of the BoE raising Bank Rate to 5.25% on Thursday but for most economists polled by Reuters the BoE’s decision is finely balanced. ING economist James Smith said the BoE was “doing a bit of soul-searching” after missing last year’s inflation surge.”That’s partly why all the central banks are erring on the side of over-tightening rather than under-, because they don’t want to be the ones remembered for inflation staying high on their watch,” Smith said.The BoE began raising rates in December 2021, before other major central banks. A hike on Thursday would be its 14th in a row.SEEING THE JOB THROUGHGovernor Andrew Bailey has said it is “crucial we see the job through”. Deputy Governor Dave Ramsden said even after recent falls, inflation remained “much too high” and there had not been much softening in longer-term pressures.The picture from Britain’s job market is mixed. Wage growth excluding bonuses held at an annual rate of 7.3% in the three months to May, the joint highest since records began in 2001. However, unemployment rose unexpectedly to a 16-month high of 4%, and employers advertised fewer job vacancies.Swati Dhingra is likely to be the only Monetary Policy Committee member to vote for a pause in rate hikes, pointing to weak producer price inflation which fell to 0.1% in June, its lowest since December 2020 and down from nearly 20% last July.Silvana Tenreyro, who also voted to keep rates on hold this year, has been replaced by former Kroll Institute chief economist Megan Greene, who has said it would be “a mistake” to assume inflation would automatically return to target.However, some BoE critics argue it risks causing an unnecessary downturn, and that higher rates are a poor tool to tackle inflation caused by higher food and energy prices.”The main winners are banks, whose profits have flourished thanks to higher rates,” said Fran Boait, co-executive director of campaign group Positive Money.The BoE is likely to lower its growth and inflation forecasts due to higher market interest rate expectations, an important part of the forecasts.Last week the International Monetary Fund forecast Britain’s economy would grow 0.4% this year – the second slowest in the Group of Seven advanced economies, after Germany.Normally, how far the BoE’s forecast for inflation in two years’ time deviates from its 2% target is read as a signal of how much it agrees with market rate bets.However, in recent months the BoE has focused more on the risks of persistent inflation.”I think we’ll get the same forward guidance, which is vague enough to keep their options open,” ING’s Smith said. More

MCLEAN, Virginia (Reuters) -U.S. Treasury Secretary Janet Yellen on Wednesday voiced more complaints about Fitch Ratings’ downgrade of the main U.S. credit rating, calling it “entirely unwarranted” because it ignored improvements in governance metrics during the Biden administration and the country’s economic strength.Speaking at an Internal Revenue Service contractor office near Washington, Yellen said the rating agency’s announcement on Tuesday failed to take into account a resilient U.S. economy, with low unemployment, falling inflation, continued growth and strong innovation. “Fitch’s decision is puzzling in light of the economic strength we see in the United States,” Yellen said. “I strongly disagree with Fitch’s decision, and I believe it is entirely unwarranted.”She said Fitch’s “flawed assessment” was based on outdated data and failed to reflect improvements in U.S. governance indicators over the past two and a half years of President Joe Biden’s administration.”At the end of the day, Fitch’s decision does not change what all of us already know: that Treasury securities remain the world’s pre-eminent safe and liquid asset, and that the American economy is fundamentally strong,” Yellen added.Fitch had cited a deterioration in U.S. governance that started during the prior Trump administration in making its decision, according to Biden administration officials.A July 2022 Fitch report revising the U.S. credit outlook to “stable” from “negative” said former President Donald Trump’s failure to concede the 2020 election had “no recent parallel in other very highly rated sovereigns,” while noting improved debt expectations. It showed a slight improvement in the ratings model score in 2022 during Biden’s term.White House Council of Economic Advisers Chair Jared Bernstein joined the chorus of irate Biden administration officials, calling the move “bizarre” and “arbitrary.””I do think the timing is just very strange … Fitch seems to be punishing the cleanup crew when the guy who wrecked the room is long gone,” Bernstein told CNBC, referring to Trump.He added that the Biden administration’s job was “to make sure that we have a sound, growing macro economy that’s reaching American households that’s at the core of Bidenomics.”Richard Francis, a senior director at Fitch, told Reuters on Wednesday that the U.S. governance deterioration was partly reflected in the Jan. 6, 2021, insurrection at the U.S. Capitol as Trump sought to overturn the 2020 election results.But Francis said the deterioration also was reflected in this year’s debt ceiling fight, and the increasing polarization of both major political parties, making compromise harder to achieve.FISCAL RESPONSIBILITY In its decision to cut the U.S. rating by one notch to AA+ from AAA, Fitch also cited a fiscal deterioration over the next three years that will increase deficits and repeated down-to-the wire debt ceiling negotiations that threaten the U.S. government’s ability to pay its bills. Yellen said that fiscal responsibility was a priority for her and Biden, and the June debt limit deal he reached with Republicans included more than $1 trillion in deficit reduction over 10 years.Biden’s proposed 2024 budget, which includes substantial tax hikes on wealthy individuals and corporations, would also reduce deficits by $2.6 trillion over the next 10 years.Yellen said investments to modernize the IRS and improve tax enforcement, funded by $60 billion in new resources provided by last year’s Inflation Reduction Act, would cut deficits by “hundreds of billions of dollars” over a decade.She visited the office of 22nd Century (NASDAQ:XXII) Technologies in McLean, Virginia, to highlight a pledge to allow taxpayers to submit all documents and correspondence digitally during the 2024 tax season, which would eliminate the manual processing of up to 125 million documents annually.The company has a contract to develop scanning technology to convert paper documents so that they can be digitally processed. More