Aurelia Butler

LONDON (Reuters) – The Bank of England must decide next week whether to halt its long run of interest rate hikes or push them up again, probably for one last time, despite investor alarm over how banks in the United States and Europe are coping with higher borrowing costs.The BoE signalled in February that it was getting close to a pause and most economists polled this week by Reuters said it would probably opt for an 11th straight rate hike on Thursday, representing the end of a tightening cycle begun in late 2021.A 25 basis-point rise would take Bank Rate to 4.25%, where most economists said it would stay for at least a year.But investors have turned more doubtful about the BoE’s appetite for more rate hikes in recent days amid mounting anxieties about the global banking sector.Interest rate futures on Friday showed traders were putting a roughly 50-50 chance on the BoE maintaining Bank Rate at 4% next week. A week ago a pause was given only a 10% chance.Since then, U.S. lender Silicon Valley Bank collapsed, Credit Suisse’s share price plunge forced the Swiss central bank to pump in emergency liquidity and on Thursday, big U.S. banks injected funds into First Republic Bank (NYSE:FRC).Economists at Investec said the turmoil in markets had led them to change their call for the BoE’s decision to no change.”To our judgement a pause seems to be the most likely outturn, although that does not necessarily imply that tightening has finished,” they said in a note to clients.The BoE was the first major central bank to starting raising rates in December 2021 and it could be the second to halt the run after the Bank of Canada earlier this month. In February, the BoE dropped language it previously used to show it was ready to keep raising rates sharply.British inflation is set to fall this year after hitting a 41-year high of 11.1% in October, there have been signs of a slowdown in pay growth and the economy is expected to shrink in 2023 even if there have been some signs of a recovery.”TOUCH AND GO”Analysts at RBC Capital Markets said they still thought BoE Governor Andrew Bailey and his colleagues would raise rates one more time next week, by 25 basis points, after the European Central Bank pushed up its key rates by half a percentage point on Thursday, despite the financial sector upheaval.”The decision at the meeting will be touch and go, however, and dependent on financial markets continuing to stabilise between now and next week’s policy meeting,” they said.Investors expect a 25 basis-point rate hike from the U.S. Federal Reserve on Wednesday, a day before the BoE’s announcement.Forty-two of 47 economists polled by Reuters between March 13-16 expected the BoE to announce a 25 basis-point hike, hold Bank Rate at 4.25% for at least year and then lower it.The poll also showed inflation, which stood at 10.1% in January, more than five times the BoE’s goal of 2%, was predicted to average 6.6% in 2023 and 2.4% in 2024. February’s official inflation data is due on Wednesday.Gross domestic product was expected to shrink by 0.5% in 2023 – with a recession seen stretching over the first three quarters of this year – before expanding by 0.8% next year.Most responses to the poll were submitted before Wednesday’s budget statement by finance minister Jeremy Hunt, who announced around 20 billion pounds of extra spending and tax cuts in the 2023/24 financial year which starts next month.Britain’s budget forecasters predicted the economy would shrink by 0.2% in 2023, a less severe hit than the 1.4% contraction they previously saw. (Graphic by Sumanta Sen; Polling by Prerana Bhat and Sujith Pai; Writing by William Schomberg; Editing by Catherine Evans) More

TOKYO (Reuters) -Japan’s major companies have concluded their annual labour talks with average wage hikes of 3.8% for the coming fiscal year, the largest raise in about three decades, trade union confederation Rengo said on Friday.The preliminary survey of 805 unions affiliated with Rengo showed the average hike rate of 11,844 yen ($89) per month, according to the labour organisation.While changes in the way the survey is conducted make it difficult to compare with historical data before 2013, this is the first average pay hike of more than 3% since 1994, Rengo officials told a news conference on the spring wage talks.”Many unions received in full or exceeded their demand for wage hikes,” Rengo chief Tomoko Yoshino told a news conference.She added that consumer price rises had hit workers hard and companies had responded in a “gentle and meaningful manner” to unions’ requests on pay hikes. Prime Minister Fumio Kishida has called for higher wages to offset rising living costs, stepping up his call as a weak yen currency and higher commodities prices have driven up import costs, sending inflation to its highest in four decades.While Japan’s top firms concluded the talks on Wednesday, wage negotiations will get into full swing at small and medium enterprises from April to June.Rengo, also known as the largest Japanese Trade Union Confederation, will update the pay negotiation results in several stages before compiling the final results in summer.Japanese salaries have been virtually unchanged since the late 1990s and are now well behind the average for the OECD grouping of rich countries.While Japan’s biggest corporations – including Toyota Motor (NYSE:TM) Corp and Hitachi (OTC:HTHIY) Ltd – have agreed to the requested increases from unions, the outlook looks less positive for workers at smaller companies – which make up almost 70% of Japan’s workforce.Those businesses have often struggled to pass on rising costs to their customers. It’s unclear whether the rising wage trend will be sustainable, let alone create the “virtuous cycle” of stronger economic growth and 2% inflation long sought by Japan’s central bank.($1 = 133.0700 yen) More

LONDON/ZURICH (Reuters) – Shares in Credit Suisse resumed their decline on Friday, giving up early gains, in a sign that investor sentiment remains fragile in a week that has seen the troubled Swiss lender secure a $54 billion lifeline.A ratings downgrade and a U.S. lawsuit on Thursday offset some of the relief that stemmed from the emergency liquidity line the bank secured from the Swiss central bank earlier in the day.Credit Suisse fell by as much as 10% following two days of sharp swings, which saw its shares jump 20% on Thursday after a 24% drop on Wednesday when its largest investor said it would not be able to increase its stake. Volatility remained high. “Whether depositors are sufficiently reassured to stem outflows over the next few days is a key question, in our view,” said Frédérique Carrier, head of investment strategy for RBC Wealth Management.    “While markets are relieved that the Swiss central bank stepped in, sentiment is bound to remain very fragile, particularly as investors will likely worry about the eventual economic impact of aggressive monetary policy tightening by the European Central Bank (ECB),” she added.Credit Suisse saw more than $200 million net outflows from its U.S. and European managed funds after March 13, Morningstar Direct said on Friday.DBRS Morningstar on Thursday became the first global rating agency to cut the bank’s credit score, with a downgrade to “BBB”, which still qualifies Credit Suisse as investment grade.The head of the Credit Suisse’s Swiss business said late on Thursday the funding would allow the bank to continue its revamp, although it could take time to win back client confidence.In a further sign that concern about banking stress remains elevated, the ECB Supervisory Board convened an unscheduled meeting on Friday to discuss stress and vulnerabilities in the euro zone bank sector. The ECB supervisors saw no contagion to euro zone banks from the market turmoil, a source familiar with the content of the meeting told Reuters, adding that supervisors were informed that deposits remained stable across euro zone banks and exposure to Credit Suisse was immaterial.A $30 billion lifeline for U.S.-based First Republic Bank (NYSE:FRC) eased fears about its future, but a late tumble in its shares showed investors remained concerned about cracks in the sector after the collapse of two other mid-sized U.S. lenders over the past week. Credit Suisse shares are down about 26% this week and poised for their biggest week drop since October 2008 and the global financial crisis. (Graphic: Credit Suisse goes off piste Credit Suisse goes off piste – https://www.reuters.com/graphics/CREDITSUISSEGP-STOCKS/akveqegdgvr/chart.png) European banking stocks were marginally higher on Friday but were nursing heavy weekly losses – down almost 9% in their biggest fall in a year.”We are still a little cautious here but there certainly has been more positive news on Credit Suisse,” said John Milroy, investment adviser at Ord Minnett.”Markets still thinking that there is something else to crack with the Fed hell bent on raising rates and some more work to do.”It’s not just the confidence of the markets that has been severely shaken.U.S. shareholders of Credit Suisse sued the bank on Thursday, claiming it defrauded them by concealing problems with its finances. Credit Suisse declined to comment on the lawsuit.($1 = 0.9259 Swiss francs) More

The OECD has urged central banks to “stay the course” and continue raising interest rates despite turmoil in financial markets, warning that inflation was still the main threat to the world economy.In an update to its November economic forecasts, completed as tensions mounted this week in the banking sector, the Paris-based international organisation upgraded its outlook for growth this year from 2.2 per cent to 2.6 per cent.This “fragile recovery” stemmed from falls in energy and food prices, China’s loosening of coronavirus restrictions and rising business confidence.Álvaro Pereira, the OECD’s acting chief economist, said the brighter outlook meant monetary policy “needs to remain restrictive until there are clear signs that underlying inflationary pressures are lowered durably”.The OECD’s call for higher interest rates in the US and eurozone came after the European Central Bank raised its benchmark deposit rate by 0.5 percentage points to 3 per cent on Thursday.Last week’s failure of Silicon Valley Bank and Credit Suisse’s need for a financial lifeline on Wednesday led policymakers in Frankfurt to signal that further rate rises would only come if market nerves calmed.Rate-setters at the US Federal Reserve and Bank of England meet next week, with investors betting that officials will rein in their efforts to contain inflation with higher policy rates.But Pereira said central banks should not respond to the chaos of recent days by showing less resolve to counter price pressures.“We still face a situation where inflation is the main worry,” he told the Financial Times. “If you look at many parts of the world, inflation has become more pervasive.”He noted while headline rates had come down, core inflation remained uncomfortably high.The ECB on Thursday acknowledged core inflation — a measure that excludes food and fuel prices and is seen as a better gauge of the persistence of price pressures — would remain uncomfortably high for much of this year.Before the market panic, high services inflation in the US had led to expectations of a half-point rise by the Fed next Wednesday. Markets now expect a quarter-point rise — or none at all — by the US central bank, and many are pricing in cuts later this year.Pereira did not expect interest rates to be able to fall until 2024 at the earliest, unless there was a very significant worsening in financial stability. But this was not the OECD’s main expectation. “This is not 2008,” he said, referring to the global financial crisis of that year.The organisation said while inflation was likely to moderate “gradually” over this and next year, it was likely to remain higher than central bank targets until the second half of 2024. Core inflation in the G20 advanced economies was projected to average 4 per cent in 2023 and 2.5 per cent in 2024.

Russia’s economy was still expected to contract by 2.5 per cent in 2023, although this was 3.1 percentage points better than in the OECD’s previous forecasts.The UK was singled out as the most fragile advanced economy apart from Russia, forecast to shrink by 0.2 per cent in 2023 and grow by 0.9 per cent in 2024. The estimate for this year was the same as the Office for Budget Responsibility’s forecast for the Budget, but the OECD’s 2024 forecast was significantly more pessimistic than the OBR’s expectation of 1.8 per cent growth.The OECD said now that energy prices had fallen, governments should scale back the support given to protect households and companies from rising energy prices. “Some energy support measures are not needed any more,” Pereira said. More

Happy St Patrick’s Day. Struggling banks on both sides of the Atlantic are unlikely to be in a festive mood as they continue to dominate the headlines.California-based lender First Republic is the latest bank to be rescued following the collapse of Silicon Valley Bank a week ago. We bring you all the details and we also have a report on how the “three Js” stitched together a package of measures to shore up confidence in the US financial system. Here’s what I’m keeping tabs on today: Economic data: The OECD publishes its interim outlook on the global economy, while the University of Michigan releases the preliminary March reading of its consumer sentiment index. There is also data on February industrial production.Elizabeth Holmes: The Theranos founder will ask a judge to pause her prison sentence of more than 11 years while she urges an appeals court to review her conviction.St Patrick’s Day celebrations: Senior figures from Ireland’s main political parties will attend the annual White House reception.Have a great weekend, and thank you for reading FirstFT.Today’s top news1. The largest US banks are depositing $30bn into First Republic Bank in an attempt to bolster its finances and contain the fallout from the collapse of Silicon Valley Bank. Here are the financial institutions involved in the deal.The ‘three Js’: US Treasury secretary Janet Yellen, JPMorgan chief Jamie Dimon and Federal Reserve chair Jay Powell put together the rescue deal over multiple calls.2. EXCLUSIVE: Carl Icahn has urged the Fed to keep fighting “the disease of inflation” ahead of its rate-setting meeting next week, despite SVB and other banking failures. Read the whole of the activist investor’s interview with the FT.Opinion: SVB shows why we should worry about “cool” banks that forget the dull but important job of risk management, writes Anne-Sylvaine Chassany.3. China’s president Xi Jinping is to travel to Moscow on Monday for talks with Russian president Vladimir Putin, China’s foreign ministry confirmed earlier today. The announcement comes a day after Poland became the first western nation to pledge combat aircraft to bolster Ukraine’s war effort. 4. The US Department of Justice is probing ByteDance’s surveillance of American journalists via TikTok, according to a person familiar with the matter. The investigation comes as western governments crack down on the use of the video platform on official devices. 5. Emmanuel Macron’s unpopular pension reforms failed a critical parliamentary test yesterday, prompting demonstrators to take to the streets in Paris and other cities around France. How well did you keep up with the news this week? Take our quiz.News in-depth

© Francesca Volpi/Bloomberg

A $54bn lifeline for Credit Suisse has failed to halt the questions about the Swiss bank’s future. For investors, it is the bank’s unprofitable business model rather than its liquidity that is the fundamental problem. What comes next? The options on the table range from spinning off its Swiss unit to dissolving the bank.We’re also reading . . . Musk’s Twitter: Interviews with current and former Twitter staff inform this account of Elon Musk’s ongoing efforts to wrestle the social media platform’s finances under control.Argentina: Look beyond the short-term difficulties of hyper inflation and the potential for economic collapse and some tantalising opportunities lie ahead, writes the FT’s Latin America Editor.Iran politics: Former crown prince Reza Pahlavi, the exiled son of Iran’s last shah, has emerged as a figurehead for those who think regime change is near.Chart of the dayThe English have a saying, “an Englishman’s home is his castle”. Americans dream of a detached property surrounded by a white picket fence, while Australians and New Zealanders aspire to a “quarter acre”. Anglophone countries have a centuries-old aversion to apartment living. This gives rise to housing shortages and environmental degradation, argues John Burn-Murdoch.Take a break from the newsOn his final day as the FT’s Weekend Editor, Alec Russell reflects on the political power of poetry with Booker-winning novelist and poet Ben Okri in the weekend podcast. We also meet one of London’s most notorious and prolific graffiti writers.Additional contributions by Tee Zhuo and Emily Goldberg More

The extent to which mortgaged UK homeowners on fixed-rate deals have been shielded from rising housing costs over the past decade compared with renters is underlined in new research that warns of tough refinancing conditions over the coming months. Mortgaged owner-occupiers found their annual housing costs rose by 26 per cent in the 10 years to the end of 2022, compared with a 36 per cent jump in rental costs for tenants. Yearly mortgage interest costs fell by 19 per cent to £29bn over the decade to 2022, but capital repayment costs rose by 77 per cent to £55bn, according to the research by estate agent Savills. While interest rates were at ultra-low levels for much of the past decade, UK house prices rose sharply and interest-only mortgages were less common than capital repayment loans. Focusing on 2022, the researchers found private rented sector, social and affordable housing tenants paid £93.4bn in rental costs, compared with £84.3bn for the mortgage costs of owner-occupiers. Average mortgage costs for the year were £10,060, compared with £11,689 in average annual rents in the private sector.Those on fixed-rate mortgages saw their housing costs rise by 1.3 per cent between 2021 and 2022, whereas those on variable rates experienced a dramatic 50.2 per cent rise. Lucian Cook, residential research director at Savills, said: “It shows the extent to which being on a fixed-rate mortgage has insulated homeowners from the rising costs of housing. We know that the increase in mortgage costs hasn’t fully come through because of the number of people on fixed-rate deals.”Mortgage interest rates on fixed deals hit around 6 per cent in October 2022 following Bank of England rate rises and the turmoil of the September “mini” Budget. They have since fallen back to around 4 per cent — but remain far above the 1-2 per cent deals on offer in 2021. Many borrowers now face a reckoning as they look to refinance a fixed-rate deal at these higher rates. The Financial Conduct Authority last week said around 200,000 mortgages had fallen short on payments by June 2022 and a further 45,000 were “financial stretched”, meaning their monthly mortgage payments were above 30 per cent of household income. It expects the latter group to grow to 356,000 by June 2024. On rents, the pressures on tenants were underlined by research from property website Rightmove on Friday, which found 42 per cent of renters in 10 major UK cities were contacting letting agents to move out of city accommodation to cheaper locations on the periphery or beyond, up from 28 per cent in February 2020. Rightmove said rising rents, increased living costs and a lack of available homes to move into lay behind the exodus. The average rent demanded by landlords on homes in city centres was up 12 per cent on last year, it added, while demand had more than doubled (up 125 per cent) since February 2020. London led the cities where tenants were looking to move further out, followed by Sheffield and Manchester. Sarah Bush, head of lettings at estate agent Cheffins in Cambridge, said as rents rise, tenants were looking to let what they could afford, rather than holding out for a property in the right location. “Families who need to rent properties with three or four bedrooms often have to turn to village properties simply to get the space they need at an affordable level.”This week’s Budget had little to offer renters, first-time buyers or mortgaged property owners struggling with higher housing costs. The Office for Budget Responsibility forecast that inflation would fall to 2.9 per cent by the end of this year, which may lead to further interest rate easing for mortgage borrowers. But the peak demand for mortgage refinancing is due over the next two quarters. “There is going to be further upward pressure on housing costs in 2023,” said Cook. “That means housing affordability is probably going to become more of a political issue, as we approach the next general election.”The research by Savills combined data from official sources including the Office for National Statistics, the Bank of England, the English Housing Survey and the 2021 Census. It looked at mortgage capital and interest, and rents, as the chief components of housing costs, but did not incorporate utility bills, taxes or other payments. More