Aurelia Butler

Andrew Bailey has signalled that financial markets have been wrong in their growing belief over the past month that the Bank of England will need to impose many more interest rate rises to bring inflation under control. Speaking at a cost of living conference in London on Wednesday, the BoE governor said the central bank still had no presumption that it would raise interest rates further from the current 4 per cent level. While financial markets now expect rates to rise to 4.75 per cent by the end of 2023, up from an expectation of a peak of 4.25 per cent at the start of February, Bailey said he had not seen anything in the data to justify the change in outlook.“My reading of the evidence since our February meeting — the data we have had for economic activity, the labour market and inflation — is that the economy is evolving much as we expected it to,” said Bailey. “Inflation has been slightly weaker, and activity and wages slightly stronger, though I would emphasise ‘slightly’ in both cases.”The market interest rate on 10-year government bonds dipped after Bailey’s speech but did not return to the level at the close of trading on Tuesday. The government’s borrowing costs over 10 years remained at 3.87 per cent, up from 3.32 per cent a month ago. Samuel Tombs, chief UK economist at the consultancy Pantheon Macroeconomics, said that “markets need to price in a higher chance of no-change in bank rate” following the governor’s speech.Bailey’s caution about persistent inflationary pressures contrasts with financial markets globally, which have taken evidence of more persistent core inflation in the US and Europe alongside less evidence of a likely UK economic contraction as a signal that central banks will need to raise interest rates further. With little news since the BoE raised interest rates by half a percentage point to 4 per cent at the start of February, Bailey warned people not to expect the bank’s core message on inflation to change.“At this stage, I would caution against suggesting either that we are done with increasing bank rate, or that we will inevitably need to do more,” he said. “Some further increase in bank rate may turn out to be appropriate, but nothing is decided. The incoming data will add to the overall picture of the economy and the outlook for inflation, and that will inform our policy decisions.”Growing market expectations of a rise in interest rates over the past month have also been unwelcome news for chancellor Jeremy Hunt as he prepares for his first Budget on March 15. Market expectations of rates feed directly into five-year forecasts of the cost of servicing government debt from the Office for Budget Responsibility, the fiscal watchdog, which are no longer much lower than the rates used in November’s Autumn Statement. The BoE still expects the rate of inflation to fall rapidly this year even though the level of prices will stay much higher, with the decline speeding up in April when energy bills are forecast to rise a lot less than they did last year. Bailey said the smaller rises would not relieve households of cost of living difficulties because prices themselves had not come down. As a result, he added, the BoE had to “monitor carefully” how the very sharp interest rate rise to 4 per cent over the past 15 months is “working its way through the economy to the prices faced by consumers”.“We need to calibrate monetary policy with great care to return inflation to target sustainably,” said Bailey, although he added that if inflation appeared to be more persistent, the BoE would need to lift rates further. “If we do too little with interest rates now, we will only have to do more later on. The experience of the 1970s taught us that important lesson.” More

(Reuters) – The Republican-led U.S. House of Representatives voted on Tuesday to block a Biden administration rule allowing employee retirement plans to consider environmental, social and corporate governance (ESG) factors when selecting investments. President Joe Biden has promised to veto the bill if it passes the Senate, but Republican-led states and the oil industry are also challenging the rule in federal court in Texas.WHAT DOES THE NEW RULE DO?The U.S. Department of Labor rule, which took effect Jan. 30, lifts barriers to ESG investing imposed by the Trump administration. A 2020 regulation had required retirement plans to consider only financial factors in selecting investments. The new rule sets guidelines for ESG investing, including requiring that socially conscious investments are still financially sound. The Labor Department said the Trump-era rule, which was criticized by business groups and the financial industry, failed to account for the positive impact that ESG investing can have on long-term returns. The new rule covers plans that collectively invest $12 trillion on behalf of 150 million Americans. WHAT ARE THE CLAIMS IN THE LAWSUIT?The January lawsuit by 25 Republican-led states, an oil drilling company and an oil and gas trade group claims the rule violates the U.S. law regulating employee benefit plans by failing to protect retirement assets. They claim that allowing ESG investing will jeopardize the retirement savings of millions of people and lower state tax revenue. The states also say the Labor Department failed to justify its departure from the Trump-era regulation, in violation of the federal law governing rulemaking.ARE BUSINESS GROUPS OPPOSED TO THE RULE?The Biden administration rule has divided the business community. Sectors that stand to lose investments, including the oil and gas industry, oppose it while many other businesses have voiced support for efforts to make ESG investing easier. Some major business groups including the U.S. Chamber of Commerce, the country’s largest business lobby, opposed the Trump administration’s strict limits on ESG investing but have had a tepid response to the new rule. The Chamber last year said the Biden administration rule was largely unnecessary because it imposes the same standard that retirement plans have applied for decades in deciding whether investments are prudent. IS THE RULE VULNERABLE TO LEGAL CHALLENGES?The states challenging the rule could face an uphill battle in showing it violates the employee benefits law, lawyers said, noting the rule does not force retirement plans to consider ESG factors and still requires plans to put financial considerations ahead of social issues.The case has been assigned to U.S. District Judge Matthew Kacsmaryk in Amarillo, Texas, a conservative Trump appointee whose courthouse has become a favored destination for Republicans challenging items on the Biden administration’s agenda. Any appeals will be heard by the New Orleans-based 5th U.S. Circuit Court of Appeals, considered among the most conservative federal appeals courts, and then possibly, the U.S. Supreme Court, which has been skeptical of agencies’ attempts to set broad policy through rulemaking. WHAT ARE THE NEXT STEPS IN THE CASE?The states on Feb. 24 moved to temporarily block the rule pending the outcome of the lawsuit. The administration has moved to transfer the case to a different court, accusing the states of improperly judge shopping by filing in Amarillo, where Kacsmaryk is the only judge. Any rulings by Kacsmaryk on those issues are likely to be appealed by the losing side, which could delay the case for months or longer. WHAT OTHER ESG RULES COULD BE CHALLENGED?The U.S. Securities and Exchange Commission (SEC) has proposed various rules aimed at increasing transparency related to ESG investing. The SEC is expected to finalize a rule soon that would require investment advisors and companies marketing ESG-focused funds to specify which factors drive investment strategies. A separate proposal would require companies to report on items such as greenhouse gas emissions, climate goals, and management of climate-related risks.Republicans have criticized these efforts, saying in public comments they go beyond the SEC’s authority to regulate securities. Previewing potential legal challenges, many states that are suing over the Labor Department rule said in comments last year the SEC proposals would be burdensome to businesses and unconstitutional. More

Good morning, and welcome to the new look FirstFT.Today we start with a warning from some of Wall Street’s largest financial services companies that a backlash against sustainable investing is posing a material risk to their financial prospects.And what role did the 1970s BBC political comedy Yes Minister have to play in breaking the deadlock over Northern Ireland? Scroll down for our behind-the-scenes read on the secret talks that led to the Windsor deal.Here’s what to keep tabs on today:Economic data: Manufacturing will be in the spotlight with the release of the Institute for Supply Management’s purchasing managers’ index. Separately, S&P releases its final reading of manufacturing PMI for February.Results: Discount retailers Kohl’s and Dollar Tree report earnings as well as fashion stores Abercrombie & Fitch and American Eagle Outfitters. And as activists circle software group Salesforce it will update investors.Tesla investor day: The electric-car maker is expected to provide more details of a plan to build a factory in the northern Mexican city of Monterrey at an investor day in Austin, Texas. What do you think of our new look today? Let us know at [email protected]’s top news1. A dozen large fund managers including BlackRock, Blackstone and KKR, highlighted disputes in their annual reports over environmental, social and governance investing. They warned the backlash against sustainable investing is now a material risk.2. Chinese factory activity expanded at its fastest pace in more than a decade in February. The data, published today by China’s National Bureau of Statistics, is an early indication of the country’s recovery following the end of strict Covid restrictions in December. 3. Goldman Sachs chief David Solomon admitted mistakes in an ill-fated foray into consumer banking and raised the possibility of selling parts of the business at an investor day that failed to lift the cloud over the US bank. Read the full story on the “strategic alternatives” Solomon is now exploring.4. The Supreme Court’s conservative judges cast doubt on Joe Biden’s $400bn student loan relief programme. They questioned whether the president had the power to wipe student debt, a flagship policy of the Biden administration. Here’s more on yesterday’s oral arguments.5. EXCLUSIVE: Jaguar Land Rover’s owner is demanding more than £500mn for a battery factory to be built in England over Spain and has given UK ministers “weeks” to pledge financial support. Here’s why Tata Motors’ ultimatum could be pivotal for the future of Britain’s car industry.The Big Read© FT montage/dpaCentral banks do not face a wage-price spiral yet, but the worry is that a year of rocketing prices may have triggered a lasting change in the expectations and behaviour of workers, employers and consumers. This could lead to something better described as “wage-price persistence”.We’re also reading . . . 2024 presidential election: A new campaign-style video, a memoir and a gruelling travel schedule have heightened expectations that Ron DeSantis will soon launch his bid for the Republican party’s nomination in 2024.Secret talks: It took four months of diplomacy to reach a deal over Northern Ireland. Here’s how trust was painstakingly rebuilt between the EU and UK. Mansion for sale: The Holme, set in four acres of London’s Regent’s Park, may become the UK capital’s most expensive house ever sold. Chart of the dayVladimir Putin could reasonably conclude that he has time on his side and Ukraine will not get the resources it needs to win the war, writes Martin Wolf. The west has to prove he is wrong, and sooner rather than later.

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Take a break from the newsAre you bored with your clothes? Do you feel rudderless when it comes to describing what your “style” is? Fashion columnist Anna Berkeley offers advice on how to get out of a style rut. For more, sign up to our Fashion Matters newsletter. Additional contributions by Emily Goldberg and Tee Zhuo More