Aurelia Butler

The Bank of England raised interest rates by 0.5 percentage points to 2.25 per cent on Thursday, setting out the prospect of a further big increase in November to bring inflation under control.The move takes the BoE’s benchmark rate to its highest level since the start of the global financial crisis in 2008. However, the nine-member Monetary Policy Committee held back from the even more aggressive approach adopted by peers at the European Central Bank and US Federal Reserve. The Fed implemented a third successive 0.75 percentage point increase this week. Sterling cut its gains on the day against the US dollar after the BoE’s rate increase, which was less than markets expected. At around $1.13, sterling is still trading near its weakest level since 1985 against the US currency. The MPC split three ways, with the majority — including BoE governor Andrew Bailey and chief economist Huw Pill — voting for the 0.5 percentage point move. Three members — Jonathan Haskel, Catherine Mann and deputy governor Dave Ramsden — favoured a bigger, 0.75 percentage point increase, arguing that acting faster now could help the BoE avoid “a more extended and costly tightening cycle later”. Swati Dhingra, a newcomer to the committee, favoured a more modest 0.25 percentage point move on the grounds that economic activity was already weakening.Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the BoE’s decision not to follow other central banks with a 0.75 percentage point rise provided “reassurance that it is focused on the outlook for consumer price inflation and evidence of emerging slack in the economy, rather than with arbitrarily keeping up with the Joneses”.The BoE said it now expected UK gross domestic product to fall 0.1 per cent in the third quarter of the year, compared with August’s forecast of 0.4 per cent growth. This would mark a second consecutive quarter of decline, cementing fears that the economy is falling into recession. The MPC suggested it would wait until November, when it updates its forecasts, to take a firmer view on the effects of the new government’s fiscal policy. Chancellor Kwasi Kwarteng’s “growth plan”, set to be announced on Friday, was likely “to provide further fiscal support” and “to contain news that is material for the economic outlook”, it said.It added that, “should the outlook suggest more persistent inflationary pressures, including from stronger demand, the committee would respond forcefully, as necessary”.Economists noted this signalled an intention at the BoE to offset the effects of tax cuts with a large rate increase at the November meeting. Paul Dales, chief UK economist at Capital Economics, said the bank’s statement contained a “not-so-subtle reference” to Friday’s mini-Budget. “In short, the Bank has indicated it will raise rates further to offset some of the boost to demand from the government’s fiscal plans,” he said. The energy price guarantee the government had already announced would lower inflation in the short term, the MPC said, with CPI now likely to peak at just under 11 per cent in October, earlier than expected. But inflation would still hover at around 10 per cent for several months, and this would not necessarily be enough to stop high inflation expectations driving household and business behaviour.Highlighting this warning about further price pressures in the pipeline, Kitty Ussher, chief economist at the Institute of Directors, said that “many of our members think that the peak [in inflation] will come next year and so may price accordingly, running the risk that inflationary expectations become self-fulfilling”.The BoE also confirmed that it would press ahead with plans outlined in August to reduce the stock of assets it had amassed under previous quantitative easing programmes, aiming for gilt sales of £80bn over the next 12 months, bringing the total down to £758bn. More

FRANKFURT (Reuters) – A host of central banks from across the world raised interest rates again on Thursday, following the U.S. Federal Reserve in a global fight against inflation that is sending shockwaves through financial markets and the economy.Japan, the outlier among major developed economies, kept interest rates steady on Thursday only to be punished as traders pushed the yen to a record low against the dollar – prompting the first intervention by Japanese authorities to support the currency since 1998.The Fed set the pace on Wednesday with a 0.75% rate hike, its fifth increase since March, and a half dozen central banks from Indonesia to Norway followed suit with rises of similar or identical size within hours, often issuing guidance pointing to more action to come.They are fighting inflation rates ranging from Switzerland’s 3.5% to nearly 10% in Britain – the result of a rebound in demand since the pandemic subsided accompanied by sluggish supply, especially from China, and rising prices for fuel and other commodities in the wake of Russia’s invasion of Ukraine.Central bankers were adamant that curbing runaway price growth was their main task at present but they were bracing for their actions to take a toll on the economy, as rising borrowing costs typically dampen investment, hiring and consumption.”We have got to get inflation behind us,” Federal Reserve Chair Jerome Powell told reporters after Fed policymakers unanimously agreed to raise the central bank’s benchmark overnight interest rate to a range of 3.00%-3.25%. “I wish there were a painless way to do that. There isn’t.”The Fed said it expected the economy to slow to a crawl and unemployment to rise to a degree historically associated with a recession – a prospect looming ever larger in the euro zone too and seen as highly likely in Britain.The Bank of England raised rates and said it would continue to “respond forcefully, as necessary” to inflation, despite the economy entering recession.”For borrowers, this will mean significantly higher costs yet again and yet still no real control on the soaring cost of living,” Emma-Lou Montgomery, an associate director at Fidelity International said.World stocks fell close to a two-year low and emerging market currencies plummeted as investors prepared for a world where growth is scarce and credit harder to get. [MKTS/GLOB]Market participants have also pushed up their rate expectations for the European Central Bank, which is all but certain to hike again on Oct. 23. It is now seen taking its own interest rate to almost 3% next year from 0.75% now.Japan opted to hold its rates near zero to support the country’s fragile economic recovery, but many analysts believe its position to be increasingly untenable given the global shift to higher borrowing costs. “There’s absolutely no change to our stance of maintaining easy monetary policy for the time being. We won’t be raising interest rates for some time,” Bank of Japan Governor Haruhiko Kuroda said after the policy decision.But the yen plummeted against the dollar following the decision, forcing Japanese authorities to step in and buy the domestic currency in a bid to stem the slide.Meanwhile, Turkey’s central bank continued with its unorthodox policy on Thursday by delivering another surprise interest rate cut despite inflation running at more than 80%, sending the lira to an all-time low against the dollar. More

HOEVELAKEN, Netherlands (Reuters) – For five generations, Dutchman Dennis Toebast’s family has prospered as bread bakers. But since the war in Ukraine his energy bills have jumped fivefold, casting doubt on plans to eventually hand the business down to his daughter.With as many as a million Dutch households at risk of being pushed below the poverty line due to soaring gas and electricity bills, the government of the Netherlands on Tuesday announced 18 billion euros ($17.8 billion) worth of measures in 2023 to shield people from a cost of living crisis.For many family-run businesses like Toebast’s, plans to also provide financial support to businesses could come too late, and if nothing changes he might be forced to consider the painful option of cutting staff when the new year starts.“Our monthly income has vanished,” he said. “We are working to pay the energy bills.”Toebast’s monthly gas and electricity costs jumped from around 3,500 euros ($3,455) last year to more than 18,600 euros ($18,365).He said he’d need to charge as much as five euros ($4.90) for a normal loaf of bread in order to cover his costs, but “no one will pay that”.Efforts to reduce energy use, including no longer selling hot snacks after 4 pm and using leftover heat in ovens after baking bread to bake cakes, have not made enough of a dent in his expenses, he said.On a regular day, the bakery in the central Dutch town of Hoevelaken where he has worked for 30 years sells roughly 600 loaves, but some customers stopped coming after a price increase of 0.60 cents to 2.40 euros per loaf.Dutch inflation hit 12% in August, according to Statistics Netherlands, driven largely by a 151% year-on-year leap in gas and electricity prices. Toebast doesn’t expect the bills to lower or even stabilize any time soon. Instead, the bakery tries to work as efficiently as possible. But raw material prices have also jumped since Russia invaded Ukraine on Feb. 24.The Dutch government has been too slow to react, said Marie-Helene Zengerink, general manager of the Dutch Association for Bread and Pastry Bakers, pointing out that neighbouring Belgium and Germany already provided lifelines to businesses.Dutch Minister of Economic Affairs Micky Adriaansens said on Tuesday evening that a support package for businesses will be ready in November. “This is hopeful, but something needs to happen now as well”, said Zengerink.She said at least seven bakeries have gone bankrupt in recent weeks and that, without urgent help, thousands more are at risk of collapsing.Toebast has promised his 24 employees they would have jobs until at least the end of this year. He hopes that some day his daughter, Fabienne, will take over the bakery, but that too is no longer certain.”I can’t keep this up for longer than six more months,” he said. “Some of my employees have offered to be let go if that would help. That’s absolutely the last thing we want to do.”($1 = 1.0128 euros) More

The deal comes months after three Chinese state airlines placed an apparently coordinated order for nearly 300 Airbus jets, the biggest order by Chinese airlines since the pandemic.Boeing (NYSE:BA)’s top boss Dave Calhoun said earlier this week the outlook for selling planes to China in the next one or two years was negative. The 737 MAX has not flown commercially in China since March 2019, when it was grounded after two fatal crashes.The Airbus deal follows China Southern Airlines’ order in August for 96 A320neo-family aircraft worth $12.25 billion. (https:// The jets will be delivered to Xiamen Airlines, which is majority owned by China Southern Airlines, between 2024 and 2027. More