Aurelia Butler

Greetings from a beach, where I am starting a badly needed holiday (the rest of the Moral Money team will still be manning the fort over the next couple of weeks). The US Congress is about to head off on vacation too — but they managed to deliver a last-minute surprise last week, by making progress on a bill that would deliver $369bn worth of subsidies for green energy and other climate-friendly measures. The package is not quite law yet. But the crucial surprise was that senator Joe Manchin, the Democrat from West Virginia who has a swing vote, has now backed it in the name of energy security.Will this now enable Washington to bring more countries to the table to back net zero measures ahead of the COP27 meeting later this year? Optimistic members of Biden’s administration tell me it will — and John Kerry, the climate envoy, is about to make a whirlwind round of visits to major emerging markets to foster support for faster decarbonisation. I hear that the Biden team is also trying to raise pressure (yet again) for more action from multilateral development banks to create blended finance projects for green transition in emerging markets; one idea floating around is that philanthropic groups will be called on to provide first-loss capital, if the multilateral development banks are slow to act. Another point of progress, as we note below, is that efforts to create green accounting standards are gathering steam too. But will this be enough to offset the swelling, anti-green backlash? It is not clear. Meanwhile, read our story below for a timely analysis of the wider human rights problem bubbling in Xinjiang. I will be back in touch later in August! (Gillian Tett)Moral Money ForumInvestment in developing countries is essential to tackling climate change and global inequality. Yet for ESG investors, social challenges, governance flaws and poor data can be obstacles to including emerging market companies in investment portfolios. Our next Moral Money Forum report will explore what it will take to increase ESG investments in emerging markets and create the funding flows needed to meet their social and environmental goals. And if you are an investor, we want to hear from you. In your ESG investment strategies, are you directing less capital to emerging markets companies — or avoiding them altogether? What are the obstacles to allocating more capital to companies in these markets? And what compelling research and data have you seen that might inform our reporting? Share your thoughts here.Xinjiang sanctions aren’t stopping human rights abuses, report says Perhaps no place on earth presents such a dilemma for ESG investors as the Chinese province of Xinjiang. It’s the scene of some of the world’s most serious and systematic human rights abuses — home to the mass imprisonment and “re-education” of Uyghur Muslims and other minorities. But it’s also, thanks in part to widespread forced labour, a massive supplier of materials for solar panels — giving it a central role in a sector crucial to fighting climate change.As concern about the situation in Xinjiang has grown, the US and other governments have responded with economic sanctions against products linked to forced labour in the province. But are these measures doing any good?Some of the best research on this issue has been done by a team of academics at the UK’s University of Nottingham. Their latest report, on the efficacy of the Xinjiang sanctions, is a grim read.One central problem, the report said, was that the sanctions focused on blocking exports of abuse-tainted goods from Xinjiang, rather than on financial measures. The main effect of the current approach, the report said, was to push up costs for western customers, while the exporting companies had little trouble finding buyers for their products in China and other Asian markets.“Arguably, western import bans will not work to reduce forced labour in the Xinjiang solar sector,” it added, “but only to reduce western consumers’ complicity in it.”James Cockayne, the report’s author, told me that the western drive for “slavery-free” supply chains could have a perverse effect. As it sought to retain its international dominance, he said, the Chinese solar sector was shifting towards running two parallel supply chains.One part of a group’s operation would be verifiably free of forced labour, selling at premium prices to western customers. Another production chain, using cheap involuntary labour in Xinjiang, would service China and other countries with less demanding standards.“The result is that you have western consumers subsidising the use of forced labour to make goods that are sold to others elsewhere,” Cockayne said. “And that’s already beginning to happen.”Western governments should do more to support the development of new solar supply chains that don’t rely on Chinese inputs, Cockayne said.He also urged policymakers to broaden the scope of their sanctions. Financial sanctions had been underused in relation to Xinjiang, he said, despite the heavy reliance on equity and bond market financing of many companies linked to abuses — some of whose securities have found their way into ESG-branded funds run by some of the west’s biggest asset managers.The existing sanctions regime, the Nottingham report pointed out, “does not prevent western investors from continuing to invest in and profit from the production and sale of goods made with Xinjiang forced labour”.The report comes as some US conservatives are calling for the government to restrict Chinese access to the country’s capital market. “Many well-meaning Americans may inadvertently be propping up a genocidal regime because Wall Street does it for them,” Florida senator Marco Rubio wrote in May, urging measures such as a bar on Chinese companies listing in the US.Keith Krach, under secretary for economic growth in Donald Trump’s administration, followed last week with a call for all Chinese-domiciled companies to be excluded from ESG funds.Restricting capital flows into Xinjiang-linked companies could have much more impact than clamping down on exports, Cockayne argued. But he conceded that it was unclear whether even this would have any meaningful impact on the abuses happening in Xinjiang. For Xi Jinping’s government, he said, the logic behind the forced labour was not primarily commercial but a “strategic logic of social control in a province that’s seen as a potential source of domestic instability”.To really shift that strategic calculus, I asked, might it be necessary to impose sanctions heavy enough to cause economic disruption at a national level in China — rather than just for companies operating in Xinjiang?“You could consider that approach. And if you look at South Africa, for example, that’s ultimately where things ended up,” Cockayne replied, referring to the tough international measures against Pretoria’s apartheid regime in the 1980s. But similarly crushing action by major economies against China was hard to imagine, he added, given its importance to the global economy. “China is not South Africa.” (Simon Mundy)ISSB brings world together for sustainability standards

A Burberry boutique in Moscow, closed because of Ukraine war sanctions. The company, along with Temasek and the Saudi Central Bank, were among 428 groups to comment on the ISSB’s draft standards © AP

Amid this summer’s record-breaking heat, writing climate disclosure standards for companies might seem like rearranging deck chairs on the Titanic. But the International Sustainability Standards Board (ISSB), established at last year’s Glasgow climate gathering, has brought together the world’s biggest companies, investors and regulators to push forward with harmonised climate disclosure standards on a par with the global accounting rules.After the comment period for ISSB’s draft standards closed on Friday, the Saudi Central Bank, Temasek and Burberry were just some of the 428 groups who wrote in. The global breadth of these commenters underscores the ISSB’s growing importance.And encouragingly, there is broad agreement that ISSB is moving in the right direction. But there was some concern that emerging markets appeared to have been left out.China’s stock market regulator said that the draft “fail[ed] to adequately incorporate differences between developed and emerging markets, large companies and small to midsize companies”. The Chinese Securities Regulatory Commission suggested different starting dates and criteria for developed and emerging markets as well as small versus big companies.There is also a tussle over scope 3 carbon emissions — the broadest measurement of carbon emitted by an entity.Vanguard, for example, said investors would benefit from “more targeted and flexible disclosures” than the full scope 3 requirement that ISSB proposed. But the UK’s Financial Conduct Authority said the quality of disclosures for scope 3 emissions was getting better. Separately on Friday, the FCA said it was “encouraged” to see that about two-thirds of premium-listed UK companies disclosed their scope 3 emissions in 2021.ISSB wants to have a final version of its standards published by the end of the year, and chair Emmanuel Faber has some tough decisions to make in the months ahead.But the heat crisis combined with geopolitical uncertainty demands action now. “We have a once-in-a-generation opportunity to adopt a globally consistent baseline of sustainability disclosures,” the FCA said in its comment letter. “The ISSB’s proposals represent a critical milestone on the path to this new paradigm for corporate reporting.” (Patrick Temple-West)Smart ReadAre car manufacturers blind to human rights abuses? Inclusive Development International has partnered with Human Rights Watch to investigate the human rights violations lurking under the hood of aluminium production in the automobile industry. Check out their report here to find out more about the harmful effects of mining on Guinea’s local communities, and the steps car companies can take to mitigate human rights violations in the transition towards a more socially responsible future. Moral Money Summit Asia

Join us on September 7-8 online or in person at The Westin, Singapore, for our Moral Money Summit: Accelerating ESG Integration to Unlock Value and Drive Progress. FT journalists and leading minds from across the region will explore how to drive sustainable progress in business, finance, and investment. Register now More

Investing.com — China’s economy slowed again in July, suggesting a rocky road to full recovery. PMIs from around the world point to a generalized slowdown except in India. Stocks are pausing for breath after last week’s tech-driven rally, and grain and oil prices ease on brighter news out of Europe. Here’s what you need to know in financial markets on Monday, August 1.1. China slows; Beijing bristles as Pelosi prepares Taipei visitChina’s manufacturing sector slowed in July, amid signs of weak demand from core export markets and lingering disruptions from repeated outbreaks of COVID-19.The Caixin Manufacturing PMI, which tracks activity among private-sector companies, fell to 50.4, only just above the 50 line that typically separates contraction from expansion, with firms reporting falling output and a sixth straight drop in employment.The numbers suggest that China’s economy still faces huge challenges to meet an official growth target of around 5.5% this year. They were corroborated by HSBC adding another $150 million in credit loss provisions to its offshore Chinese loan book, a reflection of the grinding real estate crisis.In other China-related news, U.S. House of Representatives Speaker Nancy Pelosi begins a tour of Asia today that is scheduled to include a visit to Taiwan, despite strongly-worded warnings from Beijing against it.2. India bucks worldwide PMI decline trend; German retail sales slumpPurchasing managers indices around the world also pointed to a slowdown, broadly confirming the preliminary data released a week earlier, except in India, where activity picked up strongly.The Institute for Supply Management’s PMI will be released at 10:00 AM ET and is likewise expected to show a modest slowdown from June, albeit staying clearly in growth territory.That contrast with the Eurozone, where manufacturing is already in contraction owing to the acute energy crisis and accompanying inflation problem. Those factors also contributed largely to the biggest annual drop in German retail sales since the country started collecting pan-German data in 1994.3. Stocks set to open mixed; Shale earnings in focus laterU.S. stock markets are set to open the week flat to lower, pausing for breath after a vigorous rally last week in response to the quarterly results from Big Tech names.By 06:30 AM ET (1030 GMT), Dow Jones futures were down 8 points, essentially unchanged, while S&P 500 futures and Nasdaq 100 futures were both down 0.2%.Most of the day’s earnings action comes after the close, with shale oil and gas producers Devon Energy (NYSE:DVN) and Diamondback (NASDAQ:FANG) in particularly sharp focus. Activision Blizzard (NASDAQ:ATVI), CF Industries (NYSE:CF), Avis (NASDAQ:CAR), and Vornado (NYSE:VNO) also report late, while Jacobs Engineering (NYSE:J) and Loews (NYSE:L) head a thinner slate ahead of the opening.4. Grain prices ease as first ship leaves Ukraine under UN dealThe Sierra Leone-flagged ship Razoni became the first ship to leave a Ukrainian port carrying grain under a landmark UN-backed deal, a tentative sign of progress in relieving a growing food crisis in the emerging world. Russia has been blockading Ukrainian ports since its invasion in FebruaryThe BBC quoted Turkish and Ukrainian officials as saying the ship left the port of Odesa early on Monday morning local time. It will arrive in Turkish waters for inspection on Tuesday. It is due to take its cargo of 26,000 tons of corn to the Lebanese port of Tripoli.Grain futures eased again on the news, with U.S. corn futures falling 1.5% and wheat futures falling 1.4%.5. Oil falls on report that marine insurance sanctions will not be enforcedCrude oil prices also eased after a report suggested that the U.K. and Europe will not after all try to stop all seaborne Russian oil cargoes from getting insurance. The initiative had formed a major part of the EU’s sixth sanctions package, with the capability to disrupt shipments to third-party countries such as China and India.However, the Financial Times reported that the U.K. has not drafted the legislation necessary for that, under pressure from the U.S. which wants to bring oil prices down in time for the midterm elections in November.By 06:30 AM ET, U.S. crude futures were down 1.3% at $97.31 a barrel, while Brent was down 0.9% at $102.98 a barrel. More

Here are some of the things that Governor Andrew Bailey and his colleagues will be looking as they assess the persistence of inflation pressures ahead of their next scheduled monetary policy announcement at 1100 GMT on Thursday. Measures of inflation expectations and prices charged by companies have slowed recently but core pay has risen.BoE’s rate-setters might feel that they should raise rates by 50 basis points after other central banks pushed up borrowing costs sharply in recent weeks, despite the risk of an economic slowdown or a recession.INFLATION EXPECTATIONSBritain’s main inflation measure hit a 40-year high of 9.4% in June, prompting some economists to push up their forecast for inflation’s peak to 12%. But central banks typically worry just as much about expectations for future inflation.The BoE might take some comfort from a recent drop in how much consumers think prices will rise in the years ahead.A survey by U.S. bank Citi and pollsters YouGov published on Monday showed expectations among the public for inflation in five to 10 years – the measure the BoE looks at most – fell in July for the third time in four months, although at 3.8% it remained high by historical standards.Another survey by Bank of America (NYSE:BAC) published on July 12 showed five-year inflation expectations falling to their lowest in almost a year.A measure of expectations in financial markets for inflation in five to 10 years’ time hit its lowest since April 2020 last week but has risen since then. GRAPHIC – Inflation expectations edge down PAY INCREASESIf high inflation expectations become entrenched, they could lead to higher pay demands that may in turn fuel more inflation in future.Growth in salaries has accelerated but much of the increase is due to one-off bonuses to attract or retain staff as employers struggle to find candidates to fill their jobs.Pay including bonuses grew by 6.2% in the three months to May, up from about 3% just before the COVID-19 pandemic but down from the two previous monthly readings and lagging inflation.Regular pay growth edged up to 4.3%, above its immediate pre-pandemic levels of around 3-4%.The BoE’s own survey of employers showed expectations for pay growth in the 12 months ahead rose to 5.1% in June from 4.8% in May. But the survey also showed expectations for employment over the next 12 months fell to their lowest in over a year. GRAPHIC – Regular wage growth edges uphttps://graphics.reuters.com/BRITAIN-BOE/dwpkrbxqavm/chart.png PRICING PLANS As well as via pay, high inflation could also become embedded in the economy if companies keep on pushing up their prices in response to rising costs.Increases in prices charged by firms, as measured by the S&P Global/CIPS Purchasing Managers Index, rose by the most since records began in 1999 in April. But that pace, while still high by historical standards, slowed a bit in May and June and cooled more significantly in July.Separate data from the Office for National Statistics has shown a fall in early July in the proportion of businesses expecting to increase their prices. GRAPHIC – Companies scale back their price hikes https://graphics.reuters.com/BRITAIN-BOE/mopanaeowva/chart.png More

TOKYO (Reuters) – Chips, batteries and energy are key collaboration areas between the United States and Japan as the allies seek to secure supply chains and counter China, Washington’s envoy to Tokyo said.Former Chicago mayor Rahm Emanuel has focused on “commercial diplomacy” since arriving as U.S. ambassador this year, pushing for business tie-ups in areas that have broader significance for economic security. One U.S. company is now looking at a “major potential investment” related to chips in Japan, in what would mark the latest collaboration between the countries on semiconductors, Emanuel told Reuters in an interview. He declined to elaborate or give a timeline.”Commercial diplomacy is a big piece of an overarching economic collaboration and coordination between the United States and Japan,” Emanuel said on Monday.The two countries agreed on Friday to establish a new joint research centre for next-generation semiconductors. Japan has said it will provide as much as 92.9 billion yen ($700 million) to help U.S. firm Western Digital Corp (NASDAQ:WDC) and partner Kioxia Holdings boost memory chip output at a Japanese plant.Meanwhile, Tesla (NASDAQ:TSLA) supplier Panasonic (OTC:PCRFY) Holdings Corp last month picked Kansas as the site for a new battery plant. That deal came together, Emanuel has said, after U.S. President Joe Biden talked with Panasonic executives while in Japan. The cooperation comes as China has used its economic strength to pressure other countries, Emanuel said.”There’s a pattern here: if they don’t like what you say politically, they put the muscle on you economically,” he said, citing Japan’s experience more than a decade ago when Beijing restricted rare earth export quotas after a territorial dispute.In a joint statement on Friday, ministers from the United States and Japan said they opposed “economic coercion”, although they did not name a specific country. However, U.S. Secretary of State Antony Blinken said during a news briefing that “the coercive and retaliatory economic practices of the People’s Republic of China force countries into choices that compromise their security, their intellectual property, their economic independence.”China has repeatedly said it never uses economic coercion against any country and is firmly opposed to all forms of coercion, politically and diplomatically. It has accused Washington of engaging in economic coercion in the name of national security.Emanuel said that if a country is pressured by China, the United States needs to counter with “economic incentives”, including using energy resources as a “strategic asset”.Japan, the world’s largest LNG buyer, is a growing market for U.S. natural gas. Between 2018 and 2021 Japanese imports of U.S. LNG more than doubled, Japanese government data shows. The advanced nuclear reactors known as small modular reactors (SMRs) are another area of collaboration. Emanuel declined to say whether U.S. House of Representatives Speaker Nancy Pelosi, who kicked off a tour of Asia on Monday, would visit Taiwan, the self-ruled island claimed by Beijing.Concerns about Chinese tensions with Taiwan, which makes the vast majority of semiconductors under 10 nanometres that are used in smartphones, have driven countries like the United States and Japan to step up investment in chip production.Emanuel said there also needed to be more investment in training skilled workers to support the chip industry.”We both have to invest in more scientists, more engineers and in workers to do this,” he said. ($1 = 132.5300 yen) More

European shares and US stock futures kicked off the month on a lacklustre note, as disappointing Chinese factory data muddled the economic outlook.Following a rebound for beaten-down global equities in July, as markets responded to an economic slowdown by anticipating that high rates of inflation would ease, Europe’s regional Stoxx 600 share index edged 0.2 per cent higher on Monday. An index of European banking stocks rose 1.7 per cent, lifted by quarterly earnings from lender HSBC that beat analysts’ forecasts. Futures trading suggested Wall Street’s blue-chip S&P 500 equity index would fall 0.3 per cent at the New York opening bell. Official data released at the weekend showed Chinese factory activity contracted unexpectedly last month after new coronavirus flare-ups and stress in the nation’s property market weakened demand. The purchasing managers’ index for the manufacturing sector produced a reading of 49, down from 50.2 in June and below the threshold of 50 that separates expansion from contraction. “Both domestic demand and external demand for manufacturing were weak,” ING greater China economist Iris Pang said in a note to clients. “Uncompleted real estate projects could be at least part of the reason,” Pang added, after indebted developers suspended construction of millions of apartments. Pang also cited a “risk of contagion from financially unhealthy property developers to their downstream and upstream industries.”Brent crude, the oil benchmark, dropped 1.5 per cent to $102.41 a barrel.Later on Monday, the closely watched ISM manufacturing PMI is expected to show a slowing of growth in US activity, with economists polled by Reuters predicting a reading of 52 in July from 53 the previous month.Investors remain uncertain, however, on whether heightened recession risks will dent stock prices by weighing on corporate earnings or boost expectations that surging global inflation will peak, prompting central banks to turn cautious over future rate rises. Markets are “looking beyond the well-known inflation issue and what they see as a slowdown which will force central banks to ease again”, said Antonio Cavarero, head of investments at Generali Insurance Asset Management. “A bit of caution is needed though, as next quarter’s earnings might not keep the pace of the current market enthusiasm.” In government debt markets, the yield on the benchmark 10-year Treasury note added 0.03 percentage points to 2.67 per cent as the price of the instrument fell. This followed a strong rally for government debt last week after data showed the US economy had contracted for the second consecutive quarter. While the Federal Reserve raised its main interest rate by 0.75 percentage points to a range of 2.25 to 2.5 per cent last week, futures markets are now pricing a peak fed funds rate of about 3.3 per cent in early 2023, with rate cuts thereafter. Germany’s 10-year Bund yield added 0.03 percentage points to 0.86 per cent, with the barometer of eurozone debt costs still sharply lower after topping 1.9 per cent in June. More

Sunak, once seen as the favourite to replace Boris Johnson when he helped to steer the economy through the ravages of the COVID-19 pandemic, has struggled against his rival, Foreign Secretary Liz Truss, who has pledged immediate tax cuts. Sunak said he remained focused on tackling inflation but once that was achieved he would follow through on an already-announced plan to take 1 pence off income tax in 2024, and then take a further 3 pence off by the end of the next parliament, likely around 2029. The two pledges would take income tax from 20p to 16p. Sunak said the plan would mark the biggest income tax cut since the time of Margaret Thatcher. “It is a radical vision but it is also a realistic one,” he said in a statement late on Sunday, a day before Conservative Party members are due to start receiving their ballot papers to vote for the party’s new leader.Sunak told BBC Radio on Monday he would fund the tax cut by growing the economy and being disciplined with public spending.Britain’s hunt for a new prime minister was triggered on July 7 when Johnson was forced to announce his resignation following months of scandal. Conservative lawmakers have whittled a field of candidates down to Truss and Sunak, with an announcement of the decision by party members due on Sept. 5.With inflation surging to a 40-year high of 9.4% and growth stalling, the economy dominated early stages of the contest, with Sunak arguing that Truss’s plan to reverse a rise in social security contributions and cancel a planned rise in corporation tax would stoke inflation further.”I don’t think embarking on a spree of excessive borrowing at a time when inflation and interest rates are already on the rise would be wise,” Sunak said. Sunak said each penny cut from the rate of income tax would cost around 6 billion pounds ($7.3 billion) a year, a figure that he said would still allow Britain’s debt-to-GDP ratio to fall, if the economy grows in line with official forecasts. Truss has argued that tax cuts are needed now to give the economy a shot in the arm. A recent poll by YouGov showed Truss held a 24-point lead over Sunak among Conservative Party members. ($1 = 0.8220 pounds) More

“I don’t think embarking on a spree of excessive borrowing at a time when inflation and interest rates are already on the rise would be wise,” Sunak, whose opponent Liz Truss has promised immediate tax cuts, told BBC Radio. “But we need to also look beyond that. And that’s why I want to give people a sense of where I want to take the economy once we grip inflation.” More

Bank of England policymakers will be under pressure to step up the pace of monetary tightening when they meet this week, following the lead set by the European Central Bank and US Federal Reserve.BoE governor Andrew Bailey has made it clear that while a 0.5 percentage point increase in interest rates is “not locked in”, it will be “among the choices on the table” when the monetary policy committee makes its policy decision on Thursday. The BoE has raised interest rates in 0.25 percentage point increments since December but pledged in June to act “forcefully” if needed in response to more persistent inflationary pressures.If the MPC follows though, raising the central bank’s benchmark rate to 1.75 per cent, it will be the sharpest increase in borrowing costs for more than a quarter of a century.Analysts say the decision will be finely balanced, as policymakers weigh relentless inflationary pressures against the rising risks of recession. But a growing number of forecasters think the balance of opinion on the MPC will swing in favour of the first 50 basis point rise since its independence.“After the ECB and the Fed delivered oversized hikes at their July meetings, the Bank of England is likely to feel similar pressure,” said Amarjot Sidhu, economist at BNP Paribas.Philip Shaw, at Investec, said the BoE “may fear a credibility problem if it is perceived to be lagging behind its peers”.The IMF, which slashed its global growth forecasts this week, pointed to the UK as one of the countries where the outlook for inflation had worsened most. It urged policymakers to take “decisive action” even if it hit growth, jobs and wages in the short term — arguing that a gradual approach would simply lead to a more disruptive adjustment later.“If the BoE continues to rise by 25 basis points per meeting, it would be outpaced by most other central banks,” said Fabrice Montagné, economist at Barclays, adding that the pound’s 3 per cent depreciation since April reflected a perception by markets “that the UK is falling behind”.Inflation, which reached 9.4 per cent in June on the CPI measure targeted by the BoE, has so far risen largely in line with the central bank’s May forecasts. But the latest surge in gas prices means the BoE’s new projections are likely to show it climbing even further into double digits than was already expected in the autumn, when the cap on regulated energy prices will rise again.The MPC cannot do anything about high energy prices, but it will worry about the knock-on and potentially lasting effects on business and household behaviour — which it can influence.Meanwhile, recent data suggest economic growth has held up better than the BoE expected in the second quarter of 2022. At the same time, employment has continued to grow strongly, against a backdrop of continuing labour shortages that have underpinned rapid nominal wage growth.Policymakers said in June that the “scale, pace and timing” of any further rate increases would reflect their assessment of the economic outlook — and that they would be “particularly alert” to any signs of more persistent inflationary pressures. “The MPC is faced with the prospect of higher and more persistent inflation and an economy that is slowing but not crashing. So another rise in interest rates looks inevitable,” said Andrew Goodwin, at the consultancy Oxford Economics. He is among those economists who still think the BoE will stick to a more conventional 0.25 per cent increase, but acknowledged it could easily justify a bigger move.Policymakers may also be worried that the tax-cutting pledges of Liz Truss, the frontrunner in the Conservative leadership race, will lead to a fiscal splurge later in the year — forcing them to raise rates further — although the BoE could only factor this into its forecasts once it had become government policy.

Alongside its decision on interest rates, the BoE is also set to give more details of its plans to start selling some of its gilt holdings, potentially preparing to vote in September and begin sales the following month. However, Bailey has signalled that the BoE wants interest rates to remain its main tool for tightening monetary policy, with a steady unwinding of quantitative easing taking place in the background.The big question for investors, though, is whether a larger move from the BoE would be a one-off or the start of an aggressive tightening cycle.At present, traders are betting that interest rates will peak close to 3 per cent early in 2023, implying at least two more 0.5 percentage point increases by the end of this year.Most analysts think this is going too far, noting the BoE has repeatedly signalled that inflation would fall below its 2 per cent target in the medium term if interest rates rose in line with market pricing. “Recession risks are clearly mounting and that’s the most obvious reason for the bank to stop tightening by the autumn . . . by the fourth quarter, we’re likely to see the full effect of the cost of living squeeze,” said James Smith, economist at ING, adding that while the rise in energy and food prices was “eye-watering”, broader inflationary pressures were already starting to cool. Paul Dales, at the consultancy Capital Economics, is one of the few forecasters to share market expectations that interest rates will reach 3 per cent, but he too said that despite more aggressive moves made by other central banks, a 50bp increase “may be the MPC’s top speed”. More