Aurelia Butler

A senior Bank of England official has indicated that the central bank is likely to undertake a “very gradual” sale of the £895bn of assets it has bought in the past 13 years of quantitative easing. Speaking at the first Bank of England Agenda for Research (BEAR) conference, Ben Broadbent, deputy governor for monetary policy, said it was possible that the BoE would continue selling assets under a new quantitative tightening programme, even if the central bank was simultaneously cutting rates. “Quite conceivably it is possible that the balance sheet will go through this very gradual reduction, even as bank rate potentially at times moves both up and down,” Broadbent said.The BoE in February initiated a passive programme of quantitative tightening, in which it will no longer reinvest the proceeds of its government bonds when they mature. Some £28bn of UK gilts it holds are maturing early next month and the BoE will not reinvest the proceeds it receives. The bank has started a gradual programme of selling the £20bn of corporate bonds it owned under the QE scheme, but will only begin active sales of its remaining gilts when it has raised interest rates to at least 1 per cent. Broadbent’s comments suggest the BoE is planning to sell assets slowly and not use the quantitative tightening programme to manage the economy. His views were echoed by senior European central bankers. Isabel Schnabel, member of the executive board of the European Central Bank, told conference delegates that she agreed with the BoE stance, although the ECB has not yet considered QT. “Our key policy rates are best suited for influencing output and prices in the euro area during the normalisation process,” she said.Both central banks face inflation rising at more than twice their 2 per cent inflation target. In the UK, it rose to a 30-year high of 5.5 per cent in January, while in the eurozone, prices rose at an annual rate of 5.1 per cent, the highest since the single currency was introduced in 1999. After Russia invaded Ukraine on Thursday, economists revised up their inflation forecast for both the UK and the eurozone. Schnabel said borrowing costs are a better tool to control inflation because most loans to businesses are short-term and therefore will be directly affected by changes in central bank interest rates. In contrast, balance sheet adjustments, such as quantitative tightening or the release of bonds purchased by central banks, have only a partial effect on long-term rates, which are also influenced by other factors, such as inflation uncertainty and global demand.“Balance sheet adjustments may thus not be well-suited as the main instrument for controlling the overall stance [of monetary policy],” said Schnabel.She tweeted that all the panellists at that session of the conference “agreed that policy rates, not quantitative tightening, should be the main active instrument in the normalisation or tightening phase.”She also emphasised the importance of ending QE as the first element of tightening monetary policy because asset purchases had unpleasant side effects such as “the measurable rise in residential real estate prices”.The BEAR conference aims to bring together academics and policymakers to debate the “challenging environment that central banks face today”, according to Andrew Bailey, the BoE governor. More

War in the heart of Europe comes at an already difficult time for the global economy. The recovery from the coronavirus pandemic is not yet complete. Inflation is high and central banks are concerned that temporary, pandemic-related, supply chain blockages could set off a self-sustaining cycle of persistently higher inflation. Russia’s invasion of Ukraine, and its attendant impact on global commodity prices, will make every aspect of this outlook harder to deal with. The parallels with the 1970s, when the oil price shock from the Yom Kippur war combined with existing inflationary dynamics, raise the worrying spectre of stagflation. For the moment, the order of the day in markets is volatility. Asset prices have swung dramatically as traders attempt to understand the latest news. Gold and stock prices, as well as oil, have whipsawed. That will probably continue as more details emerge from the fog of war and investors digest what they mean for the outlook. Indeed, natural gas prices fell on Friday as US and European sanctions packages focused on oligarchs and banks rather than energy. That reluctance to target energy is understandable, if morally regrettable, given the dependence of much of Europe, and especially Germany, on natural gas from Russia — and the political sensitivity of US president Joe Biden’s re-election chances on petrol prices. Nevertheless, prices have still risen overall as traders anticipate disruptions to supply, whether accidental or deliberate, from the fighting. They are factoring in, too, the possibility that pressure will mount for even more aggressive sanctions such as cutting Russia off from the Swift interbank payments network. Benchmark oil prices reached $106 on Thursday, the first time they have risen above $100 since 2014, before falling back. That will add fuel to the inflationary fire. The war amounts to a supply shock — reducing the capacity of the global economy to produce goods and services. Such crises hit growth while raising inflation. That is harder for central banks to deal with than a fall in aggregate demand, when spending retrenches. Lower interest rates may be able to encourage investment and consumption in the short term, but they cannot do much to get more fossil fuels out of the ground. There will be some, smaller, offsetting impact on consumer and business confidence. Central banks are likely to continue to pursue tighter monetary policy, to prevent inflation from feeding off itself. But a pause in their plans, to see how the situation develops, would be sensible for the short term. Fiscal policy will ultimately have to take most of the burden of shielding the most vulnerable from the impact of higher prices. Government spending cannot ameliorate the effect of higher commodity costs but it can ensure they are shared between the whole of society rather than leaving just a few to shiver and starve from the combined impact of higher food and fuel prices — Ukraine is a major wheat exporter as well as playing host to gas pipelines. Transfer payments, funded by general taxation, will be needed.In the longer term, the invasion will shift the composition of government spending. Not only should it accelerate attempts by western economies to wean themselves off fossil fuels, especially those imported from Russia, but it likely means the end of the post cold war “peace dividend”. Defence investment will be added to an already long list of priorities for government spending. Investors have long feared a return to the stagflation of the 1970s; few, however, anticipated that it would come alongside a return to war. More

Mortgage lenders put up rates across a swath of home loans this week, in the latest sign of expectations of inflation-driven rate rises to come at the Bank of England.Santander, NatWest, TSB, Royal Bank of Scotland, Virgin Money, Yorkshire Building Society, Accord and the Co-operative Bank were among lenders to lift mortgage rates by as much as 0.6 percentage points across a selection of residential loans. Santander added up to 0.5 percentage points to interest rates on a number of its mortgages, leaving its cheapest two-year fixed rate loan for those with a deposit of 25 per cent at 1.89 per cent, with a fee of £999. Yorkshire Building Society raised rates across its range by as much as 0.63 percentage points. Aaron Strutt, product director at mortgage broker Trinity Financial, said lenders were “anticipating another base rate rise” but also coping with high demand for mortgages for purchase and remortgage as home movers and borrowers attempt to lock in low rates.Strutt said: “A lot of people are worried about what’s going to happen to their mortgage as rates rise. Lenders are also incredibly busy, so some of them are trying to reduce the number of applications that they get while they catch up with the backlog.”The Bank of England raised its main interest rate in December from 0.1 to 0.25 per cent and earlier this month from 0.25 to 0.5 per cent — the first successive rises since 2004. Markets expect the Bank’s efforts to curb inflation, which hit 5.5 per cent in January, to lead to further rises this year. Average mortgage rates on two-year fixed-rate deals across all loan-to-value ratios have risen from 2.44 per cent to 2.61 per cent from the beginning of February, according to finance website Moneyfacts. Eleanor Williams, finance expert at Moneyfacts, said: “There have been a variety of updates from lenders across the mortgage sector recently, fuelling rises across the majority of the average fixed rates as providers revise their product ranges and a number withdraw selected deals from the market.” 

Mortgage brokers said borrowers looking to fix a rate were having to reassess the leisurely approach that many had adopted over the past few years of ultra-low interest rates. Mark Harris, chief executive of SPF Private Clients, said that when lenders were competing hard on rates, people could afford to wait. Now the upward movement on rates was forcing them to take action before lenders pull deals and replace them with more expensive options. “I’d suggest the bottom on rates has been and gone. That is making people come to a decision,” he said. Housing market activity remains buoyant, with property website Rightmove this week reporting that strong demand for homes in London in February and a shortage of stock was pushing up asking prices. Brokers said demand for purchase as well as remortgage deals remained high after a big surge in activity last year. Leeds Building Society on Friday reported its busiest-ever year for mortgage applications in 2021, with gross lending reaching a record £4.4bn.But some brokers said lenders may rethink the way they assess borrowers’ affordability as pressure grows on household finances amid a cost of living crunch. Energy bills are rising fast, while rail fares and national insurance contributions are set to rise in the next two months. Nicholas Mendes, mortgage technical manager at broker John Charcol, said: “With several lenders, affordability is based on income rather than considerations in the costs of living. But, as the costs continue to escalate, we could see lenders exercise caution and start to consider other factors to ensure the mortgage remains affordable.” More

How well did you keep up with the news this week? Take our quiz.Russia’s onslaught breached the suburbs of Kyiv on Friday as armoured columns battled towards Ukraine’s two biggest cities in Europe’s largest military offensive since the second world war.Kyiv residents woke to loud explosions shortly after 4am and reports of Russian armoured vehicles advancing into the northern Kyiv district of Obolon, bringing street fighting to the 3mn-strong capital.Western officials said that stronger than expected Ukrainian resistance on Thursday slowed Russia’s two key objectives of encircling Kyiv and capturing Kharkiv in the north-east, Ukraine’s second-biggest city.Ukraine’s president Volodymyr Zelensky delivered an early morning address to his country as his army warned Russian troops were “moving at speed” towards central Kyiv followed by a column of military trucks. Zelensky claimed that “enemy saboteur groups” were already in Kyiv and that Russia was planning to assassinate him.

Stay up to date with the latest from our live blog. We’re also making important Ukraine coverage free to read to keep everyone informed as events unfold. Please share with your friends, family and colleagues. Explainers: How will Russia’s invasion of Ukraine hit the global economy and what is Russia’s endgame?Even in war, some US conservatives share Trump’s embrace of ‘genius’ Putin, writes Lauren Fedor.Sanctions: US ratchets up trade pressure with sanctions on Russia’s biggest bank. But soaring oil prices could constrain the ability of the US to crack down on Putin. Also, what is the impact of throwing Russia out of Swift?Go deeper: Here’s what western Europe can do for Ukrainians — and what Putin’s apologists fail to understand, writes Simon Kuper. Also, historian Mary Elise Sarotte tells the inside story of the west’s efforts to secure a post-cold-war settlement.Opinion: Russia’s assault is unprovoked and based on falsehoods, writes our editorial board. Markets: Oil climbs back above $100 a barrel following a day of Wall Street volatility.Thanks for reading FirstFT Americas. To keep up to date with all that’s happening in Ukraine, sign up here to receive my colleague Valentina Pop’s essential newsletter, Europe Express — Wai KwenFive more stories in the news1. Manufacturers lobby to weaken UN global plastics treaty proposal The draft resolution was aimed at tackling pollution through the entire plastics supply chain, from chemical production to disposal. Some companies want the draft agreement narrowed to cover the waste problem rather than production.2. Wind power companies bid more than $3bn for oceans off New York The largest US offshore wind lease sale has attracted record bids as renewable energy developers compete for prime locations to install turbines.3. Beyond Meat takes a beating as plant-based sector reports slowing sales The industry leader reported a quarterly loss of $80.4mn, more than triple the level of a year before. Rival Maple Leaf Foods said that consumers viewed plant-based meat as an “expensive novelty”.4. Elon Musk says brother ‘had no idea’ about Twitter poll The Tesla chief denied passing information that could have hurt the electric carmaker’s stock price to his brother, after a report that they were the subjects of an insider trading investigation by the US securities regulator.5. Morgan Stanley reveals twin probes into block transactions The Wall Street bank disclosed yesterday that the Securities and Exchange Commission has been examining its block trading business since 2019, and the Department of Justice recently joined with its own investigation.Coronavirus digestBank of America’s co-head of global capital markets in Asia-Pacific is leaving Hong Kong as harsh pandemic restrictions prompt an exodus of executives.Moderna said it expected the pandemic to end this year but forecast that a seasonal booster shot would be needed in the autumn.The days aheadNato summit The transatlantic alliance will hold an emergency meeting of its members’ 30 leaders to discuss what its head described as Russia’s “deliberate, cold-blooded and long-planned invasion” of Ukraine. EU diplomats are also working to enshrine sanctions, including freezing some transactions with Russian banks, into law.Economic data Germany and France are set to release gross domestic product data for the fourth quarter. US consumer spending is forecast to rebound in January as household spending picks up. (FT, WSJ)Berkshire Hathaway shareholder letter Warren Buffett will publish his annual letter to Berkshire Hathaway shareholders tomorrow as the company reports.Join Financial Times journalists and leading experts today at 1pm GMT for an unmissable virtual briefing, Russia’s invasion of Ukraine: what next? Register free here.What else we’re reading Why do some great ideas fail to scale? Early initiatives deliver a sensational result, only to fade at a larger scale — a phenomenon called the “voltage drop”. Tim Harford explains why this happens?

Tim Harford: ‘One common problem is that the original effect was illusory’ © Anna Wray

Opinion: Paul Farmer’s crusade on global healthcare has left a powerful legacy The American physician taught important lessons about the dangers of living in an interconnected world, writes Gillian Tett.Is there a new supercycle in metals and minerals? For years, BHP focused on investing in safe and stable countries. But faced with the challenge of supplying the metals and minerals that will be needed in the shift to the low-carbon economy, the world’s biggest mining company is starting to take on more risk.Capital markets union is crucial to a sovereign EU Without it, the bloc will not be able to secure its ambitions for digitisation and the green transition, writes Theodor Weimer, chief executive of Deutsche Börse.What Meta’s VR advert tells us about the metaverse The virtual world of the Super Bowl video is a radical vision of the future, but also quite a chilling one, writes Jemima Kelly.Rich People’s Problems: superyacht envy Thanks to online auction sites you can find yourself bidding on a boat you’ve never seen. But the result could sink your finances.Related read: How to spend smarter — however wealthy you are.Actor Matthew Broderick’s guide to Broadway“The theatre is about togetherness and we all appreciate how important that is now.”Matthew Broderick backstage in the Hudson Theatre Broadway, New York © Timothy O’Connell More

The Federal Reserve’s preferred inflation gauge is expected to have registered another strong monthly gain, in the latest sign that the US central bank needs to reduce the ultra-easy monetary policy that has been in place since the start of the pandemic.The core personal consumption expenditures price index is set to have increased another 0.5 per cent in January, following a similar monthly increase in December, according to a consensus forecast compiled by Bloomberg.That is expected to translate to an annual increase of 5.2 per cent, the fastest pace in roughly four decades and an acceleration from the 4.9 per cent increase recorded in December.Once volatile items such as food and energy are factored in, the PCE index is expected to have jumped 6 per cent from the same time last year, or 0.6 per cent on a month-over-month basis. Fed officials are monitoring inflation data closely as they assess how quickly to raise interest rates this year from today’s near-zero levels.The rising price pressures are expected to have been accompanied by a 0.3 per cent decline in personal incomes and a 1.5 per cent rise in household spending at the start of the year.The data will be published by the commerce department at 8:30am Eastern Time on Friday.The data comes on the heels of Russia’s military invasion of Ukraine, which has left policymakers scrambling to discern the potential economic effects. Comments from a number of Fed officials as well as developments in Ukraine have quietened speculation of a half-point rate rise from the Fed in March. But the US central bank is still expected to proceed with its first rate increase at its next meeting in the middle of next month. Markets currently anticipate a further five quarter-point adjustments during the remainder of the year.

Several officials have spoken out in recent days about potential risks to economic growth and the inflation outlook.Energy prices have soared since the incursion into Ukraine, with Brent crude breaking through $100 a barrel for the first time since 2014, when Russia annexed Crimea. Further gains in energy costs could feed through to prices at the pump and send overall inflation higher, economists say, complicating the Fed’s equations.Raphael Bostic, president of the Atlanta Fed, said on Thursday that while he is watching events in Ukraine closely, it is “appropriate” for the Fed to move away from its emergency policy stance. Mary Daly, San Francisco Fed president, and Thomas Barkin of the Richmond Fed, have expressed similar views, as has Loretta Mester, president of the Cleveland Fed and a voting member of the Federal Open Market Committee this year. More

Outbound shipments in February were expected to increase by 18.2% from a year earlier, according to the median forecast of 11 economists, while imports were expected to rise 25.2%.”We expect a solid growth in sales of key exporting items, including semiconductors, but with a continued rise in oil prices, the trade balance will remain in the negative territory,” said Park Sung-woo, an analyst at DB Financial Investment.The economy reported a $4.83 billion trade deficit in January, as imports increased by 35.3%, outpacing a 15.2% rise in exports.Economies around the world have suffered from a global chip supply shortage and other production bottlenecks because of the rapid spread of the highly infectious Omicron variant of the coronavirus.The supply chain disruption from the Russia-Ukraine conflict is seen limited for now, but it could pose further risks in longer term, with the chip industry taking a hit.The full-month trade data will be published on Tuesday at 9 a.m. (0000 GMT).In the same Reuters poll, economists projected the consumer price index in February would rise 3.5% from a year earlier, slower than in January but not far from a decade-high 3.8% rise in November.That would mark the fifth month of inflation above 3%. The Bank of Korea sharply upgraded its inflation forecast for 2022 to 3.1% from 2% and signalled the bank may need a quicker pace of tightening should price pressures build further because of the Ukraine crisis.On Thursday however, the bank kept the base rate steady at 1.25% to gauge the impact of its back-to-back hikes before raising again.Friday’s poll also showed eight economists gave median estimates of a 0.6% decrease in industrial output in January from December. More

TOKYO (Reuters) -Consumer inflation in Japan’s capital accelerated in February at the fastest annual pace in more than two years, suggesting that soaring fuel and food costs will weigh on consumption and the country’s fragile economic recovery.Analysts expect the crisis in Ukraine to further pace up inflation in coming months through a spike in global energy and commodity prices, adding to woes for Japan’s economy that is heavy reliant on raw material imports.”Import costs were already rising, so any further rise in raw material prices from the Ukraine crisis would deal a huge blow to Japan’s consumption and corporate profits,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.The overall consumer price index (CPI) for Tokyo, considered a leading indicator of nationwide trends, rose 1.0% in February from a year earlier, marking the fastest pace since December 2019, government data showed on Friday.The Tokyo core CPI, which excludes volatile fresh food but includes energy costs, increased 0.5% in February from a year earlier, accelerating from a 0.2% gain in January. It compared with a median market forecast for a 0.4% gain.A 24.2% spike in energy prices was the key driver of the rise in core CPI, underscoring the pain higher fuel costs are inflicting on households and retailers.Prices also rose for a range of foods and services, though the increase was moderated by a temporary drag from cuts in cellphone fees, the data showed.”If energy prices continue to rise, Japan’s core CPI may hit 2% in April and may not slow much thereafter,” Shinke said.Prices for international crude benchmark Brent shot above $105 a barrel after Russia, one of the world’s top oil producers, attacked Ukraine.Prime Minister Fumio Kishida said the government was ready to take further steps to curb fuel costs, on top of subsidies already put in place, to cushion the blow to households.But there is uncertainty on how much such moves could support consumption with rising raw material costs already leading to higher prices for various grocery products including snacks, soy sauce and cooking oil.Japan’s economy has recovered from the COVID-19 pandemic’s initial hit thanks to robust global demand, though curbs on economic activity to combat rising cases of the new Omicron variant have weighed on consumption.Sluggish consumption and weak wage growth have discouraged firms from passing on higher costs to households, keeping consumer inflation distant from the central bank’s 2% target. More