Aurelia Butler

LONDON (Reuters) – The Bank of England will say on Thursday whether it has delayed its first interest rate hike since the COVID-19 pandemic again, this time because of the fast-spreading Omicron variant, or is taking action to see off a surge in inflation.Investors had been largely betting against an increase in Bank Rate with a new coronavirus wave in full swing, until data on Wednesday showed British consumer price inflation leapt by far more than expected and hit a decade-high 5.1% in November.”The Monetary Policy Committee has a difficult decision to make,” Ellie Henderson, an economist at bank Investec said.”There is now the real risk of inflation becoming entrenched – especially considering the signs of second-round effects in terms of rising wages, supported by a strong labour market – but this is balanced against the threat to the economic recovery from the new Omicron variant.”A rate hike on Thursday would put the BoE ahead of the U.S. Federal Reserve. On Wednesday the Fed said it was speeding up a phase-out of its bond-buying stimulus, a first step before possibly three interest rate rises in 2022.The European Central Bank and the Bank of Japan – due to give their latest policy statements on Thursday and Friday respectively – are further away from raising borrowing costs. With global inflation pressures exacerbated by post-Brexit problems in Britain, the BoE has been signalling that the time to start weaning the economy off its huge pandemic stimulus programme is approaching.But the British central bank wrong-footed many investors six weeks ago when it kept Bank Rate on hold at 0.1% rather than raise it to 0.25%, giving itself more time to see the extent of any hit to the labour market from the end of the government’s job-protecting furlough scheme.Data subsequently showed no jump in unemployment. But market expectations were thrown up in the air again in late November with the emergence of the Omicron variant.The United Kingdom recorded its highest daily coronavirus cases since the start of the pandemic on Wednesday and a senior British health official said a big rise in hospitalisations is “a nailed-on prospect”.Michael Saunders, one of two members of the nine-strong Monetary Policy Committee who voted to raise Bank Rate to 0.25% in November, said on Dec. 3 there “could be particular advantages in waiting to see more evidence” of Omicron’s impact.Bets in financial markets on a December Bank Rate hike to 0.25% fell to just one in three after his speech.But they were back up to more than 60% on Wednesday after the shock inflation data.On Tuesday, the International Monetary Fund urged the BoE not to succumb to “inaction bias”.Economists said the results of a closely watched survey of purchasing managers – due to be published at 0930 GMT on Thursday – might have swung the outcome of the MPC’s vote on Wednesday, before its announcement on Thursday. More

BENGALURU (Reuters) – The relentless rise in house prices will ease, but not stop, in most major property markets next year, an outlook which experts polled by Reuters said would only aggravate affordability as interest rates also move higher.Nearly three-quarters of respondents surveyed over the past few weeks, 74 of 103 covering eight major world markets, said they expected housing to be even more expensive, and less affordable for many, over the coming two to three years.People who were already struggling to put together a downpayment will be less able to secure their first home as existing homeowners with piles of cash saved during the pandemic easily outbid them.”The biggest risk is really to the younger generations coming through who won’t be able to amass the deposits required. Yes, households have saved significantly through the pandemic, but for those without significant amounts of equity, prices have…moved ahead of them,” said Liam Bailey, global head of research at Knight Frank. Years of record-low interest rates and a chronic shortage of affordable homes had already propelled house prices in most major property markets to eye-watering levels before the pandemic.That rise in prices was exacerbated when swathes of people in the workforce who were well off, owned homes and were able to work remotely during pandemic-related lockdowns began looking for more space, often outside cities.Indeed, most major housing markets have outperformed not only their respective broader economies but also property market analysts’ own optimistic expectations.In five of those markets – the United States, Britain, Australia, Canada, and Dubai – house prices have roughly risen at twice the rate analysts had predicted at the beginning of this year.Even with that outperformance, only one analyst out of 111 who provided house price forecasts across eight markets expected them to fall next year.For 2023, just over 10% of those polled predicted modest declines, affecting just Australia, New Zealand and Canada, three of the world’s most expensive property markets.That searing pace of house price appreciation – in some cases well into double-digits this year – was expected to halve across all markets. But in most regions, that would still be much higher than average wage rises.”Following traditional measures, housing markets have become much less affordable over the past two years. Yes, everything is fine at the moment because interest rates are so low. But if interest rates move up significantly, then we’ll have a problem,” added Knight Frank’s Bailey.With consumer price inflation now at multi-decade highs in the U.S. and Britain, interest rates are certain to rise from record lows next year. The only bit that is unclear is how much they will rise over the course of the year and into 2023. Asked what will have the biggest impact on prices in the housing market next year, 83 of 106 respondents picked higher interest rates (46) or supply constraints (37).Five said a desire for more living space, three said lower immigration and two said higher inflation. The remaining nine gave other factors.One challenge likely to linger through next year is a shortage of building materials that the pandemic has brought by clogging up global trade. That will not do anything to accelerate the already-slow pace of construction of affordable homes.”Some of the demand for acquiring homes is kind of cooling off a bit, even though interest rates are still low, because prices have gotten so high and there’s not enough supply of homes on the market to buy,” said Geraldine Guichardo, global head of research, hotels and living Sector at JLL.Guichardo is more optimistic about the three-to-five-year horizon, where she sees some more balance coming back to the market as developers build more.”But because of construction costs (and) supply chain issues it’s going to be slower to get those projects moving,” she said. (Other stories from the global Reuters housing market poll:) More

Human resources data company XpertHR said there were signs of pay pressure with median settlements the highest since June 2020 and up from the 2.0% recorded in the three months to the end of August.Pay freezes were much rarer than last year and the top quarter of pay awards were for a rise of at least 3%.However, the increase is far below the 5.1% increase in consumer price inflation recorded for November and a 7.1% rise in retail price inflation which trade unions often use as a basis for wage bargaining.”The rise in the median basic pay award could be the first sign of the pay pressure that we expect to see in the months ahead,” said Sheila Attwood, pay and benefits editor at XpertHR.”High inflation rates pushing up the cost of living and labour shortages are putting pressure on employers to increase wages to attract and retain workers,” she added.The Bank of England has been looking closely at pay pressures ahead of its December interest rate decision, due to be announced at 1200 GMT on Thursday.Separate data from the Chartered Institute of Personnel and Development (CIPD) last month showed private-sector employers expected to raise staff pay by 2.5% in the 12 months to the end of September 2022, the biggest rise since 2019. More

FRANKFURT (Reuters) – The European Central Bank is all but certain to dial back its stimulus one more notch on Thursday while pledging to keep supporting the financial system next year, sticking to its long-held view that alarmingly high inflation will abate on its own.With the euro zone’s economy now back to its pre-pandemic size, pressure is mounting on the bank to follow its global peers in turning off the money taps. But policymakers are also fearful that stepping back too quickly could unravel years of work to rekindle once anaemic inflation.The ECB’s dilemma is further complicated by an unusually uncertain outlook, which could force rate-setters to delay many of their big decisions until the new year, leaving policy exceptionally flexible with limited commitments. The compromise is likely to be clarity on the framework of ECB policy in 2022, with details to be filled in as policymakers gain confidence that inflation, now running at more than twice the bank’s 2% target level, comes down quickly in 2022.What appears certain is that bond buys under a 1.85 trillion euro Pandemic Emergency Purchase Programme will be reduced next quarter then wound down at the end of March. A long-running Asset Purchase Programme, however, will be ramped up, compensating for some of this lost stimulus. Still, overall purchases could be left at around 40 billion euros a month, less than half of the current buying, a Reuters poll of analysts showed.The effective cut in stimulus could be much smaller though as fresh government debt issuance is expected to fall, so the ECB will continue to hoover up most of the new debt.The ECB is also likely to signal that it will keep buying bonds throughout the year, in a bid to keep yields in check and to rule out any rate hike in 2022.The policy decision is due at 1245 GMT, followed by ECB President Christine Lagarde’s news conference at 1330 GMT.MOVING PARTSBeyond that, a plethora of options remain on the table.The problem is that while the ECB will project inflation falling back under target in 2023 and holding there in 2024, a number of policymakers doubt this narrative, warning that even if driven by one-offs, high price growth could get stuck.”It makes sense not to provide the parameters of the new asset purchase programme. They could provide the general principles but delay an announcement on the calibration and exact volumes,” said Luigi Speranza, chief global economist at BNP Paribas (OTC:BNPQY).The U.S. Federal Reserve’s signal on Wednesday that it would end pandemic-era bond purchases in March and raise rates three times next year also complicates life for the ECB, as the world’s two biggest central banks are now moving in opposite directions.The most likely option is that ECB policymakers approve a bond purchase quota or “envelope” for 2022 and emphasize that not all of this must be spent. The bank will then regularly review the exact volumes and set purchase targets only for short periods, much like it did in recent months.It is also likely to increase its spending on supranational debt to support Next Generation EU spending, the bloc’s flagship project to aid the recovery. The biggest risk is that investors start dumping bonds from the bloc’s indebted periphery, increasing the premium governments there need to pay to borrow. To mitigate this risk of fragmentation, the ECB could say that the roughly 100 billion euros left in the emergency programme could still be used in case of market turbulence and cash from maturing bonds may be used flexibly, so the ECB could spend more in stressed markets. The ECB will also have to address the issue of Greece, which is likely to drop out of bond purchases once the emergency programme ends. While all options face legal hurdles, the ECB is likely to signal that reinvestments may be skewed towards Greece while it remains ineligible for new buys. “Rarely has the backdrop for a major ECB decision been as uncomfortable and as uncertain as it is now,” Berenberg said in a note to clients. More