Raphael Stevens

The market is pricing an almost 100% chance of a hold on Thursday, according to LSEG, with economic data since the Bank’s last meeting largely inconclusive.
Real GDP was flat in the third quarter, in line with the Monetary Policy Committee’s projections, while both inflation and wage growth have undershot expectations and domestic demand has been weak.
Barclays expects the MPC to deliver a split vote in favor of a hold, but keep its rhetoric hawkish as it pushes back against the market’s pricing of “premature” cuts.

A passageway near the Bank of England (BOE) in the City of London, U.K., on Thursday, March 18, 2021.
Hollie Adams | Bloomberg | Getty Images

LONDON — The Bank of England is all but certain to keep its main interest rate unchanged at 5.25% for a third consecutive meeting on Thursday, but economists are split over when to expect the first cut next year.
The market is pricing an almost 100% chance of a hold on Thursday, according to LSEG, with economic data since the Bank’s last meeting proving largely inconclusive.

Real GDP was flat in the third quarter, in line with the Monetary Policy Committee’s projections, while both inflation and wage growth have undershot expectations and domestic demand has been weak. U.K. headline inflation fell to an annual 4.6% in October, its lowest in two years.
The latest labor market data on Tuesday indicated a continuation of recent trends, with unemployment remaining broadly flat and vacancies continuing to decline at pace.
“This fits the hypothesis of some U.S. Federal Reserve officials that, with vacancies so high, it may be possible to introduce slack into the labour market without significantly raising unemployment,” PwC Economist Jake Finney said in an email Tuesday.
Average pay including bonuses fell by 1.6% between September and October, versus an average monthly growth rate of 1.1% in the first half of the year.

Finney noted that real inflation-adjusted wages are still growing on a year-on-year basis due to a steep fall in headline inflation, suggesting the worst of the country’s cost of living crisis is behind the average household.

Signs of the labor market cooling will offer some reassurance to the MPC ahead of Thursday’s meeting, Finney said, especially given the lack of major surprises in the economic data over the past month.
U.K. GDP shrank by 0.3% in October, new figures showed Wednesday, well below the flat reading expected by economists polled by Reuters and erasing the 0.2% growth recorded in September.
Multiple analysts suggested subsequently that the negative growth figures would cement Thursday’s expected hold on rates, but could increase the likelihood of cuts sooner in 2024 as the Bank looks to avoid tipping the economy into recession.
Rhetoric to remain hawkish
In light of this, Barclays expects the MPC to deliver a split vote in favor of a hold, but keep its rhetoric hawkish as it pushes back against the market’s pricing of “premature” cuts. Barclays does not expect rates to fall until August 2024.
Economists at the bank, Abbas Khan and Jack Meaning, said they expect the MPC to continue to indicate that its current monetary policy stance is “restrictive,” with growing signs of its impact on activity and the labor market.
“An unchanged forward guidance will also serve the MPC well to push against the current market pricing of Bank Rate which assigns an increasing probability to cuts in H1 2024,” they said.

“We continue to expect the beginning of the cutting cycle in August 2024 and a terminal Bank Rate at 3.25% by Q2 2025.”
Khan and Meaning added that a repricing of the timing and magnitude of cuts by the U.S. Federal Reserve and the European Central Bank, both of which will also announce policy decisions this week, may exert pressure on the MPC to start cutting the Bank rate earlier if sterling was to spike and cause inflation to fall below the Bank’s 2% target sooner or by a greater margin.
“However, given the timing of data cycles, the level of inflation, in particular in services, and the y/y rate of wage growth, we think it is unlikely that the MPC will pivot in H1 2024 and almost certainly not before May,” they added.
No change in narrative
Both the Fed and the ECB have seen their hawkish stances tempered by dovish interventions from pivotal voting committee members — Christopher Waller in the U.S. and Isabel Schnabel in Europe.
By contrast, the Bank of England’s centrist policymakers, such as Governor Andrew Bailey and Chief Economist Huw Pill, have repeatedly emphasized that it is too soon to talk about cuts, while more hawkish members have raised further concerns about the potential persistence of inflationary pressures.
“While current market pricing is not too far away from our Bank Rate forecast — first cut in June and 100bp of cuts over 2024 — at this stage we think that the BoE will want to prevent financial conditions loosening too much, too soon,” BNP Paribas European economists Paul Hollingsworth and Matthew Swannell said in a research note last week.
The French bank expects the Bank of England to reiterate the need to remain in restrictive territory on Thursday, though as there will be no press conference or updated projections, this will need to be conveyed through the vote split, guidance and any post-meeting communications.
“Ultimately, however, we expect both growth and inflation to be weaker than the BoE forecasts for H1 2024, bringing a first cut in June 2024 and taking Bank Rate to 4.25% by the end of the year,” Hollingsworth and Swannell added. More

Pleo has hired Soren Westh Lonning, a financial services executive with more than 20 years at companies including Chr Hansen, WS Audiology, and Danish Endurance, as its CFO.
Appointing a CFO is a symbolic move that indicates a company wants to get its accounting systems in good shape for an eventual stock market listing.
Lonning said he wants to push the company toward profitability and maturity and continue growing the business despite difficult macroeconomic conditions.

The Pleo app pictured on a smartphone next to one of the fintech firm’s corporate cards.

Danish fintech firm Pleo has appointed a new chief financial officer, the company told CNBC exclusively, beefing up its executive team — a sign the company is readying itself for an eventual initial public offering.
The company hired Soren Westh Lonning, a financial services executive with more than 20 years at companies such as Danish bioscience firm Chr Hansen, hearing aid company WS Audiology, and Danish Endurance, a sports and outdoor clothing startup.

Most notably, Lonning had experience as CFO at Danish food enzyme maker Chr Hansen. Chr Hansen, which is listed on the Danish stock exchange, is one of Denmark’s most valuable publicly listed firms, with a market cap of more than $10 billion.
The European Union recently approved a $22 billion merger between Chr Hansen and competitor Novozymes.
Lonning told CNBC his biggest priorities for the firm when taking over as CFO will be pushing the company toward profitability and maturity; assessing how to continue growing the business despite the difficult macroeconomic environment; and pushing for the sound use of data to make better decisions as a business.
“There’s many companies similar to Pleo who are going through … balancing growth and efficiency or profitability in the environment that we operating in right now,” Lonning said.
“Obviously, we want to continue to to grow and grow fast, but the environment also changed. That’s a dilemma for companies, but even more so for the lifestyle of Pleo and tech companies.”

“So I think I can contribute in that direction, making sure we get as good as possible resource allocation across the company in terms of, you know, finding, finding the pockets where we get most bang for the buck in investing.”

Symbolic move

While Pleo says it is not in a rush to go public, appointing a new CFO is a symbolic move that indicates a company is beefing up its accounting and compliance teams and systems in preparation of an eventual stock market listing.
Jeppe Rindom, Pleo’s CEO, told CNBC the firm is “continuously evaluating various options to fuel expansion that best serve our customers.” An IPO, he said, is an “important consideration,” but “no definitive plans have been set in motion.”
“Part of the responsible decision-making that’s guided us to where we are now is an awareness of how market conditions impact public tech companies and understanding if a decision like this would be in the best interest of Pleo and our stakeholders,” Rindom said.
“Adding Søren to our team is about bolstering our financial strategies and comes at a time of high growth for Pleo driven by market expansion and investments to win mid-market customers,” he added.
However, Rindom added that the stage of maturity Pleo has reached as a business means that it’s “only prudent” to start thinking about the question of an eventual IPO, and suggested the firm wants to be ready for such an event by 2025.
“If you look at the markets today, it’s hard to be optimistic because there’s been IPOs this year and, quite honestly, they haven’t been performing super well,” he said. “So we don’t see ourselves go to market in this context.”
“But we are thoughtful, and we think we need to be ready for eventually, in order to be ready in, let’s say, two years, there are certain things you need to think of already now. And so we’re starting to adapt to that mindset of it.”
Hiring a CFO like Lonning, Rindom said, provides Pleo with enough “optionality” for an IPO, adding that Pleo is upgrading its processes around accounting, risk and compliance in order to “mature in a way that also resonates with an IPO eventually, should that be needed.”

Lucrative path

Pleo has recently made early moves into the world of credit. The company recently launched overdrafts for customers, as part of a larger product revamp earlier this year. The company said it wants to offer more credit products in the future.
Pleo has built a business around a product that financial executives — from CFOs to senior accountants — can use to get visibility over their cash flows and make better decisions about how to manage expenses.
Lending is viewed as more lucrative path for financial firms than payment fees since they can earn interest from cash lent out to customers — especially now when interest rates are higher.
Founded in Copenhagen in 2015, Pleo offers a single platform attached to a company-branded card that lets companies track their spending as well as file and organize their expenses.
The firm, which was last privately valued at $4.7 billion, competes with the likes of SAP’s Concur, as well as startups including U.S. firm Brex, U.K.-based Soldo, and France’s Spendesk.
The firm has raised more than $434 million in funding to date, and is backed by the likes of Coatue, Bain Capital Ventures, Thrive Capital, Creandum, and Seedcamp. More

What is likely to occur when the Fed session wraps up Wednesday is a policy turn away from aggressive rate hikes and toward plans for what happens next.
The Fed will update its projections on economic growth, inflation and unemployment. Chair Jerome Powell also will deliver his usual post-meeting news conference.
Traders in the fed funds futures space are pricing rate decreases to start in May 2024 and continue through the year. Strategists and economists on Wall Street see a more cautious approach.

Jerome Powell, Chairman of the U.S. Federal Reserve, speaks during the conference celebrating the Centennial of the Division of Research and Statistics, Board of Governors of the Federal Reserve System in Washington D.C., United States on November 08, 2023. (Photo by Celal Gunes/Anadolu via Getty Images)
Celal Gunes | Anadolu | Getty Images

This week’s Federal Reserve meeting is likely to mark a substantial turning point for policymakers who have spent the past two years battling runaway inflation.
That there’s virtually no chance central bank policymakers will vote to raise rates is beside the point: What is likely to occur when the Federal Open Market Committee session wraps up Wednesday is a policy turn away from aggressive rate hikes and toward plans for what happens next.

“This would be the third straight meeting where the Fed remained on hold and, in our view, means that the Fed likely sees itself as done with the hiking cycle,” Michael Gapen, U.S. economist at Bank of America, said in a client note.
While acknowledging that future accelerations in inflation could force the Fed to raise rates further, “we think that a cooling economy is more likely and that the narrative should shift in the direction of cuts over hikes in 2024,” Gapen added.
That move to cuts, though likely expressed in a subtle way, would represent a major pivot for the Fed after 11 interest rate hikes.
Along with an announcement on rates, the Fed also will update its projections on economic growth, inflation and unemployment. Chair Jerome Powell also will deliver his usual post-meeting news conference, where he either could discuss a strategy to ease policy now that inflation is decelerating, or continue to talk tough, an outcome that could rattle markets.
Here’s a quick rundown in what to expect:

The statement

In its post-meeting communique, the rate-setting Federal Open Market Committee almost certainly will say that it is holding its benchmark overnight borrowing rate in a range between 5.25%-5.5%.
There also could be some language tweaks on the committee’s assessment of employment, inflation, housing and overall economic growth.
For instance, Bank of America thinks the committee might drop its reference to “additional policy firming” and simply say that it is committed to getting inflation back down to 2%.
Likewise, Goldman Sachs sees a possibility that the statement excludes a characterization regarding tighter financial conditions and possibly make a few other small changes that had been used to convey a bias toward raising rates.
Financial conditions, a matrix of economic variables and stock market prices, have loosened considerably since the last Fed meeting concluded on Nov. 1.
“A pause is all but guaranteed,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “But I wouldn’t be surprised if there was, if not in the statement then during the presser, a bit of pushback on what has been a loosening of financial conditions. … Powell is going to have to address that.”

The dot plot

If there is a nod toward looming rate cuts, it will happen in the Fed’s closely watched grid of individual members’ expectations known as the “dot plot.” Markets watch the “median dot,” or the midpoint of all members’ projections for the next three years as well as the longer term.
One immediate change to the chart will be the removal of a previously indicated rate increase this year.
Beyond that, market pricing is aggressive. Traders in the fed funds futures space are pricing rate decreases to start in May 2024 and continue until the Fed has lopped off at least a full percentage point from the key rate before the end of the year, according to CME Group calculations.
“That’s going to be very important, because a good portion of the surge in equities has been predicated on a dovish pivot, with rate cuts coming,” said Quincy Krosby, chief global strategist at LPL Financial. “If they acquiesce and agree even slightly with the market, the market is going to surge higher and higher.”
However, most strategists and economists on Wall Street see a more cautious approach. Goldman Sachs, for instance, pulled forward its expectation for the first cut, but only to the third quarter of next year, well out of line with market pricing.
“A lot would have to happen for them to go that soon,” Goldman chief economist Jan Hatzius recently said on CNBC. “The second half of the year is more realistic than the first half.”
“I’m not saying it’s not going to happen, I just think it’s premature based on the current collection of data points,” Schwab’s Sonders added. “Ultimately, maybe the bond market is right [about rate cuts], but probably not without some economic pain between now and March.”

The economic outlook

Each quarter, FOMC members also release their projections for key economic variables: gross domestic product, inflation as gauged through the Commerce Department’s core personal consumption expenditures price index, and unemployment .
In September, the committee indicated slowing GDP growth, a small uptick in unemployment and a gradual drift for inflation back to the Fed’s target by 2026.
Those numbers shouldn’t change much. Goldman expects “a small upward revision” on GDP and slight downward projections for unemployment and core PCE inflation.
Likely not much to see here.

The press conference

Then Chair Powell will take the stage, and what might be an otherwise low-news event could turn into something far more interesting.
Powell has a line to walk — conscious of continuing the battle until inflation is defeated while also being aware that real rates, or the difference between the fed funds rate and inflation, are rising as the latter continues its gradual slowdown.
Right now, the fed funds rate is targeted between 5.25%-5.5%, and at 5.33% to be exact. Though Tuesday’s consumer price index report showed ex-food and energy inflation running at a 4% annual rate in November, the core PCE inflation rate is 3.5%, making the real rate around 1.8%.
In normal times, Fed officials see the so-called neutral rate — neither restrictive nor stimulative — closer to 0.5%. Hence, Powell’s recent statement that rates are “well into restrictive territory.”
“We expect the leadership of the FOMC is considering the rapid disinflation underway as a reason that at some point in 2024, the nominal funds rate might need to be lower for no other reason than maintaining the same level of real restrictiveness,” UBS economist Jonathan Pingle said in a note. “We do not expect Chair Powell to signal something soon, however.” More

European stocks and bonds have had a lot to deal with in recent years, not least war, an energy crisis and surging inflation. Now things are looking up. Germany’s DAX index of shares has added 11% since the start of November. Yields on French ten-year government bonds have dropped from 3.5% in October to 2.8%. Even Italian yields briefly fell below 4%, from 5% in mid-October. Investors are upbeat in part because inflation is falling faster than expected. Yet their mood also reflects a grimmer reality: the economy is so weak that surely interest-rate cuts are not far away.image: The EconomistWill policymakers follow through? In November inflation stood at just 2.4%, within a whisker of the European Central Bank’s 2% target. Markets are pricing in two cuts by June, and another three by October, to bring down the main rate to 2.75%, from 4% (see chart 1). Economists are less sure—they expect only the first cut by June. “The most recent inflation number has made a further rate increase rather unlikely,” admitted Isabel Schnabel, a hawkish member of the ecb’s executive board, recently. But there have been no hints of cuts. Certainly nobody expects one at the meeting on December 14th. At a time when Europe’s economy is weakening quickly, officials risk being slow to react.There are two reasons for particular concern. The first is wage growth. Initially, euro-zone inflation was driven by rising energy prices and snarled supply chains, which pushed up the price of goods. Since pay deals are often agreed for a number of years in Europe’s unionised labour market, wages and prices of services took longer to respond. As a result, by the third quarter of 2023 German real wages had fallen to roughly their level in 2015. Now they are recovering lost ground. Similarly, Dutch collectively bargained wages grew by almost 7% in October and November, compared with a year earlier, even as inflation hovered around zero. Overall wage growth in euro-zone countries is about 5%.image: The EconomistIf such wage growth continues, inflation might tick up in 2024—the ECB’s great fear. Yet there are signs that it has already started to slow. Indeed, a hiring platform, tracks wages in job advertisements. It finds that pay growth on listings has come down (see chart 2), suggesting that wages will soon follow. Moreover, wage growth does not always lead to inflation. Corporate profits, which saw a bump in 2022 when demand was high and wages were low, might take a hit. There is some indication that margins have started to shrink.The second reason for concern is the health of the overall economy. It has struggled with weak international demand, including from China, and high energy prices. Now surveys suggest that both manufacturing and services are in a mild recession. A consumption boom in parts of Europe is already fading: monetary policy itself is weighing on bigger debt-financed purchases and mortgage-holders are scaling back to meet larger monthly payments.Declining market interest rates ought to ease financial conditions for both consumers and investors, and therefore reduce the need for the ecb’s officials to move quickly. However, there is a catch. As Davide Oneglia of TS Lombard, a research firm, points out, these lower market interest rates mostly reflect falling inflation, and so do not produce lower real rates. As a result, they are unlikely to do all that much to stimulate demand.There is one more reason for policymakers to get a move on. Interest-rate changes affect the economy with a delay: it takes time for higher rates to alter investment and spending decisions, and thus to lower demand. The full brunt of changes in rates usually takes a year or more to be felt, which means that many of the ecb’s rate rises are still to feed through. Policymakers have probably tightened too much.The flip side is that rate cuts in the next few months would not affect the economy until towards the end of 2024, by which time few analysts expect inflation still to be a problem and many expect the economy still to be struggling. By then, the ECB’s policymakers will want to be close to the bloc’s “neutral” interest rate, which is somewhere between 1.5 and 2%, reckons Mr Oneglia, lest they continue to push down demand. Starting early would mean that the ecb would avoid having to cut too aggressively during the summer of 2024.January’s inflation data could be volatile, in part because government-assistance schemes introduced during the energy crisis are being phased out. An increase would make the ECB even more cautious. Wage data is published with a long lag in Europe, and officials are often reluctant to rely on real-time indicators, such as the data published by Indeed. That is why economists do not expect rate cuts until June, much later than suggested by current market pricing. The ECB was too slow to react to rising inflation. Now it runs the risk of being too slow on the way down as well. ■ More

The consumer price index rose 3.1% in November from 12 months earlier, down from 3.2% in October, the U.S. Bureau of Labor Statistics said.
Inflation is gradually moderating. Lower gasoline prices were the biggest downward force in November, economists said.
Housing costs have been stubbornly high but should soon pull back.

Kentaroo Tryman | Maskot | Getty Images

Inflation declined slightly last month on the back of weaker prices at the gasoline pump and a broader easing of price pressures throughout the U.S. economy, experts said.
The consumer price index in November increased 3.1% from 12 months earlier, down from 3.2% in October, the U.S. Bureau of Labor Statistics said Tuesday.

“There is still a lot of disinflationary pressure in the system,” which will likely drive inflation even lower heading into 2024, said Sarah House, senior economist at Wells Fargo Economics.
The CPI is a key barometer of inflation, measuring how quickly the prices of things from fruits and vegetables to haircuts and concert tickets are changing across the U.S. economy.

The November reading is a significant improvement on the pandemic-era peak of 9.1% in June 2022 — the highest rate since November 1981. Prices are therefore rising much more slowly than they had been, and in some cases even falling outright.
“Inflation is still on the high side of what I think everyone would feel comfortable with, but it’s coming back down to earth steadily but surely,” said Mark Zandi, chief economist at Moody’s Analytics.

The U.S. Federal Reserve aims for a 2% annual inflation rate over the long term.

“I expect by this time next year we’ll be back within spitting distance of the target,” Zandi said.

Gasoline prices declined again

As in October, gasoline prices were a big contributor to falling inflation in November, economists said.
Gasoline prices dropped 6% in November, according to Tuesday’s CPI report. They had dropped 5% in October.
Average nationwide prices for regular-grade gasoline declined by about 24 cents a gallon between Oct. 30 and Dec. 4, to $3.23 a gallon from $3.47, according to weekly data published by the U.S. Energy Information Administration.
More from Personal Finance:The Federal Reserve could achieve a soft landing after allMore retirement savers are borrowing from their 401(k) planPeople are spending hundreds a month on dating apps
By comparison, in August and September, gasoline was a major contributor to increases in overall inflation readings. In August, for example, prices at the pump spiked 10.6% largely due to dynamics in the market for crude oil, which is refined into gasoline.
Those supply-and-demand dynamics can “change in a minute,” and therefore declining gas prices may not persist, said Mark Hamrick, senior economic analyst at Bankrate. “But you take it where you can get it.”

What’s happening under the surface

Energy prices can whipsaw inflation readings due to their volatility. Likewise with food.
That’s why economists like to look at a measure that strips out these prices when assessing underlying inflation trends.
This pared-down measure — known as the “core” CPI — was flat in November relative to October, holding steady at an annual rate of 4%.

Shelter — the average household’s biggest expense — has accounted for nearly 70% of the total increase in core CPI over the past year, according to the Bureau of Labor Statistics. Housing inflation declined slightly in November, to 6.5% relative to a year earlier, and has fallen from a peak of over 8% in March 2023, according to bureau data.
Shelter inflation has been stubbornly high but should soon start to throttle back significantly given a softening in national rent prices, Zandi said. That trend should continue into the new year given rising vacancy rates and ample supply hitting the market, he added.
Other categories with “notable” increases in the past year include motor vehicle insurance, the price of which increased 19.2%; recreation, including admission to movies, concerts and sporting events, 2.5%; personal care, 5.2%; and new vehicles, 1.3%, according to the bureau.

Why inflation is returning to normal

At a high level, inflationary pressures — which have been felt globally — are due to an imbalance between supply and demand.
For example, energy prices spiked in early 2022 after Russia invaded Ukraine amid fears of a supply disruption in energy commodities, such as oil.
Supply chains were snarled when the U.S. economy restarted during the Covid-19 pandemic, driving up prices for goods. Meanwhile, demand was strong as consumers, flush with cash from government stimulus and staying home for a year, spent liberally. Wages grew at their fastest pace in decades, pushing up businesses’ labor costs.

Now, those pressures have largely eased, economists said. Supply chains have normalized, and the labor market has cooled.
The Federal Reserve has raised interest rates to their highest level since the early 2000s to slow the economy. This policy tool makes it more expensive for consumers and businesses to borrow, and can therefore tame inflation as demand wanes amid those higher financing costs.
Easing inflation is welcome news for households. The average household lost buying power for over two years as high inflation outpaced wage growth, but that trend has reversed in the last several months.
Average hourly wages have increased 0.8% in the past year after accounting for inflation, the bureau said Tuesday.
“Having real wages turn positive does help provide some ammunition for consumers, many of whom are still [financially] stressed,” Hamrick said. More