Economy

Brian Deese, the director of the National Economic Council, played a pivotal role in negotiating economic legislation the president signed in his first two years in office.WASHINGTON — Brian Deese, who served as President Biden’s top economic adviser and helped create and negotiate the sweeping economic legislation that Mr. Biden signed into law in his first two years in office, will leave his position in mid-February.Mr. Biden announced the departure on Thursday, saying Mr. Deese’s work as director of the National Economic Council was crucial to the country’s economic recovery.“Brian has a unique ability to translate complex policy challenges into concrete actions that improve the lives of American people,” Mr. Biden said.The move is the latest high-level departure from the administration as Mr. Biden hits the two-year mark in his presidency and Republicans take control in the House. On Wednesday, Ron Klain, who has known Mr. Biden for more than three decades, stepped down as the White House chief of staff.The turnover comes as Mr. Biden is at something of a policy inflection point, shifting focus from passing laws to carrying them out.Mr. Deese, 44, helped to shape some of Mr. Biden’s most sweeping economic successes, including a $1.9 trillion aid package to help pull the nation from the pandemic recession, bipartisan measures to invest in infrastructure, and an energy, tax and health care measure that was the largest federal effort in history to combat climate change.But his legacy will include the high inflation that plagued the economy last year, which economists attribute in some part to spending from the $1.9 trillion American Rescue Plan. It will also include assembling the most diverse staff in terms of race and gender in the council’s history.The Biden PresidencyHere’s where the president stands as the third year of his term begins.State of the Union: President Biden will deliver his second State of the Union speech on Feb. 7, at a time when he faces an aggressive House controlled by Republicans and a special counsel investigation into the possible mishandling of classified information.Chief of Staff: Mr. Biden named Jeffrey D. Zients, his former coronavirus response coordinator, as his next chief of staff. Mr. Zients replaces Ron Klain, who has run the White House since the president took office.Eyeing 2024: Mr. Biden has been assailing House Republicans over their tax and spending plans, including potential changes to Social Security and Medicare, as he ramps up for what is likely to be a run for re-election.Mr. Deese hosted weekly breakfasts or lunches with Treasury Secretary Janet L. Yellen; Cecilia Rouse, the chairwoman of the White House Council of Economic Advisers; and Shalanda Young, the director of the White House Office of Management and Budget.Perhaps the sharpest criticism Mr. Deese faced as director was when he was appointed, from liberal groups wary of his previous job at the Wall Street giant BlackRock. Those criticisms have quieted somewhat as liberals applauded the climate bill and other legislation.“We were very skeptical of Deese’s decision to go to BlackRock and what that portended,” said Jeff Hauser, the director of the liberal Revolving Door Project. “He has worked out surprisingly well.”Mr. Deese’s departure was long planned. He has been commuting since late last summer from New England, where his wife and children live, to Washington. He does not yet have a new job lined up..css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.The president has not decided on his successor. People familiar with the search process say Lael Brainard, the vice chair of the Federal Reserve, and Wally Adeyemo, the deputy Treasury secretary, appear to be the leading candidates for the job. Other contenders include Bharat Ramamurti, a deputy on the National Economic Council; Gene Sperling, a former director of the council under Presidents Bill Clinton and Barack Obama; and Sylvia M. Burwell, a former Obama aide who is now the president of American University.With Mr. Deese’s departure, his allies and colleagues say, Mr. Biden is losing the first and last person he consulted on economic issues and a driving force behind his domestic policy legacy.Ms. Rouse called Mr. Deese “an amazing partner as we navigated the rather choppy economic waters over the past two years.”Mr. Deese worked on the National Economic Council in the Obama White House, where he helped coordinate a bailout of the auto industry and negotiate a landmark international climate treaty in Paris. He joined Mr. Biden’s presidential campaign relatively late; along with Jake Sullivan, who is now the national security adviser, Mr. Deese helped to fashion a campaign platform that sought to curb global warming by investing heavily in new technologies that could help lower greenhouse gas emissions, like electric vehicles.Shortly after Mr. Biden was elected, Mr. Deese and colleagues on the presidential transition team began drafting what would become the American Rescue Plan. The week it passed the House, in mid-March, Mr. Deese and other aides huddled with Mr. Biden in the Oval Office to discuss the rest of the president’s plans for economic legislation.Mr. Deese urged the president to go big, maintaining the cost and ambition of the sweeping expansion of government in the economy that Mr. Biden had promised in the campaign. He prevailed: Mr. Biden later announced a $4 trillion economic agenda.Mr. Deese helped push that agenda through Congress by building relationships with swing-vote Democrats and moderate Republicans. He and a top Biden aide, Steven J. Ricchetti, camped out in the office of Senator Rob Portman, Republican of Ohio, in the waning days of negotiations over the infrastructure bill. Surrounded by Ohio sports jerseys, sustained by ordered-in salads, they hammered out the final details of what became Mr. Biden’s first big bipartisan win.Senators in those negotiations praised Mr. Deese for responding frankly to their concerns, in language that explained how legislative tweaks would affect people and businesses in the country.“Economists can — they can put you to sleep, and they talk, and when they get done, you don’t know what the hell you’ve heard,” Senator Jon Tester, Democrat of Montana, said in an interview. “That isn’t the case with Deese.”Senator Bill Cassidy, Republican of Louisiana and a key negotiator in the infrastructure talks, said that Mr. Deese was “a good poker player, and he’s a good negotiator. But once the commitment was made, I trusted that the commitment would be fulfilled.”Mr. Deese brought more climate expertise to the National Economic Council than any previous director, and it was on that issue that his congressional relationships paid the biggest dividends for Mr. Biden. In July, after months of negotiations, Senator Joe Manchin III, Democrat of West Virginia and a key swing vote, signaled to Democratic leaders that he could not support the climate bill Mr. Deese had helped fashion, apparently dooming the effort.But the following Monday, Mr. Manchin called Mr. Deese, with whom he had built a close relationship, including a zip-lining trip together. Mr. Manchin told Mr. Deese he still wanted to find agreement on a bill and invited him to the Capitol to continue talks that also included Senator Chuck Schumer of New York, the majority leader.Mr. Deese barely slept for the next week, colleagues say, as the negotiations wore on in secret and ultimately produced the Inflation Reduction Act. More

Apple broke a 14-quarter streak of revenue growth as supply chain problems in China delayed delivery of iPhones during the critical holiday period.Total revenue in the quarter fell 5.5 per cent to $117.2bn, below forecasts of $121.1bn, according to Refinitiv. Analysts had been pricing in a 2 per cent decline after Apple warned of supply chain disruptions in November. Net profits fell 13.4 per cent to $30bn, below forecasts of $31bn.Sales of iPhone fell 8.2 per cent to $65.8bn, versus forecasts for a 3.4 per cent fall to $69.2bn.Apple finance chief Luca Maestri told the Financial Times that without the disruptions iPhone sales would have grown. He declined to estimate what the shortfall was, saying: “We lost significant production.” Chief executive Tim Cook in a statement described the environment as “challenging”. The company had warned three months ago that foreign exchange headwinds could shave up to 10 percentage points off revenue, equal to a roughly $12bn hit. According to the results on Thursday, the actual impact was about 8 percentage points.“Eight per cent is a lot of revenue that we lost to the strength of the dollar, but it’s better than it was three months ago because the dollar has weakened a bit,” he said. “Inflation is still going up in the UK, and started to mitigate a bit in the United States, so that is affecting currencies as well.”Maestri said Apple’s “active installed base” — the number of iPhone, iPad and other devices in use — has crossed 2bn, up from 1.8bn a year ago. “This is twice the number of active devices that we had just seven years ago,” he said.

Sales of its Mac computer plunged 29 per cent to $7.74bn and revenues from the wearables unit, which sells the Apple Watch and AirPods, dropped 8.3 per cent to $13.5bn.Revenue from the fast-growing services unit, which houses the App Store and digital media purchases, rose 6.4 per cent to a record $20.8bn. Sales of the iPad were another bright spot, soaring 29.6 per cent to $9.4bnApple’s challenges are distinct from those facing other Big Tech groups such as Meta and Alphabet, or even rival hardware maker Samsung. While demand has remained strong, it has been struggling to fulfil orders since a Covid outbreak at “iPhone City” in Zhengzhou, an assembly hub run by partner Foxconn, prompted the warning in November of “significant” disruptions to supply.The Cupertino-based group lost $1tn in market capitalisation in a 12-month period to early January, when it briefly fell below $2tn. But sentiment has rebounded, sending Apple’s stock up about 20 per cent since the start of the year.Shares fell more than 4 per cent in after-hours trading. More

As members of the Bank of England’s Monetary Policy Committee deliberated on another interest rate rise on Thursday, they had two new issues to grapple with. The nine MPC members, including BoE governor Andrew Bailey, had to factor in the good news of a sharp fall in wholesale energy prices, and then fit this into the committee’s newly pessimistic view of the UK economy’s potential to grow without generating inflation. The result was rather messy. Although the BoE’s new forecasts showed inflation falling well below the central bank’s 2 per cent target by next year, MPC members voted by a majority of seven to two to raise interest rates from 3.5 per cent to 4 per cent. At a news conference, senior BoE officials justified the move as being akin to buying insurance against future price rises — just in case the inflation forecasts proved to be wrong. Consumer price inflation stood at 10.5 per cent in December, down from a peak of 11.1 per cent in October.“It’s too soon to declare victory [over inflation] just yet,” said Bailey. “We need to be absolutely sure that we really are turning the corner on inflation.”

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The majority of MPC members said in the minutes that they put more weight on strong wage and employment data and “relatively less [weight] on the medium-term projections” for inflation.They added that the desire to be absolutely sure they have defeated inflation might result in further rate rises. Sir Dave Ramsden, BoE deputy governor, said the MPC was “having to use [the central bank forecasts] in a more nuanced way than we did in the first 10 years of the MPC”. But the forecasts suggested MPC members need not have increased interest rates at their February meeting. Whether the MPC looked at the mode, the median or the mean of the forecasts, interest rates of 4 per cent left inflation too low in two years’ time, and much too low in three years’ time, with at least a 50 per cent chance it will be under 1 per cent. George Buckley, chief UK economist at Nomura, said “the bank’s end-horizon view for inflation [in 2026] remains exceptionally weak”.The underlying message from the BoE inflation forecasts was therefore that, if they turn out to be correct, interest rates could soon be falling quite quickly.Bailey confirmed this in a roundabout way, saying: “If the economy evolves as in the central case [of the forecasts], we will set policy according to that.” But if the outlook for inflation was good, the BoE growth forecasts were bad. The IMF had sent shockwaves across the Atlantic on Tuesday with a forecast that Britain’s economy would slide into recession this year — and be the only industrialised country to do so. The BoE did not differ much. Its forecast was slightly worse than the IMF for 2023, with a drop in UK gross domestic product of 0.7 per cent in the fourth quarter compared with one year earlier. The BoE was also gloomy about 2024, with the central bank predicting stagnation, while the fund expects growth of 1.8 per cent. Yael Selfin, economist at KPMG, said the BoE’s short-term growth forecasts would make difficult reading for Britons. The central bank “paints a gloomier picture for the UK economy, which is suffering stronger headwinds compared to its peers”, she added. The BoE now expects a shorter and shallower recession than MPC members did at their November meeting, but the fine details show that GDP is not expected to reach pre-coronavirus levels until 2026.

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Ben Broadbent, another BoE deputy governor, said the IMF was likely to be correct in singling the UK out as having the weakest economic prospects among industrialised countries this year, although he added the differences were small. He pointed to unique problems the UK faced in the short term, including declining participation in the labour market, especially among older people. He also highlighted the UK’s higher dependency on natural gas compared to elsewhere in Europe, which would continue to lower British household incomes, and the faster translation of higher interest rates into more expensive mortgages, which would lower consumer spending.“These are not things that will last for ever,” said Broadbent, trying to be reassuring about prospects.But the BoE’s long-term outlook was bleak. Underpinning the MPC members’ view was new thinking that the UK cannot sustain a growth rate of 1 per cent a year any longer without generating inflation. Previously, they thought annual growth of 1.5 per cent would not generate inflation.BoE officials did not try to downplay the difficulties of living in an economy that used to grow at an annual rate of 2.5 per cent before the financial crisis, and one that could sustain about 1.7 per cent before coronavirus. Bailey blamed “the change in the trading relationship with the EU”, along with effects from the pandemic and higher energy prices following Russia’s invasion of Ukraine, which had lowered UK productivity growth and reduced the size of the labour force. The BoE recognises that, with few motors for growth, UK conditions will be difficult for households and companies, even if the central bank is able to consider cutting interest rates soon. James Smith, research director at the Resolution Foundation, a think-tank, said: “Families are living through a sharp two-year living standards downturn, and Britain is living through a 20-year growth stagnation — the worst since the interwar years.” More

European government bond markets surged the most in years while stocks also rallied as investors bet that interest rates on both sides of the Atlantic would soon peak.The European Central Bank and the Bank of England both raised rates by half a percentage point on Thursday, with the BoE expressing optimism inflation would fall below its 2 per cent target by the end of next year. The ECB benchmark deposit rate is now 2.5 per cent, while the BoE’s rate has risen to 4 per cent.The dual European rate rises came a day after Federal Reserve chief Jay Powell signalled that the US was winning its own battle against soaring inflation and the Fed shifted to the slower pace of a 0.25 percentage point increase.The yield on 10-year German bonds dropped 0.23 percentage points to 2.07 per cent, as investors piled into the market in the biggest rally on the region’s benchmark debt for more than a decade.Yields on riskier Italian 10-year bonds fell 0.4 percentage points to 3.90 per cent, while US Treasuries also extended a rally on the back of Powell’s remarks.“Markets are taking a victory lap on what looks like co-ordinated ‘light at the end of the tunnel’ signalling from central banks,” said Charlie McElligott, analyst at Nomura. “[Central banks] have thrown gasoline on the fire.”The market moves came despite a pledge by Christine Lagarde of another half percentage point increase in March and a warning by the ECB president that eurozone inflation remained “far too high”. “We know we have ground to cover, we know we are not done,” Lagarde said. She added that rate-setters already had enough evidence to be confident that a further significant rate rise would be needed since underlying price pressures had not yet started to come down. The eurozone’s central bank has so far increased borrowing costs by 3 percentage points — a smaller increase than the UK and US central banks. The ECB said it would “evaluate the subsequent path of its monetary policy” after March — language that some market participants took to suggest that interest rates could be nearing a peak. But Lagarde made it clear that, while the pace of rate increases could slow from May onwards, it was unlikely that the ECB would be ready to pause by then. “The question is how much to hike further beyond March, not whether to hike further,” said James Rossiter, head of global macro strategy at TD Securities. Since December, the eurozone economy has proved more resilient than expected, aided by warmer weather and government support to help households and businesses cope with soaring energy bills.

While stronger growth has been welcomed by policymakers, it will make it harder for them to tame underlying price pressures and return inflation to their 2 per cent goal.Data published this week showed the eurozone headline rate of inflation fell more than expected, from 9.2 per cent in the year to December to 8.5 per cent last month. But eurozone core inflation — which excludes changes in food and energy prices, and is seen as a better indicator of longer-term price pressures — was unchanged at an all-time high of 5.2 per cent.In contrast with the ECB’s pledge to increase rates in March, the BoE suggested UK interest rates might peak at the country’s new rate of 4 per cent, below the 4.5 per cent previously expected by financial markets.There was no attempt by the BoE to suggest financial markets are misguided in expecting interest rate cuts later this year. But MPC members warned “that the risks to inflation are skewed significantly to the upside”. The BoE’s new central inflation forecast shows it thinks price rises will ease quickly from December’s 10.5 per cent annual rate to a level under 4 per cent by the end of the year. Inflation is forecast to drop well below the BoE’s 2 per cent target in 2024.As investors moved into UK bonds, the yield on the 10-year gilt slipped 0.35 percentage points to 2.99 per cent. London’s FTSE 100 was up 0.8 per cent. More

The latest standoff over raising the nation’s debt ceiling is giving new life to an old theory about how to avoid a default.WASHINGTON — The debt limit standoff between Republicans and Democrats has elevated questions about creative solutions for averting a crisis, including one that at first blush might seem unthinkable: Could minting a $1 trillion platinum coin make the whole problem go away?What was once a fringe idea is now being presented to top economic policymakers as a serious remedy.Asked on Wednesday about the notion that there might be another option if Congress failed to lift the borrowing cap, Jerome H. Powell, the Federal Reserve chair, said there was not.“There’s only one way forward here, and that is for Congress to raise the debt ceiling so that the United States government can pay all of its obligations when due,” Mr. Powell said. “Any deviations from that path would be highly risky.”Treasury Secretary Janet L. Yellen was unable to avoid the debt limit crisis brewing back in the United States as she crisscrossed Africa last week and fielded queries about the coin, which she dismissed as a “gimmick.”Instead, Ms. Yellen sent two stern letters to Speaker Kevin McCarthy outlining the “extraordinary measures” she was taking to ensure the United States can keep paying its bills and urged Congress to “act promptly” to protect the nation’s full faith and credit by lifting the debt limit.President Biden told Mr. McCarthy on Wednesday that while there was room for discussion about addressing the deficit, Congress would have to pass a debt limit increase with no strings attached to avoid a financial cataclysm. Mr. Biden and Mr. McCarthy met at the White House for more than an hour in a discussion that carried high stakes, with the federal government set to exhaust its ability to pay its bills on time as early as June.But the idea of a coin still has its fair share of supporters, and they are not giving up.As political gridlock over the borrowing cap has hardened, the notion that the Treasury secretary could defuse the debt limit drama with her currency minting powers has re-emerged, including on Twitter, where the hashtag #MintTheCoin is again buzzing.Still, the feasibility of averting America’s debt crisis by minting a valuable piece of currency is far from clear. Here’s a look at origins of the coin, how it might be used and the potential consequences.A Most Extraordinary MeasureIf Congress cannot reach an agreement by early June to increase the debt limit, which was capped at $31.4 trillion in late 2021, Ms. Yellen’s ability to use government accounting tools to delay a default could soon be exhausted, and the United States would be unable to pay all of its bills on time.Treasury Secretary Janet L. Yellen in Zambia last month. She urged Congress to “act promptly” to protect the nation’s full faith and credit by lifting the debt limit.Fatima Hussein/Associated PressThis could cause a deep recession and potentially a financial crisis, shutting down large swaths of the economy and preventing beneficiaries of Social Security and Medicare from receiving their money. Although Ms. Yellen has the power to move funds around government accounts to delay a default, eventually the government’s coffers will run dry without the ability to raise more tax revenue or borrow more money.That’s where the coin comes in. Proponents of the idea believe Ms. Yellen could use her authority to instruct the U.S. Mint to produce a platinum coin valued at $1 trillion — or another large denomination — and deposit it with the Federal Reserve, the government’s banker, which manages the Treasury Department’s “general account.”Understand the U.S. Debt CeilingCard 1 of 5What is the debt ceiling? More

SAO PAULO (Reuters) – Brazilian opposition senator Marcos do Val said that former President Jair Bolsonaro tried to coerce him into staging a coup after 2022 elections, according to a report by Veja magazine on Thursday. Do Val said in an Instagram he would leave politics, stepping down from his position as senator. More

Softening their forecasts of recession this year, the BoE’s nine interest rate-setters voted 7-2 to increase Bank Rate to 4.0% – its highest since 2008 – from 3.5%. MARKET REACTION:STOCKS: The FTSE 100 dipped initially before bouncing back, and was last up 0.6% on the day, compared with a gain of 0.5% before the decision. The mid-cap index jumped 2.1%.FOREX: Sterling briefly turned positive, but surrendered those gains and was last down 0.6% at $1.2298 and down 0.7% against the euro at 89.43 pence.BONDS: The yield on Britain’s 10-year government bond initially spiked but then fell below levels seen before the decision. It was last down 15 basis points to 3.156%.COMMENTS: DANIELE ANTONUCCI, CHIEF ECONOMIST, QUINTET PRIVATE BANK, LONDON:”There’s still some risk that the Bank could go for further interest rate rises if inflation news were unfavourable. After all, the Committee still sees risks to the inflation outlook as skewed to the upside.That said, today’s decision raises the possibility that the Bank rate may have already peaked or be close to peaking, undershooting the 4.5% level priced in by financial markets prior to this announcement.”WES MCCOY, SENIOR INVESTMENT DIRECTOR AT STANDARD LIFE INVESTMENTS, ABRDN: “When you read the commentary around it (rate hike) the Bank of England seemed more hawkish and still more concerned about inflation. The language around it was a 50 bps rise but also around that they still need to stay on the pressure against inflation. Whereas, the interpretation from the U.S overnight was there are reasons to step away from that pressure.”DEAN TURNER, CHIEF EUROZONE AND UK ECONOMIST, UBS GLOBAL WEALTH MANAGEMENT, LONDON: ‘As expected, today’s 50 basis-point hike was a split decision. It looks as though the appetite for further outsized hikes is fading but given the BoE’s revised outlook for growth and inflation, this hiking cycle is unlikely to be over just yet. We look for one further increase of 25 basis points in March which should mark the top of the cycle. Furthermore, we believe the door remains open for rate cuts before the year is out. PIOTR MATYS, SENIOR FX ANALYST, INTOUCH CAPITAL MARKETS, LONDON;”There seems to be a preference to sell sterling especially against the euro and investors adopted such a preference back in December when the BOE delivered a dovish 50 bps bike and on the same say President Lagarde sounded significantly more hawkish, and we may witness similar situation today.The outlook for the UK economy is still quite challenging compared to the euro zone and U.S., that is why GBP, after a knee-jerk reaction, resumed its decline.””The biggest risk to EURGBP today is if President Lagarde suddenly changes her tome and sounds far less hawkish following a widely expected 50 bps hike.”BEN LAIDLER, GLOBAL MARKETS STRATEGIST, ETORO, LONDON:”This is clearly the last big hike from the Bank of England, we’re on track for this rate cycle to finish in March or May.” “They’re very much following the Fed’s lead in getting rates to a high enough level where they’re comfortable waiting to see what happens.””They’ve got some quite aggressive assumptions though, and there’s uncertainty around them… They’re looking for a very sharp fall in inflation to 4% by the end of the year, from 10.5% now… so that remains to be seen. The initial spike (in the pound) is always the machines rather than the humans.”MICHAEL BROWN, MARKETS STRATEGY, TRADERX, LONDON:”The move in the pound was the vote split. I think market participants were expecting at least one to go for a more modest 25 basis points and that may have been one of the reasons why we saw cable come off.” “They dropped the ‘forcefully’ out of the language. That pretty much nails on the fact that March is probably going to be the last rate hike and, of course, the longer-run inflation forecasts have come quite sharply lower as well.””So it’s a bit more surprising in terms of votes – a bit more hawkish than we’d expected – but everything else is pretty much in line and mostly implying that the ‘Old Lady’ is very, very close to the end in terms of raising rates.”SIMON HARVEY, HEAD OF FX ANALYSIS, MONEX EUROPE, LONDON:”This is as straight down the line as you can get in terms of matching expectations from ahead of the meeting. They pretty much matched the market implied forecasts for rate increases, removed language saying they “will respond forcefully, as necessary” to signs of further inflation pressure and there was no increase in dovish dissenters.” (Two members of the rate-setting committee voted to keep rates on hold as expected)”“We think they will step down to 25 basis points in March, but the question is what tone of the press conference will be like, that’s where markets are really trying to suss out the underlying feel of how they are thinking about monetary policy.”JEREMY BATSTONE-CARR, EUROPEAN STRATEGIST AT RAYMOND JAMES INVESTMENT SERVICES, LONDON:”More noteworthy is the corresponding Monetary Policy Report, which has revealed that the Bank now expects a shorter and shallower recession – a far cry from the rather dire predictions of only a few weeks ago. “Yet for the Bank of England and the MPC, this good news is a wolf in sheep’s clothing. The economy’s unexpected resilience is keeping the inflationary fuel flowing, putting more pressure on the Bank to raise rates in its attempts to stem the flow. With the Bank’s upward revisions, the MPC may have to do the work they had hoped a lacklustre economy would achieve on its own.”MIKE COOP, CHIEF INVESTMENT OFFICER UK, MORNINGSTAR INVESTMENT MANAGEMENT, LONDON:”While the highest point of inflation is likely behind us, today’s rate rise shows that the year ahead will be a difficult one with the unusual cocktail of high inflation, rising rates and recession. Inflation outlook can change quickly and investors need to prepare portfolios for a range of inflation scenarios. The good news is that at current yields bonds are less sensitive to further rate rises, recession is cooling demand led inflationary pressures and gas prices have fallen sharply.” More

LONDON (Reuters) – The Bank of England raised interest rates for the 10th time in a row on Thursday but dropped its pledge to keep increasing them “forcefully” if needed and said inflation had probably peaked.Softening their forecasts of recession this year, the BoE’s nine interest rate-setters voted 7-2 to increase Bank Rate to 4.0% – its highest since 2008 – from 3.5%. The move had been expected by most investors and economists.The announcement comes a day after the U.S. Federal Reserve slowed the pace of its rate hikes with a smaller quarter-point move, but said it expected further increases would be needed.The European Central Bank looks set to raise rates by a half a percentage point later on Thursday to 2.5%.The BoE – which is trying to smother the risks from Britain’s 10% inflation rate without deepening the expected recession – said its run of rate hikes going back to December 2021 were likely to have an increasing impact on the economy.That should help to bring inflation down to about 4% by the end of this year, it said. Previously the BoE had forecast 2023 inflation at around 5%.”Since the November monetary policy report we’ve seen the first signs that inflation has turned the corner,” Governor Andrew Bailey said in a speech following the rate hike.”But it’s too soon to declare victory just yet, inflationary pressures are still there.” The UK central bank’s Monetary Police Committee (MPC) said further interest rate hikes would hinge on evidence of more persistent price pressures appearing.That represented a signal to investors that its sharp run of rate hikes might be coming to an end.Previously the BoE had said it would “respond forcefully, as necessary” to signs of further inflation pressure, and that “further increases in Bank Rate may be required”.The BoE sees inflation falling below its 2% target in the second quarter of 2024, but it warned there were upside risks to this forecast from persistent labour market pressures and higher-than-expected core and domestically generated inflation.After Thursday’s announcement, investors slightly trimmed their bets that interest rates would peak as high as 4.5%, in favour of an earlier halt at 4.25%, while sterling and British government bond yields moved lower after an initial spike.”With inflation projected to ease sharply, today’s 50-basis point-rise should be the last of this magnitude. If we do slide into recession, then policymakers may be forced to reverse policy sooner than many expect,” said Suren Thiru, economics director at ICAEW, a professional body for accountants.SHALLOWER RECESSIONThe central bank said Britain was still on course for a recession but it was likely to be “much shallower” than it feared in its last forecasts in November, thanks largely to a fall in energy prices as well as lower market rate expectations.Gross domestic product was now seen contracting by 0.5% in 2023 compared with the 1.5% shrinkage forecast in November and the recession would last five quarters – cutting output by less than 1% – rather than eight quarters.The BoE saw output shrinking in 2024 and barely growing in 2025, putting pressure on Prime Minister Rishi Sunak and his finance minister Jeremy Hunt, who has promised to set out measures to revive growth in a budget on March 15, ahead of a national election expected in late 2024.The BoE’s new GDP forecast was similar to one published this week by the International Monetary Fund which said Britain’s economy would shrink by 0.6% this year, while all the other Group of Seven nations were likely to grow. Britain has been hit hard by the surge in energy prices after Russia’s invasion of Ukraine as it relies heavily on gas for power generation. It has also suffered a fall in the size of its workforce that is believed to be linked to the coronavirus pandemic and post-Brexit restrictions on European Union workers.The BoE said Britain’s lack of workers, combined with low business investment and weak productivity growth, meant the economy could probably only grow by about 0.7% a year in the near term without generating inflationary heat.Before the pandemic, the potential growth rate was about 1.7% and Thursday’s downgrade represented a stricter speed limit on the economy, at least for the next couple of years while it recovers from the pandemic and the impact of Brexit.As a result, the BoE saw Britain’s economy still below its pre-pandemic size until after 2025, representing seven lost years for growth. More