Economy

DUBLIN (Reuters) -Ryanair has not seen any impact on bookings in the United Kingdom in the wake of the recent fall in the value of the pound and increase in domestic mortgage rates, but the market is likely to be challenging, a senior executive said. “We’re not currently seeing an impact, but it would be foolish not to say that if interest rates are heading up and household bills are heading up, you’re going to have less money spent,” said Eddie Wilson, chief executive at Ryanair DAC, the largest airline in the Ryanair Group, in an interview.”The UK is going to be challenging but we have more options and we are better planned than our competitors,” said Wilson, whose airline is one of the largest operators in the United Kingdom by passenger numbers. Ryanair often gains passengers from higher-cost rivals during economic downturns, he added.Economists have warned that British consumers are likely to face a further hike in borrowing costs and the price of imported goods following the pound’s plunge against the dollar after deep tax cuts and deregulation by new finance minister Kwasi Kwarteng.Economist Julian Jessop warned on Wednesday that Britain’s economy could end up in a “doom loop” of a falling currency and rising interest rates.Wilson said he thought that competitors in the UK market might reduce capacity further as a result of the economic turmoil, and also refused to rule out Ryanair shifting capacity out of the country. “That’s not anything that’s on the horizon, but we always have the ability to do that,” he said.Unlike UK rivals, much of Ryanair’s income is denominated in euros and the airline has hedged much of its dollar exposure for aircraft and fuel purchases, Wilson said. Wilson declined to comment on the airline’s profit outlook for the year, other than saying that a trend in recent months towards closer-in bookings made it hard to make accurate forecasts. More

Customers have been unaffected by higher vehicle prices and lack of incentives or discounts from automakers, who have been taking advantage of strong demand and tight inventory.”Transaction prices still rose and consumers spent more money on new vehicles this month,” said Thomas King, president of the data and analytics division at J.D. Power, adding auto sales are yet to see an impact from the ongoing monetary policy tightening by the U.S. Federal Reserve to curb inflation. Retail sales of new vehicles this month are expected to reach 958,948 units, a 5.4% increase from September 2021.September seasonally adjusted annualized rate for total new vehicle sales is expected to be 13.6 million units, up 1.5 million units from 2021, the report showed.The report, however, said that the per unit pricing and profitability may see deterioration in the coming quarters as broader macro economic conditions affect demand and pressure affordability. New-vehicle retail sales for the third quarter are projected to reach 2,900,300 units, a 4.2% decrease from 2021 when adjusted for selling days. More

The writer is president of Queens’ College, Cambridge, and an adviser to Allianz and GramercyIt has been a very long time since we have seen a G7 economy experience what the UK has in the past six days — disorderly moves in its currency and bond markets, a loss of confidence in policymakers, direct central bank intervention in the government bond market, pressures for an emergency rate rise, and a warning from the IMF.If the disorder is allowed to persist, the consequential adverse economic and financial effects for the UK, already concerning, are just starting.The catalyst for this momentous time in UK economic history was an overambitious policy package aimed at generating economic growth and lowering inflation. Structural reforms to boost economic growth and the stabilisation of energy prices, both welcomed moves, were accompanied by an unsettlingly large, relatively regressive and unfunded tax cut.Coming amid global market nervousness, this unleashed record-breaking rises in yields on UK gilts, a new record low for the currency and mounting risks of market malfunction and financial accidents. Also unusual, it triggered a disapproving IMF statement that is more familiar to developing countries than a G7 nation.The initial attempt to calm down the situation involved holding-operation statements from the Bank of England and the Treasury. These had some impact but not enough to counter the move higher in yields, which in the case of the 30-year went above 5 per cent to a level last seen in 1998. The intensification of already large and sudden market moves threatened both failures to meet collateral calls and other counterparty concerns among non-banks.The multiplying dislocation of the fixed-income markets forced mortgage providers to withdraw product offerings at an astonishing rate. The few homebuyers able to secure new mortgages saw their monthly payments surge. Meanwhile, the Bank of England resisted any emergency measures, leaving the spotlight to shine brightly on the Treasury.The central bank’s posture changed again on Wednesday as evidence grew of market stress. No longer able to just stand on the sideline, the BoE announced direct market interventions via the “temporary” purchases of long-dated government bonds.Forget the fact that this explicitly goes against its intention outlined in August to sell securities (the now delayed programme called quantitative tightening) and increase interest rates more aggressively as reiterated on Tuesday by the Bank’s chief economist. Worries about the further amplification of policy inconsistency in the UK gave way to the immediate priority of stabilising markets in turmoil.It was never going to be easy for central banks to exit too many years of repressed interest rates and massive liquidity injections, and the adverse market conditioning that they entailed. Now, this inevitably bumpy transition has become a lot more difficult and consequential.Having said that, what is at stake here goes well beyond a disorderly tightening of financial conditions and a significantly higher risk of market accidents. Real damage is being done to the UK economy. The longer this is allowed to continue, the greater the structural damage to the country’s ability to grow in a high, sustainable and inclusive manner.Already dealing with material inflationary and recession concerns — now heightened — British households and businesses face the prospects of significantly higher borrowing costs and damaged wealth. The combined result of all this is yet another stagflationary hit that is contrary to the basic objective of the government’s policy of promoting growth and containing the cost of living crisis.Fortunately, there is a way out — but the window for implementation is not big and is already closing. It consists of the government delaying the announced tax cuts well into next year and beyond; the BoE increasing interest rates before its scheduled November 3 meeting; the Treasury spending more time explaining how its structural reforms will stimulate sustainable growth; much more focused protection of the most vulnerable segments of the population; and close supervision of imbalances in the non-bank financial sector.The multiplying comparators of the UK economic situation to those in struggling developing countries is troubling, domestically and internationally. If left to persist, they will further damage policymaking credibility, making it even harder to re-establish financial stability in the context of a growing economy.The government and BoE need to move now before the situation gets even more problematic. More

The purchases are designed “to restore orderly market conditions,” the central bank said, after days of turmoil that followed the government’s plan for sweeping tax cuts and higher borrowing.The Bank of England said on Wednesday that it would temporarily buy British government bonds, a major intervention in financial markets after the new government’s fiscal plans sent borrowing costs soaring higher over the past few days.The news brought some relief to the bond market, but the British pound resumed its tumble, falling 1.7 percent against the dollar, to $1.05, back toward the record low reached on Monday.The British government’s plans to bolster economic growth by cutting taxes, especially for high earners, while spending heavily to protect households from rising energy costs has been resoundingly rejected by markets and economists, in part because of the large amount of borrowing it will require at a time of rising interest rates and high inflation. The International Monetary Fund unexpectedly made a statement about the British economy on Tuesday, urging the government to “re-evaluate” its plans.The sell-off in British assets since Friday, when the government’s plan was announced, has particularly affected bonds with long maturities, the Bank of England said. “Were dysfunction in this market to continue or worsen, there would be a material risk to U.K. financial stability,” it said in a statement. This would lead to a reduction of the flow of credit to businesses and households, it added.“The purpose of these purchases will be to restore orderly market conditions,” the central bank added in its statement, which had an immediate effect on markets. “The purchases will be carried out on whatever scale is necessary to effect this outcome.”Rising Inflation in BritainInflation Slows Slightly: Consumer prices are still rising at about the fastest pace in 40 years, despite a small drop to 9.9 percent in August.Interest Rates: On Sept. 22, the Bank of England raised its key rate by another half a percentage point, to 2.25 percent, as it tries to keep high inflation from becoming embedded in the nation’s economy.Energy Bills to Soar: Gas and electric charges for most British households are set to rise 80 percent this fall, further squeezing consumers and stoking inflation.Investor Worries: The financial markets have been grumbling with unease about Britain’s economic outlook. The government plan to freeze energy bills and cut taxes is not easing concerns.Bond auctions would take place from Wednesday until Oct. 14.The yield on 10-year British government bonds on Wednesday climbed as high as 4.58 percent — the highest since early 2008 — before the central bank’s statement. Thirty-year yields had exceeded 5 percent for the first time since 2002.After the announcement bond yields dropped sharply, with the 30-year yield falling by more than half a percentage point to about 4.35 percent.The central bank’s statement has echoes of a famous promise by Mario Draghi in 2012, when as head of the European Central Bank he vowed to do “whatever it takes” to save the euro, which had come under severe pressure in the markets.Wednesday’s intervention in Britain came after a central bank committee had warned of the risks to Britain’s financial stability from dysfunction in the government bond market.The British government’s sweeping fiscal plan, presented without an independent fiscal and economic assessment, has sent investors fleeing from British assets. The pound fell to a record low against the U.S. dollar on Monday, and traders suspected that the central bank would be forced to raise rates quickly, which pushed up short- and long-term borrowing costs.The speed of the rise in bond yields had disrupted Britain’s mortgage market, with some lenders pulling offers on new mortgages because they had become too difficult to price.“A decision by the government to scrap some of the tax cuts, or to cut spending sharply, would help to alleviate the stress in” currency and bond markets, Samuel Tombs, an economist at Pantheon Macroeconomics, wrote in a research note. “But its actions to date have eroded confidence among global investors, which cannot be easily restored. Accordingly, a painful recession driven by surging borrowing costs lies ahead.”The market turmoil and the central bank’s intervention reveal the extent to which the government’s plans are at odds with the bank’s monetary policy goals. The government is trying to quickly generate economic demand, while the bank is trying to cool it to lower inflation.On Tuesday, Huw Pill, the chief economist of the Bank of England, said the government’s fiscal plans would be met with a “significant” response by officials at the Bank of England, who are scheduled to meet again in early November.Just last Thursday, the central bank said it would initiate its plan to sell bonds back to the market as it tried to end the long era of easy money in its fight against inflation. It had insisted there would be a “high bar” for the bank to deviate from the plan, which would over the next year reduce its holdings of bonds by £80 billion through sales and redemptions, to £758 billion. On Wednesday, the bank said it was postponing the start of sales until the end of October. More

The volatility comes after the new UK government announced huge tax cuts funded by borrowing, leading to a plunge in sterling and a surge in government bond yields as concerns mounted over its ability to fund the plan.Government bond yields influence the cost lenders have to pay to borrow money. “(Lenders) just don’t know where that is going to go, how higher it is going to go, where it’s going to stop, so it makes it very difficult to know where to price their mortgages,” mortgage expert Ray Boulger from broker John Charcol told BBC Radio, adding there would be a big impact the housing market.”I think we can expect to see a significant fall in house prices – I’m suggesting perhaps around 10% next year,” he said. CRASHING SYSTEMSMoneyfacts, which monitors mortgages, savings, loans and investment products in the UK, said the 935 figure was more than double the previous record of 462 at the start of the pandemic lockdowns.”We are seeing lenders across the market withdraw rates as headlines around interest rates soaring to 6% have spooked both lenders and borrowers,” said Karen Noye, mortgage expert at wealth management firm Quilter. Virgin Money (LON:VM) and Skipton Building Society temporarily withdrew their entire ranges at one point this week, according to emails sent to brokers seen by Reuters. The crisis in the bond market deepened on Wednesday, with the Bank of England intervening to say it would buy as much government debt as needed to restore financial stability. Finance minister Kwasi Kwarteng’s plans drew criticism from the International Monetary Fund, which said the proposals would add to a crisis of credibility. “Lenders’ systems have been crashing with long virtual queues for borrowers and advisers trying to get them or their clients a deal at current rates,” Quilter’s Noye said.”Rates that were available one hour are gone the next which is making it a tricky time for buyers.” More

CARACAS (Reuters) – Venezuelan business owners struggling to get access to credit amid their country’s continued economic crisis are seeking loans through foreign banks, business people and finance industry sources told Reuters.Local banks in the South American country offer few loans to the private sector because of efforts by Nicolas Maduro’s government to lower inflation by increasing the supply of foreign cash, limiting the expansion of credit, reducing public spending and raising taxes.Large companies in need of financing have begun seeking loans from foreign banks with local partners or connections, private sector and finance sources said. The loans have market-rate interest rates and a high collateral threshold, they said. Under law, local banks must retain 73% of their deposits in the central bank, which leaves little margin for loans.”Industries have to seek options to maintain their operations,” said one businessman, adding that because loans are costly due to interest and guarantees, only large companies can seek them. “Small and medium businesses can’t carry them.”Several companies seeking credit are from the agricultural sector and need the funds to purchase wheat, fertilizers and other goods from abroad, three sources said.Other businesses looking for loans are focused on export of food and drink, they added.Neither the central bank nor the banking regulator responded to requests for comment.U.S. sanctions imposed in 2019 are focused on limiting Maduro’s access to financing and do not prohibit private Venezuelan companies from operating abroad.Loans being sought in other countries by large Venezuelan companies are generally for more than $500,000, two of the sources said, asking that the names of the companies and the banks remain confidential for security reasons.”The government transfers the biggest burden of its adjustment plan to the private sector by restricting credit for companies and consumer credit, which partly affects households,” said economist Daniel Cadenas.Venezuelan banks’ credit portfolios total some $583 million, according to official figures from July, but economic analysts say financing needs for companies are 10 times that and the breathing room offered by loosened currency controls has not led to full economic recovery.”Banking has become more transactional, rather than giving credit,” said a finance source. More

LONDON (Reuters) -British government bond prices soared on Wednesday after the Bank of England said it would buy long-dated bonds in an effort to bring calm to the market and shelved plans to sell its stock of gilts for the time being.Finance minister Kwasi Kwarteng set out a new economic agenda last week, sparking a historic slide in sterling markets that sent the pound to an all-time low against the U.S. dollar, just above $1.03.Having failed to cool a sell-off with verbal interventions over the previous two days, the BoE announced an emergency move that it said would prevent the turmoil in markets from spreading through the country and seizing up credit flows.The central bank said it would buy long-dated gilts “on whatever scale is necessary” to restore order to the market.The BoE also said it was keeping its goal to reduce its 838 billion pounds ($892 billion) of gilt holdings by 80 billion pounds over the next year, but would postpone the start of sales – due to begin next week – because of the market conditions.Ahead of the BoE’s decision, strategists said the 2.1 trillion-pound gilt market was seizing up, with very poor liquidity and pricing quality being a clear sign of market dysfunction.Twenty- and 30-year gilt yields – which move in the opposite direction to prices – dropped around 40 basis points on the day after they rose above 5% in early trading – the highest level for 30-year yields since 2002.The 30-year benchmark gilt yield was trading at 4.579%, down 41 basis points on the day, at 1136 GMT.Capital Economics, a consultancy, said the sharp drop in gilt yields suggested the BoE’s plan was already working.”While this is welcome, the fact that it needed to be done in the first place shows that the UK markets are in a perilous position,” said Paul Dales, chief UK economist.”It wouldn’t be a huge surprise if another problem in the financial markets popped up before long. Either way, the downside risks to economic growth are growing.”Yields fell sharply across the range of British maturities, but especially for long-dated debt. More

The ECB lifted interest rates by a combined 125 basis points at its past two meetings, the fastest pace of policy tightening on record, but inflation may still be months from its peak, pointing to even more tightening from a bank that started hiking well after most of its top peers.”I have to say that 75 bps is a very good candidate for (our next move to) maintain the pace of tightening, but it is also necessary to wait for fresh data,” Slovak central bank governor Peter Kazimir told a news conference.”We have to be vigorous, even ruthless, regardless of the looming recession,” Kazimir added. Finnish central bank chief Olli Rehn, considered a moderate swing voter, also said that 75 basis points could be among the options.”There is a case for taking a decision on another significant rate hike, be it 75 or 50 basis points or something else,” Rehn told Reuters without elaborating on what ‘something else’ may entail. “There is a stronger case for frontloading and determined action.” Outspoken policy hawk Robert Holzmann, Austria’s central bank governor, also backed a 75 basis point move in an interview with Bloomberg TV, arguing that 100 basis points would simply be too much.Markets see the ECB’s 0.75% deposit rate rising to 2% by the end of the year, then to around 3% next spring. Inflation is forecast to stay above the ECB’s 2% target through 2024 and even longer term expectations are above target.ECB President Christine Lagarde said the “first destination” in the rate hiking cycle will be the “neutral” rate, which neither stimulates not slows growth.”We have return inflation to 2% in the medium term, and we will do what we have to do, which is to continue hiking interest rates in the next several meetings,” she told a conference. While the neutral rate is a loosely defined concept, economists see it in the 1.5% to 2% range, a mark Rehn said should be hit this year.”In my view, we are heading towards the range of the neutral rate by Christmas,” Rehn said. “Once we get there, we’ll see if there’s a case to move into restrictive territory.”Kazimir added that there was consensus on the 25-member Governing Council that the “neutral” must be hit but there was no consensus on what precise level this meant. As part of normalisation, Kazimir said the ECB could also start a debate this year on reducing its balance sheet but a discussion did not automatically mean that such action is imminent. More