Economy

BENGALURU (Reuters) – The Bank of England will keep its main interest rate at 5.00% next week but reduce it in November even though inflation is expected to stay above the central bank’s 2% target, a firm majority of economists in a Reuters poll said.In August the BoE cut its Bank Rate to 5.00% from a 16-year high of 5.25% in a tight 5-4 vote. However, Governor Andrew Bailey said it would proceed cautiously to make sure inflation stayed low.Although inflation was 2% in May and June, it rose slightly to 2.2% in July and is not predicted to dip back below target until at least 2026.The BoE lifted rates by 515 basis points between December 2021 and August 2023 to calm soaring inflation that peaked at a 41-year high of 11.1% in October 2022. It was one of the first major central banks to start raising borrowing costs after the pandemic.Despite headline inflation being close to the BoE’s target, service cost increases and wage growth – closely watched by the BoE – are still above 5%, making the central bank reluctant to loosen policy too fast.The latest gross domestic product data showed Britain’s economy stalled in July, as manufacturing output dropped sharply but the BoE’s Monetary Policy Committee is unlikely to change its stance of slow and steady rate cuts.”The UK has still got much higher wage inflation, much higher services inflation and the best growth across the G10 for the first half of this year,” said James Rossiter, head of global macro strategy at TD Securities.”It’s hard to envision a world where the MPC looks at that macro backdrop and thinks that they should be cutting as fast as the Fed.”Global peers the European Central Bank and the Federal Reserve are both expected to cut interest rates this month by a quarter-point and by a total of 75 basis points this year. Bailey reiterated at the Jackson Hole conference in late August that interest rates would have to “remain restrictive for sufficiently long” and “the course will therefore be a steady one”.All 65 economists in the Sept. 6-11 poll predicted the Bank Rate will be left at 5.00% next week.Nearly 80% of economists, 49 of 65, expected one more cut this year. While 48 predicted it in November, one said December. The other 16 saw two more rate cuts this year.Interest rate futures are pricing in two more cuts, in November and December, to put the end-year rate at 4.50%.”Having multiple data points to really assess how fast and how speedy the disinflation narrative is building in the UK, that’s something we don’t think we will get until the November decision,” said Sanjay Raja, chief UK economist at Deutsche Bank.Median forecasts showed Bank Rate at 4.50% at end-March, 4.25% at end-June, 4.00% at end-September and 3.75% by end-2025.Of 15 Gilt-edged market makers who participated in the survey, 13 predicted one 25 basis point cut next quarter, while a couple expected two.Inflation was predicted to average 2.1% and 2.5% in Q3 and Q4, respectively. Median forecasts showed inflation averaging 2.6% this year and 2.3% next.GDP growth was forecast to average 1.1% this year, 1.3% next and 1.5% in 2026.(Other stories from the Reuters global economic poll) More

Inflation in the 12 months through August reached 236.7%, still the highest level recorded in the world, and also above a Reuters poll forecast of 235.8%.Analysts had hoped for a slight monthly slowdown to 3.9%, which would signal progress for the government of libertarian President Javier Milei, which has been focused on taming runaway prices.Statistics agency INDEC said the monthly price rises were driven by living costs and utilities, education and transport. The country’s monthly inflation rate has hovered around the 4% mark since May.With costs soaring, poverty rates this year hit their highest level in at least 20 years, according to a recent study.”I swear I don’t know how to make ends meet,” said 63-year-old Liliana Martins, lamenting that, even as she tries to save, it is never enough. A kilogram (2.2 pounds) of potatoes now costs 1,274 pesos ($1.33), according to INDEC, up nearly 40% from just a month ago, while prices for meat, dairy and soaps have also gone up.Agustina Celeste Brito, a 24-year-old teacher, said she was pooling her salary with her parents’ to get by, while 27-year-old Victoria Godoy said rising household costs are too much for her to cover. “I pay all the utilities, and every month it goes up and the salary I make is not enough,” Godoy said.($1 = 957.5000 Argentine pesos) More

The Royal Institution of Chartered Surveyors said on Thursday that its main house price balance, which measures the difference between surveyors seeing falls and rises in house prices, moved into positive territory for the first time since October 2022. Its house price balance rose to +1 in August from -18 in July, and well above the -14 forecast by economists in a Reuters poll. A measure of expected sales over the next three months was the strongest since January 2020, before the COVID-19 pandemic struck Britain.Other indicators of Britain’s property market have pointed to momentum picking up in the sector after a recent fall in interest rates. Data from mortgage lender Halifax showed house prices grew at the fastest annual pace since late 2022 in August, although rival Nationwide said prices dropped month-on-month by 0.2% in August, the first monthly fall since April.Simon Rubinsohn, chief economist at RICS, said there was some uncertainty about the scope for further interest rate cuts by the Bank of England and the upcoming budget.”Affordability remains an issue in the sales market even with somewhat cheaper finance now available but the picture appears even more acute in the lettings market where the amount of rental stock continues to diminish.”British finance minister Rachel Reeves will set out her plan for spending and tax on October 30. The BoE is expected to hold interest rates on Sept. 19 after cutting borrowing costs for the first time last month from a 16-year high of 5.25%.RICS’ monthly survey also showed and improvement in overall sentiment and buyer interest. Its measure of new buyer enquiries rose to a net balance of +15 in last month from +4 in July, the highest since October 2021. The net balance of agreed house sales across Britain also rose and respondents noted a pickup in the number of properties on the market. More

LONDON (Reuters) – Pay awards granted by British employers fell during the three months to July, according to a survey that chimed with an official gauge of cooling wage growth that should keep the Bank of England on track to cut interest rates later this year.Incomes Data Research said on Thursday that the median pay settlement awarded by major employers dropped to 4.0% in the three months to July, the lowest since August 2022 and down from 4.8% in the three months to June.The most recent figures no longer include pay awards that took effect in April, the most popular month for pay setting, when 16% of settlements were worth 9% or more, partly due to a 9.8% uplift Britain’s minimum wage. Zoe Woolacott, senior researcher at IDR, said pay levels had not yet caught up with the sharp rise in the cost of living in 2022 and 2023, despite current consumer price inflation being close to the BoE’s 2% target.”Prices for items such as food, as well as mortgages and rents, remain higher than before the pandemic,” Woolacott said.”This maintains pressure on employers to award their workers with a pay rise that compensates them to some extent for the higher cost of living.”Data from the Office of National Statistics on Tuesday showed British pay growth cooled in the three months to July to a more than two-year low of 5.1%. The BoE, which is expected to hold interest rates at 5% on Sept. 19, is keeping a close eye on wage growth. It expects private-sector pay to slow to 5% later this year and 3% in late 2025.The IDR analysis was based on 39 pay deals which covered more than 700,000 employees and took effect between May. 1 and July 31. More

FRANKFURT (Reuters) – The European Central Bank is almost certain to cut interest rates again on Thursday, but with inflation risks still simmering despite a stuttering euro zone economy, investors will be searching its statements for clues about further easing. The ECB lowered its deposit rate to 3.75% in June and an array of policymakers have already backed another cut, suggesting their debate is likely to focus on how quickly borrowing costs need to fall in subsequent meetings. The likely outcome is that ECB President Christine Lagarde will stick to the bank’s recent narrative that decisions are taken meeting by meeting, based on incoming data.But she may also say that all meetings are “live”, keeping open the door to a cut in October, even while some conservative “hawks” make the case for slower easing while inflation across the 20-country euro zone remains above the ECB’s 2% target.”All eyes will be on any messages regarding the future path of rate cuts, particularly the chances of another 25 basis point move being announced as early as October,” Santander (BME:SAN) economist Antonio Villarroya said.More dovish policymakers, mainly from the bloc’s south, are likely to say that recession risks are rising and that with inflation within striking distance of the target at 2.2%, ECB rates are now restricting growth far more than needed.But inflation-wary hawks, who are still in a majority, say the labour market remains too hot for the ECB to sit back, and that underlying price pressures, as evidenced in stubborn services costs, raise the risk of resurgent inflation. NEW FORECASTSNew economic forecasts are unlikely to settle the debate. Quarterly projections from the ECB’s staff are expected to show slightly lower growth this year and inflation broadly on the same path as in June and set to return to 2% on a “sustainable” basis by the second half of next year.That means few if any policymakers are likely to argue against further easing, with the key divide being just how quickly the ECB should move.”The hawks haven’t taken flight,” Davide Oneglia at TS Lombard said. “Their new goal is to manage cut expectations … be ready for growing frictions in the Governing Council as the policy rate declines.”Hawkish policymakers have made clear that they see quarterly rate cuts as appropriate, since key growth and wage indicators – which inform the ECB’s own projections – are compiled every three months. Investors are also divided, with another cut by December fully priced into financial markets but the chance of an interim move in October oscillating between 40% and 50%. Lagarde’s main task in her 1245 GMT news conference will be to keep all options on the table without stoking expectations for October. “We expect the ECB to adopt a stance similar to the one in June: it will make clear that the direction on rates remains downwards, but it will not give a clear signal for the size and timing of the next move,” JP Morgan economist Greg Fuzesi said.”We think, however, that the implicit message will be consistent with a next move in December, rather than in October.” TECHNICAL RATE CUTWith Thursday’s move, the ECB’s deposit rate will fall by 25 basis points to 3.5%. The refinancing rate is meanwhile likely to fall by a much bigger 60 basis points in a long-flagged technical adjustment. The gap between the two interest rates has been set at 50 basis points for years and the ECB announced plans in March to narrow this corridor to 15 basis points from September in a move that could eventually rekindle lending between banks. Such a revival is still years away, so the ECB’s move is a pre-emptive adjustment of its operating framework.For now, banks are sitting on 3 trillion euros of excess liquidity and deposit this with the bank overnight, making the deposit rate in effect the ECB’s main policy instrument. Over time this liquidity should dwindle, pushing banks to borrow again from the ECB at the refinancing rate, traditionally the central bank’s benchmark interest rate. Once that happens, the main rate will regain its headline status, while the narrower rate corridor should help the ECB better manage market rates. More

(Reuters) – A look at the day ahead in Asian markets.The see-saw nature of U.S. market reactions to the latest U.S. inflation figures on Wednesday highlighted investors’ general skittishness right now, as they try to predict whether the Fed will cut interest rates by 25 or 50 basis points next week.At the market close, the S&P 500 and Nasdaq had posted healthy gains and chalked up their third daily rise, the VIX ‘fear index’ had fallen for a third day, and Treasury yields bounced back from new cycle lows to end higher across the curve.There was something for everyone in the CPI data, which is perhaps why the bond market swung so much. Core inflation rose a hotter-than-expected 0.3% while the annual headline rate fell to 2.5%, the lowest since February 2021. It may be a similar picture in Asia on Thursday, although the market open will probably be strong as investors take the baton from Wall Street. Japanese futures point to the Nikkei opening around 1.5% higher. The yen on Wednesday surged to its strongest level against the dollar this year after Bank of Japan board member Junko Nakagawa said the central bank will raise rates again if inflation moves in line with policymakers’ forecasts.That echoed recent remarks from BOJ Governor Kazuo Ueda, so nothing new, and the dollar ultimately clawed back nearly all its losses. But the yen’s spike perhaps indicates how sensitive the market is to the prospect of the U.S.-Japanese interest rate gap narrowing.  The BOJ is only expected to raise rates a further 25 basis points by the end of next year. But signals that the BOJ is still prepared to tighten policy amid bursts of global market volatility and as other central banks cut rates are yen-supportive right now.In that context, Japan’s wholesale price inflation for August will be watched closely on Thursday. The annual rate of inflation is expected to have slowed to 2.8% from 3.0% in July, with the monthly rate evaporating to 0.0% from 0.3%.The wholesale price index in July hit a record high for the eighth straight month.The Asian economic calendar’s other main point of focus on Thursday is Indian inflation. Economists polled by Reuters expect consumer price inflation essentially held steady at a five-year low of 3.5% in August.That would mark the second month in a row that annual inflation has held below the Reserve Bank of India’s 4.0% medium-term target, but the weak rupee will ensure policymakers don’t get complacent.A separate Reuters poll showed inflation averaging 4.2% this quarter, accelerating to 4.5%-4.7% in the coming quarters and back above the central bank’s target. Money markets are only pricing in one quarter-point rate cut from the RBI this year.Here are key developments that could provide more direction to Asian markets on Thursday:    – Japan wholesale inflation (August)- India CPI inflation (August)- India industrial production (July) More

BOGOTA (Reuters) -The Colombian Senate’s economics committee threw out the government’s proposed 2025 budget on Wednesday, arguing the Andean country will not be able to raise the proposed sum amid lower-than-projected tax collection.At the end of July, Colombia’s finance ministry presented a proposed budget to Congress for next year worth 523 trillion pesos ($122 billion).The budget was rejected even after the finance ministry on Tuesday presented a new fiscal reform proposal to lawmakers to raise some additional 12 trillion pesos ($2.8 billion), which the government says would finance the budget.But the majority of lawmakers sitting on economic commissions in both the Senate and the lower house, who were weighing the bill jointly on Wednesday, said government efforts to raise more funds, including plans to tackle evasion and avoidance, are not realistic.”We cannot approve an unfinanced proposal, the product of the irresponsibility of President (Gustavo) Petro,” said Senator Carlos Abraham Jimenez, of the right-leaning Radical Change party.Petro on Tuesday said he would set the budget by decree if Congress rejected it.”The country needs seriousness, justification and certain sources when it comes to approving budgets with values like the one presented today, if it’s not like that we have to reject,” said Senate president Efrain Cepada, of the Conservative party. “This isn’t personal, it’s the minimum demanded in congress.”The Senate’s economic commission rejected the budget’s value by 12 votes to one, after which a vote by the house committee was not needed.Last June, the finance ministry was forced to freeze some $4.6 billion in spending because of a drastic fall in tax income, leading to an increase in the fiscal deficit target for 2024 to 5.6%, from a previous 5.3%.An independent committee which oversees the country’s compliance with its so-called fiscal rule – designed to stop public finances deteriorating – in July said that adjustments were needed to ensure compliance in 2024 and 2025, due to possible risks to tax collection.($1 = 4,285.61 Colombian pesos) More

(Reuters) -Federal Reserve Bank of Atlanta President Raphael Bostic’s trading and investing broke central bank rules, the Fed’s in-house watchdog said on Wednesday. Bostic created the appearance he acted on confidential information and the appearance of a conflict of interest, in violation of the Atlanta Fed’s code of conduct, according to a report by the Office of Inspector General for the central bank.However, the report said investigators found no evidence that Bostic in reality used inside information about Fed deliberations or had financial conflicts of interest. The Fed official relied on investment managers and did not have the ability to direct specific trades, the report said. Bostic “was nonetheless responsible for ensuring that all trades and investments made on his behalf complied with all applicable rules, including the provisions addressing appearance standards.”Trades on Bostic’s behalf took place during prohibited “blackout” periods around Federal Open Market Committee meetings 154 times between March 2018 and March 2023, investigators found. He also filed inaccurate disclosure forms, held more Treasury securities than allowed and twice executed trades that were different than those that he sought central bank clearance for. In a statement after the release of the report, the Atlanta Fed, on behalf of its board of directors said, “We take these issues seriously and the full board will meet to carefully discuss the report’s details further.” Separately, the U.S. central bank’s Board of Governors is reviewing the report, a spokesperson for the Washington-based body said.Bostic told investigators he was unaware his trades occurred during prohibited periods because he relied on money managers. The IG said Bostic did not review monthly statements on his investments and could have avoided violations. The IG report on Bostic’s finances is the third and likely last about investing and trading by current and former Fed policymakers. Documents made public in September 2021 showed the then-presidents of the Fed’s regional banks in Dallas and Boston actively traded while helping set monetary policy. Robert Kaplan, who headed the Dallas Fed, and Eric Rosengren, who ran the Boston Fed, retired soon after. Fed Chair Jerome Powell and Richard Clarida, the then-Fed vice chair, also faced questions about their investing activities, though both were later cleared of wrongdoing. The inspector general earlier this year said Kaplan and Rosengren didn’t break rules but their activities created the appearance of a conflict of interest. The report on Bostic had long been expected given he had already acknowledged in filings errors in his financial disclosures. The trading controversy was a blow to the Fed’s reputation, fueling questions as to whether policymakers were benefiting financially from their interest rate decisions.The central bank in 2021 sharply tightened the rules on investing by policymakers and top staff. More