Tag: Bank of England

Markets Rethink Rate Cuts As Central Bank Hawks Jawbone!

It’s become a bit of a ritual, as members of various committees linked to Central Bank interest rate decisions speak in the open spaces between policy meetings. This week, Washington has been the centre of gravity thanks to the IMF conferences.

Markets are hypersensitive at the moment, having been baying for rate cuts all year, and positioning accordingly, despite the data is pointing elsewhere. But now, Money managers and strategists on Wall Street have been forced to rethink their assumptions over the past two weeks in response to strong economic data and remarks by Fed officials.

For example, Federal Reserve Bank of New York President John Williams said that there’s no rush to lower interest rates and economic data will determine the timing.

And Bank of England policymaker Megan Greene speaking at an Atlantic Council event on the sidelines of the International Monetary Fund’s meeting in Washington, said the UK faces difficult trade-offs over whether to cut interest rates because underlying inflation remains high and growth is weak.

But Greene said rate cuts were not imminent and the combination of high inflation and weak growth means “we are sort of in trade-off territory.”

In Australia, after the latest jobs data rate cut expectations are also being pushed out. Andrew Lilley the chief Rate Strategist at Barren joey said “There’s no impetus for the RBA to cut rates as inflation is outside of the 2 per cent to 3 percent band. The RBA will be very comfortable to sit on hold.

But even if rates go no higher, the RBA says total scheduled household mortgage payments (comprising both interest and scheduled principal payments) have increased to around 10 per cent of household disposable income as of December 2023, exceeding the estimated previous historical peak in 2008. These scheduled mortgage payments are expected to increase further to reach around 10½ per cent of household disposable income by end-2024 as more fixed-rate loans expire and reprice at higher interest rates.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
Markets Rethink Rate Cuts As Central Bank Hawks Jawbone!
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Markets Rethink Rate Cuts As Central Bank Hawks Jawbone!

It’s become a bit of a ritual, as members of various committees linked to Central Bank interest rate decisions speak in the open spaces between policy meetings. This week, Washington has been the centre of gravity thanks to the IMF conferences.

Markets are hypersensitive at the moment, having been baying for rate cuts all year, and positioning accordingly, despite the data is pointing elsewhere. But now, Money managers and strategists on Wall Street have been forced to rethink their assumptions over the past two weeks in response to strong economic data and remarks by Fed officials.

For example, Federal Reserve Bank of New York President John Williams said that there’s no rush to lower interest rates and economic data will determine the timing.

And Bank of England policymaker Megan Greene speaking at an Atlantic Council event on the sidelines of the International Monetary Fund’s meeting in Washington, said the UK faces difficult trade-offs over whether to cut interest rates because underlying inflation remains high and growth is weak.

But Greene said rate cuts were not imminent and the combination of high inflation and weak growth means “we are sort of in trade-off territory.”

In Australia, after the latest jobs data rate cut expectations are also being pushed out. Andrew Lilley the chief Rate Strategist at Barren joey said “There’s no impetus for the RBA to cut rates as inflation is outside of the 2 per cent to 3 percent band. The RBA will be very comfortable to sit on hold.

But even if rates go no higher, the RBA says total scheduled household mortgage payments (comprising both interest and scheduled principal payments) have increased to around 10 per cent of household disposable income as of December 2023, exceeding the estimated previous historical peak in 2008. These scheduled mortgage payments are expected to increase further to reach around 10½ per cent of household disposable income by end-2024 as more fixed-rate loans expire and reprice at higher interest rates.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

UK Inflation Eases, But Thanks Mainly To Base Effects!

UK inflation tumbled to the lowest level in two years, prompting investors to firm up bets that the Bank of England will be able to cut rates as early as the Spring of next year.

Consumer prices rose 4.6% from a year earlier in October, down sharply from 6.7% in September and the slowest pace since 2021, the Office for National Statistics said Wednesday. The figures allowed Prime Minister Rishi Sunak to declare victory in his goal of cutting inflation in half in 2023.

“While it is welcome news that prices are no longer rising as quickly, we know many people are continuing to struggle,” Sunak said in a statement. “We must stay the course to continue to get inflation all the way back down to 2%.”

The drop was even sharper than the 4.7% reading economists had anticipated. It will strengthen expectations that the Bank of England is finished raising interest rates and refocus attention on a sharp slowdown in the economy.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
UK Inflation Eases, But Thanks Mainly To Base Effects!
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UK Inflation Eases, But Thanks Mainly To Base Effects!

UK inflation tumbled to the lowest level in two years, prompting investors to firm up bets that the Bank of England will be able to cut rates as early as the Spring of next year.

Consumer prices rose 4.6% from a year earlier in October, down sharply from 6.7% in September and the slowest pace since 2021, the Office for National Statistics said Wednesday. The figures allowed Prime Minister Rishi Sunak to declare victory in his goal of cutting inflation in half in 2023.

“While it is welcome news that prices are no longer rising as quickly, we know many people are continuing to struggle,” Sunak said in a statement. “We must stay the course to continue to get inflation all the way back down to 2%.”

The drop was even sharper than the 4.7% reading economists had anticipated. It will strengthen expectations that the Bank of England is finished raising interest rates and refocus attention on a sharp slowdown in the economy.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Is The Bank Of England Broke – And Does It Matter?

The Bank of England, like other Central Banks, is a weird entity, in that it can, if it wants create money. We saw that through the QE programmes, through which it acquired large portfolios of Government Bonds – known as guilts.

The program ran from 2009 to 2022 and was designed to improve financing conditions for companies hit by the 2008 financial crisis. It saw the BOE accrue £895 billion worth of bond holdings while interest rates were historically low.

However, the pace at which the central bank has had to tighten monetary policy in a bid to tame inflation means the costs have risen more sharply than anticipated. Higher rates have driven down the value of the purchased government bonds — known as gilts — just as the BOE began selling them at a loss because bond yields have changed significantly, rising fast as prices fall (as yields and prices work in opposite directions).

The central bank began unwinding that position late last year, initially through halting reinvestments of maturing assets and then by actively selling the bonds at a projected pace of £80 billion per year from October 2022.
Both the Treasury and the BOE knew when the APF was implemented that its early profits (£123.8 billion as of September last year) would become losses as interest rates rose.

Now according to Deutsche Bank, the Bank of England’s losses on bonds bought to shore up the U.K. economy after the financial crisis will be “materially higher than projected until the middle of the decade,”

So should we worry? Well, the Bank of England has a pretty special arrangement with the UK government. Since 2009 it has promised the central bank that it would make good any losses it might suffer from QE, especially after it started sweeping any QE profits back to the Treasury in 2012.

Is The Bank Of England Broke – And Does It Matter?

The Bank of England, like other Central Banks, is a weird entity, in that it can, if it wants create money. We saw that through the QE programmes, through which it acquired large portfolios of Government Bonds – known as guilts.

The program ran from 2009 to 2022 and was designed to improve financing conditions for companies hit by the 2008 financial crisis. It saw the BOE accrue £895 billion worth of bond holdings while interest rates were historically low.

However, the pace at which the central bank has had to tighten monetary policy in a bid to tame inflation means the costs have risen more sharply than anticipated. Higher rates have driven down the value of the purchased government bonds — known as gilts — just as the BOE began selling them at a loss because bond yields have changed significantly, rising fast as prices fall (as yields and prices work in opposite directions).

The central bank began unwinding that position late last year, initially through halting reinvestments of maturing assets and then by actively selling the bonds at a projected pace of £80 billion per year from October 2022. Both the Treasury and the BOE knew when the APF was implemented that its early profits (£123.8 billion as of September last year) would become losses as interest rates rose.

Now according to Deutsche Bank, the Bank of England’s losses on bonds bought to shore up the U.K. economy after the financial crisis will be “materially higher than projected until the middle of the decade,”

So should we worry? Well, the Bank of England has a pretty special arrangement with the UK government. Since 2009 it has promised the central bank that it would make good any losses it might suffer from QE, especially after it started sweeping any QE profits back to the Treasury in 2012.

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
Is The Bank Of England Broke - And Does It Matter?
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UK Inflation Still Not Beaten, As Wages Spiral (For Some…)

UK inflation remained higher than expected last month as the cost of travel and holidays climbed, adding to the case for the Bank of England to raise interest rates again, this despite an expected fall in energy prices.

The Consumer Prices Index rose 6.8% in July, exceeding the 6.7% rate expected by economists, the Office for National Statistics said Wednesday. It was the fifth time in six months the figures surprised on the upside. Inflation remains more than triple the BOE’s 2% target.

While falling energy and food price inflation brought the headline rate down from 7.9% in June, the cost of services accelerated by 0.2 percentage points to 7.4%, matching highs touched in May and in 1992.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants.

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
UK Inflation Still Not Beaten, As Wages Spiral (For Some...)
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UK Inflation Still Not Beaten, As Wages Spiral (For Some…)

UK inflation remained higher than expected last month as the cost of travel and holidays climbed, adding to the case for the Bank of England to raise interest rates again, this despite an expected fall in energy prices.

The Consumer Prices Index rose 6.8% in July, exceeding the 6.7% rate expected by economists, the Office for National Statistics said Wednesday. It was the fifth time in six months the figures surprised on the upside. Inflation remains more than triple the BOE’s 2% target.

While falling energy and food price inflation brought the headline rate down from 7.9% in June, the cost of services accelerated by 0.2 percentage points to 7.4%, matching highs touched in May and in 1992.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants.

Rates Higher For Longer Says The Bank Of England!

The Bank of England lifted rates again today by 0.25%. They also signalled rates would be higher for longer, and that they would be data driven (similar message to the FED and ECB).

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Another Bad UK Inflation Print Signals Higher Rates Still: Recession Incoming?

Ahead of the Bank of England cash rate decision tomorrow, the latest CPI numbers were hotter than expected, with core CPI higher. As a result, expectations for rate hikes have taken off, with a prospective terminal rate of around 6%, the highest in years.

Added to the growing defecit and the prospect of a recession, and it seems the UK is at the worst end of the inflation drama!

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/