As expected, the Bank of England finally cut the base rate by 0.25%, to 5%, the first cut in four and a half years though it was a finely balanced decision which reflected increased confidence that the worst inflation shock in decades, was easing. The Bank of England governor, Andrew Bailey, said inflationary pressures had “eased enough” to enable the first cut since the Bank stopped ramping up borrowing costs this time last year.
The MPC was split by five votes to four, exposing divisions within the central bank’s most senior ranks, with Bailey casting the deciding vote for a quarter-point reduction.
Households which saw borrowing costs rise to the highest level since the 2008 financial crisis can look to lower mortgage rates, though the bulk remain on high fixed rates for now. But Bailey said savers and borrowers should not expect large reductions over the coming months, amid concerns about lingering risks to the economy. “We need to make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much,” he said. “Ensuring low and stable inflation is the best thing we can do to support economic growth and the prosperity of the country.”
Remember that Prices remain significantly higher than three years ago and are still rising despite Inflation falling back to the 2% government target in May. The Bank remains concerned over stubborn price increases in the service sector of the economy and resilience in wage growth.
So, while the Bank of England did cut, the UK economy is not out of the woods yet, and we should expect a tick up in inflation ahead, so the next few months data will still be important. And taxes of course, will continue to grind higher.
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Digital Finance Analytics (DFA) Blog
Finally A Rate Cut, Though Weirdly Into A Growing Economy!
As expected, the Bank of England finally cut the base rate by 0.25%, to 5%, the first cut in four and a half years though it was a finely balanced decision which reflected increased confidence that the worst inflation shock in decades, was easing. The Bank of England governor, Andrew Bailey, said inflationary pressures had “eased enough” to enable the first cut since the Bank stopped ramping up borrowing costs this time last year.
The MPC was split by five votes to four, exposing divisions within the central bank’s most senior ranks, with Bailey casting the deciding vote for a quarter-point reduction.
Households which saw borrowing costs rise to the highest level since the 2008 financial crisis can look to lower mortgage rates, though the bulk remain on high fixed rates for now. But Bailey said savers and borrowers should not expect large reductions over the coming months, amid concerns about lingering risks to the economy. “We need to make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much,” he said. “Ensuring low and stable inflation is the best thing we can do to support economic growth and the prosperity of the country.”
Remember that Prices remain significantly higher than three years ago and are still rising despite Inflation falling back to the 2% government target in May. The Bank remains concerned over stubborn price increases in the service sector of the economy and resilience in wage growth.
So, while the Bank of England did cut, the UK economy is not out of the woods yet, and we should expect a tick up in inflation ahead, so the next few months data will still be important. And taxes of course, will continue to grind higher.
The Federal Open Market Committee decided to leave the cash rate unchanged yesterday, and it’s weird that the biggest financial news from Wednesday is that they did nothing at all, and did not committing to doing anything in future, despite the call from some to cut rates in a pre-emptive intervention to head off a recession.
As always traders parsed every nook and cranny of the FOMC statement, while billions of dollars changed hands.
Powell said decisions on monetary policy are a “very difficult judgment call,” and he laid out scenarios for everything from cutting several times this year to no cuts at all. If inflation moves down in line with expectations, growth remains reasonably strong, and the labor market remains consistent with its current condition, a rate cut could be on the table in September, he says.
Eyes now turn to the Bank of England, who may or may not cut rates in the UK today. With inflation close to 2% and an expectation of an ECB like rise in inflation ahead, it’s a line ball call.
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The ABS released their latest on CPI, with the quarterly results to June, and the monthly. The data of course feeds into the RBA rate decision next Tuesday. The Consumer Price Index (CPI) rose 1.0 per cent in the June 2024 quarter and 3.8 per cent annually. So real prices are still rising. Underlying inflation which measures reduce the impact of irregular or temporary price changes in the CPI – the annual trimmed mean inflation was 3.9 per cent, down from 4.0 per cent in the March quarter. This is the sixth quarter in a row of lower annual trimmed mean inflation, down from the peak of 6.8 per cent in the December 2022 quarter.
At first blush, the data could be bent in support of an argument that inflation continues to fall, especially if you focus on the core measure, which is precisely where Treasure Chalmers went in his statement, and in which he also argued that inflation was about 0.5% lower thanks to Government support for electricity and rents, etc. ““While headline inflation is proving sticky and stubborn, and is more persistent than we would like, it is less than half its peak,” he said. “Inflation is lingering for longer than we had hoped across the globe, and Australia’s experience is no different.”
But then, remembering RBA Governor Bullock said she would look through these temporary adjustments, the story swings more to the rise in headline inflation, which came in as expected. Actually the RBA was forecasting CPI inflation to reach 3.8%yr in the June quarter, in line with today’s result. However, for core inflation, the RBA was also forecasting 3.8%yr for June, so the 3.9%yr pace was a touch stronger than they were expecting.
All this means if the RBA felt the need to lift rates they could justify it, but also if not, they could find reason to hold, so if comes down to judgement and weighting the political and economic consequences. Nothing here though to justify a rate cut.
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Is The Door Closed On A Further Rate Rise In Australia?
This is an edited version of a live discussion with Robbie Barwick from the Australian Citizens Party, as we explore the current status of the war on cash, regional banking, post offices, and the need to revolutionize the financial system for ordinary people.
This is an edited version of a live discussion with Robbie Barwick from the Australian Citizens Party, as we explore the current status of the war on cash, regional banking, post offices, and the need to revolutionize the financial system for ordinary people.
As the wackiness continues, property insider Edwin Almeida and I pick over the bones of the market, as expectation of rate hikes harden, people are starting to talk about weakness in some places, while the media continue to spruik as though their lives depended on it.
We also look at fascinating insights from Chinese students in Australia and how they manage their finances.
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Today’s post is brought to you by Ribbon Property Consultants.
Another outing with Journalist Tarric Brooker, as we pick over the latest data, with a focus on what is happening in the real economy. We also discuss the real race many are running in terms of no real income growth, and the political and economic implications of this ahead.
You can find Tarric’s charts at https://www.burnouteconomics.com/
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Digital Finance Analytics (DFA) Blog
Welcome To The Alternative Olympics: With Tarric Brooker
This is an edited version of a live discussion with Dr Cameron Murray, Independent Economist over at Fresh Economic Thinking.
Fresh Economic Thinking is Australia’s newest think-tank, with independent and insightful takes on major economic debates.
Cameron thinks economics could be much better than it is so he often writes very fine technical critiques of economic theory and comments on the nature of the profession. He specialises in property and housing markets, environmental economics, and corruption. I dabble in just about everything: macro, money, institutions, evolutionary economics, and more.
For the past four years, he was a Post-Doctoral Research Fellow in the Henry Halloran Trust at The University of Sydney.
This is an edited version of a live discussion with Dr Cameron Murray, Independent Economist over at Fresh Economic Thinking.
Fresh Economic Thinking is Australia’s newest think-tank, with independent and insightful takes on major economic debates.
Cameron thinks economics could be much better than it is so he often writes very fine technical critiques of economic theory and comments on the nature of the profession. He specialises in property and housing markets, environmental economics, and corruption. I dabble in just about everything: macro, money, institutions, evolutionary economics, and more.
For the past four years, he was a Post-Doctoral Research Fellow in the Henry Halloran Trust at The University of Sydney.
https://www.fresheconomicthinking.com
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Go to the Walk The World Universe at https://walktheworld.com.au/
https://digitalfinanceanalytics.com/blog/dfa-one-to-one/ for our One to One Service.
