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Pound gains on dollar as Carney says interest rate hikes still on table

BANK of England governor Mark Carney helped keep the pound above 1.27 dollars for a third day running on Thursday, as he said interest rate hikes were still on the table.

The pound was higher against the US dollar, climbing 0.11% to 1.270, following Mr Carney’s comments in the bank’s annual report.

Fiona Cincotta, senior market analyst at City Index, said: “Today’s weaker dollar was lending a hand to the pound, as did Mark Carney. The BoE Governor suggesting that the UK could still raise rates if the economy performs as expected was some welcome good news for the Brexit battered pound.”

But sterling was 0.45% lower against the euro at 1.125 as the common currency surged, boosted by a more positive than expected statement from the European Central Bank (ECB).

This impacted European markets, with the German Dax going into the close 0.23% lower while the French Cac was down 0.36%.

In London, the FTSE 100 was up by 39.63 points, or 0.55%, at 7,259.85.

Under-pressure city heavyweight Neil Woodford was dealt another major blow after St James’s Place ended its £3.5 billion association with his firm.

Shares in the FTSE 100 asset manager were down 5p to 1,037p.

Insurance giant Aviva announced plans to axe around 1,800 jobs in the next three years in a bid to save £300 million a year.

Investors reacted positively to the news, pushing shares up 3p to 413.6p.

Online car seller and trading platform Auto Trader continued its impressive growth with rising revenue and profit despite falling car sales throughout the sector, the company revealed.

Shares dipped 2.4p to close at 585p.

Go-Ahead, the transport company behind Govia Thameslink Railway (GTR), revealed strong growth across all three of its divisions.

Its shares surged on the news, jumping 197p to 2,080p.

Facilities management provider Mitie posted a better-than-expected 6% rise in annual underlying earnings to £88.2 million for the year to March 31.

Shares rose 7p to 146.5p, as the result came in higher than feared after Mitie had warned over earnings and falling orders in March.

Entertainment One shares soared after the Peppa Pig maker denied reports that its president is set to leave the firm.

Shares spiked by almost 16%, climbing 55.4p to 405.4p, after the TV and film production business reassured investors that Mark Gordon, president and chief content officer, will remain at the firm.

Engine maker Rolls-Royce announced it had offloaded a £4.6 billion chunk of its pension scheme covering 33,000 members to Legal & General, in the biggest deal of its kind in the UK.

Shares were up 11p at 894p.

Oil prices were little changed, having slumped in the previous session when the Energy Information Administration update showed that US oil stockpiles have significantly jumped.

A barrel of Brent Crude oil was trading at $60.46, down 0.13%.

The biggest risers on the FTSE 100 were Imperial Brands up 112p to 2,073p, British American Tobacco up 87p to 2,915.5p, United Utilities Group up 22.4p to 829.6p and Severn Trent up 47p to 2,046p.

The biggest fallers on the FTSE 100 were Taylor Wimpey down 12.65p to 156.5p, Kingfisher down 10.5p to 207.6p, Hargreaves Lansdown down 81.5p to 1,900p and Vodafone Group down 5.12p to 127.98p.

Source: Herald Scotland

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Further Brexit delay would hit UK economy – BoE’s Broadbent

Britain’s economy risks damage if Brexit is delayed beyond its latest Oct. 31 deadline because companies would continue to hold back on investment, Bank of England deputy governor Ben Broadbent was quoted as saying on Monday.

“It’s pretty clear that investment has been feeling the consequences of the uncertainty about Brexit and particularly the possibility of a bad outcome,” Broadbent told the Press Association news agency.

“If you continually expect news to arrive imminently – a resolution – then that can have quite a depressing effect on investment,” he said.

By contrast, a Brexit deal would lead to “quite a strong bounce-back in investment.”

Broadbent reiterated the BoE’s guidance that future interest rate increases would be limited and gradual, adding the “emphasis is on the ‘gradual’ bit of limited and gradual.”

He said he did know whether the British central bank would need to increase rates or cut them in the event of a no-deal Brexit shock to the economy.

“I don’t know. I really don’t, because I don’t know how much the exchange rate will move,” he said.

Several other top BoE officials, including Governor Mark Carney, have said a rate cut would probably be needed to help the economy weather the shock of leaving the European Union with no deal.

On whether he will put his name forward as a candidate to succeed Mark Carney as BoE governor, Broadbent said: It’s a big job…I have lots of things to think about before I make that decision.”

Writing by William Schomberg; Editing by Peter Graff

Source: UK Reuters

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BoE’s Saunders does not expect UK rates to rise ‘far or fast’

The Bank of England is unlikely to raise interest rates far or fast, even if the economy picks up following a smooth Brexit, Monetary Policy Committee member Michael Saunders said in an interview published on Thursday.

Business investment would probably strengthen following a smooth Brexit but a series of “cliff edges” could cause it to continue to stagnate, Saunders told the Northern Echo newspaper during a visit to northeast England.

“I would expect interest rates will go a bit higher over time, but it won’t be far or fast,” he said.

A ‘neutral’ level for interest rates, which would neither stimulate nor slow the economy, was probably around 2 percent, compared to 5 percent before the 2008 financial crisis, Saunders added.

The Bank of England last raised interest rates in August, increasing them by a quarter of a percentage point to 0.75 percent. Financial markets see little chance of a rates rising this year while it remains unclear on what terms Britain will leave the European Union.

The BoE has long said interest rate rises will most likely be limited and gradual, but last week Governor Mark Carney said markets had gone too far in assuming rates would rise just once over the next three years.

However, on Tuesday the BoE’s chief economist, Andy Haldane, stressed the ongoing uncertainty over Brexit and said it would be “deeply arrogant” to say markets were wrong about the outlook for interest rates or the economy more broadly.

Saunders, the first BoE policymaker to vote for interest rates to rise last year, said Britain had missed out on two to three years of business investment growth since June 2016’s referendum decision to leave the EU.

A smooth Brexit transition to a trading relationship with the EU that was closer than Canada’s, but more distant than Norway’s, “probably wouldn’t be as bad as many businesses fear,” Saunders said.

“No-deal Brexit would be off the table, business investment would recover a bit, the economy would continue to grow steadily and the jobless rate would probably fall,” he added.

By contrast, a no-deal Brexit would most likely cause sterling to fall and push up inflation, as well as causing business investment to fall further.

“That would be painful,” he said.

Reporting by David Milliken, editing by Andy Bruce; Editing by Toby Chopra

Source: UK Reuters

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BoE’s Haldane: ‘Deeply arrogant’ to assume markets wrong on rates

Policymakers would be “deeply arrogant” to assume financial markets or other forecasters are definitely wrong about the outlook for interest rates or the broader economy, Bank of England chief economist Andy Haldane said on Tuesday.

Last week BoE Governor Mark Carney said investors were underestimating how much interest rates could rise, even as the British central bank kept borrowing costs on hold due to Brexit uncertainty.

Haldane said in a question and answer session after a lecture at the University of Sheffield that due to unusually high economic uncertainty related to Brexit, it was reasonable for others to take a different view on the outlook to the bank.

“I think such is the uncertainty right now – for all sorts of reasons, all sorts of obvious reasons about the future course of the economy, it’s not in anyone’s interests to say the markets are wrong and we are right. That would be deeply arrogant,” he said.

“It’s implausible that anyone has a crystal ball on how the economy will evolve. Last week we gave the Bank of England’s view on the economy, having made some assumptions about, for example, how Brexit might play out. Time will tell whether that view comes to pass,” Haldane added.

Reporting by David Milliken, editing by James Davey

Source: UK Reuters

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British Pound Still too Risky to Buy, Downside Risks vs. Euro and Dollar Still Evident

An analyst at Swiss investment bank UBS suggests investors limit their allocation to UK assets – Pound Sterling included – until the current uncertainty around Brexit clears.

If the suggestion is heeded by investors, Pound Sterling could be in for a slow summer as professionals remain on the sidelines until the official exit day nears in October.

“Literally 100% of the conversations I have had with our clients, especially those based outside of the UK, have been about whether it is time to get back in, back into UK property, stocks and Sterling. But we just need the uncertainty to clear,” says Geoffrey Yu of UBS Wealth Management’s UK Investment Office.

The call by Yu comes as Sterling, like the broader currency market, enters a period of depressed volatility, with the Pound-to-Euro exchange rate seen hovering in the 1.15s and the Pound-to-Dollar exchange rate maintaining a small range around 1.30.

Evidence of the market’s desire to steer clear of Sterling is also apparent in positioning data that shows the market is now neutral after bets against the currency were steadily closed out over recent weeks.

In short, taking a directional bet on the currency is proving a hard ask for uncertain currency traders at present.

Analysts at UBS maintain “a long-term bearish Sterling bias”, noting it is 10% overvalued according to one of their preferred models used to gauge a currency’s valuation.

The suggestion that investors avoid Sterling and other UK assets comes despite strong wage data being released last week which some analysts had taken as a sign the Bank of England (BoE) might be tempted to raise interest rates sooner than previously expected. Typically steadily improving data – particularly wage data and inflation – plays positive for a currency as they signal the need for higher interest rates at that currency’s central bank.

As a rule-of-thumb, currencies tend to rise when central banks raise interest rates, and fall back when they cut.

Many economists however see policymakers leaving interest rates unchanged until the Brexit fog clears.

“Given the current uncertainty around the ‘B-word’ I think the BoE will probably remains on hold,” says Yu in an interview with Bloomberg News.

UK wages raced higher by 3.4%, and 3.5% including bonuses, in March but economists says this does not provide enough cause to expect the BoE to immediately ponder raising interest rates in the current political environment. “The UK labour market remains very tight which should be reflected in a further pick-up in wage growth,” says Elsa Lignos, a foreign exchange strategist with RBC Capital Markets. “The problem is that it cannot translate into expectations of BoE hikes while Brexit uncertainty persists, and so it is hard to make it a positive GBP story.”

Some economists have even suggested the strong wage growth is in fact another symptom of Brexit uncertainty with businesses opting to invest in staff instead of investing in more expensive new equipment. “In a period of acute uncertainty over Brexit, firms chose to invest in people – who remain relatively cheap – rather than make long-term bets on expensive capital, such as new premises, machinery or software,” says Mike Jakeman, senior economist with PwC.

The BoE will therefore arguably be quite content to allow a ‘nice buffer’ of real earnings to exist between inflation and income growth. This will allow the “BoE to probably focus on other things,” says Yu.

Indeed, Sterling barely reacted to the release of strong labour market data on April 16, suggesting the market wants to see a substantial move for the better in UK data before it bids Sterling.

What would have driven the Pound in the past simply doesn’t have the same clout in 2019.

Concerning the Pound’s outlook, UBS are forecasting a lower Sterling against the Euro over coming months with the Pound-to-Euro exchange rate forecast to trade at 1.1236 by year-end.

The Pound-to-Dollar exchange rate is however forecast to trade at 1.35, reflecting a broadly softer Dollar environment.

“Risks of a ‘no deal Brexit’ have subsided and Eurozone political tensions appear contained. We are however still cautious on the GBP as continued uncertainty weighs on the macro outlook and prevents a more meaningful Sterling recovery,” says Vassili Serebriakov, a strategist with UBS.

A Stronger Pound Ahead say Citi Eyeing an August Interest Rate Rise

Once Brexit is resolved, and assuming not by a hard-Brexit, the Pound is at risk of a strong appreciation since UK assets are a ‘buy’ candidate on the basis of raw economic fundamentals.

Analysts at Citibank, the largest foreign exchange dealer in the world, are a little more optimistic and have shifted from a ‘wait-and-see’ on interest rates to envisaging the possibility of a rate hike in one of the five remaining Bank of England meetings this year.

Citi analysts see domestic inflationary pressures rising in the UK, citing strong wage growth driving up prices.

“There are 5 BoE meetings left in 2019. The fresh Brexit extension (to October 31) allows for some breathing space and if UK data holds up, the August meeting might then become more ‘live’ than markets anticipate,” say Citi in a recent client briefing. “A grab-and-go BoE rate hike may be possible in August.”

Pessimistic global growth forecasts had been a major headwind to the outlook for the UK economy but these too have eased since the release of better-than-expected data from China out last week, which showed GDP, retail sales and trade data, all rising strongly, and helped negate hard-landing concerns for the world’s second-largest economy.

The BoE cited the global growth slowdown as a temporary negative factor for the UK economy in its February policy statement.

“Global growth is expected to dip below trend in coming quarters, weighing on UK net trade, before rising to around potential rates. Activity is projected to be supported by the more accommodative monetary policies in all major economic areas that markets now expect,” says the February policy statement from the Bank of England.

If these concerns ease, therefore, the Bank might raise their forecasts.

An improved outlook for global trade as a result of positive reports from negotiations between the U.S. and China has further supported the outlook for global growth, the UK included.

These exogenous factors are likely to support the outlook for Sterling and possibly raise the chances of an earlier BOE rate hike than previously expected.

Currently, the market is discounting only one 25bp hike over the next 3 years, “and will likely look for signals at the May board meeting where the majority of members will probably reject a rate hike, but could send “hawkish” forecasts and a dissenting vote (as a signal for a possible August hike,” say Citi.

Therefore, the view that the market is under-appreciating a rate rise at the Bank of England is a bullish one for Sterling, if proven correct.

Citi are forecasting the Pound-to-Euro exchange rate to trade higher at 1.1765 in three months, and 1.16 in six to twelve months.

They are forecasting the Pound-to-Dollar exchanage rate to trade higher at 1.34 in three months, and 1.37 in six to twelve months.

Source: Pound Sterling Live

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UK wage growth at new decade high as employers hire in the face of Brexit

British workers’ pay grew at its joint fastest pace in over a decade as employers extended their hiring spree, adding to signs that uncertainty about Brexit is prompting firms to take on workers rather than commit to longer-term investments.

Contrasting with other sluggish readings of Britain’s economy, total earnings, including bonuses, rose by an annual 3.5 percent in the three months to February, official data showed, in line with a Reuters poll of economists.

That was the joint highest rate since mid-2008 although in the month of February on its own the pace of wage growth slowed.

Britain’s labor market has defied the approach of Brexit, helping households whose spending drives the economy. Last week, Britain’s exit from the EU was delayed until October.

Employment grew by 179,000 in the three months to February, in line with the Reuters poll forecast, helping to keep the unemployment rate at 3.9 percent, its lowest since early 1975, the Office for National Statistics said.

However, the jobs surge could reflect nervousness among employers about Brexit and risks aggravating Britain’s long-standing productivity problem, the Achilles heel of the world’s fifth-biggest economy.

Workers can be hired and then fired if the economy takes a hit, whereas investment in technology and new machinery — which helps the economy over the long term — fell throughout 2018.

PRODUCTIVITY PROBLEM

“The elongated period of uncertainty has kept businesses in a hiring cycle,” Tej Parikh, an economist at the Institute of Directors, an employers group, said.

“Without a pick-up in investment, low productivity will also keep wages from growing further, particularly when considering the higher regulatory costs businesses are facing this tax year.”

Data earlier this month showed output-per-hour rose by only 0.5 percent in 2018, well below the annual average of 2 percent before the global financial crisis.

Accountancy firm Deloitte said on Monday that large British-based businesses were increasingly focused on cashflow as they worried about the long-term economic hit from Brexit.

The ONS said the increase in jobs over the past year was all coming from full-time workers, both employees and self-employed.

Average weekly earnings, excluding bonuses, rose by an annual 3.4 percent, the ONS said, in line with the Reuters poll and down from 3.5 percent in the three months to January.

It was the first fall in that measure of pay growth since the middle of last year.

The strength of the labor market is pushing up wages more quickly than the Bank of England has forecast, leading some economists to think it might move quickly to raise interest rates once the Brexit uncertainty lifts.

The BoE forecast in February that wage growth would slow to 3.0 percent by the end of 2019 with the overall economy likely to grow at its slowest pace in a decade.

Writing by William Schomberg; Editing by Peter Graff

Source: UK Reuters

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No-deal Brexit – what it might mean for UK economy

Britain is due to leave the European Union on April 12 unless Prime Minister Theresa May can break the deadlock in parliament or asks Brussels for more time, raising the prospect of an abrupt, no-deal Brexit for the world’s fifth-biggest economy.

EU officials said on Tuesday that a no-deal Brexit was becoming more likely and the European Central Bank said financial markets needed to price in the growing risk.

Here is an outline of the potential economic impact for Britain of leaving the EU without the cushion of a transition.

UK ECONOMY

The Bank of England estimates a worst-case Brexit — involving border delays and markets losing confidence in Britain — could shock the economy into a 5 percent contraction within a year, nearly as much as during the global financial crisis.

Output in a less severe but still disruptive no-deal Brexit — in which Britain and the EU avoid snarl-ups at the borders, for example — would fall by around 3 percent.

Over the longer term, Britain’s finance ministry has said the economy could be 8 percent smaller by 2035 after a no-deal Brexit than if Britain stayed in the EU. The hit would be bigger if migration slowed sharply, the ministry has said.

The BoE also sees a risk in Britain’s wide current account deficit. Governor Mark Carney has said the deficit leaves Britain reliant on “the kindness of strangers” and a no-deal Brexit could turn foreign investors off British assets.

Brexit supporters have dismissed the warnings as scare-mongering but say economy is likely to suffer a short-term hit. Former BoE Governor Mervyn King has said the long-term costs of Brexit might not be very different from staying in the bloc.

TRADE

Barriers to trade would be raised for British companies as the EU imposes import tariffs which average 5 percent but are higher for some exports such as cars. Britain’s automotive industry employs more than 800,000 people.

Britain would also lose the benefits of the EU’s trade deals with countries around the world.

For its part, Britain plans to eliminate import tariffs for many products for up to a year in the event of a no-deal Brexit. That would help reduce the inflationary hit to consumers but would expose many British companies to tougher competition.

Manufacturers are also worried about border delays which would hurt their just-in-time production.

Brexit supporters say those fears are overblown because technology would ease any border delays and exports would flow freely once Britain gets a future EU free trade deal.

Deals with faster-growing nations such as the United States, India and China would be a big boost for Britain, Brexit supporters say. But Britain’s official budget forecasters say the benefits of such trade deals are likely to be small.

PORTS AND STOCKPILING

The government has identified stretches of motorway to use as truck parks, and plans to use a small airport in southern England to cope with any tail-backs at ports on the English Channel.

Academics at Imperial College say two extra minutes spent checking each vehicle at Dover and Folkestone could lead to traffic queues of 29 miles (47 km) on nearby highways.

Many manufacturers are stockpiling parts to keep working. A measure of inventory-building hit the highest ever measured for a Group of Seven economy in March. Britain has asked drugmakers to stockpile medicines for six weeks above normal operations.

Brexit supporters point to comments by the head of the port in Calais, in France, who said trucks would continue to move through without delays in the event of a no-deal Brexit.

France has said it plans to hire hundreds of additional customs officers and create extra border control facilities.

HELP FROM THE BUDGET AND THE BANK OF ENGLAND?

Finance minister Philip Hammond has built up a fiscal war-chest to spend more in case of a Brexit shock to the economy.

But he has also warned that, longer term, a no-deal Brexit would mean a rethink of his promise to end austerity because the economy would grow more slowly, hurting tax revenues.

Brexit supporters say leaving the EU with no deal would help the public finances because it would mean an immediate end to payments by London into the EU budget.

The BoE has warned investors not to assume that it would rush to cut borrowing costs after a no-deal shock. A fall in the value of the pound would push up inflation, something that would argue against a rate cut.

But some officials, including Carney, have said their most likely response would be to help the economy.

POUND

Given the likely economic hit, a no-deal Brexit would probably push the pound down, adding to its losses against the U.S dollar of about 13 percent since the 2016 referendum.

Under the BoE’s worst-case Brexit scenario, sterling would slump 25 percent to about the same value as the U.S. dollar.

FTSE

A weaker pound could push up the share prices of many of Britain’s biggest companies which do business around the world such as British American Tobacco and GSK. The companies in the FTSE 100 make 70 percent of their income overseas.

But there could be punishment for the more domestically focused FTSE 250 companies who make half their money at home.

BONDS

The economic shock of a no-deal Brexit would usually spur investors to seek the safe haven of British government bonds.

However, investors are bracing for the possibility of a snap election. The Labour Party has plans for more public spending, potentially including the renationalisation of some utilities and rail operators, which might unsettle investors.

Writing by William Schomberg

Source: UK Reuters

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BoE Unanimous In Keeping Interest Rates Unchanged

As was widely expected the rate-setters for the BoE have voted unanimously to keep the base rate on hold at 0.75%. It’s not surprising the bank have decided to remain in wait-and-see mode given the major political uncertainty at present, and don’t expect anything drastic from them until there’s greater clarity on Brexit.

The market reaction has been pretty quiet with the GBP/USD rate remaining near its lowest level of the day at $1.32.

UK retail sales add to recent strong data streak

Given the calamitous state of UK politics with it now being over 1000 days since the Brexit referendum and we’re still none the wiser as to what our exit from the EU will look like – let alone the relationship going forward – it is truly remarkable how solid, the economic data remains.

The latest figures reveal a pleasing strength in consumer confidence, as retail sales numbers topped estimates with the 3.7% increase for the 3 months to February representing the largest year-on-year rise since January 2017.

Economic surprise indices for the UK are about as positive as they’ve been for a couple of years, but for the foreseeable future Brexit remains the only game in town as far as currency traders are concerned and the uncertainty is weighing on sterling.

Dovish Fed weighs on USD but stocks fail to rally

The US central bank confirmed their policy U-turn with the announcement last night that rate-setters see no interest rate hikes this year, and only a token 1 in 2020. The market has been expecting this for a while since Chair Powell’s speech at the start of the year, with no 2019 hikes already priced-in before the latest meeting, but the Fedwent above and beyond what most expected by also announcing a slowing of its balance sheet reduction – also known as Quantitative Tightening (QT) beginning in May.

This dovish move caused an immediate drop in the buck, which depreciated across the board while stock and treasuries rallied.

No Powell Put?

What’s important to note is the reaction function of different markets to this change in tack, with equities already seemingly heavily discounting the move, whereas FX markets have been slower to price it in.

For instance, the large gains seen for US stock markets this year have been arguably driven by this shift in Fed policy more than any other factor, while the US dollar still remains higher than it did at the start of the year (according to a trade-weighted index of the buck.) Why this is crucial to note is what it means going forward, with the scope for a sustained move lower in the US dollar now seemingly far greater than a sustained rally in stocks – if we look purely based on Fed policy.

Indeed after an initial move higher as the news broke, US stocks gave up most of the gains, with both the S&P 500 and Dow Jones Industrial Average ending the day in the red.

A failure to extend the year-to-date rally on what is essentially good news could prove ominous and those who still believe in a “Powell Put” should be aware that the S&P500 has only managed to post a gain on 1 of the 9 days of a Fed rate decision since his tenure began.

By David Cheetham

Source: Investing

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Bank of England Stands Pat on Interest Rate Outlook, Focus on Brexit Reaction

The Bank of England reiterated its stance that interest rates could move in either direction depending on the outcome of negotiations for the U.K.’s withdrawal from the European Union.

In the Inflation Report hearings delivered to the U.K. Treasury Select Committee, BoE governor Mark Carney repeated his view that Brexit was causing tension for British consumers and businesses but promised that the central bank would “provide all stimulus possible” in the event of a no-deal outcome.

Gertjan Vlieghe, a member of the BoE’s Monetary Policy Committee, told the committee that, in the event of a shock to consumer confidence from a ‘no-deal’ Brexit, the central bank would likely hold policy steady or cut interest rates.

However, that risk appeared to have shrunk considerably Tuesday, after both the U.K.’s major parties appeared to shift their policy stances on Brexit. Prime Minister Theresa May is set to propose to her cabinet that the government rule out the possibility of leaving the EU without a transitional agreement in place. The opposition Labour Party, meanwhile, has said it will back a second referendum on Brexit if there is no majority in parliament for a withdrawal agreement.

Carney, however, noted that if the economy performed as currently forecast a gradual increase in rates would be warranted.

The hearings come after the Bank slashed its growth forecasts earlier this month. It now sees the British economy growing only 1.2%, the slowest pace since the financial crisis, amid uncertainty surrounding the U.K.’s departure from the EU and the broader economic slowdown worldwide.

“The fog of Brexit is causing short term volatility in economic data, and more fundamentally is creating a series of tensions in the economy,” Carney said at the Feb. 7 press conference following the BoE’s decision to hold interest rates steady.

“Although many companies are stepping up their contingency planning, the economy as a whole is still not yet prepared for a no deal, no transition exit,” he warned.

The BoE left the possibility of rate hikes “at a gradual pace and to a limited extent” on the table at that meeting.

Source: Investing

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First Brexit, now global slowdown to weigh on Bank of England

The Bank of England will have more than Brexit on its mind when it meets next week, as a slowdown in the global economy tests its plan to return to raising interest rates before too long.

Governor Mark Carney and his fellow interest rate-setters are expected to keep borrowing costs on hold at 0.75 percent on Thursday, with Britain at risk of leaving the European Union just 50 days later without a transition deal in place to ease the shock.

Prime Minister Theresa May, trying to placate lawmakers in her Conservative Party, is pushing for concessions from EU leaders on a key part of the Brexit deal that she agreed with them last year. That is something the bloc has said it will not do.

On top of the uncertainty about the Brexit stand-off, the loss of momentum in the world economy and in particular in the biggest EU countries is likely to exert a drag on Britain’s stumbling economy.

On Wednesday, the U.S. Federal Reserve signalled its three-year run of raising rates might be ending, and the European Central Bank has sounded more worried that the euro zone’s recovery has run out of steam.

“Is the global slowdown just temporary? We think so, but it has lasted quite a long time. Maybe we are at the peak of the cycle,” George Brown, an economist with Investec, said. “Perhaps that’s the view that the BoE takes, although it’s not our view.”

The BoE – which bases its forecasts on the assumption of a smooth Brexit – will try to balance the drag on Britain from a weaker global economic outlook with the potential boost from finance minister Philip Hammond’s relaxation of his grip on public spending.

The BoE’s forecasts for Britain’s economic growth might therefore be little changed when it publishes its quarterly Inflation Report alongside its decision on rates on Thursday.

But some economists say there is a chance of a higher inflation forecast that makes investors rethink their bets against a BoE rate hike until the end of 2019 at the earliest.

Although inflation has fallen to within a whisker of the BoE’s 2.0 percent target, the wages of British workers are rising at their fastest pace in a decade, surprising the BoE and potentially pushing up prices.

A minority of economists think one member of the nine-strong Monetary Policy Committee will vote for a rate hike next week.

That, plus the chance of the BoE turning even more pessimistic about the inflationary “speed limit” of Britain’s low-productivity economy, “would set the UK apart as a hawkish story in an increasingly dovish world,” HSBC economist Elizabeth Martins said. “It might come as a surprise to the market.”

By the time the MPC announces its next policy decision on March 21, a few days before the scheduled Brexit date of March 29, the picture could look very different.

By then it should be clearer if the United States and China have avoided the prospect of a trade war, and – more importantly for the BoE – whether Britain will avoid a damaging no-deal Brexit, at least in the immediate future.

The BoE has warned that a worst-case Brexit scenario could hurt Britain’s economy more than the global financial crisis.

Paul Dales, an economist with Capital Economics, said a deal on Brexit could lead to the unusual situation of the BoE raising interest rates at a time when the U.S. Fed is cutting them.

“It doesn’t happen often, but nor does Brexit,” he said. “Yes, the global economy seems to be turning. But the BoE has room for catch-up.”

Source: UK Reuters