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Industry reacts to ‘disappointing’ yet ‘inevitable’ base rate rise

While coming as little surprise to most, today’s base rate rise to 4.25% has still been met with disappointment, along with some resignation as to the predicted direction of travel.

The general feeling is that, although less than the 50 basis points rise seen in February, a rise was inevitable given the inflationary uptick in February and the US central bank rise yesterday.

There’s concern for those on variable rates, but with a flurry of lenders having reduced fixed rates this week, it’s felt the predicted base rate rise has been factored in and little impact will result in that area.

Bluestone Mortgages sales and marketing director Reece Beddall says: “While today’s decision is clearly in response to inflation’s surprise jump to 10.4%, it will be a tough pill for consumers to swallow, nonetheless. Interest rates have risen consecutively for almost a year, pushing mortgage repayments higher still and putting a chokehold on people’s personal finances. Affordability challenges will no doubt remain for the foreseeable future.”

Contact us today to speak with a specialist Commercial Finance Broker to discuss how we can assist you.

Moneyfacts finance expert Rachel Springall comments: “A rise to base rate will come as disappointing news to borrowers who are not locked into a fixed rate mortgage. The incentive to fix is clear from the continued rise to the average standard variable rate, which is now above 7%, a level not breached since 2008.”

Also expressing disappointment, London estate agent and former RICS chairman Jeremy Leaf adds: “There is a close call between change and no change – this latest rise in rates is a huge disappointment for the housing market as we were hoping the bank would trust in its own data and leave well alone.”

Stonebridge chief executive Rob Clifford described the rise as a ‘racing certainty’ but doesn’t expect big changes to follow.

“Once it was revealed that inflation had risen to 10.4% in February, followed by the Fed’s decision to raise rates yesterday in the US, it seemed like a racing certainty the MPC would have to act today with a further bank base rate rise.

“The markets have already been reacting to that news with swap rates increasing, and by this morning that rate rise already seemed priced in. My feeling is that the search for business – particularly from the mainstream, high-street lenders – will continue to keep mortgage rates round about where they are,” he says.

Read about the UK Housing Market via our Specialist Residential & Buy to Let Division.

Just Mortgages operations director John Philips adds: “Although the base rate has gone up, we have seen mortgage prices falling in recent months and customer enquiries to our brokers across the country have been remarkably robust since the start of the year.”

A possible outcome could be more demand for rental housing, says IMMO real-estate platform co-founder Avinav Nigam.

“The result of this is more demand for rental housing, and therefore a greater need to put time, money and effort into improving our private rental sector housing stock,” he comments.

By Linda Ram

Source: Mortgage Strategy

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Bank of England deputy suggests Brexit deal could see rates rise

Deputy Bank of England governor Dave Ramsden has said he thinks gradually increasing interest rates could still be the right path if Britain achieves a smooth exit from the European Union.

Threadneedle Street has repeatedly struck a more hawkish tone than its American and European counterparts, saying it foresees “limited and gradual” rate rises unless Britain’s economy takes a downturn.

Ramsden spoke to Bloomberg yesterday after Prime Minister Boris Johnson announced a “great new” deal with the EU that would see existing trading arrangements stay as they are for at least a year while a new trade deal was reached.

“The kind of guidance we’ve been giving – in the world of a deal it still applies,” Ramsden said in the interview, published today. “We’re not saying over what timeframe, but limited and gradual is a reasonable qualitative framing.”

Ramsden’s view diverges from some of his Bank of England policymaker colleagues. Extern monetary policy committee (MPC) members Gertjan Vlieghe and Michael Saunders have suggested rates should be lower even in the event of a deal.

The BoE deputy said a Brexit deal and some certainty for UK businesses will lead to “some pickup in investment” and will bolster demand and “hopefully” productivity.

Business investment has slumped in 2019, with firms reticent to spend until there is greater certainty over Brexit.

Johnson’s new Brexit deal goes before MPs tomorrow in what looks set to be an incredibly tight vote. Ramsden said the BoE will keep an eye on currency movements after the vote.

By Harry Robertson

Source: City AM

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Interest rates could rise in May 2019

Brexit and slowing economy growth have quashed the likelihood of an interest rate rise from the Bank of England in early 2019 but expect a move in May, a leading economist group has said.

The UK economy grew by 0.4% in the three months to October, down from 0.6% in the previous three months, data showed this week.

At the same time, the prime minister Theresa May has delayed a crucial parliament vote on her Brexit deal.

It means the uncertainty over how the UK will leave the European Union (EU) is set to continue for longer.

Markets now only give a 5% chance to the Monetary Policy Committee (MPC) raising the base rate in February, and 30% in May.

However, the chances applied to a May hike “looks like an overreaction”, according to Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

He said: “Even if, as we still expect, the prime minister eventually forces a modified Brexit deal through parliament, the economic data likely won’t have perked up before the MPC’s meeting on May 2.

“Nonetheless, the committee regularly hikes due to its expectations for growth and underlying inflation, and it likely will expect both to strengthen, as investment recovers and the chancellor’s fiscal stimulus kicks in.

“As such, we still think the odds of a May rate hike exceed 50%.”

Strong wage and employment data released today could also strengthen the case for rates rising sooner rather than later.

Wage growth has increased to 3.3% both including and excluding bonuses, while employment is at a record high.

Tom Stevenson, investment director for personal investing at Fidelity International, said: “After yesterday’s weaker than expected GDP figures and more Brexit uncertainty after Theresa May’s last-minute decision to abort today’s Brexit vote, today’s wage growth figures provide UK workers with a little bit of pre-Christmas cheer.

“However, while we have now seen wage growth rise for four consecutive months, we are still not out of the woods.

“With the ongoing political and economic uncertainty, the recent steps forward could be reversed. Britain’s pay growth continues to lag our main competitors since the financial crisis.

“The current cocktail of concerns offers the Bank of England little incentive to hike interest rates any time soon.

“And even if the central bank does plan to increase rates over time, it expects to do so at a ‘gradual pace and to a limited extent’.”

Source: Your Money

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Sterling rallies as UK services growth builds case for rate rise

The pound rose on Wednesday after a survey showing Britain’s dominant services industry gained momentum last month fuelled expectations of a Bank of England interest rate rise this summer.

After a sluggish start to 2018, the British economy is showing tentative signs of a recovery with surveys this week for the manufacturing, construction and services sectors beating expectations.

That has brought some respite for sterling after weeks of losses caused by worries about whether Britain can secure a deal with the European Union before it leaves the bloc next March.

The IHS Markit/CIPS services Purchasing Managers’ Index (PMI) unexpectedly rose to an eight-month high of 55.1 in June, beating economists’ average forecast in a Reuters poll for it to remain unchanged at 54.0.

The pound rose to $1.3201, a five-day high, from $1.3176 before the data GBP=D3 and away from 2018 lows hit last week of $1.3050.

At 1510 GMT the pound was up 0.3 percent versus the euro at 88.18 pence and heading for its biggest daily gain against the common currency since the European Central Bank signalled on June 14 that any interest rate rise was still distant. EURGBP=D3

“The momentum continues for the British economy, the services PMI data has lifted hopes that the Bank of England will raise rates sooner rather than later,” said Naeem Aslam, chief markets strategist at Think Markets UK.

Markets are pricing in an 88 percent chance of a single 25-basis-point increase by the end of 2018 and a 53-percent chance of an August rate rise.

Last month BoE chief economist Andy Haldane joined two other members of the nine-strong Monetary Policy Committee in calling for a rate rise, and official data was revised to show the first quarter slowdown was less severe than first thought.

The pound has slumped recently because of weakness in the economy, a resurgent dollar and fears that Prime Minister Theresa May will run out of time to agree a deal with the EU on the post-Brexit relationship.

The currency weakened more than 6 percent between April and June, its worst quarter since the 2016 referendum vote to leave the EU.

On Monday it fell despite relatively robust manufacturing survey data as investors worried about a looming a Brexit cabinet meeting later this week.

“Although there is good reason for the BoE to want to further normalise interest rate policy, the chances that a Brexit deal will not be struck in the coming months leans against the risk of a policy tightening,” said analysts at Rabobank in a note to clients.

The note said the pound would drop to $1.28 by the end of the year.

Source: UK Reuters

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Interest rates will rise in ‘gradual and limited way’, according to Bank of England deputy governor Jon Cunliffe

A Bank of England boss this morning played down the chance of there being a rise in interest rates anytime soon.

When asked about the prospect of rates rising from 0.5 per cent to 2.5 per cent in a few years, deputy Bank of England governor Jon Cunliffe told BBC’s Wake Up to Money that rises would be delivered in a “gradual and limited way”.

It follows Bank of England chief economist Andy Haldane calling for an immediate rise earlier this month, igniting speculation that there could be a rise in August.

The Monetary Policy Committee voted by 6-3 in favour of holding interest rates at 0.5 per cent in May.

“Financial markets are assuming that interest rates go up by another three-quarters of a percentage point over the next couple of years,” Cunliffe said.

“We do our forecasting on the basis of where the financial markets have those interest rates and we think we have inflation at target at those sorts of levels.”

But he added British households with high debt could get into trouble if another recession hit the UK.

“Household debt is quite high by historical standards but households have worked hard to put those debt levels down. But within that there are areas that you do worry about,” he added.

“You worry about households that have high debt could be badly affected in a recession.”

Source: City A.M.

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Bank of England to raise interest rates this year

The Bank of England is poised to increase interest rates this year, despite weak economic growth from the UK. According to a Bloomberg survey, Mark Carney, head of the BoE has urged that an increase will happen regardless. Currently, economic growth has suffered setbacks from earlier forecasts in 2016/17. Falling from 1.5% in January and February to 1.4% currently, declining by 0.3% so far compared to 2017.

This slump is due to a significant level of interruptions the economy faced due to weather conditions. According to The Independent, the disruptions to transport, and a large number of lost workdays contributed to the growth slump. Carney has previously stated that, even with the slow motion speed of the British economy. Steady increases to the underlying interest rate are necessary for longer-term economic recovery.

“We think the momentum in the economy is going to reassert. The Monetary Policy Committee judges that an ongoing, modest tightening of monetary policy over the forecast period will be appropriate to return inflation sustainably to its target.”

Bank of England to raise interest

Carney is outspoken in his call for interest rates to increase, even at this period of fragility. This increase is required as a counterbalance to the ongoing issues with inflation. Inflation has been causing problems for average households due to its ongoing parity with wages this year.

This issue is reflected in a 2.5% slowdown in consumer spending over this first quarter, despite holiday sales. The decrease represents the lowest recorded level since records began on spending, with investment intentions remaining stable.

Source: Gooruf

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Bank unlikely to raise interest rates in May after latest economic data

The Bank of England is unlikely to raise interest rates when the Monetary Policy Committee (MPC) meets next week, after the latest data further pointed to a lacklustre economy, experts said.

Output in Britain’s crucial services sector lifted only slightly in April, following a plunge in March, PMI data from Markit/CIPS Service showed today.

It is the latest in a string of disappointing data on the UK economy, which has prompted market expectations of a May interest rate rise to fall from 90% to around 10% in a matter of weeks.

Earlier this week, data from the same provider showed manufacturing output in April fell further than expected.

It comes after UK economic growth for the first quarter came in below expectations at just 0.1%.

At the start of the year, Bank of England monetary policymakers had warned interest rates were likely to rise sooner and faster than had been expected.

But last month governor Mark Carney acknowledged that economic performance data had become “softer”.

Interest rate rise not likely before August

Most economists now believe a rate hike is unlikely in May but predict a rise could still be on the cards in 2018.

The Monetary Policy Committee (MPC) is considered most likely to increase interest rates to coincide with the release of its quarterly inflation report, making August the next opportunity after May.

Paul Hollingsworth, senior UK economist at Capital Economics, said: “The slight pick-up in the services PMI in April will do little to assuage fears that the economy has suffered a loss of underlying momentum and makes the chance of a rate hike next week extremely slim.

“Taken together with the construction and manufacturing surveys released earlier this week, the all-sector PMI points to GDP growth of about 0.3%, suggesting that the economy is struggling to re-gain momentum.”

However, he added: “With the survey noting that wage cost pressures in the services sector are building, the committee is unlikely to want to wait too long before raising interest rates again.”

Source: Your Money

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Why we don’t expect a UK interest rate rise until November

Forecasts for UK interest rates have moved significantly.

The Bank of England, which ordered an increase from 0.25 per cent to 0.50 per cent in November, has signalled that it is ready to raise rates faster than previously thought.

The Bank’s closely watched quarterly Inflation Report, published last month, pointed to the prospect of excessive economic demand emerging by 2020, raising concerns about inflation.

But rather than the detail of what was said, it was perhaps the choice of words that were more significant.

Monetary policy, the report said, would need to be tightened “somewhat earlier and by a somewhat greater extent over the forecast period”.

The Bank’s hawkish communication spurred money markets to quickly bring forward expectations of the next rate rise to May.

We take a different view.

A November rate rise?

We don’t expect the first increase to happen until November, as this is consistent with previous market expectations, upon which the Bank had based its comments. Beyond that, we expect another two rises next year, taking the bank rate to 1.25 per cent by the end of 2019.

Why is our forecast for the first rise later than that of the market?

Firstly, we don’t believe the Bank expected its comments to shift expectations so far. If it does hike as early as May, then markets will quickly price in a rate rise every six months. That would mark a huge increase from the previous guidance that rate rises would be “gradual and limited”.

Secondly, many investors appear to have ignored the ending of the Term Funding Scheme in February.

The scheme, which provided below market cost liquidity to banks in order to encourage additional lending to the public, is estimated by the Bank to have been worth about a 0.25 per cent rate cut. It may already be having an impact on saving and lending rates.

Finally, it is worth remembering that the Bank assumes a smooth path to Brexit with regards to the impact on firms and households.

Given the small working majority the government has in the House of Commons, and the obvious divergence of views with regards to whether the UK should remain in the single market and/or customs union, a smooth path to Brexit seems like the least likely outcome.

For more on the outlook for world economies and interest rates:

Important Information: The views and opinions contained herein are those of Azad Zangana, Senior European Economist and Strategist, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. The sectors and securities shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell. This communication is marketing material.

This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. The opinions in this document include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. Issued by Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA. Registration No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.

Source: City A.M.

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Bank of England’s Ramsden sees case to raise rates sooner than he thought

The Bank of England might need to raise British interest rates somewhat sooner than Deputy Governor Dave Ramsden had expected if wage growth picks up early this year, according to a newspaper interview released on Saturday.

Ramsden was one of two policymakers who opposed the BoE’s decision in November to raise interest rates for the first time in a decade, but appears to have shifted his stance somewhat in comments published by the Sunday Times newspaper.

Earlier this month the central bank said interest rates might need to rise somewhat sooner and by somewhat more over the next three years than policymakers had expected in November, due to a strong global economy and signs wages are rising faster.

“We all will keep a close eye on what happens through the early part of this year to see if that (BoE) forecast of wage growth picking up to 3 percent is realised,” Ramsden was quoted as saying by the Sunday Times.

“But certainly relative to where I was, I see the case for rates rising somewhat sooner rather than somewhat later.”


Economists polled by Reuters expect the BoE to raise interest rates to 0.75 percent from 0.5 percent by May, and financial markets price in a high chance of a further rate rise to 1 percent before the end of 2018.

The BoE’s chief economist, Andy Haldane, told lawmakers on Wednesday that he thought interest rates might need to rise slightly faster even than the central bank had expected when it set out fresh economic forecasts early in the month.

However, Governor Mark Carney said at the same event that future monetary policy decisions would depend heavily on how businesses and consumers react to ongoing talks on the terms of Britain’s departure from the European Union in March 2019.

Britain’s economy underperformed other major advanced economies last year, due to a hit to consumer demand from higher inflation triggered by the pound’s fall after the Brexit vote, as well as comparatively weak business investment.

The unemployment rate also rose slightly in the final quarter of 2017, though at 4.4 percent it remains near a 42-year low.

Ramsden told the Confederation of British Industry on Friday that the economy could not grow faster than 1.5 percent a year without starting to add to inflation pressures.

Source: UK Reuters

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Bank of England rate rises could come faster than expected, chief economist warns

The Bank of England could end up needing to raise interest rates faster than investors expect, its chief economist told lawmakers on Wednesday, striking a slightly more hawkish tone than his central bank colleagues.

BoE Governor Mark Carney, appearing alongside Haldane, said there was no need to give a direct commitment on rates as markets broadly understood the BoE’s message – unlike in the months before November’s rate rise, the first in over a decade.

Britain is growing more slowly than other rich economies but is benefiting from a global upturn. Unemployment is close to a 40-year low, bringing higher rates back on the agenda despite the uncertainty for business about the shape of future trade ties with the European Union after Brexit next year.

The BoE said earlier this month it expected to raise rates sooner and by more than it had expected as recently as November.

Most economists now expect the BoE to raise rates to 0.75 percent in May, and financial markets see a roughly 70 percent chance of a further rise this year, taking rates to 1 percent.

Haldane, who sent an early signal last year that the BoE was heading for its first rate hike in over a decade, said growth was more likely to overshoot than undershoot the forecasts made by the BoE’s Monetary Policy Committee earlier this month.

That could require more tightening than the three rate hikes over three years which markets priced in at the time.

“I would judge the risks to the MPC’s latest projections, for both UK demand and inflation, as lying to the upside,” Haldane wrote in an annual report to parliament.

Both the world economy and Britain could do better, he said.

“In my view, this would put the balance of risks to the path of interest rates necessary to return inflation sustainably to target to the upside,” Haldane said.

Carney – who lawmakers have criticized for previous steers on rates that have not worked out – was more circumspect.

“Financial markets have started to move with the underlying data … so they’re better able to anticipate what we could do and … the need for direct almost pre-commitment of a raise goes away.”


Some BoE officials as recently as last year had emphasized the dangers of raising rates prematurely.

But Haldane took a different view. “Historically the thing that has really killed jobs has been central banks stepping on the brakes too late,” he told lawmakers of parliament’s Treasury Committee.

“We are absolutely clear we don’t want to be back there again because it’s bad news for jobs. And that means going in this limited and gradual way to head things off in advance, to prevent having to step on the brakes – a hand-brake turn.”

Asked about recent sharp moves in global financial markets triggered by concerns about central banks raising interest rates, Carney said the volatility was “small potatoes” and the most important factor for Britain remained the approach of Brexit and its effect on business and consumer confidence.

“Monetary policy is nimble. It will react to those expectations,” he said.

Haldane said if British economic growth held up at around the rates seen during 2017, and pay rises strengthened, then the case for higher rates was likely to be made.

Official data on Wednesday showed overall wage growth was stable in the three months to December but some economists said a month-by-month breakdown pointed to higher pay growth ahead.

Haldane said January 2018 data would probably show a marked pick-up in wage growth, which he expected would soon reach an annual rate of 3 percent.

Haldane also said sterling’s sharp fall after the Brexit vote in June 2016 had “worked its magic” in terms of boosting British exports.

But his Argentinean-born MPC colleague, Silvana Tenreyro, said her experience was that devaluations made people poorer, and Carney was quick to interject that weakening Britain’s currency was “not a good economic strategy”.

Source: UK Reuters