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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Pound slides as Bank of England says Brexit is hitting pay rises and investment - as it happened

Watch the Bank of England’s press conference here

PS: we asked you all what question you’d like answered today - here’s the answer!

Inflation is when prices rise. Deflation is the opposite - price decreases over time - but inflation is far more common.

If inflation is 10%, then a £50 pair of shoes will cost £55 in a year's time and £60.50 a year after that.

Inflation eats away at the value of wages and savings - if you earn 10% on your savings but inflation is 10%, the real rate of interest on your pot is actually 0%.

A relatively new phenomenon, inflation has become a real worry for governments since the 1960s.

As a rule of thumb, times of high inflation are good for borrowers and bad for investors.

Mortgages are a good example of how borrowing can be advantageous - annual inflation of 10% over seven years halves the real value of a mortgage.

On the other hand, pensioners, who depend on a fixed income, watch the value of their assets erode.

The government's preferred measure of inflation, and the one the Bank of England takes into account when setting interest rates, is the Consumer Prices Index (CPI).

The Retail Prices Index (RPI) is often used in wage negotiations.

Afternoon summary: Bank of England's Brexit warnings

Bank of England Governor Mark Carney (C) delivers the bank’s quarterly Inflation Report today.
Bank of England Governor Mark Carney (centre) delivers the bank’s quarterly Inflation Report today. Photograph: Andy Rain/EPA

OK, time for a recap, with links to the key points in this liveblog.

The Bank of England has left UK interest rates at their current record low of 0.25%.

Six policymakers concluded that the UK economy is too sluggish to handle higher borrowing costs. Two, though, argued that inflation needed to be tackled.

The vote dashed speculation that the Bank might have delivered a shock interest rate rise.

The BoE has also downgraded its forecasts for economic growth and wages, as the uncertainty created by Brexit starts to hit the economy.

  • 2017: Growth revised down to 1.7%, from 1.9%
  • 2018: Growth revised down to 1.6%, from 1.7%

This has hit the pound, which is wallowing at a nine-month low against the euro this afternoon . Bad news for holidaysmakers who haven’t exchanged their holiday money yet.

Speaking to reporters in London, governor Mark Carney laid out a flurry of reasons why Brexit was causing economic problems.

Carney said companies across the economy are reining in their investment, as they don’t know if Britain will end up with a ‘smooth Brexit’ or a cliff-edge one.

“It is evident that uncertainties about the eventual relationship are weighing on the decisions of some business.

We see it directly in the macro-economic numbers, investment has been weaker than we otherwise would have expected.”

And people are also being hit in the pocket, as bosses refuse to stump up decent pay rises. As Carney puts it:

There’s an element of Brexit uncertainty that’s affecting the wage bargaining.

Some firms, a material number of firms, are less willing to give bigger pay rises as it’s not as clear what their market access is going to be over the next few years.”

These comments underline the Bank’s concerns over Brexit, and it’s likely negative impact on real incomes in the future.

Economists say that the Bank was more dovish than expected, which may signal that interest rates will remain lower for longer than expected. Carney argued today that market expectations may be wrong....but time will tell (as usual) who is right.

That’s all for today. Here’s our full news story on the Bank of England’s moves:

Thanks for reading, and for all the comments. GW.

Updated

If every cloud has a silver lining, then the Brexit uncertainty is a gift to wealth managers.

Swiss Bank Julius Baer has got the message - it is opening new offices in Manchester, Leeds, Glasgow and Belfast to target nervous ultra-rich Brits.

Updated

Bank of England: What the experts say

Here’s some reaction to today’s flurry of news from the Bank of England.

Roland Rudd, chairman of the pro-EU Open Britain group, said Mark Carney has shown the damage that a hard Brexit will cause.

“This report paints a dismal picture of what hard Brexit is doing to our economy. Downgraded growth, higher inflation and modest wage growth all point to lower living standards for the British people.

“Nobody voted in the referendum to become poorer. The Government’s top priority in this process must be to protect jobs and living standards.

“To protect our economy, Ministers must retain totally free and frictionless trade with Europe by keeping us in the Single Market and the Customs Union.”

Markus Kuger, Senior Economist at Dun & Bradstreet, says the BoE is right to be worried about the UK economy:

“News that the Bank of England has lowered its growth forecast for 2017 and voted to maintain interest rates at 0.25% reiterates the economic uncertainty that the UK is facing, as the landscape continues to be uncertain with Brexit on the horizon.

The BoE’s perspective is not dissimilar to our analysis, and Dun & Bradstreet are maintaining a ‘deteriorating’ risk outlook for the UK until there is more clarity on how Brexit will impact businesses operating in the UK market.

Sam Hill of Royal Bank of Canada reckons last week’s weak UK growth figures deterred the Bank from raising rates.

The Bank of England voted to leave Bank Rate unchanged at 0.25% at the August MPC meeting, in line with expectations. Only two Committee members, Ian McCafferty and Michael Saunders, dissented in favour of a 25bp hike on this occasion.

This was despite Andy Haldane having said in June that ‘provided the data are still on track’ a hike ‘would be prudent moving into the second half of the year’. Evidently, it appears as though Haldane, the BoE’s chief economist, judges that the disappointing Q2 GDP growth rate of 0.3% q/q had knocked the data off track.

Peter Dixon, chief UK economist at Commerzbank, says Mark Carney sounded more worried about Britain’s EU exit today.

The outlook presented by the BoE today was not very different to prior expectations although perhaps Governor Carney’s opening comments highlighted the economic risks posed by Brexit more than has hitherto been the case. However, the overall view of the economy remains broadly similar to May. But market expectations of a rate hike fell slightly following the publication of the MPC minutes which showed the vote to keep rates on hold widened from 5-3 to 6-2, though this was due more to a change in the Committee’s composition than a change in view on economic prospects.

Larry Elliott : Bank is 'all gong and no dinner'

Our economics editor Larry Elliott believes the Bank of England is playing with fire by continually hinting at rate rises, but never delivering.

He says the Bank keeps talking like a hawk, but acting like a dove. And eventually traders will lose patience, and sell the pound hard.

Larry writes:

Threadneedle Street’s continued failure to understand the link between unemployment and wages means it is quite likely that when the next inflation report comes out in November the message will be the same: no rate rise but the promise of an imminent get-tough approach.

This is all very well, but history suggests that talking up the value of a currency only works for so long. Eventually, markets will decide that the Bank is all gong and no dinner. And the pound will fall unless they are tossed some raw meat.

Pound thumped by Carney's dovishness

Back in the markets, the pound has slumped to a new nine-month low against the euro.

Sterling is now trading at just €1.106, down from €1.20 this morning, as traders respond to the Bank of England’s downgraded forecasts for growth and wages.

Mark Carney’s gloomy comments about the impact of Brexit on the UK economy hasn’t helped the mood either.

The pound vs the euro over the last year
The pound vs the euro over the last year Photograph: Thomson Reuters

The pound has also dropped further against the US dollar to $1.3127, more than a cent below this morning’s eight-month high.

Ross Andrews, director of fixed rate bond provider, Minerva Lending, says savers should expect more tough times:

”With UK growth forecasts downgraded by the Bank of England, the odds of an interest rate rise this year have now lengthened considerably.”

With the UK on slightly uncertain ground, politically and economically, a rate rise any time soon remains highly unlikely.”

Even when interest rates finally do start to rise, the minutes once again reminded us that any increases will be gradual and limited.

Q: There are reports that the UK government might push its target for balancing the budget back to 2027 - what impact would that have for monetary policy?

We don’t change our views on fiscal until fiscal change, says Carney snappily. So, the Bank will ‘take stock’ once the autumn Budget is released.

But the biggest potential stimulus for this economy is the outcome of the Brexit negotiations, he concludes.

And that’s the end of the press conference - and probably the start of the summer holidays at the Bank of England....

Q: Does the strike at the Bank of England over pay hint at a broader issue of public anger about the state of the economy?

Carney says he ‘absolutely recognises’ that difficult decisions have been taken over pay at the Bank over several years.

Real income growth hasn’t been this weak in this country since the 19th century, partly due to financial crisis, and then fuelled by other factors.

The country faces ‘big, big’ issues, and the Bank’s Monetary Policy Committee must handle the consequences.

And that includes letting inflation run over target, rather than tightening monetary policy and pushing unemployment up.

We are trying to cushion the impact of Brexit by keeping people in work....

These are much bigger questions than the MPC can address, Carney concludes

Q: If Britain’s transitional agreement doesn’t include access to the single market and the customs union, will economic growth be damaged?

Relative to the current arrangements, in the medium term.... anything that reduces access to aspects of our largest trading partner, is likely to reduce the level of economic activity in this country, Mark Carney replies.

That’s a YES.

But he cautions that big question is what else comes alongside that deal. For example, agreements could be struck with other non-EU countries that boost the economy.

But...the uncertainty over this is affecting, to various degrees, businesses, financial markets and households in this country, he insists.

Matthias from the Dutch Financial Times reminds Mark Carney that there are staff protesting outside the Bank of England today, because they only received a 1% pay rise.

This is an important issue - should the UK government drop its 1% cap on all public sector pay?

Carney risks an international incident by getting his countries muddled up....

Carney then argues that the Bank is operating normally despite the “regrettable” strike, and has been concentrating its resources on those staff who are most underpaid.

Mr Carney, incidentally, turned down his 1% pay rise last year - but still received around £880,000 in pay and benefits.

Carney downplays the idea that the Bank of England might raise interest rates in ‘baby steps’ of less than 0.25%. That’s not been discussed.

Carney: Brexit uncertainty is hitting pay rises

My colleague Katie Allen asks Mark Carney to explain why the Bank of England has cut its wage forecasts today.

Governor Carney says that ‘softer’ productivity growth is one factor, meaning that there is simply less to share between owners and workers.

But he also signals out the ongoing EU negotiations, which means some bosses are refusing to pay staff more.

Carney says:

We are picking up across the country that there is an element of Brexit uncertainty that is affecting wage bargaining.

Some firms, potentially a material number of firms, are less willing to give bigger pay rises given it’s not as clear what their market access will be over the next few years.

We are in the teeth of a squeeze on consumers right now, Carney warns, but it will feel better in the new year.

Deputy governor Ben Broadbent chimes in too - saying things are “particularly tough” right now, as rising inflation hits earnings.

We are at the zenith of pass-through effects, and the hit to real incomes.

Q: What are you hearing from businesses about a Brexit transition deal?

There is a widespread desire from countries across the UK economy for a transition period after Brexit, says Carney.

There is an understanding that market access, product standards, authorisation issues, data standard issues...will affect both side of the integrated economy between the UK and the EU 27.

Q: How can you be sure that the UK economy can handle higher interest rates?

Households are less vulnerable than there were, says Carney, although some are certainly vulnerable. Most could handle higher interest rates.

The more important issue is how businesses and exporters would be affected.

Q: How is the MPC thinking about that first interest rate move back to 0.5%?

Would it be the first stage in a tightening cycle, or just a one-off move to remove last August’s stimulus after the Brexit vote?

Nice question....

Carney gives a roundabout answer, before suggesting that rates could rise “faster than the markets expect, but slower than in a traditional cycle”.

Q: Is the City underestimating the timing of the first interest rate hike, or the pace of hiking, or both?

Carney declines to drop any hints about when interest rates might go up (for the first time in a decade).

But, he explains, the Bank has taken the view that it can take a little longer to bring inflation back to target.

But as time goes on, spare capacity is used up. So if the economy performs as the Bank forecasts, interest rates will rise FASTER than expected.

Q: What’s the Bank’s view of the UK economy’s economic potential today?

Carney says the ‘big picture’ is that Britain’s potential growth has moved down.

Deputy governor Ben Broadbent replies that it’s unrealistic to expect the UK economy to grow at its pre-crisis levels.

Helia Ebrahimi of Channel 4 spots that Bank of England has changed its language.

Q: Three months ago, you said that the Bank expected a smooth Brexit. Now you talk about households and businesses expecting a smooth Brexit. So have you lost faith, and what happens when they do too?

Carney tried to wriggle out of this one by pressing the charm button.

You’re clearly far cleverer than the MPC, Helia, Carney replies, before arguing that the views of people across the country are what really matter.

Q: How worried are you about consumer credit levels?

Governor Carney says the UK public are already ‘adjusting’ to the recent fall in real wages. He expects consumer spending to rise in line with earnings, rather than being fuelled by credit.

Q: But aren’t you worried that lenders are too complacent?

Carney insists that reckless credit is not driving the economy.

But the Bank’s Prudential Regulatory Authority (a City watchdog) is claiming down on lenders who are acting like the good times will last forever.

Crumbs. The Bank of England now believes that UK investment spending in 2020 will be 20% lower than expected in 2016, before the EU referendum.

Q: Are you less confident that Britain will get a smooth Brexit?

Carney says that Donald Tusk, the EC president, has already pointed out that a disruptive Brexit isn’t in anyone’s interests.

A smooth transition is in both sides interest, and the stated goal of both side, he points out. So the Bank is still using a ‘smooth Brexit’ as its central forecasts.

We do not see any material evidence that consumers and businesses expect the transition to not be smooth - but we are seeing signs that the uncertainty is hitting business investment, he adds.

Onto questions.

Q: Has the economy now been damaged by the Brexit vote?

It is evident from our discussions with companies around the UK, and from corporate surveys, that uncertainty around the Brexit process is “weighing on the decisions on businesses”, Carney replies.

The speed limit for the UK economy has slowed, he adds.

Carney also hints that interest rates could rise faster than the financial markets expect, if the economy falls a path consistent with today’s forecasts.

The process of leaving the EU is affecting the UK economy, Carney continues.

Some companies are delaying their decisions about investment and entering new markets, he explains, adding that Britain’s ‘supply capacity’ is already being affected.

The uncertainty created by Brexit is weighing on growth, Carney continued, citing how rising inflation has hurt consumer spending.

Business investment is likely to be below average, he predicts, with “bad consequences” for productivity, capacity and wages.

Carney: We can't stop Brexit making you poorer

Mark Carney begins his press conference by warning that Britain is beginning to adjust to a ‘new and uncertain’ relationship with the European Union.

The Bank cannot prevent the “weaker real incomes” which this new trading relationship is likely to bring, he warns. But it can influence the playoff between job losses and price rises.

Mark Carney press conference

Bank of England governor Mark Carney has just arrived for his press conference to explain today’s decisions. You can watch it live here:

The pound is also falling against the euro.

It has dropped to €1.11, from just over €1.12 this morning.

Here’s my colleague Katie Allen’s take on today’s Bank of England decision.

Bank of England keeps interest rates on hold despite inflation fears

The Bank of England has warned households to expect interest rates to rise over the next year but also predicted living standards will be squeezed by higher inflation and sluggish wage growth.

The Bank’s rate-setting committee voted by 6-2 to leave official borrowing costs at their all-time low of 0.25%, according to minutes from their meeting released on Thursday.

New economic forecasts released by the Bank at the same time cut the outlook for GDP growth this year and next and painted a weaker picture for earnings growth.

But the Bank appeared to send a clear message that businesses and households should not expect borrowing costs to stay at their record low for much longer.

The meeting minutes noted that if the economic picture evolved as the Bank was predicting, interest rates could be raised by more than financial markets are currently pricing in. Those market expectations are for two rises to 0.5% and then to 0.75% over the next three years.

The minutes said:

“If the economy were to follow a path broadly consistent with the August central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than the path implied by the yield curve underlying the August projections.

“All members agreed that any increases in Bank Rate would be expected to be at a gradual pace and to a limited extent.”

The pound has fallen sharply as the City quickly digests the Bank of England’s decision to leave UK interest rates on hold.

Sterling has shed half a cent against the US dollar to $1.3165, having hit an 11-month high this morning.

The pound vs the US dollar today
The pound vs the US dollar today Photograph: Bloomberg

That shows that some traders may had suspected the Bank might have surprised us with a rate hike.

But it’s also a reaction to the BoE’s lower forecasts for growth and inflation.

More bad news; the Bank of England has downgraded its forecasts for wage growth.

Why the Bank split 6-2 on interest rates

Six of the Bank of England’s policy makers felt that the UK economy was too “sluggish” to handle higher interest rates.

Governor Mark Carney, deputy governors Ben Broadbent and Jon Cunliffe, all voted for “no change” along with chief economist Andrew Haldane, and external members Silvana Tenreyro and Gertjan Vlieghe.

The minutes of the meeting show that this sextet of policymakers were concerned by signs that Britain’s economy is weakening.

GDP growth had been sluggish and was expected to remain so in the near term. With some business survey expectations balances having weakened, there remained the possibility of a further softening in activity.

Weak data on car registrations and the housing market, together with the fall in consumer confidence, could signal weaker consumption than in the central projection. At the same time, increased domestic uncertainty was likely to act as a drag on investment, and there was a risk that this effect would be larger than had been assumed in the forecast.

But Michael Saunders and Ian McCafferty argued (in vain) that inflation needed to be tackled, and that the economy is not faltering.

The minutes explain their argument:

Although household consumption had slowed, recent indicators such as retail sales had not suggested that a sharp downturn was underway. Growth in business investment and net trade, supported by strong global growth, appeared on track to compensate for weaker consumption growth.

While the projection for demand growth was modest, growth in potential supply was likely to be materially weaker than over the pre-crisis period throughout the forecast. Employment growth had strengthened, and if it continued to be strong, slack would be absorbed at a faster pace than in the central projection. The withdrawal of part of the stimulus that the Committee had injected in August last year would help to moderate the inflation overshoot while leaving monetary policy very supportive.

Updated

The minutes of the Bank of England’s meeting are online here:

Monetary Policy Summary and minutes of the Monetary Policy Committee meeting ending on 2 August 2017

BoE cuts growth forecasts

Importantly, the Bank of England has also cut its growth forecasts.

It now expects the economy to grow by 1.7% this year, down from a previous forecast of 1.9%.

Growth is now tipped to slow to 1.6% in 2018, down from a previous forecast of 1.7%.

Michael Saunders and Ian McCafferty are the two hawks who wanted to raise borrowing costs. They’ve both external members of the Bank’s MPC.

Andy Haldane, the Bank’s chief economist, decided to vote for ‘no change’, dashing speculation that he might have voted for a rate hike.

BANK OF ENGLAND DECISION

Newsflash! The Bank of England has voted to leave UK interest rates unchanged at their current record low of 0.25%, in a split decision.

Two members of the Monetary Policy Committee voted to raise borrowing costs to 0.5%, but were outvoted by the other six members of the committee.

More to follow!

Updated

Just time for one last prediction.....

With five minutes to go, the pound is trading at an 11-month high of $1.3243, and the FTSE 100 is up 15 points.

Financial traders should brace for a volatile few hours, once the Bank of England’s announcement hits the wires at noon.

Craig Erlam, senior market analyst at OANDA, says sterling could rise, or fall, sharply depending how many MPC policymakers voted for a rate hike. Mark Carney’s comments to the press from 12.30pm will also be closely watched.

As Erlam puts it:

Markets have all-but priced out a rate hike today but recent moves in sterling and UK yields suggest traders are not convinced that the BoE will hold off too much longer.

Given the uncertainties surrounding both the UK economic outlook – as a result of Brexit – and the BoE’s position, markets could become quite volatile, particularly when the voting is released and during the press conference with Governor Mark Carney and some of his colleagues.

Any suggestion that the recent inflation data hasn’t deterred policy makers in pushing for a hike could pushing the pound and UK yields higher once again, while the opposite could hurt them both with them already trading at quite elevated levels.

Excitement is building, with just 30 minutes until the Bank of England announces its interest rate decision.

Dutch bank ING have surpassed themselves with this note, outlining the various scenarios that could play out today:

Over on Bloomberg, Mark Gilbert and Marcus Ashworth have done a good piece arguing that the Bank would be wrong to spring a surprise rate hike on the City today.

They point out that the UK is growing slower than the eurozone, while inflation is eating into wages.

And many economists have pushed back their expectations for a rate hike this year, to below 50%.

Rate expectations...
Rate expectations... Photograph: Bloomberg

But there is precedent. The Bank of England did deliver a shock rate hike over a decade ago, shortly before the credit crunch.

They say:

While Carney and the MPC will likely take the risk of letting the economy run too hot during this delicate Brexit transition period, the bank’s capacity to surprise shouldn’t be underestimated.

That January 2007 shocker -- a 5-4 decision -- came after an August 2006 increase that caught 38 out of 46 economists surveyed by Bloomberg by surprise. Then, as now, inflation was outpacing the bank’s 2 percent target, averaging 2.6 percent between the two meetings. Wages, however, were booming by 4.3 percent or better -- and there was no Brexit clouding the horizon.

A surprise this week would be most unwelcome.

Why the Bank should raise rates, and why it shouldn't...

The Bank of England certainly faces something of a dilemma.

Its mandate is to keep inflation at 2% in the medium term. So, with the Consumer Prices Index rattling along at 2.6%, there’s an argument for raising borrowing costs to subdue demand.

BUT... with real wages shrinking, and the economy growing by just 0.5% in the last six months, there’s a very strong argument for leaving rates unchanged.

Erik Norland, senior economist at CME Group, says the Bank is pinned on the ‘horns of a dilemma’ -- with five reasons to raise rates, and five reasons not too.

The arguments in favour of tightening are as follows:

  • Core inflation has surged from 1.2% to 2.4% year-on-year while headline inflation has risen to 2.6% year on year.
  • The labour market has continued to tighten with unemployment falling to 4.5%, its lowest level since the mid-1970s.
  • A weaker currency has also driven a surge in manufacturing.
  • Growth in the service sector remains robust despite concerns over Brexit
  • Brexit fears are too London-centric. Yes, big banks are looking at moving staff to Europe, but the rest of the country is doing fine.

The counterargument, which is likely to prevail this afternoon, goes as follows:

  • The surge in inflation resulted from a drop in the pound and is likely to prove temporary.
  • Inflation had been below target for a long time and a temporary rebound is not a strong argument for tightening policy.
  • Lower unemployment rates have added little to wage and inflation pressures
  • Uncertainty over the Brexit could dampen investment in the United Kingdom as many employers are actively exploring reallocating staff to Europe.
  • Political paralysis could also undermine confidence.

And that’s why today’s decision is so eagerly anticipated.

Can the Bank of England really hike interest rates and cut its growth forecasts on the same day?

Fran Boait, executive director of campaign group Positive Money, argues not. Instead, she wants the BoE to consider pumping more money into the economy to drive growth.

Boait writes:

“There’s been much talk in recent months of tightening monetary policy. But if the Bank downgrades its growth forecast today and warns of risks from Brexit, we’ll have to think seriously about its options if things continue to deteriorate.

The governor has justifiably ruled out negative rates, and expanding QE may be politically impossible. The Bank needs a way of injecting demand directly into the real economy, like monetary financing. What would that look like? It’s a discussion we should start having now.”

Alexandra Russell-Oliver, currency markets analyst at Caxton, also predicts that the doves will hold sway at the Bank today.

She says:

The BoE seems set to keep policy on hold given recent slower wage growth and modest economic growth. While inflation remains well above the Bank’s 2% target rate, it unexpectedly slowed in June.

With likely only two members to vote to raise rates after MPC Member Kristin Forbes’ departure, the risk may be to the downside for the pound unless the Bank is more hawkish than expected.”

Updated

Can we help you understand today’s Bank of England meeting?

Let us know what question you’d like answered, and we’ll do the rest....

  • What is inflation and why does it matter?
  • Why does the Bank of England publish a quarterly inflation report?
  • What is the remit of the Bank of England's Monetary Policy Committee?

Pound hits new 11-month high

Boom! Sterling has hit a new 11-month high against the US dollar, following the news that Britain’s service sector sped up last month.

The pound hit $1.3267 for the first time since September 2016, also helped by the possibility of a shock interest rate rise today.

However...traders should be cautious. The Service Sector PMI report includes a warning that business expectations have fallen to levels that may signal a recession....

Markit says:

“Firms’ prospects for the coming year have slipped to a level which has previously been indicative of the economy stalling or even contracting, having taken a lurch downward since the general election, largely reflecting heightened uncertainty about the economic outlook and Brexit process.”

Updated

UK service sector growth picks up

Newsflash: Britain’s services sector accelerated a little in July.

Markit’s services PMI has jumped to 53.8 last month, from 53.4 in June. UK companies reported that new business remained solid, and hiring picked up.

However, business expectations remained relatively weak, as “Brexit- related uncertainty continued to weigh on their growth prospects for the year ahead.”

Service sector PMI

Markit says the service sector still looks subdued, as:

The latest reading signalled a slower rate of business activity growth than the post-crisis trend. Survey respondents noted that heightened economic uncertainty and fragile confidence among clients were key factors acting as a brake on growth.

Sukhdeep Dhillon of BHP Paribas reckons the recent drop in inflation (from 2.9% to 2.6%) will encourage the Bank of England to leave interest rates on hold today.

Everyone loves a swingometer, right?

So Reuters have come up trumps, with this handy guide to the hawks and doves on the Bank of England’s monetary policy committee:

Bank of England swingometer

Eurozone PMIs show slowing growth

Newsflash: Growth in the eurozone’s private sector has slowed, after a strong start to 2017.

Markit’s ‘composite PMI’, which measures activity at factories and service sector across Europe, has fallen to a six-month low of 55.7 in July, down from 56.3 in June.

That still shows growth, but at a slower rate than earlier this year. Germany’s economy seems to have cooled, with its PMI weaker than France, Spain or Italy.

Here’s the details:

Eurozone PMI
Eurozone PMI Photograph: Markit

Chris Williamson of Markit explains:

“Of the four largest euro members, only Italy recorded faster growth in July, pushing the PMI into territory consistent with 0.5% quarterly GDP growth. Spain nevertheless continued to record the strongest overall expansion, with the PMI indicative of 0.9% growth.

“The slowdown in Germany meant it registered the weakest increase in activity of the four largest euro countries for the first time in over 12 years, though the ten-month low PMI reading still points to a 0.4- 0.5% GDP growth rate.

“A loss of momentum in France also pushes the PMI down to a level broadly consistent with 0.4- 0.5% growth.

Will Haldane be a hawk or a dove?

Andy Haldane.

The big question on the lips of investors today is ‘What will Andy Haldane do?”

The BoE’s chief economist surprised the City in late June by suggesting he was ready to vote to raise interest rates.

That fuelled speculation that Haldane would join the hawks on the Monetary Policy Committee today -- creating a 3-5 split (with the majority voting to hold rates).

Kathleen Brooks of City Index thinks there’s a 50% chance that Haldane plumps for a rise in borrowing costs:

She writes:

At the last meeting Ian McCafferty, Michael Saunders and Kristin Forbes all voted to hike rates. With Forbes having left the bank since the last meeting the question is will her replacement, Silvana Tenreyo, follow in her footsteps?

Her time at the Mauritius central bank suggests that she has dovish leanings, she has also voiced concern about the economic impact of the Brexit vote, thus we doubt that she will follow in her predecessor’s footsteps. Instead, Andy Haldane, the chief economist at the BOE, is the one to watch. He has traditionally been dovish, but he teased the hawks by talking about the prospect of an early rate rise last month.

If he does join McCafferty and Saunders then we would expect a reaction in the pound, and a potential re-pricing in the rates market, with the prospect of an earlier rate hike sending bond yields higher.

Economist Rupert Seggins agrees that the split on the MPC could be the big news today.

Updated

Economics reporters will soon be locked in the Bank of England for the morning, giving them time to read the Inflation Report and the minutes of this week’s MPC meeting.

We’ll have Katie Allen and Larry Elliott there. The Times’s Tom Knowles is also joining the throng....

Updated

Sterling at 11-month high....

The pound is hovering around an 11-month high as the City braces for the Bank of England’s rate decision at noon.

The pound vs the US dollar over the last year
The pound vs the US dollar over the last year Photograph: Thomson Reuters

Sterling has crept up to $1.3234, up 0.1%.

The possibility that the Bank could actually raise rates is gripping the City, even though most economists expect another “no change” decision.

FXTM chief market strategist Hussein Sayed explains:

Sterling held above 1.32 against the dollar early Thursday as traders eagerly await the Bank of England’s policy meeting today. Bond yields declined from July highs but remained elevated, as some market participants believe that the BoE may surprise, with a 25-basis point rate hike.

Sayed believes that the pound would also rally if chief economist Andy Haldane - the most likely ‘swing voter’ voted to raise interest rates, creating a 5-3 split.

Kristin Forbes’ departure from the BoE will likely lead to a 6-2 vote in favor of keeping interest rates unchanged today, with Ian McCafferty and Michael Saunders to remain the two dissenters.

Silvana Tenreyro, who replaced Forbes is most likely to join the doves for now. The most interesting member to watch is Haldane. If he decides to join the hawks and vote for a rate hike, this would lead to further appreciation in both bond yields and the pound.

The Bank of England isn’t short of advice from former policymakers on how to handle the levers of monetary policy.

However, they don’t always agree (mirroring the argument at the Bank itself).

Former deputy governor Sir John Gieve says the BoE should hike rates today, on the grounds that the UK economy hasn’t crashed since the Brexit votes.

Sir John told an event in London that:

“I think there is a very strong case for reversing the quarter percentage point cut from last year. The rationale behind that was there was a risk that the shock of the vote would drive [demand] down excessively in the short term and the Bank tried to prevent that.”

But Adam Posen, who served on the MPC between 2009 and 2013, argues that the UK economy isn’t strong enough to handle higher borrowing costs.

Speaking to the BBC, he says:

“It is pretty clear the economy is slowing... it’s a credit-fuelled expansion and so it’s likely to come to an end soon....

I think they are not going to vote for a rate hike at this time and probably not until at least November and maybe not even until 2018.”

The agenda: It's Bank of England Day

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The Bank of England is firmly in the spotlight today as Britain’s central bank prepares to set interest rates, and publish its latest inflation report.

Investors and traders in the City are nervous watching, as the BoE is likely to move the markets - especially if we get a shock decision.

The Bank is expected to:

  • Leave interest rates at their current record low of 0.25%
  • Update, and probably cut, its growth forecasts following recent weak GDP figures.
  • Give a new assessment on the health of the UK economy

But behind the scenes, the Bank’s monetary policy committee is riven by tensions and arguments over whether borrowing costs are simply too low. And with inflation over target, at 2.6%, today’s decisions probably won’t be unanimous.

City economists expect at least two hawkish policymakers to vote to raise borrowing costs today. Ian McCafferty and Michael Saunders could even be joined by the Bank’s chief economist, Andy Haldane.

Japanese bank Nomura has boldly stuck its neck out and predicted that the Bank will actually raise interest rates today. That would be something of a shock, frankly, and would probably send the pound soaring.

Either way, governor Mark Carney has the pleasure of a grilling from the nation’s economics journalists after the announcement is made. He can expect questions over Britain’s consumer credit boom, the impact of Brexit on the economy, and whether the public will continue to suffer falling real wages.

Hopefully everything will go smoothly; some Bank staff are holding the last day of their three-day walkout over a below-inflation pay deal.

On Tursday, members of the Unite union wore masks depicting Mark Carney at the start of a three-day strike over low pay.
On Tursday, members of the Unite union wore masks depicting Mark Carney at the start of a three-day strike over low pay. Photograph: Wiktor Szymanowicz / Barcroft Im/Wiktor Szymanowicz / Barcroft

Before that, we get a new healthcheck on Britain’s service sector. The Services PMI is expected to show a small pick-up in growth, rising from 53.4 to 53.6. But after yesterday’s surprisingly weak construction data, another surprise can’t be ruled out....

The agenda:

  • 9am BST: Eurozone service sector PMI for July
  • 9.30am BST: UK service sector PMI for July
  • 10am BST: Eurozone retail sales for June
  • Noon BST: Bank of England interest rate decision

Updated

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