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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Apple hits $1trn stock market valuation; Bank of England raises interest rates - as it happened

After positive earnings report, shares of Apple surged making it the first US company in history to reach a market value of one trillion US dollars
After positive earnings report, shares of Apple surged making it the first US company in history to reach a market value of one trillion US dollars Photograph: Armando Babani/EPA

And finally, here’s our news story on Apple’s meteoric rise:

Goodnight. GW

Apple has beaten several tech rivals for the crown of America’s first trillion dollar company.

At one stage it looked like Amazon could get their first, but it’s currently “only” worth around $880bn.

Alphabet, Google’s parent company, is close behind with a market capitalisation of around $850bn.

Facebook, though, dropped firmly out of the running after it slashed profitability forecasts last week.

One important aspect about Apple’s revival since its 1990s slump is that it started perfecting, rather than creating, new product types.

Apple wasn’t first with a smartphone or a digital music player, but it created compelling devices that trumped what had gone before.

Our tech writer Alex Hern explains:

MP3 players already existed, such as Malda’s Nomad Jukebox, and they were technically better, with larger hard drives, replaceable batteries, and compatibility with both Windows and Mac (the iPod would take another year to come to Windows). What did Apple have to offer?

With hindsight, the answer is obvious. The iPod looked cool: it had a sleek aluminium shell half the size of its competitors, and a physical scroll wheel that could zoom through the trademark “1,000 songs in your pocket”.

By 2003 Apple’s advertising agency, Chiat/Day, had come up with silhouette adverts to promote the iPod. The ads were almost too successful, turning the iPod’s white earphones into such a marker of desirability that the Metropolitan police blamed them for a 26% rise in street robberies in 2005.

The iPod revolutionised Apple’s fortunes, kicking off a five-fold increase in its share price over the following five years, and providing a gateway drug for winning round Windows users to its Mac ecosystem. But it also changed the company on a fundamental level, turning it from a computer manufacturer into a consumer electronics designer.

In January 2007, the company completed this transformation, announcing that it was changing its name from Apple Computer to Apple Inc. That same day, it also announced something else: the iPhone.

More here:

Here’s a reminder of Apple’s impressive track record over the years:

Apple has seen off plenty of critics on its march towards a trillion dollars, particularly in the 1990s when it was losing the Desktop PC battle to cheaper Windows machines.

Bloomberg’s Shira Ovide has some examples:

Apple’s rise to become America’s most valuable publicly quoted firm began more than 40 years ago, when Steve Jobs and Steve Wozniak began a company that would help kickstart and drive the computer revolution.

Today, the firm behind the Macintosh, the iMac, the iPhone and the App Store is now worth more than Exxon Mobil, Procter & Gamble (PG.N) and AT&T put together.

Reuters points out how the return of the late Steve Jobs two decades ago was crucial: .

One of three founders, Jobs was driven out of Apple in the mid-1980s, only to return a decade later and rescue the computer company from near bankruptcy.

He launched the iPhone in 2007, dropping “Computer” from Apple’s name and super-charging the cellphone industry, catching Microsoft Corp (MSFT.O), Intel Corp (INTC.O), Samsung Electronics (005930.KS) and Nokia off guard. That put Apple on a path to overtake Exxon Mobil in 2011 as the largest U.S. company by market value.

The Silicon Valley stalwart’s stock has surged more than 50,000 percent since its 1980 initial public offering, dwarfing the S&P 500’s approximately 2,000-percent increase during the same almost four decades.

During that time, Apple evolved from selling Mac personal computers to becoming an architect of the mobile revolution with a cult-like following.

More here.

Updated

Apple becomes a trillion dollar company

Newsflash: Apple has become the first US listed company to be worth one trillion dollars.

The technology giant hit a $1 trillion market cap as its shares rallied following strong earnings results earlier this week.

Apple shares jumped 3% to hit a session high of $207.05 , enough to reach the magic $1trn figure.

More to follow....

Richard Flax, Chief Investment Officer at Moneyfarm, thinks today’s rate rise is hard to justify:

“The fact the Monetary Policy Committee (MPC) voted in favour of a hike itself is notable. At the last meeting in June, the MPC voted by 6-3 to keep rates where they are. If anything, since then the case for rate hikes has gotten weaker not stronger. It doesn’t require too much cynicism to see the unanimous vote as some sort of message.

“The Bank and its governor are in an unenviable position - with a combination of low interest rates, low unemployment / low wage growth, sluggish economic growth, declining inflation and massive policy uncertainty around Brexit. They clearly want to normalise interest rate policy if they can - but the data hasn’t made it easy to justify.”

Reuters agrees...

Rate rise is blow to buy-to-let landlords, and tenants

Higher interest rates will eat into the profits of Britain’s buy-to-let lenders.

Paul Haywood-Schiefer of accountancy firm Blick Rothenberg says today’s rate rise is a blow to the sector:

“For many people who were getting no return on their capital due to long term low interest rates and decided to invest in buy to let properties this will be another blow.”

“They wanted to get better returns and for many it was also part of their retirement plans.”

One solution is to push up rents, of course.

And one controversial buy-to-let landlord has swiftly passed today’s rate rise onto new tenants.

Fergus Wilson, who owns hundreds of properties across Ashford and Maidstone in Kent, has announced:

Following the interest rate rise I have increased rents in all our properties by £50 per month (fifty pounds). It is merely passing onto the tenant the additional mortgage charge.

This increase starts immediately.

I think this will only apply to new tenants, or when existing tenancies come up for renewal.

Wilson was heavily criticised by Britain’s equality watchdog last year, as we reported:

The buy-to-let mogul Fergus Wilson’s ban on “coloured” tenants because they allegedly left curry smells in his properties has been overturned in a court victory for the Equality and Human Rights Commission.

At Maidstone county court, the judge, Richard Polden, granted an injunction against the landlord. “This policy clearly amounts to discrimination,” Polden said.

“I find the policy is unlawful. Such a policy has no place in our society.”

Ed Hall, director at law firm Gowling WLG, says today’s rate rise could hurt the economy, if it spooks consumers and businesses:

Given that a quarter point rise is perceived to have a limited long-term impact on most business, the move would seem to make sense in terms of longer term strategy.

However, in a period of increasing political and economic uncertainty, it can be argued that this move could damage confidence in what could be perceived as an already fragile economy.”

Charles Hepworth, investment director at GAM, says today’s rate hike is a “punchy move”, given the uncertainty over Britain’s exit from the EU:

Growth in the economy could hardly be described as above trend so members may have realised that this could be the last chance to move ahead before reaching the final Brexit end state.

In any case the Bank of England’s response in a few months’ time could look very different should the Brexit cliff edge slip nearer despite them saying more hikes will be needed. The currency markets aren’t totally buying the hawkish message otherwise the pound would be rising, which it most certainly isn’t.”

Indeed. As you can see, the pound has dropped to its lowest level since 20th July today - not the move you’d expect after a rate hike.

The pound vs the US dollar this summer
The pound vs the US dollar this summer Photograph: Thomson Reuters

How higher interest rates will affect borrowing costs
How higher interest rates will affect borrowing costs

UK interest rates won’t rise again until at least March 2019, predicts Dean Turner, UK Economist at UBS Wealth Management.

“We don’t expect to see further moves from the Bank ahead of Britain leaving the EU.

Monetary policy is unlikely to be the key driver for sterling in the markets in the short term, as the spotlight returns to the Brexit saga.

The real surprise is that all nine Bank of England’s policymakers voted to raise interest rates today.

Before noon, many experts were predicting an 8-1 split, or even 7-2, with the most dovish MPC members pushing to keep rates on hold.

Our Larry Elliott suggests the data doesn’t support such unanimity:

Threadneedle Street has been overestimating wage inflation for years, and the former MPC member and labour market expert David Blanchflower says it is still doing so [something Carney rejected earlier]

Recent official data has shown growth in total pay falling not rising.

The economy, despite bouncing back in the second quarter, is far from booming. Retail sales were weak in June, the housing market is dead and inflation is coming back toward its 2% target more quickly than the Bank expected.

In such circumstances, it is strange, even a little troubling, that not one MPC member opposed a rate hike. The inflation report makes it sound as if higher interest rates are a no-brainer. They’re a lot riskier than the Bank appears to think.

Good news for savers, but mortgage holders face higher costs

Jon Ostler, UK CEO at price comparison site Finder.com, says savers need to be proactive to benefit from today’s rate rise.

“It’s particularly good news for savers, who have suffered ultra-low interest rates for the past decade. They can expect a rise to their savings, albeit a small one. Now is a good time to consider switching your banking products, as banks will be reviewing their rates.

Make sure you keep an eye on which banks are offering the best interest rates as not all of their products will increase by the BoE’s 25 basis points.

Mortgage holders, and other borrowers, face a hit, through, he adds:

For example, those paying off the UK’s average mortgage debt with a variable rate mortgage face paying an extra £17-£18 per month, which adds up to an extra £200 per year or more than £6,000 over the life of a 30-year loan term.”

Snap summary

Time for a quick recap.

Carney argued that:

The move has received a mixed reception, with business leaders criticising it and debt charities fearing that poor families will be dragged into financial difficulties.

There is relief in the City that the Bank didn’t back away from pushing the button, having given plenty of hints that rates would rise today.

But... Carney’s cautious words have hit sterling; the pound is still in the red against the dollar, at $1.3050.

Balraj Sroya, Sales Trader at Foenix Partners, explains why:

Today the Bank of England defied Brexit uncertainty and brought music to the ears of Sterling bulls as the MPC voted unanimously to increase interest rates to 0.75%.

Unfortunately, Sterling’s rally higher was halted by the “unreliable boyfriend” stating that the monetary policy needs to “walk, not run, to stand still” as the interest rates’ natural level rises gradually.

Bank of England Governor, Mark Carney, speaks during the central bank’s quarterly Inflation Report press conference today.
Bank of England Governor, Mark Carney, speaks during the central bank’s quarterly Inflation Report press conference today. Photograph: POOL/Reuters

And finally, an important but technical question from the Financial Times.

Q: does the Bank of England’s low estimate of the equilibrium level of interest rates (R*) means that quantitative easing is becoming a standard tool of economy policy, rather than just for emergencies?

[explainer: if R* is really between zero and 1% today, as the Bank believes, rates might never get high enough to allow the Bank to start selling off the £435bn of bonds it bought through QE during the crisis to stimulate the economy].

Mark Carney says this is a good question, to which he gives a long answer.

The upshot is that Bank still expects to start unwinding QE when rates have risen to 1.5%. So if R* rises towards 2-3%, then this plan would still hold.

Upshot: the MPC does not expect to keep holding its QE assets on its balance sheet indefinitely.

Carney: Brexit could force us to cut rates again

Back on Brexit, and Mark Carney is defending the Bank’s approach over the last two years.

After the referendum, the BoE decided to take the hit in higher inflation (by cutting rates) rather than pushing unemployment up (by raising rates to strengthen the pound), he says.

Q: But wouldn’t it be better to have waited a few months until we know how Brexit will pan out?

No, governor Carney replies. We need a ‘modest’ adjustment to policy now because wages are rising faster than inflation.

He then explains that rates could rise, stay on hold, or even be cut depending how UK-EU negotiations play out.

There are a wide range of Brexit outcomes, but in many of them interest rates will be at least as high as they are today.

We don’t need to keep our powder dry for that.

There are certain circumstances where it would be appropriate to either keep rates the same or lower them. If that’s the case, that’s what the MPC will do.

It would be a mistake to wait, wait, wait until you have perfect certainty, because you never know when that point will arise, he concludes.

Updated

Q: What do you say to business groups who think this rate rise is a mistake?

We have a good sense of the challenges faced by British businesses, Carney replies. The Bank knows that this has been the shallowest investment recovery in decades.

But...the overwhelming issue for businesses is the outcome of the Brexit negotiations.

They should be confident that we will focus on our responsibilities, keeping inflation on target while ensuring the economy is prepared for whatever the outcome is.

Christopher Vecchio of DailyFX says Mark Carney’s cautious guidance on future rate rises is hitting the pound.

On trade wars, Carney says the tariffs imposed by the US, China and Europe on each others imports are “one of the reasons that global growth is little weaker.”

The Bank doesn’t see a material impact on the UK economy, yet, but it would be hurt by a slump in global confidence and investment.

Mark Carney is now giving a long explanation about the equilibrium interest rate in the UK (known as R*).

This is the level at which interest rates should be set to ensure the economy stays at an even keel.

The Bank has estimated today that R* is zero to 1 percent, more than 2 percentage points below its pre-financial crisis level.

That’s because UK productivity, fiscal headwinds and economic uncertainty are all pulling R* down. If they improve, R* could move closer to the 2-3% range, Carney explains.

Updated

Danny Blanchflower has hit back at Carney’s jibe, pointing out that UK wage growth has slowed recently - and is nowhere near 3% per year today.

Our economics editor Larry Elliott goes next.

Q: The Bank thinks the natural rate of unemployment is 4.25% (slightly above the current rate of 4.2%), which is why you’ve raised interest rates. But some experts disagree; former MPC member professor Danny Blanchflower thinks it could be 3%. Why is he wrong, and you’re right?

Where do I begin, mutters Mark Carney (somewhat recklessly), before adding that he has “great respect” for Prof B, but his time on the MPC has passed.

Carney then explains that policymakers need to reorientate to new reality.

He points out that labour cost growth is rising, and productivity growth remains disappointing, thus the UK needs higher borrowing costs to keep inflation on target.

[historical note: Danny Blanchflower called, in vain, for UK interest rate cuts before the financial crisis struck, when the rest of the MPC was more worried about inflation]

Q: Will this rate rise be passed onto savers, and what will the Bank do to help on this?

Mark Carney says that savers have suffered over the course of the last decade from the absolutely necessary low interest rates.

But he then suggests that banks might not pass today’s rate rise on in full.

H explains that when rates hit record lows after the crisis, the spread between bank lending and borrowing rates were compressed.

(That ate into bank profitability, so they will want to repair that by raising borrowing costs more than saving rates).

As rates move up, one should expect more of them to be passed along, Carney adds.

Deputy governor Dave Ramsden weighs in, saying:

Historically you never get full pass-though of interest rate changes.

Q: Surely poorest households are going to suffer from this rate rise?

Mark Carney rebuts this, arguing that the Bank has a responsibility to keep inflation under control.

The households that are most affected by high or volatile inflation, and most likely to be out of work, unfortunately, are poorer households.

The best thing we can do is keep inflation sustainably on target, and keep the economy on track, he adds.

Pound falls as Carney speaks

Ouch! Sterling has just dropped against the US dollar, and is now down a whole cent at $1.303.

The selloff began as Mark Carney explains that monetary policy needs to “walk not run to stand still”, as the natural level of interest rates slowly rises.

That looks like a hint that borrowing costs will not rise sharply in the next couple of years.

Onto questions:

Q: Are households ready for today’s interest rate rise, particularly the poorest?

Governor Carney says the Bank of England has been saying for a while that interest rates will go up, at a modest rate.

That ‘forward guidance’ was meant to give households and businesses clarity. And it worked, Carney says, with three-quarters of households expecting interest rate to go up over the next year.

The important thing to recognise is that UK households have worked hard over the last decade to get into a better financial position, they’ve paid down debt and put themselves in a better position to service their debts.

It would take another 100 basis point increase (to 1.75%) to bring the UK debt servicing burden back to the historic average.

There is a lot more capacity for UK households to service their debts, Carney concludes.

He also cited new ‘mortgage affordability’ tests that are meant to prevent reckless borrowing.

Carney: We're ready for Brexit, whatever happens

Mark Carney insists that the Bank of England is well prepared for a wide range of Brexit outcomes.

The banking system has enough money to keep lending through a cliff-edge Brexit, however unlikely that will be, the governor says.

We are working with the Treasury and the European Central Bank to address risks that the banks can’t solve themselves, he adds.

Onto Brexit.

Mark Carney says that talks between the UK and the EU are at a “critical period”.

Households have been resilient but not indifferent to Brexit uncertainty, he adds, but there are signs that business confidence is softening again.

The Bank’s forecasts are based on a ‘relatively smooth” transition period, the governor points out (implying it could take action if we end up with a No-Deal Brexit).

Carney signals that further interest rate rises will be needed.

If interest rates stay at 0.75%, then inflation will be over the Bank’s 2% target over the next three years, he explains.

Mark Carney says UK exporters are in “a sweet spot” with sterling down 17% compared to its pre-Brexit levels.

He adds that the UK labour market is “strong”, with signs that earnings growth will accelerate later this year.

Mark Carney's press conference begins

Bank of England governor Mark Carney is giving a press conference now.

Carney begins by referencing a famous quote from Harold Wilson, saying:

If a week is a long time in politics, then two years is an eternity in monetary policy.

He reminds us that the Bank cut borrowing costs to a record low of 0.25%, after the Brexit vote.

Back in 2016, there was substantial spare capacity in the economy, business confidence was its lowest since the financial crisis, and inflation was due to overshoot its target “entirely” due to Brexit fears which had driven the pound down.

Now, though, the economy is strong enough to justify an interest rate rise to 0.75%.

Ian Stewart, chief economist at Deloitte, says Mark Carney and colleagues have taken a “bold move” by raising borrowing costs today.

By early 2019, we’ll know if they’re right, he adds.

“The Bank has so clearly telegraphed this rate rise that markets would have been shocked had rates been left on hold.

The unanimity of the decision probably reflects the view that the UK is, quite simply, running out of spare capacity.

But sub-trend growth and a cloudy outlook hardly make a compelling case for a higher UK rates.

In six months’ time this decision will look either prescient or premature. Either way it is bold move.”

BCC: This is a mistake

Oof! Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC), says the Bank of England was wrong to raise interest rates today:

“The decision to raise interest rates, while expected, looks ill-judged against a backdrop of a sluggish economy. While a quarter point rise may have a limited long-term financial impact on most businesses, it risks undermining confidence at a time of significant political and economic uncertainty.

“The increase reinforces a concerning aspect of the Bank of England’s recent approach to monetary policy, which appears to be overly focused on reinforcing an idealised direction for rates, rather than on economic reality – an approach that unnecessarily risks UK’s growth prospects. The central bank’s assumption that the economy’s speed limit has slowed is unduly pessimistic, as sustained action to fix the fundamentals at home, from closing the skills gap to greater infrastructure investment, would materially help lift the UK’s growth potential.

Thiru hopes the Bank won’t raise borrowing costs again anytime soon:

“The MPC must carefully consider what happens next. The most preferential option would be for a sustained period of monetary stability amid the current economic and political uncertainty.”

Simon Underwood, business recovery partner at accountancy firm, Menzies LLP, fears that this rate rise will hurt businesses - especially those reliant on consumer spending.

He says:

“The MPC may have been swayed by the summer heatwave and England’s success in the World Cup, which have had a positive impact on consumer behaviour, boosting retail sales temporarily. However, it is unlikely this positive sentiment will be maintained and today’s decision to increase rates will impact consumer spending ahead of the critical final quarter.

“For businesses serving consumers in the retail and hospitality & leisure sectors, today’s decision will be very unwelcome news and we should expect more turmoil on the high street in the short to medium term.”

Full story: UK rates go up despite Brexit fears

My colleague Richard Partington reports from the Bank of England:

The Bank of England has raised interest rates above the emergency level introduced straight after the financial crisis, despite mounting fears over Britain crashing out of the EU without a deal.

Signalling the gradual return of higher borrowing costs, Threadneedle Street raised interest rates to 0.75% from 0.5% – the level they were dropped to in March 2009 as the economy lurched through the last recession.

The Bank’s monetary policy committee judged the economy could withstand higher interest rates, which it believes are required to curb persistently high inflation above its 2% target set by the government.

An extra 0.25% interest will add £12 a month to a £100,000 repayment mortgage and £25 on a £200,000 loan. However, nearly 70% of homebuyers now have fixed rate mortgages so will be unaffected.

Here’s our Q&A on how higher UK interest rates will affect you:

Although today’s interest rate rise is modest, it will hurt families who are already forced to borrow to pay for the essentials.

Phil Andrew, chief executive at StepChange Debt Charity, says politicians need to provide more help to theses households:

“Whilst a rise in interest rates might be right for the wider economy, from a consumer debt perspective many households are walking a precarious budget tightrope, as their incomes don’t stretch to cover the basics each month. These are the households that a rate rise will affect most.

Policymakers mustn’t lose sight of what a rate rise means for real people on a tight budget. The fact that the wider economy can cope doesn’t always mean individual households can. Government and policymakers need to take parallel steps to ensure support is there for those who are negatively affected, especially if more rate rises are coming.”

I mentioned earlier this morning that Mark Carney was known as the ‘unreliable boyfriend’ for failing to stick to his promises.

Calum Bennie, savings specialist at Scottish Friendly, thinks the governor has turned over a new leaf by raising rates today:

“Today’s rate rise means that Mark Carney has probably shaken off his tag of being the ‘unreliable boyfriend’ for good.

While the decision indicates the UK’s economy is picking up steam, it also means higher borrowing costs, so households must be even more prudent to absorb the additional cost. The move is good news for savers but still cash account rates are unlikely to beat inflation, so stocks and shares Isas remain better for those looking to grow their savings long-term.”

There’s not much reaction in the financial markets to the rate hike - which figures, as it was widely expected.

The pound has clawed back some of its losses, but is still slightly lower against the US dollar today at $1.31.

Shares are still being pummelled by those trade war fears, leaving the FTSE 100 down 93 points or 1.2%.

The Bank of England has hinted that it’s in no rush to raise interest rates again in the coming months.

It say that “any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.”

The Bank of England also has also warned that Brexit could damage the UK’s economic recovery:

The MPC continues to recognise that the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of EU withdrawal.

Updated

Why did the Bank raise interest rates?

The Bank of England says it is raising interest rates because the economy has recovered from its slowdown during last snowy winter.

The minutes of the Monetary Policy Committee’s meeting says:

Recent data appear to confirm that the dip in output in the first quarter was temporary, with momentum recovering in the second quarter.

The labour market has continued to tighten and unit labour cost growth has firmed. The MPC continues to judge that the UK economy currently has a very limited degree of slack. Unemployment is low and is projected to fall a little further.

The BoE also points out that prices are rising faster than its target (2%), so it is raising borrowing costs to squeeze inflation.

CPI inflation was 2.4% in June, pushed above the 2% target by external cost pressures resulting from the effects of sterling’s past depreciation and higher energy prices. The contribution of external pressures is projected to ease over the forecast period while the contribution of domestic cost pressures is expected to rise.

Updated

Every member of the Bank’s nine-strong monetary policy committee voted to raise interest rates.

Bank of England raises rates to 0.75%

NEWSFLASH: The Bank of England has voted to raise UK interest rates to their highest level in almost a decade.

The BoE is raising Bank rate to 0.75%, from 0.5%. That’s the highest level since March 2009, and only the second rise since the financial crisis struck a decade ago.

More to follow!

Updated

An interest rate rise would obviously be a blow to borrowers, as it would push up the cost of repaying debts.

This chart from Resolution Foundation shows how a rise to 0.75% would force a small number of mortgage owners to ‘take action’ in some way:

Back in June, the Bank of England’s MPC was split six-three -- with a trio of policymakers voting to raise interest rates.

Danielle Haralambous, UK Analyst at the Economist Intelligence Unit, predicts that the majority will vote to hike today, but it won’t be a 9:0 win for the hawks.

“We expect the MPC to raise the policy rate to 0.75% today, although it is unlikely to be a unanimous vote.

Some of the economic data has softened in recent months, notably core inflation and wage growth, which may prevent some MPC members from changing their vote in favour of higher interest rates.

Our economics correspondent, Richard Partington, explains why the Bank of England will (probably) raise borrowing costs today:

Inflation has remained stubbornly above the 2% target set for the Bank by the government, after having risen sharply straight after the EU referendum result.

Some rate setters on the MPC, including the Bank of England’s chief economist, Andy Haldane, also believe wage growth is just around the corner for workers, amid the lowest levels of unemployment since the mid 1970s, a factor that could help boost workers’ bargaining power for higher pay.

The summer heatwave, royal wedding and England progressing to the semi-final of the World Cup helped boost the economy, triggering stronger retail sales in April and May before they unexpectedly fell back in June. The Office for National Statistics found that the warmer weather helped the economy rebound from a slowdown earlier this year after heavy snowfall from the “beast from the east”.

More here:

Tension is rising in the City, with around 30 minutes to wait until the Bank of England’s interest rate decision.

Traders broadly expect borrowing costs to rise at noon today, to a nine-year high of 0.75%.

But this isn’t giving the pound any love. Sterling is still bobbing at a two-week low against the dollar, with some investors speculating that the Bank could dampen expectations of further interest rate rises any time soon.

John Goldie, FX Strategist at Argentex, explains:

“The Bank of England are firmly expected to raise rates this lunch time, only the second hike since 2007.

However, most commentators are expecting a “dovish” hike with perhaps some dissenters within the committee (one or two may vote to keep rates on hold still) and/or the statements to play down further hiking expectations in the near term.

Plus, you can’t discount the possibility that the Bank sits on its hands again. But that would badly hurt its credibility, given its recent guidance that a rate rise is close.

UK construction: What the experts say

Sue Kershaw, managing director of major project advisory at KPMG, says Britain’s builders benefitted from the hot summer, but warns that Brexit could derail the recovery seen last month.

She writes:

“Seeing housebuilding come back to good health is hugely positive. As the longstanding driver of activity, the weakening demand we’d seen in recent months did cause some concern and raised questions as to whether residential construction had peaked and was heading for a steady decline.

“But supply chain and cost pressures still remain a cause for concern. We’re seeing input costs continue to creep up and the outcome of Brexit negotiations is still far from clear. Those with infrastructure arms will also be concerned about the sluggish-looking civil engineering market, traditionally quite a reliable source of activity.”

Phil Harris, Director at BLP Insurance, fears that the collapse of the merger between shopping centre groups Hammerson and Intu could hurt construction.

“July was another strong month for commercial activity but the sector remains vulnerable to volatility.

British retailers continue to close shops at a pace and the full impact of shopping centre developer, Hammerson’s failed takeover of rival Intu may have yet to be fully felt.

With many predicting the closure of more Hammerson sites, growth in July may prove a false dawn.”

Brendan Sharkey, head of construction and real estate at accountancy firm MHA MacIntyre Hudson, points out that Carillion’s shock collapse in January has caused less damage than feared. However, a hard Brexit might not be shaken off as easily:

Construction has been relatively slow to wake up to the dangers posed by Brexit. Given the industry doesn’t depend on exports, the potential pitfalls of a no-deal Brexit have perhaps been easier to overlook. Yet construction does depend on the import of raw materials, and crucially on the free movement of labour. Over the next few months we will see more focus on contingency planning and demand for additional information and support from the government.

“The consequences of Carillion’s collapse were over-hyped but only a very foolhardy captain of industry can assume the same will be true about the consequences of a no-deal Brexit.”

China: We'd retaliate to US tariffs

Newsflash: China has hit back at America’s threats to impose steep tariffs on its goods (see earlier post).

Beijing’s commerce ministry has told reporters it is fully prepared to fight back, if America delivers on Donald Trump’s threat to impose 25% tariffs.

This is driving financial markets deeper into the red. The FTSE 100 is now down 80 points, with mining stocks leading the selloff.

Trivia corner: UK interest rate have never been pegged at 0.75%, since the Bank of England was established in 1694.

Back in July 2007, the BoE raised interest rates to 5.75% just as the credit crunch began. It was began cutting as the financial crisis kicked in, including a monster Bank Rate cut from 4.5% to 3% in November 2008.

In March 2009 it halved borrowing costs to 0.5%, where they remained until the Brexit vote prompted a cut to 0.25%, which was reversed in November 2017.

Labour: Public need help to handle higher interest rates

The pick-up in building activity in July will reassure the Bank of England, as it suggest the construction sector could handle higher borrowing costs.

However, yesterday we heard that manufacturing growth slowed a little last month, so it’s a mixed picture.

The opposition Labour party is concerned that consumers will be hurt by higher borrowing costs.

John McDonnell MP, Labour’s Shadow Chancellor, has warned that higher interest rates will push more people into debt:

“With wages still below 2010 levels and the gap between people’s income and outgoings at record levels, the concern must be that a pattern of interest rate rises will push more families into higher levels of debt.

“The Government needs to end its counterproductive austerity programme and raise people’s incomes.”

Here’s the key points from today’s survey of purchasing managers at UK construction firms:

UK construction PMI

Britain’s builders achieved an “impressive turnaround” in July, says Tim Moore, Associate Director at IHS Markit.

He sees several signs that the construction sector has strengthened this summer:

New business volumes expanded at the strongest rate since May 2017, while workforce numbers increased to the greatest extent for just over two- and-a-half years.

“House building was the bright spot for construction growth in July, alongside a stronger upturn in commercial development projects. Residential activity and commercial work both increased at the sharpest pace since December 2015, which contrasted with another subdued month for civil engineering.

UK construction growth hits 14-month high

Newsflash: Britain’s construction sector has recorded its fastest growth in 14 months.

Data firm Markit reports that builders picked up pace in July, led by a surge in housebuilding.

This pushed Markit’s construction PMI, which measures growth in the sector, up to 55.8 from 53.1. Anything over 50 shows growth, and this is the highest reading since May 2017.

Housebuilders reported the strongest pick-up in growth since the end of 2015.

More to follow....

Tariff threats hit stock markets

Stock markets around the globe are sliding today, thanks to the threat of a US-China trade war.

Investors have been spooked by the news that the Trump administration is considering a 25% tariff on $200bn of Chinese imports - previously it had been planning a 10% levy.

It’s the latest shot in an increasingly bitter and protracted trade spat between Washington and Beijing.

CNN explains:

The United States has already slapped 25% tariffs on Chinese goods worth $34 billion to punish Beijing for what it says are its unfair trade practices, such as forcing American companies to hand over valuable technology.

China immediately responded with equal measures.

In the latest step, President Donald Trump has directed US Trade Representative Robert Lighthizer to consider increasing the proposed tariff level on fruit and vegetables, handbags, refrigerators, and more. The trade office has extended its previous deadline of Aug. 30 to allow the public more time to comment on the new plan. Those comments are now due on September 5.

In London the FTSE 100 has shed 32 points, or 0.4%, to 7620, its lowest level in over two weeks.

There are heavier falls across Europe, with Germany’s DAX shedding 1.3%.

European stock markets this morning
European stock markets this morning Photograph: Thomson Reuters

Over in Asia, the Chinese markets have tumbled by around 2%.

Other markets also in the red as traders fear an escalating trade dispute will hurt growth and exports across the region.

Asian stock markest today

Kit Juckes of French bank Société Générale says the Bank of England’s interest rate decision is the main event of the day:

Bloomberg polled 58 forecasts...10 expect no change, and 48 expect a 25 basis point hike (including us). Sterling meanwhile, continues to bump along the bottom of its historic trade-weighted range.

There isn’t nearly enough good news in a much-anticipated rate hike to propel it higher, but the downside is limited.

An interest rate rise today would be risky, argues our economics editor Larry Elliott.

He points out that many UK households are struggling, meaning incomes are lagging spending for the first time in three decades.

Households are not borrowing because they are brimful of confidence. In many cases they are borrowing to make ends meet.

The MPC knows this and will go out if its way to reassure consumers and businesses that any further policy tightening will be both modest and gradual. Thursday’s rate rise is supposed to prevent wage inflation from taking off, underpin sterling and boost the Bank’s credibility without harming growth.

The next eight months will see Brexit negotiations come to a climax and the inevitable period of uncertainty means this is the MPC’s last opportunity to raise rates for some time. Yet the fact remains that this is an ill-timed and risky venture, not least for the millions overburdened with debt.

The pound will tumble if the Bank of England leaves interest rates on hold today, says Miles Eakers of global payments, FX and Treasury management firm Centtrip:

“A hawkish hike will boost the Pound but only for the short term. That said, Mark Carney may catch market participants off-guard again and not increase rates, which will weaken the Pound substantially and could fall as low as its yearly nadir of $1.2956 or even below.

Even if the BoE does hike, the Brexit negotiations are still under way, keeping the Pound under pressure for the foreseeable future.”

Sterling dips ahead of rate decision

The pound is dropping this morning, as the City braces for the Bank of England interest rate decision at noon.

Sterling has lost half a cent against the US dollar to $1.3068, its lowest in nearly two weeks.

Normally you’d expect a currency to rally when interest rates go up. But there may be some anxiety over whether the Bank will actually do the deed today.

Traders may also be anticipating a ‘dovish hike’ - the BoE could raise borrowing costs to 0.75%, but hint that the next rise is a long way away.

This chart shows how sterling has struggled, even as an August rate hike looked more likely.

Interest rate probability vs the pound/dollar rate

Laith Khalaf, senior analyst at Hargreaves Lansdown, suspects uncertainty over Britain’s exit from the EU is hurting the pound:

‘Thursday could be a hugely symbolic day if the Bank of England decides to raise interest rates above 0.5% for the first time since the financial crisis. However it doesn’t actually change too much on the ground. Markets are already expecting a rise, and from here on in, further hikes are going to be few and far between because UK economic growth is so fragile.

We could see some reaction from sterling though, which has remained resolutely weak against the dollar, despite rising expectations of a rate rise. That probably reflects the fact that economic data hasn’t been resoundingly positive in the lead up to this interest rate decision, plus of course the prospect of a no-deal Brexit has raised its head in recent weeks.

He also points out that rates could yet be cut, if the economy falters.

Even though rates are very low and will remain so for the foreseeable future, they can still move down if there is an economic shock to the system. Few people thought rates would ever be cut from 0.5%, but that’s exactly what happened following the EU referendum result.

The agenda: Bank of England day

The Governor of the Bank of England, Mark Carney
The Governor of the Bank of England, Mark Carney Photograph: WPA Pool/Getty Images

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

With Love Island finally off our screens, it’s time for the nation’s favourite unreliable boyfriend to show if he’s mended his ways, or is as fickle as ever.

The Bank of England will announce today whether UK interest rates are going up, for only the second time in a decade. The City widely expects a hike, after governor Mark Carney declared last month that the economy seems to have recovered from its slowdown at the start of 2018.

The City is pricing a 91% chance of an interest rate rise today. That would take borrowing costs up to 0.75% today -- their highest level since March 2009 (but still low in historic terms).

But traders are edgy. Carney has a long track record of capriciousness – promising that a rate hike is imminent only to back away when the big day arrives. So there’s a possibility that the Bank will shy away from pressing that rate hike button today.

The decision is unlikely to be unanimous, as some monetary policy committee members are concerned that the economy may not be strong enough to handle higher borrowing costs.

Kathleen Brooks of Capital Index explains:

The market is currently expecting an 8-1 split in favour of a hike, with Sir Jon Cunliffe the only member expected to dissent and vote against a hike.

However, if we get more MPC members voting against a hike then sterling could come under pressure, as it would suggest a future dovish stance by the BOE.

It’s four years since Labour MP Pat McFadden gave Carney his ‘unreliable boyfriend’ tag, but it’s not a title the governor appreciates. He would argue that businesses and households have understood his message -- that interest rates will rise at a modest pace as the recovery allows.

Also coming up

Data firm Markit will report how Britain’s construction sector performed last month. Economists predict that growth slowed, as the bounceback after the winter freeze fades.

Trade war fears are weighing on the markets again. There are reports that Donald Trump is considering slapping a 25% tariff on Chinese imports into the US, which would have a hefty impact on world trade.

The agenda

  • 9.30am BST: UK construction PMI for July
  • 12pm BST: UK interest rate decision, and Quarterly Inflation Report
  • 12.30pm BST: BoE governor Mark Carney’s press conference

Updated

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