Closing summary
Time for a recap.
The City of London is bracing for UK interest rates to rise before the end of 2017, after the Bank of England has dropped its loudest hint yet that borrowing costs will soon go up.
The financial markets are now pricing a roughly 50% probability that rates will rise from their current record low, of 0.25%, in November.
A rate hike is fully ‘priced in’ by next February.
Carney says:
The majority of members of the (Monetary Policy) Committee, myself included, see that that balancing act is beginning to shift, and that in order to ... return inflation to that 2% target in a sustainable manner, there may need to be some adjustment of interest rates in the coming months.
“Now, we will take that decision based on the data. I guess that possibility has definitely increased.”
The comments came after the BoE left interest rates unchanged, with just two of its nine policymakers voting for a hike.
But the minutes of the meeting stated that rates are likely to rise faster than the markets expect, and that a majority of MPC members expect to tighten policy ‘in the coming months’.
The comments sent the pound soaring by two cents to $1.34, a one-year high.
It also wiped more than 1% off top shares in London.
Some City analysts have predicted that rates could rise in November, when the BoE will also have new economic forecasts in its clutches.
For example, Charles St-Arnaud, Senior Investment Strategist at Lombard Odier Investment Managers, says:
If growth remains strong, which is likely based on the current business survey readings, and inflation continues to accelerate, we would not be surprised if the Bank of England increased its policy rate before the end of 2017. Therefore, we see further scope for market repricing
In terms of timing, the release of the Inflation Report at the November meeting provides a good opportunity for the Bank of England to act at that time, if current conditions continue to remain in place.”
But others argue that the Bank will maintain its reputation for talk, but not action.
Sam Hill of Royal Bank of Canada suspects that, despite Carney’s bold talk, the first rate hike in a decade might not come until 2018...
As this is the last meeting before the MPC’s projections are updated for the November Inflation Report, we think that if the Committee wanted to firmly signal a hike for that meeting, it would have chosen a different form of words than ‘over the coming months’.
In our view, the minutes don’t communicate whether or not November 2017 or February 2018 is more likely, just that a move at either of those meetings is more likely than it was back in August. A more hawkish intent, but a long way from a pre-commitment to a November hike.
What’s unarguable, though, is that November’s MPC meeting will be extremely exciting....
Here’s our full news story on the situation:
And on that note, let’s wrap up for the night. Thanks for reading and commenting. GW
FTSE hit by strong pound
Britain’s leading share index has ended the day in the red, shedding more than 1%.
The surging pound hit the share prices of major exporters. Britain’s housebuilders were also among the top fallers, with analysts saying that housing demand would suffer from higher interest rates.
Mining giants also took a hit from weak Chinese economic data overnight; retail sales, industrial production and company investment all missed forecasts, suggesting weaker demand for metals.
This all left the FTSE 100 looking decidedly unperky, down 84 points at 7295.
Not every share suffered, though. Banks rose, on the prospect of higher profitability if rates go up. And Next had a storming day, up 13% after telling shareholders this morning that it was doing better than expected this year.
Carney: Possibility of a rate hike has increased
Breaking! A flurry of comments from Mark “Snapchat” Carney have just hit the newswires.
The Bank of England’s governor has told a TV interview that:
- The possibility of a rate hike has definitely increased, and rates may need to be adjusted in the coming months.
- There has been a ‘shift’ in the balancing act which the Bank is performing
- UK prices are going up because of the drop in the pound.
- He was among the majority on MPC who believe some withdrawal of monetary stimulus will be needed in the coming months, if the economy follows its current path.
This is sending City traders scrambling to buy the pound, in anticipation of an interest rate rise soon.
Sterling has spiked to $1.3394, a jump of around two cents today, to a new one-year high.
Here’s a sentence I never expected to write. The Bank of England has created a new Snapchat filter to mark the launch of the Jane Austen £10.
Governor Mark Carney looks terribly pleased about it too:
I can’t imagine many of Carney’s predecessors posing in a flurry of new tenners. Perhaps we’ll be able to reuse it if the Bank ever launches helicopter money....
In the minutes of this week’s meeting, the Bank of England states that it wants to see a “continued erosion of slack” before raising interest rates.
They are referring to slack in the labour market - when it runs out, firms are forced to offer higher wages which can feed through to inflation.
Britain’s employment rate is now at a record high. So if the UK keeps creating jobs, that could tip the BoE into pressing the button on a rate hike.
Analysts from Morgan Stanley say, in a new research note:
If employment growth continues at the current robust rate (0.6%Q, +181k), and is accompanied by 3Q growth above the BoE staff projection of 0.3%Q, then we would now expect the MPC to hike at the November 2 Inflation Report meeting.
But at the moment, we forecast a deceleration in employment growth as a lagged effect of this year’s slowdown in growth, which we think should be enough to keep the MPC on hold.
They also provide this graph, showing how real wages (green) have started shrinking as inflation (yellow) has risen.
Rabobank: Rates won't rise this year
By sounding so hawkish today, the Bank of England has managed to strengthen the pound without actually having to raise interest rates.
Talking a currency up, or down – depending if you want to get inflation higher or lower – is a key central bank tactic these days.
Jane Foley, head of FX strategy at Rabobank, predicts that the BoE will be pleased to see the market reaction to today’s announcement. But she suspects interest rates won’t rise until mid-2018.
“Many will understandably now think that a rate rise in imminent, but in fact our view is that it is more likely to be next summer. This is because the MPC is still dominated by doves, such as Mark Carney, who are concerned about the impact higher rates could have on real wages so dependent on consumer spending.
“Of course, the risks could change, particularly if sterling were to devalue further, but for now the Bank’s rhetoric appears to have done its job.”
The price of short-dated UK government debt has fallen since the Bank of England’s announcement, pushing up the interest rate (or yield) on the debt.
That’s another sign that the City is expecting the Bank of England to withdraw some stimulus, perhaps in November.
Craig Inches, Head of Short Rates and Cash at Royal London Asset Management, says
The sell-off on Thursday was particularly pronounced among shorter dated gilts, more sensitive to forthcoming changes in interest rates, where two year yields hit a new high for this year and rocketed ever closer to pre-referendum levels.
“In our view, although the die is not quite cast on raising rates just yet, any policy decisions which move government bond yields back towards more normal levels are a welcome return towards bond markets which look more connected to economic fundamentals.”
People have been queuing outside the Bank of England this morning, to get their hands on the first new £10 notes, featuring Jane Austen.
Caroline Criado-Perez, who led a campaign to have more women on Britain’s banknotes, has said she’ll donate her first Jane Austen tenner to a local women’s shelter.
Despite the pound’s rally, some City experts aren’t convinced that interest rates will really rise this autumn, as the Bank of England is hinting.
There’s a good argument that the UK economy isn’t ready for higher borrowing costs, given wage growth is weak, as it enters the teeth of the Brexit negotiations.
Yael Selfin, chief economist at KPMG, says the BoE is likely to tread very cautiously.
She writes:
The meagre wage growth we are seeing in spite of these trends is making it harder for the Bank of England to raise rates, especially as any rise will put yet more pressure on households who are already under strain due to a fall in their real earnings.
Updated
The surge in sterling is hurting share prices in London.
The FTSE 100 has shed 76 points, or 1%. That’s partly because a stronger pound will cut the value of exporters’ earnings.
Housebuilders are also among the fallers, with traders calculating that higher interest rates could hurt demand for new property.
Full story: Bank signals rate rise is coming.
My colleague Richard Partington has analysed the minutes of today’s Bank of England, and writes:
The Bank of England left interest rates on hold at their record low of 0.25% amid sluggish pay growth and a squeeze on household spending, while hinting that a rise may come sooner than expected.
The Bank’s monetary policy committee was split, with Michael Saunders and Ian McCafferty calling for an immediate rise to 0.5% to keep rising inflation in check. City economists had expected a vote of 7-2 to hold the rate steady.
The Bank’s decision comes amid “considerable risks” to the economy from the Brexit process, as households, businesses and the financial markets respond to the vote to leave the European Union. “The circumstances since the referendum on EU membership, and the accompanying depreciation of sterling, have been exceptional,” the MPC said.
However, with signs of a strengthening economy, Threadneedle Street said “some withdrawal of monetary stimulus was likely to be appropriate over the coming months in order to return inflation sustainably to target”, according to minutes of the MPC meeting.
Although the MPC opted to keep rates on hold, Threadneedle Street noted GDP had risen by 0.3% in the three months to June while unemployment has fallen to 4.3%, its lowest level in more than 40 years.
This could lead to a rate rise sooner than anticipated by financial markets, should inflation continue to rise and the economy continue to perform well. The Bank said any increase would come at a gradual and limited pace....
Here’s the full story:
Pounds hits new one-year high
Speculation of a November interest rate hike has just pushed sterling up to a new one-year high against the US dollar.
One pound is now worth $1.3337, the highest level since September 2016, having gained more than a cent today.
This means sterling has recovered around half its losses in the aftermath of the Brexit referendum, but it still worth around 11% than in June 2016.
Updated
A November rate hike is a “real possibility”, agrees Kathleen Brooks of City Index.
She writes:
The Bank of England may have left rates on hold and the vote split may have stayed at 7-2, however, the tone of the statement was definitely more hawkish, and the prospect of a November rate hike is now a real possibility, in our view....
We tend to assume that the BOE will make any major move at a meeting when the Governor presents the Inflation Report, which leaves November or February. Surely, if inflation is rising and the labour market continues to create jobs at its current clip then November could be key?
Andrew Sentance, senior economic adviser at PwC, fears that the Bank of England has waited to long to raise interest rates.
He argues:
“The challenge facing the MPC is to deliver a gradual increase in interest rates which can be absorbed by the economy.
By continually delaying the first move in this direction, there is an increasing risk that when interest rates do start to rise, it will take consumers and borrowers by surprise - and therefore create a bigger shock to the economy than it needs to be.”
The City now reckons there is a 42% chance that the Bank of England raises interest rates in November.
Plus, the possibility of a rate hike by December has risen to 54%.
(thanks to Michael Hewson of CMC Markets for the chart)
Updated
Dean Turner, economist at UBS Wealth Management, is sceptical that the Bank of England will actually raise interest rates soon.
He believes that the UK economy will struggle this autumn:
In our view, growth is likely to disappoint in the months ahead... [and] the track ahead presents obstacles on the political front.
Theresa May is likely to reinforce her Brexit credentials in her speech next Friday and at the Conservative Party Conference, so let’s not get too carried away with the current rally.
The pound has now jumped back over $1.33, close to yesterday’s one-year high, as chatter of a November interest rate hike builds.
Updated
Capital Economics: Rate hike could come in November
UK interest rates could be raised in just two months time, says Paul Hollingsworth of Capital Economics.
Hollingsworth says that the Bank of England’s hawkish words today (see here) may pave the way for a November hike.
He writes:
The minutes struck a considerably more hawkish tone than in August in suggesting that “some withdrawal of monetary stimulus is likely to be appropriate over the coming months”.
Indeed, this supports our long-held view that market expectations had gone way too far in expecting rates to remain on hold until 2019. If the economy continues to hold up, and there are clearer signs that wage growth is building, then the first hike could some somewhat earlier than we had previously envisaged, possibly as soon as the next meeting in November alongside the Inflation Report.
Bank of England holds: Instant reaction
David Robinson of MNI says the BoE has moved closer to raising interest rates, but remains split over the timing.
@bankofengland majority say tightening appropriate "in coming months". So MPC more hawkish than in Aug, but split over near-term hike.
— David Robinson (@DavidRobinson2K) September 14, 2017
Chris Giles of the Financial Times says a rate hike could come in November, if the Bank of England actually delivers on its words....
MPC really hawkish - preparing the ground for a November rate rise
— Chris Giles (@ChrisGiles_) September 14, 2017
These minutes appear to put MPC on an ECB-style softening up exercise. Let's see if they will put their money where their mouths are
— Chris Giles (@ChrisGiles_) September 14, 2017
James Mackintosh of the Wall Street Journal suspects the pound has over-reacted.
What Bank of England says: "majority...if...gradual...some...likely...gradual...limited".
— James Mackintosh (@jmackin2) September 14, 2017
What GBP hears: "Rates UP UP UP UP, no question"
But right now, the MPC’s two hawks look a little lonely....
The @bankofengland Monetary Policy Committee voted 7-2 to hold the Bank Rate at 0.25%, with McCafferty and Saunders once again dissenting. pic.twitter.com/kfWoCRTMaG
— CBI Economics (@CBI_Economics) September 14, 2017
Pound jumps as BoE hints at rate hike
Boom! The Bank of England is warning that interest rates are likely to rise faster than the City expects.
The minutes of this week’s Monetary Policy Committee meeting state that:
All MPC members continued to judge that, if the economy were to follow a path broadly consistent with the August Inflation Report central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than current market expectations.
They add that a majority of MPC members believe “some withdrawal of monetary stimulus was likely to be appropriate over the coming months.”
That’s a clear signal to investors that the Bank is getting an itchy trigger finger.
The pound has jumped three quarters of a cent in reaction, up to $1.329 against the US dollar.
Sterling rallies after BoE says policy could be tightened in "the coming months", far quicker than market currently expects. Pound $1.3280 pic.twitter.com/aA5XOKeXUN
— Jamie McGeever (@ReutersJamie) September 14, 2017
Updated
BoE: Economy looks 'slightly stronger' than we thought
Now this is interesting. The Bank of England says the UK economy is looking a little more robust than expected.
It says:
Since the August Report, the relatively limited news on activity points, if anything, to a slightly stronger picture than anticipated. GDP rose by 0.3% in the second quarter, as expected in the MPC’s August projections, although initial estimates of private final demand were softer than anticipated.
The unemployment rate has continued to decline, to 4.3%, its lowest in over 40 years and a little lower than forecast in August.
The BoE has also left its asset purchase scheme, QE, unchanged:
MPC holds #BankRate at 0.25%, maintains government bond purchases at £435bn and corporate bond purchases at £10bn. pic.twitter.com/D1w1kcvgrz
— Bank of England (@bankofengland) September 14, 2017
Two policymakers, Michael Saunders and Ian McCafferty, broke ranks again and voted to raise borrowing costs to 0.5% to tackle inflation.
However, the other seven members of the MPC were unconvinced.
BANK OF ENGLAND INTEREST RATE DECISION
Breaking! The Bank of England has voted to leave interest rates at their current record low of 0.25%.
More to follow
Tension is mounting in the City as traders prepare for the Bank of England’s interest rate decision, at noon precisely.
Although the Monetary Policy Committee will probably leave rates on hold, the big question is whether it is split, again. In particular, whether chief economist Andy Haldane changes his vote and pushes for a hike.
On a brighter note, John Lewis did export more to the rest of the world last year.
Today’s statement days:
Overseas, we export Waitrose products to 58 countries, and sales were up 9.1%, achieved through additional volume with existing customers.
How John Lewis shows the problems in UK economy
John Lewis’s problems illustrate the dilemma facing the Bank of England today as it decides whether to leave UK interest rates unchanged.
The fall in the pound has pushed up John Lewis’s costs, by making imports pricier. Ideally, it would pass this onto consumers, protecting its market share. But people are already squeezed by falling real wages, so the company clearly feels price hikes would be counterproductive, and simply drive shoppers from the aisles.
Jon Copestake, chief retail and consumer goods analyst at the Economist Intelligence Unit, says other retailers face the same challenge.
Caught between the rock of rising costs and the hard place of increased price consciousness among consumers the retailer has been faced with the difficult choice between passing costs onto shoppers or absorbing those costs and seeing lower profit margins.
In this case the latter course has largely been chosen, but on doing so revenues have exhibited steady growth while profits have halved.
So the Bank of England policymakers face a similar tricky decision - do they leave interest rates on hold and allow inflation to keep rising, or raise rates costs and squeeze borrowers.
Joshua Mahony of IG sums it up:
With real incomes falling, the BoE must decide whether it is preferable to raise rates in an effort to strengthen the pound (and reduce inflation), or whether to remain accommodative to help push up wages.
Here’s a copy of the letter which Theresa May will receive from the Northern Rock small shareholders group today:
Updated
Northern Rock shareholders seek compensation
In other news, a group of pensioners are heading to Downing Street to demand compensation over the collapse of Northern Rock a decade ago.
The N Rock Small Shareholder Action Group are seeing redress for the 150,000 small shareholders who were wiped out after Northern Rock was nationalised in February 2009, as the financial crisis grew.
The Action Group claim that the Labour government ‘stole’ Northern Rock’s valuable assets, and wants Theresa May to examine their case.
Chairman of the Action Group, Dennis Grainger, will hand a letter over at 10 Downing Street this afternoon.
He says:
“Three times I tried to get a meeting with David Cameron to ask him to review the unfair handling by the previous disingenuous administration.
Now may be an appropriate time for the Prime Minister to apply the ‘fairness’ in which she clearly believes.”
It’s exactly 10 years since queues formed outside Northern Rock after the bank was forced to seek help from the Bank of England. A twitter account called @TBTFLive is reliving the crisis....
Queues countrywide. The logic of "the City won't lend to them or buy their stock but your money is safe" is proving less than compelling. pic.twitter.com/kBAsseBaau
— Real Time Crisis (@TBTFLive) September 14, 2017
Kew, West London. Widow Pam Hilleard is sick with worry. The £870,000 proceeds from her house sale are stuck at Northern Rock.
— Real Time Crisis (@TBTFLive) September 14, 2017
Worried last week, she decided to leave the money till Monday, when interest will be paid. Now, the queues are panicking her.
— Real Time Crisis (@TBTFLive) September 14, 2017
John Lewis: What the City says
Guy Ellison, Head of UK equities at Investec Wealth & Investments, says John Lewis is struggling because it simply cannot pass on its rising costs to consumers.
Ellison says:
“The news that John Lewis’ profits have fallen by more than 50% is a clear indication of the scale of the restructuring task it faces.
The underlying profit numbers, which are down 5%, are more indicative of the current state of affairs at the company whereby cost of goods have gone up as result of a weakening pound and which can’t be fully passed on to an already stretched consumer, who has seen the cost of living rise faster than wages.
Neil Wilson of City firm ETX Capital argues that the company needs to up its game.
John Lewis has rest on its laurels for so long. The customer experience is dreadful - too many people standing around doing nothing (IMHO)
— Neil Wilson (@neilwilson_etx) September 14, 2017
Next: Brexit-fuelled price rises may soon be over
The boss of fashion giant Next has offered some comfort for cash-strapped consumer.
Lord Wolfson has predicted that the worst of the Brexit-fuelled price hikes on the high street are over:
PA has the details:
Chief executive Lord Wolfson told the Press Association the impact of the Brexit vote on the pound “doesn’t look like it’s fuelling an inflationary spiral and is passing right through”.
Shoppers must hope he’s right. UK clothing and footwear prices jumped at a record rate in August, according to Tuesday’s inflation data.
Martin Lane, managing editor of money.co.uk, suspects that John Lewis will be forced to pass rising import costs onto consumers.
He says:
“It’s no surprise that John Lewis have seen a fall in consumer demand, but to take more than a 50% hit to their profits is pretty worrying. It’s good of John Lewis to not pass on all these rising costs to consumers, but I do wonder how long they will be able to soak them up for.
“It’s becoming evident that shoppers are tightening their purse strings and saving where they can. The rise of the cheaper supermarkets like Aldi and Lidl could mean that people are looking for a bargain whenever they can and only using the likes of Waitrose for more luxury items.”
ITV’s Chris Choi tweets:
significant that John Lewis profits down 50% - it's costs are up but it's resisting passing that on on to customers "for a while"says boss
— Chris Choi (@Chrisitv) September 14, 2017
Updated
Full story: John Lewis hit by Brexit uncertainty
Here’s my colleague Angela Monaghan on John Lewis’s financial results:
John Lewis has said its profits more than halved in the first six months and warned that weaker consumer demand caused by Brexit uncertainty and rising prices will hit the business in the remainder of the year.
The group, which owns Waitrose supermarkets as well as the John Lewis department store chain, said it was operating in a tough retail market as UK consumers were less willing to spend money against a backdrop of higher inflation and political uncertainty.
John Lewis chairman Sir Charlie Mayfield said the retailer had not passed on to shoppers the full extent of its own rising costs
“Nobody should be surprised that this is a tough market for retailers. There’s any number of reasons for that,” he told BBC Radio 4’s Today programme.
“The reason our profits are down is predominantly because of margin, and cost prices are rising. It’s a very competitive market, retail prices are not rising as fast.”
Pre-tax profit at the group fell 53% in the first six months of the year, to £26.6m. When redundancy and restructuring costs were stripped out, pre-tax profit was down almost 5% at £83m as higher costs ate into margins. Group sales rose by 2.3% over the period, to £5.4bn.
Here’s the full story:
Here’s some social media reaction to John Lewis’s drop in profits:
Not surprised! My wages as a Public Sector Employee haven't gone up in decades! Beautiful stuff in John Lewis but I want value for money! https://t.co/yjdBoi4hhy
— Susan Sharp (@SharpSharpsusan) September 14, 2017
Those John Lewis figures don't bode well for corporation tax receipts. Other taxes will be going up in the budget. Good old Brexit.
— Rob Bingham (@robbingham) September 14, 2017
Looks like @andy4wm saw it coming and jumped before the trouble kicked-in. John Lewis are going to need a hell of an advert this Christmas
— iggy-m (@IoiTherealnacho) September 14, 2017
(That’s Andy Street, the former John Lewis boss who resigned last year to (successfully) run for Mayor of the West Midlands).
John Lewis says its profits have suffered because it has only passed on “very few” of its higher costs onto consumers.
One shopper doesn’t agree.....
Charlie Mayfield's assertion that #JohnLewis aren't passing on cost increases not borne out by my personal experience #Sterling #Brexit
— Red Knight (@redknighttrader) September 14, 2017
City analyst Connor Campbell of SpreadEx says:
John Lewis issued a pretty stark warning this morning, stating that ‘Brexit is having an effect on the economy, no question’, after its profits fell a stomach-churning 53%.
Retail expert Nick Bubb adds that John Lewis is “less bullish” than Next about its prospects. He also points out that JL’s profits were hit by £53m of restructuring costs (including redundancy payouts).
Updated
John Lewis: Tough times ahead
John Lewis has also warned that high inflation and political uncertainty will continue to eat into profits.
Looking forward to 2018, the company says:
We are well set for our all-important seasonal peak, but expect the headwinds that have dampened consumer demand and put pressure on margins to continue into next year.
Our full year profits will depend, as they always do, on the final quarter which typically accounts for well over half of our profits before exceptional items. We expect margin pressure to continue into the second half year and we will incur higher pension accounting charges, as a result of low market interest rates at the start of the year. These will impact our overall profits.
Newsflash: The Swiss central bank has left interest rates in Switzerland at their current record low of minus 0.75%, and pledged to defend its position in the foreign exchange markets if necessary.
*SNB PLEDGES TO INTERVENE IN FX MARKETS IF NEEDED
— Michael Hewson 🇬🇧 (@mhewson_CMC) September 14, 2017
Switzerland is imposing negative rates to prevent the Swiss franc rising too high against other currencies, and hurting its economy.
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Next shares jump thanks to 'less challenging' outlook
While John Lewis struggles, fellow retailer Next has cheered the City this morning.
Next has “modestly” upgraded its sales and profit guidance for this year, after finding that 2017 hasn’t been quite as tough as it feared.
Chief executive Simon Wolfson explains:
The first half of the year has been difficult and sales and profits are in line with our cautious expectations.
However, our performance in the last three months has been encouraging on a number of fronts and whilst the retail environment remains tough, our prospects going forward appear somewhat less challenging than they did six months ago.
Given Wolfson’s previous comments, this is stirring stuff! Last year, for example, he said business felt like “walking up the down escalator”.
Indeed, the Financial Times says Wolfson is “practically giving it the jazz hands”.
Share have jumped by 8% in early trading, as investors hope that Next is turning a corner.
But...today’s figures do confirm that British retail is struggling. Next’s pre-tax profits are down by almost 10% this year, including a 33% tumble in earning at its Retail arm (shops, rather than its Directory operation).
Updated
John Lewis chairman: We need serious Brexit debate
John Lewis’s chairman, Sir Charlie Mayfield, says Britain needs a “serious parliamentary debate” on Brexit, having seen his company’s profits slide this year.
He told Radio 4’s Today Programme that uncertainty over Britain’s future is damaging consumer confidence, and hurting businesses.
As Mayfield put it:
We should be under no illusions. Brexit is having an effect on the economy, no question.
It’s the same for everybody, and the main effects are sterling and confidence.
John Lewis boss calls for a "serious parliamentary debate" on Brexit, saying uncertainty is damaging the economy #r4today pic.twitter.com/aXpIx7vTEx
— BBC Radio 4 Today (@BBCr4today) September 14, 2017
Updated
John Lewis profits slump 53%
John Lewis has sent a shiver through the retail sector this morning, by revealing that its earnings have more than halved in the first half of this year.
Pretax profits across the group - seen as a bellwether for middle class households - fell by 53% in the last six months, to £26.9m.
John Lewis blamed the surge in costs since the pound slumped last year, saying:
The first half of this year has seen inflationary pressures driven by exchange rates and political uncertainty.
These have dampened customer demand, especially in categories connected to the housing market.
Like-for-like sales at John Lewis’s department stores only rose by 0.1%, while its Waitrose supermarket chain grew sales by 0.7%.
But a range of one-off items, including an “exceptional charge” of £56m for restructuring and redundancy costs, hit its bottom line.
This chart has the details:
Updated
The agenda: Bank of England meeting today
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It’s Bank of England Day! Britain’s central bank finds itself on the horns of a painful dilemma today, as policymakers meet to set interest rates.
Already this week, the BoE has seen inflation spike back to 2.9%, a four-year high, increasing the pressure to raise borrowing costs. But that was swiftly followed by yesterday’s depressing earnings figures, showing that wage growth remained sluggish at 2.1%.
FT main story #tomorrowspaperstoday pic.twitter.com/NMIfbx45vG
— Helen Miller (@MsHelicat) September 13, 2017
With real wages still falling, British households trapped in a cost of living squeeze, and Brexit uncertainty still clouding the economy, can the Bank really hike interest rates today?
The City thinks not; economists expect rates to remain at their record low of 0.25%.
But at least two policymakers on the Monetary Policy Committee are likely to vote for a rate hike. There’s even a chance that Michael Saunders and Ian McCafferty could be joined by a third hawk, chief economist Andy Haldane.
It seems likely that the Bank will warn that it can’t tolerate higher inflation for ever.
Royal Bank of Canada’s analysts say:
Following news of the faster-than-expected rise in CPI inflation this week to 2.9% y/y, and the already flagged limited tolerance for above-target inflation, it seems likely that the meeting minutes will have a hawkish tinge to them.
Given that this was also followed by news that average earnings growth stagnated at 2.1% 3m/y, concerns about the limited scope for consumer spending momentum could balance out the upside news on inflation.
So all eyes will be on the Bank of England at noon today.
On a lighter note, the Bank is also launching its new £10 note - featuring Jane Austen.
We've got Jane Austen on the show this morning...@SkyNews #Sunrise#newtenpoundnote #coffeesonme pic.twitter.com/ArhEzYEVu3
— Sarah-Jane Mee (@skysarahjane) September 14, 2017
There’s also a flurry of UK company news this morning, with John Lewis, Next and Morrisons all reporting results.
At first glance they look mixed, with John Lewis reporting falling profits but Morrisons saying its turnaround plan is working.... More to follow.
European stock markets are expected to dip at the open, wit the FTSE 100 called down 0.1%.
Here’s the agenda
- 8.30am BST: Swiss National Bank interest rate decision
- 12pm BST: Bank of England interest rate decision
- 1.30pm BST: US inflation figures for August
Updated
