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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Mark Carney warns of Brexit twists after leaving interest rates on hold – as it happens

Mark Carney, Governor of the Bank of England arriving for today’s quarterly Inflation Report press conference.
Mark Carney, Governor of the Bank of England arriving for today’s quarterly Inflation Report press conference. Photograph: Kirsty Wigglesworth/AP

Closing summary: No rate rise, but Brexit twists ahead

That’s all for today.

Here’s Katie Allen’s news story on today’s Bank of England moves:

The Bank of England raised its forecasts for the UK economy sharply higher, increasing the likelihood the next move in interest rates will be up not down.

After further signs that consumers and businesses have shrugged off the Brexit vote, the Bank used its latest outlook to predict the economy would grow 2% this year and unemployment would be much lower than previously thought.

That GDP growth forecast was well above the 1.4% figure policymakers had forecast in November and is in stark contrast to the slowdown predicted by the Bank and others in the wake of last summer’s vote to leave the EU.

At its rate-setting meeting the Bank’s monetary policy committee, led by governor Mark Carney, voted unanimously to hold interest rates at the record low of 0.25% and to continue with a programme of electronic money printing known as quantitative easing.

Presenting the Bank’s forecasts, Carney said that plans for more government spending, stronger world growth and other factors had made policymakers more upbeat about the year ahead. He also conceded the Bank had been too gloomy on the prospects for consumer spending since the Brexit vote.

“Growth has remained resilient since the referendum... The monetary policy committee expects growth to be stronger over the forecast period than in November,” he told a news conference.

But he flagged potential challenges ahead and sought to emphasise that the Bank could still move interest rates in either direction.

“The Brexit journey is really just beginning. While the direction of travel is clear, there will be twists and turns along the way. Whatever happens, monetary policy will be set to return inflation sustainably to target while supporting the necessary adjustments in the economy,” Carney said....

And here’s Reuters’ take on Carney’s warning about the risks of moving City banks overseas after Brexit:

Attempts to relocate London-based financial markets as Britain leaves the European Union could pose big risks to the financial stability of the continent, Bank of England Governor Mark Carney said on Thursday.

Carney used derivatives as an example of a highly complexmarket dominated by London that requires constant supervision,which would be difficult to relocate.

“There is huge operational risk involved in that, there’s huge financial risk involved in that. It’s not something you do overnight,” he said at a news conference after the BoE left interest rates on hold.

Carney added it could take around four years for just one institution dealing in derivatives to move successfully. <end>

Thanks for reading and commenting. GW

Campbell Robb, chief executive of the Joseph Rowntree Foundation, is concerned that British families face a pay squeeze next year:

Today’s predictions offer little relief for millions of families on low incomes. The Bank of England forecasts pay will rise by 3.25% in 2018, barely above predicted inflation of 2.8%. This means that most people struggling now will still be struggling in a year’s time.

“The good news is that the economy is also predicted to grow by 2%, which is more than previously expected. But economic trends over recent years show that people on lower incomes can’t rely on economic growth alone to raise their living standards.

“Less wealthy families spend more of their income on basics like the weekly shop, meaning that they are hit harder by rising prices. People in the bottom fifth of the income scale typically spend £1 in every £6 on food, compared with £1 in every £12 for the richest fifth.

“If we are serious about helping people who are just about managing, then we need to get to grips with the high cost of living, which tips millions of people into poverty.”

Mark Carney tried to argue today that the Bank of England should get some credit for the UK economy’s resilience since the Brexit vote.

But that’s not a good enough excuse for messing up its forecasts last summer, argues our economics editor Larry Elliott:

The Bank of England’s inflation report was supposed to be a dull affair. The City thought the quarterly health check of the UK economy would be a bit of a yawn.

Big misjudgment, as it happens.

The Bank dropped a bombshell by announcing rosy new forecasts showing that it expected the economy to grow by 2% in 2017. A growth upgrade by the Bank from November’s 1.4% forecast was anticipated following the strong performance of the economy in the second half of 2016. Such a big one was not.

The new forecasts are the latest embarrassment for the Bank. In August, it said the economy was likely to show virtually no growth in the third and fourth quarters of 2016. In fact, activity expanded by 0.6% in both and the momentum will carry over into the first half of 2017.

Last August, Threadneedle Street was pencilling in growth of just 0.8% in 2017 even after taking into account the impact of its emergency post-referendum cut in interest rates and the £60bn boost to quantitative easing. Now it says 2017’s growth will be only slightly slower than the 2.3% it was forecasting last May, when it assumed the referendum vote would go the other way....

More here:

Jamie Dutta, senior market analyst at Faraday Research, says Mark Carney now faces a ‘high wire’ act this year.

The first ‘Super Thursday’ of the new year kicked off with no change to its monetary policy settings as expected. Of most interest was the Quarterly Inflation Report (QIR) which showed a second consecutive upgrade to the growth outlook but notably, an inflation outlook which stayed largely unchanged.

Having shifted back to neutral in its policy stance in November, any hope of a more hawkish policy stance by some analysts was put on hold..

Now, Carney will have an interesting balancing act to trade off during this year. Above-target inflation will battle with weaker growth from potential Brexit headwinds and it is the squeeze on real incomes which will be critical to which side the Committee plumps for.

Pound keeps falling after 'dovish' Inflation Report

I failed to mention earlier that the Bank of England has reassessed its view of Britain’s labour market, pushing down the “equilibrium rate of unemployment” to between 4% and 4.75%, from 5%.

In practice, that means that the Bank believes the jobless rate could fall further, before it would have to raise interest rates.

And that has helped to drive the pound down today, hitting just $1.254 (a drop of 1.5 cents from this morning’s highs).

The pound vs the US dollar today
The pound vs the US dollar today Photograph: Thomson Reuters

Kathleen Brooks of City Index says the markets have decided that today’s Inflation Report is ‘dovish’, even though the Bank has hiked its growth forecasts.

UK yields have fallen alongside the pound, which is nearly 1% lower since the Report was released. In contrast the FTSE 100 is rising. So, what made this Report so dovish?

We think two things have made the market reassess the BOE’s willingness to hike rates in the foreseeable future:

1, it did not increase its inflation forecast, and now expects inflation to peak at 2.8% in 2018.

2, the Bank lowered the equilibrium rate of unemployment to 4-4.75%, from 5%. Thus, the UK unemployment rate, currently at 4.8%, could fall substantially before the BOE would consider this an inflation risk. These two developments are worth watching closely.

I think Mark Carney was specifically talking about the danger of taking responsibility for the huge derivatives business that currently operates in London:

Carney: Europe faces 'black box' risks if City firms move overseas

Q: Isn’t it possible that Brexit will only pose a low risk to financial stability in continental Europe, as City banks can move their operations to other European countries?

Mark Carney shoots back that he “totally disagrees” with this logic.

Operations in the City are “highly complex” and need to be continually supervised. The people are here, the market are here, the regulators are here.....

It isn’t easy to pick that up and move it to another jurisdiction - and it cannot happen overnight, Carney argues.

It can take four years for a major global institution to relocate to the UK, and move people, capital, trading books, and collateral to its new base.

We’re talking about moving all the capacity [in the City], in an extreme scenario after Brexit. These risks can’t be underestimated.

The governor then fires a warning shot at any country considering wooing City firms to move to them.

That jurisdiction would be taking a “black box risk” if financial firms moved to them on a “workaround basis”, Carney concludes.


Updated

Former Bank of England policymaker Andrew Sentance argues that the BoE is keeping rates too low.

Mark Carney suggests that a significant pent-up investment demand could be released, once we have more clarity on Britain’s future relationship with the EU.

Right now, projects that had already been ‘green-lighted’ before June’s referendum are carrying on, but projects that rely heavily on the EU single market are being deferred.

Q: You’ve argued today that Britain isn’t in a debt-fuelled consumer spending boom....so is this really an issue for the Bank’s Financial Policy Committee (which handles financial stability) rather than the MPC (which sets interest rates)?

Mark Carney agrees, saying the FPC and the PRA (Prudential Regulation Authority) must consider whether consumer borrowing is too high.

He cites the danger of a group of people who are very indebted who will face serious problems repaying their debts when borrowing costs rise, potentially damaging the wider business cycle.

Updated

Carney: Inflation to hit 2% this month

Mark Carney says the UK inflation rate will probably hit the Bank’s target, of 2%, this month due to the 18% depreciation in the value of the pound since June.

Updated

Carney: We made the right call after Brexit vote

Q: How worried are you about the Bank’s failure to anticipate that consumer spending would hold up since the EU referendum vote?

I’m not, Carney replies smoothly.

Last summer’s circumstances were exceptional. And we believe the decisions we took were correct, which is why because we’ve just confirmed our policy stance today.

Carney also wants some credit for Britain’s robust growth since June:

There is a case that we helped to support the economy during an important time.....and we will help support the economy as the squeeze on real incomes starts to come in, this year and next year.

If import prices go up, then the benefits don’t go to UK firms -- so bosses won’t be in a position to compensate workers for higher prices in the shops, adds deputy governor Ben Broadbent.

Q: Is it really likely that UK workers won’t push for pay rises, given the labour market is tightening and there are signs of fewer migrants coming to Britain?

Carney points out that wage growth has been subdued over several years.

The bank’s own agents have reported lower wage settlements than forecast, but the Bank will look “quite closely” at UK pay growth excluding bonuses.

Carney: Central bankers' 15 minutes of fame is nearly over

Q: Is it harder to be a central banker when political commentary is becoming more interventionist, with Donald Trump weighing in on currency issues?

“How can I get out of that”, Carney muses....

He then explains that we are now entering the “last few seconds of central bankers’ 15 minutes of fame”, to quote Andy Warhol. And that’s a good thing.

The idea that central banks were the only game in town, to address the economic crisis, is now expiring, he continues.

Back to Brexit....

Q: Have you factored in the economic consequences of Britain leaving the single market?

Carney says the BoE has not changed the underlining assumptions behind its forecasts.

There are a wide range of potential outcomes from the Brexit vote, from returning to WTO tariffs to a wide-ranging customs deal with the EU. So it wouldn’t be right to ‘refine’ the BoE’s assumptions yet.

Also, most of the impact on UK trade comes beyond the Bank’s forecast horizon.

This is not a debt-fuelled consumer expansion, Carney insists.

Carney: Brexit vote still has consequences

Here’s the full text of Mark Carney’s warning about the impact of the Brexit vote (despite today’s improved growth forecasts)

Q: Today’s report shows that Britain’s saving ratio has fallen to a record low. Does that worry you, and is it partly your fault?

Governor Carney says that people who are eating into their savings (or raising their borrowing) are making a judgement on their future incomes. Time will tell if those judgements are well-founded.

Updated

Q: The Bank have revised up its growth forecasts, and its estimate of slack in the economy - which conveniently means it doesn’t have to change monetary policy today. But other experts would question both assumptions, so are you worried?

Mark Carney says that there are “range of views” about how much slack remains in the UK economy.

The balance of judgement on the MPC is that our stance is appropriate.

Q: Are UK interest rates more likely to rise, or fall?

Carney gives a lengthy answer, basically repeating that rates could be increased if pay growth is more robust than expected.

The Bank’s forecasts are based on market expectations that rates will rise over the next few years, he adds.

So when he says rates could move in “either direction”, he means relative to that curve.

Onto questions....

Q: Last August you predicted that GDP would rise by only 0.8% this year, you’re now forecasting 2% growth. What went wrong with your forecasts?

Let’s look at what went right, Carney replies (he must have been expecting this question). He argues that the Bank’s stimulus programme (cutting rates and buying more government bonds) has achieved “more traction” than expected.

He also points to the pick-up in the global economy, and the fact that consumers are still spending despite the likely squeeze in household incomes this year.

Mark Carney concludes his statement by saying that the stimulus measures taken by the Bank since last June’s EU referendum are working -- helping to support confidence and growth.

But the Brexit journey is only just beginning. There will be twists and turns along the way, he cautions.

Mark Carney warns that the Bank’s Monetary Policy Committee has limited tolerance for inflation rising over target.

If inflation rises by less than expected, there is scope for monetary policy to be loosened.

But if pay growth picks up faster than expected, monetary policy may need to be tightened faster.

Our new forecasts don’t mean that the Brexit vote is “without consequences” says Carney. He says uncertainty is weighing on business investment.

On inflation, he says the looming overshoot is “entirely” because of the fall in sterling (pushing up the cost of imports). Inflation expectations remain “well-anchored”, he adds.

Mark Carney is speaking to the press now.

He confirms that growth in the UK has remained resilient since the referendum, with the fastest growth in the G7. The BoE now expects growth of 2% this year, dipping to 1.75% in 2018 and 2019.

This will leave UK output around 1% higher over the next three years than expected in November.

There are four reasons for this:

  1. Chancellor Philip Hammond eased fiscal policy in November’s autumn statement
  2. The Global economic outlook is firmer
  3. There are supportive financial conditions in the UK, including record low interest rates and the cheaper currency.
  4. There are few signs that households are cutting back ahead of the coming squeeze in their real incomes.

Watch the Bank of England press conference here

The economics press pack are taking their seats at the Bank of England, ready for Mark Carney’s press conference.

You can watch it live here (i’ve also added this feed to the top of the blog).

The Bank of England is “humble pie” with today’s upgraded growth forecasts, says Neil Wilson of ETX Capital

“Completely as expected, the Bank of England has left interest rates and QE unchanged but a huge upgrade to growth prospects demonstrates just how wrong it got its forecasts. The Brexit-defying UK economy will expand by 2% this year – up from 1.4% predicted in November. No more sharp slowdown to growth from Brexit.

Despite the upgrade to growth the market sees this as a bit dovish as inflation is not expected to run away as much as thought and we are seeing sterling hand back earlier gains.

He continues:

A touch of humble pie for the Bank, as it’s been made abundantly clear that the economic Armageddon it expected in the event of Brexit has just not materialised. The UK remains the fastest growing G7 economy – not bad for a nation that some think has committed an act of self-mutilation in choosing the leave the EU.

But the Bank remains correct to highlight the downside risks that yet remain. We are now heading out of the EU with no guarantees on trade – WTO tariffs might be the best we get. No one should doubt the importance of what this means, particularly regards the sterling exchange rate.

Updated

ITV’s Joel Hills tweets:

Sterling has fallen back since the Bank of England’s decision hit the wires.

One pound is now worth $1.259, down from $1.27 this morning.

The pound vs the US dollar today
The pound vs the US dollar today Photograph: Thomson Reuters

That’s because the Bank’s new inflation forecasts aren’t as high as traders expected - so they see less chance of an early interest rate hike (despite what the minutes say...)

Bank minutes: the key quotes

Here are some more key quotes from the minutes of this month’s Bank of England meeting:

Why they raised their growth forecasts:

“The upgraded outlook over the forecast period reflects the fiscal stimulus announced in the chancellor’s autumn statement, firmer momentum in global activity, higher global equity prices and more supportive credit conditions, particularly for households.”

“Domestic demand has been stronger than expected over the past few months, and there have been relatively few signs of the slowdown in consumer spending that the committee had anticipated following the referendum. Nevertheless, continued moderation in pay growth and higher import prices following sterling’s depreciation are likely to mean materially weaker household real income growth over the coming few years. As a consequence, real consumer spending is likely to slow.”

On inflation:

The Bank said “further substantial increases are very likely over the coming months” for inflation.

But wages are still lagging behind:

“Pay growth, although edging up, has remained persistently subdued by historical standards – strikingly so in light of the decline in the rate of unemployment to below 5%.”

So the Bank of England could raise rates, or cut them....

Seeking to send a message that it remained ready to move policy in either direction, depending on how things developed, the minutes to the MPC meeting said:

“For instance, if spending growth slows more abruptly than expected, there is scope for monetary policy to be loosened. If, on the other hand, pay growth picks up by more than anticipated, monetary policy may need to be tightened to a greater degree than the gently rising path implied by market yields.”

“Monetary policy can respond, in either direction, to changes in the economic outlook as they unfold to ensure a sustainable return of inflation to the 2% target.”

The minutes of this month’s meeting show that the Bank of England may be inching towards an interest rate hike.

They say:

“At this meeting, all members agreed that it remained appropriate to maintain the stance of monetary policy.

All members also agreed that, while the committee needed to continue balancing the prospect of a period of above-target inflation with the support that monetary policy gave for activity and employment, there were limits to the degree to which above-target inflation could be tolerated.”

BoE more upbeat on jobs and inflation

The Bank of England is also more optimistic about unemployment, and has revised down its forecasts for joblessness over the next couple of years.

It is also less worried about inflation than feared.

Here are the key forecast changes in the latest “inflation report”:

  • Growth: The UK economy is now expected to grow 2% in 2017, compared with a November forecast of 1.4%. In its final forecasts before the referendum, in May last year, the bank had forecast 2.3% for 2017
  • The economy is expected to grow 1.6% in 2018, compared with 1.5% forecast in November. The forecast for 2019 is 1.7%, versus 1.6% forecast in November.
  • Taken together, the upgrades to previous forecasts amount to 1% over three years
  • Inflation: It is expected to be 2.0% this quarter, 2.7% in early 2018 and 2.6% in early 2019. That compares with November forecasts of 1.8%, 2.8% and 2.6%, respectively.
  • Unemployment: forecasts have been revised down. Expected to be 4.9% this quarter, 5.0% in early 2018 and 5.0% in early 2019. That compares with November forecasts of 5.0%, 5.5% and 5.6%, respectively.

Updated

BoE hikes growth forecasts

The Bank of England has also raised its growth forecasts for the UK economy over the next two years.

It now expects GDP to rise by 2% this year, sharply higher than 1.4% previously expected.

The forecast for 2018 has also been pushed up, from 1.5% to 1.6%.

That means it no longer expects a sharp slowdown due to the Brexit vote....

Bank of England interest rate decision

The Bank of England in London.
The Bank of England in London. Photograph: Philip Toscano/PA

Breaking! The Bank of England has unanimously voted to leave UK interest rates unchanged at 0.25%

The Monetary Policy Committee also voted 9-0 to leave its stimulus programme unchanged.

More to follow!

Nearly time for the Bank of England to announce its interest rate decision, publish the minutes of this month’s meeting, and also release its new quarterly inflation report...

Greek government denies finance minister may quit

Greek Finance Minister Tsakalotos attending a European Union finance ministers meeting in Brussels last month.
Greek Finance Minister Tsakalotos attending a European Union finance ministers meeting in Brussels last month. Photograph: STRINGER/Reuters

Over in Greece the government spokesman has been forced to reject mounting speculation that finance minister Euclid Tsakalotos is on the point of resigning.

Our correspondent Helena Smith reports:

Has the Greek finance minister been pushed too far? That is the question being asked in Athens this morning amid widespread rumour that the Oxford-educated economist is about to throw in the towel in fury over demands that Greece enact yet more measures if it is to wrap up a critical bailout review with creditors.

The Greek media is rife with reports that Tsakalotos, who has been leading negotiations, has put down his foot at the prospect of compromising his principles further and has now drawn a line in the sand over IMF demands for further cuts to pensions and the tax threshold.

Speaking to Real FM, the government spokesman said relations between the finance minister and prime minister Alexis Tsipras were as smooth as ever. “Between Tsipras and Tsakalotos there is the closest cooperation both politically and ideologically in the handling of these issues,” said Dimitris Tzanakopoulos.

“The IMF and its absurd demands bear the greatest responsibility for the delay [in the review]. The demand for prior legislation of €4.5bn euro worth of measures, beyond the bailout programme’s expiry date, is economically and politically absurd.”

But the commentariat is far from convinced, citing a nasty run-in Tsakalotos had with the parliament speaker (a fellow member of the ruling Syriza party) during a rowdy debate late Wednesday as proof of the tensions between the economics tsar and the government. We are trying to reach Tsakalotos for comment!

Hello.... Mike Ashley’s Sports Direct chain has just taken an 11% stake in retailer French Connection, which was offloaded by Schroders yesterday. Here’s the announcement.

Updated

City trading firm IG have sent over some handy graphs on the UK economy.

This one shows how Britain’s growth rate picked up in the last few quarters, as unemployment kept falling:

UK growth and jobs rate

And this shows how Britain’s inflation rate (in orange) has surged in recent months, partly due to higher oil prices (in black).

UK inflatoin

Kathleen Brooks of City Index predicts more sterling volatility once the Bank of England releases its new growth and inflation forecasts at noon.

If the Bank of England sounds more hawkish than expected and revises up its GDP and CPI forecasts substantially, then the rally in sterling could continue, and we would expect the yield spread to turn higher.

However, a surprise dovish tone from the BOE could trigger a sharp fall in GBP/USD, especially since the recent rally is not supported by the yield spread. Key levels to watch on the downside for GBP/USD include: $1.2450-70..., while a hawkish BOE could trigger a move back to $1.30.

The pound is suddenly having a wobble...shedding all its early gains and diving back below $1.264.

There’s no obvious cause; wild volatility isn’t unusual for sterling these days. There’s still an hour to go until the Bank of England’s announcements.

The pound has now gained seven cents against the US dollar since January 17 - the day Theresa May gave her speech outlining the government’s Brexit strategy.

The pound has popped its nose over the $1.27 mark for the first time in seven weeks.

That’s partly due to the prospect of the Bank of England raising its growth and inflation forecasts in two hours time.

But it’s also because the US dollar is dropping, after the Federal Reserve struck a dovish note last night when it left American interest rates on hold.

The news that Donald Trump had a furious-sounding phone call with the prime minister of Australia isn’t helping the dollar either...

Over in Frankfurt, Deutsche Bank is outlining its ambitions for the future:

Cue one sharp reply....

And a reminder of Deutsche’s past misdeeds.....

UK building sector slowdown: What the experts say

Here’s some reaction to the slowdown in Britain’s construction sector last month:

Mike Chappell, Global Corporates managing director for construction at Lloyds Bank Commercial Banking:

“The uncertainty created by the forthcoming UK negotiations to leave the EU appears to be causing less disruption than might have been expected, with the reading still above 50. The sector enjoyed a buoyant finish to last year and this data, although lower than December’s index, still suggests an encouraging start to 2017.

“Most contractors are taking a pragmatic view of the current uncertainty: leaving the single market is still some way off and the UK-centric construction industry is less exposed to the EU than other sectors. Nevertheless, they are focussing their attentions on how to manage higher costs and looming financial challenges, such as potential interest rate rises and increasing inflation, through hedging arrangements.

“In other times the cost challenges presented by the weaker pound and anticipated headwinds might be a recipe for a shake-out of the sector, but so far there is little to indicate a wave of consolidation is imminent.”

Paul Trigg, construction specialist and assistant head of risk underwriting at Euler Hermes, the world’s largest credit insurer:

“With cities outside of London reporting record activity levels and contractors enjoying the security of a strong pipeline of work for the months ahead, the sector’s short-to-mid-term outlook is healthy.

“But, the current positivity may be built on weak foundations. A break with the EU will curtail investment in commercial construction projects and explains why the sector’s longer-term pipeline is much thinner. Total UK corporate failures may also increase - our forecast predicts a five per cent rise this year, six per cent in 2018 and 15 per cent in 2019 without a free trade agreement.

“As the current bounty of work begins to fade without forward orders to replace it, we expect overdue payment issues to increase this year. Contractors will do well to adopt a cautious approach when negotiating new agreements and managing their credit books.”

UK builders hit by rising prices as growth slows

Newsflash: Growth in Britain’s construction sector slowed last month, and builders were hit by higher prices.

Data firm Markit reports that activity slowed across the sector in January, with the weakest growth since last September.

All three areas - housing, commercial and civil engineering - saw slower growth during the month. The good news, though, is that they still took on more workers.

This pushed Markit’s UK Construction Purchasing Managers’ Index down to 52.2, from 54.2 in December. That shows slower growth (50 points equals stagnation).

UK construction PMI

Builders also reported that their average cost burdens increased at the steepest pace for almost eight-and-a-half years in January. This was widely linked to rising prices for imported materials at the start of 2017 -- due to the weak pound.

Tim Moore, Senior Economist at IHS Markit, says Britain’s construction industry suffered a “subdued start” to the year.

“Meanwhile, the weak pound continued to have an inflationary impact on the UK construction sector in January. Purchasing costs increased at the strongest rate for almost eight-and-a-half years, as suppliers sought to pass on higher prices for commodities and imported construction materials.”

Updated

Reckitt to swoop on baby milk maker

In the City, shares in consumer goods giant Reckitt Benckiser have jumped 2.5% to the top of the FTSE risers.

It has confirmed it’s in talks to buy infant formula milk chain Mead Johnson in a $16.7bn deal.

This would bolster Reckitt’s position in the consumer spending spare, where it already offers everything from disinfectant Dettol and air freshener Air Wick to Nurofen tablets, Scholl foot care products and Durex condoms.

Jeremy Cook of World First predicts that the Bank of England will hike its growth and inflation forecast at noon today.

But he also suspects governor Mark Carney may dampen talk of an early interest rate rise.

Today is Super Thursday in the UK and with that comes an Inflation Report from the Bank of England and a set of new economic projections from the Monetary Policy Committee. We think the focus will fall on inflation and its impact on consumer spending with the latter’s influence over the imbalanced growth profile of the UK economy also something to bear in mind.

Carney will be under pressure to give hints as to whether the Bank of England sees the pick-up in inflation as cause for concern and a rate hike or something temporary as it has been diagnosed by ECB President Draghi.

While we expect upgraded growth and inflation estimates – growth to 2.1% on the year and inflation close to 3% – Carney is more than happy to ladle on the uncertainty and we think that sterling will fall lower as he speaks (at 12.30pm GMT).

Pound hits seven-week high

The pound has hit its highest level of 2017 against the US dollar, as traders get ready for the Bank of England’s new economic forecasts at noon today.

Sterling has gained 0.4 of a cent in early trading, to $1.2692 - its highest level since 14 December.

Pound vs US dollar over the last quarter
Pound vs US dollar over the last quarter Photograph: Thomson Reuters

That suggests some investors are expecting the Bank to sound somewhat hawkish at today’s press conference (an interest rate today still seems very unlikely, though).

The City will also be watching parliament, where the government is publishing its Brexit White Paper - outlining Theresa May’s aims in the upcoming negotiations with the EU.

Updated

The agenda: Bank of England in the spotlight

Britain’s Bank of England Governor Carney.
Britain’s Bank of England Governor Carney. Photograph: Toby Melville/Reuters

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

It’s Super Thursday in the City of London, when the Bank of England takes centre stage by setting interest rates, publishing its latest quarterly inflation report, and holding a press conference to chew the fat about the state of the UK economy.

With the UK economy performing well, but inflation on the rise, the BoE faces a tricky balancing act this month.

Economists are expecting the Bank to raise its near-term growth forecasts today, following last week’s GDP figures which showed the economy expanding by 0.6%. It will also probably warn that price pressures are building as the weaker pound drives up import costs.

It’s probably too early for the Bank to reverse last August’s interest rate cut, made in the aftermath of the Brexit vote.

But the chatter in the City is that the Bank could be more hawkish today; could some members of the Monetary Policy Committee push to wind up its quantitative easing stimulus programme?

Kallum Pickering of Berenberg Bank says:

With some words of Brexit-related caution, the Bank of England (BoE) may surprise with a more hawkish tone at tomorrow’s Inflation Report as it revises up its near-term growth forecast and highlights growing underlying inflationary risks.

The shift could come either in the form of more hawkish forward guidance or some MPC members voting in favour of bringing an end to the planned corporate bond purchase program sooner than planned.

But....the medium term outlook for the UK economy is still uncertain, with many experts expecting growth to slow over the next couple of years.

And that’s why the City isn’t expecting interest rates to rise for many months, as RBC Capital Markets flag up:

.

Here’s the timings:

  • 9.30am: UK construction PMI for January is published, showing how building firms performed last monh
  • 12pm: Bank of England interest rate decision
  • 12pm: Bank of England publishes quarterly inflation report
  • 12.30m: Bank of England press conference

There’s also financial results from Vodafone, Royal Dutch Shell, AstraZeneca and Aberdeen Asset Management to keep an eye on.

Updated

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Understanding pet sleep can help us support our furry family and create a more restful home for everyone
The Guardian - US
The Guardian - US
Amazon Caused A Ruckus After Posting Gun-Free James Bond Images, Then Quietly Scrubbed Them
The spy who lost his sidearm.
Cinemablend
Cinemablend
'I Still Feel Some Of Those Stunts.' Bryce Dallas Howard Gets Real About The Toll Making Spider-Man 3 Took On Her
Ouch.
Cinemablend
Cinemablend
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