Bank of England to set interest rates; weakest October UK car sales since 1991 – business live

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

Will the Bank of England raise interest rates today for the first time since the pandemic? And should they?

This month’s monetary policy decision is on a knife-edge, as policymakers weigh up whether to hike borrowing costs now in an attempt to slow inflation.

With inflation expected to soon rise over 4% (twice the Bank’s target), many City economists predict the Monetary Policy Committee will hike Bank Rate today to 0.25%, up from the current record low of 0.1%.

But others argue that the MPC will hold off until December’s meeting. By then, they’ll have data showing if ending the furlough job protection scheme this autumn has started pushing up unemployment.

A rate hike could dampen inflationary pressures, by pushing up the cost of borrowing on credit, and also lift mortgage costs for those not in fixed rate deals — at a time when rising energy costs are already squeezing households.

It could also weaken the economic recovery, at a time when supply chain problems are already weighing on growth.

As Laith Khalaf, head of investment analysis at AJ Bell, put it:

The Bank may well decide that pouring more cold water on the situation at this juncture could lead to an economic freeze.

We know that MPC members are split over the issue. The hawkish Michal Saunders last month warned households to get ready for “significantly earlier” interest rate rises.

Governor Andrew Bailey reignited speculation of an interest rate hike in October, by saying the Bank of England ‘will have to act’ if it sees a risk to medium-term inflation and to medium-term inflation expectations.

But Silvana Tenreyro recently argued that the Bank should hold off, as some of the factors pushing up inflation such as raw material shortages and surging gas prices are temporary – so a rate hike could be “self-defeating”. Catherine Mann, who recently joined the committee, also argues that the Bank could wait.

An estimate from Refinitiv based on interest rate futures suggests a rate hike today is roughly 63%, so it could be an edgy morning in the City.

Matthew Ryan, senior market analyst at Ebury, predicts borrowing costs will rise.

“We still think that the hawks will win the day, and force through a 15 basis point increase in rates to 0.25% this week, albeit we have slightly less conviction in this view than we did a week or so ago.

We would then expect an additional 25 basis point move to follow in February, dependent on the tone of the bank’s communications on Thursday afternoon.”

But Thomas Pugh, economist for RSM UK, predicts the bank will resist a rate hike, narrowly…

‘The markets have begun to anticipate the start of the long haul back to a semblance of interest rate normality. The forward market is pricing in a 63% chance of a Bank of England (BoE) rate hike at Thursday’s Monetary Policy Committee (MPC) meeting and a total of four hikes over the course of the next 12 months.

‘But at 63% probability, this is still a close call. We expect the vote to be 5v4 in favour of leaving interest rates at 0.1%. This might imply a glass half-empty/half-full policy of keeping the BoE rate at near-zero for another MPC meeting, or two, with forward guidance preparing the markets for a rate hike in December or early 2022.

The Bank will also release its latest economic forecasts at noon today.

Last night America’s central bank began scaling back its stimulus package, by cutting its $120/month bond purchases by $15bn per month.

But the Federal Reserve also insisted it was too early to start raising interest rates.

Chair Jerome Powell predicting that inflationary pressures will ease, and that employment and economic growth will strengthen in the coming months.

He said last night:

We think we can be patient. If a response is called for, we will not hesitate,”

“We don’t think it is a good time to raise interest rates because we want to see the labor market heal further.

That cautious mood lifted Wall Street to record highs last night, and we’re expecting European markets to hit new highs today.


European Opening Calls:#FTSE 7268 +0.26%#DAX 16031 +0.45%#CAC 6992 +0.59%#AEX 818 +0.29%#MIB 27554 +0.64%#IBEX 9063 +0.36%#OMX 2328 +0.47%#STOXX 4332 +0.51%#IGOpeningCall

November 4, 2021

The Opec+ group are holding their monthly meeting to set oil output. They are currently adding 400,000 barrels per day each month, and are under growing pressure from countries including the US to boost production to ease the global energy crisis.

Ipek Ozkardeskaya, senior analyst at Swissquote, says:

There is little chance that Saudis will give in to that pressure in my opinion, but there is still hope to see them increase supply by a little bit more than the actual 400’000 bpd, to make a little bit more money and help us spend a better winter, without of course letting the prices fall by much.

The agenda

  • 7am GMT: German factory orders for September
  • 9am GMT: UK car sales figures for October
  • 9.30am GMT: UK construction PMI for October
  • Noon GMT: Bank of England interest rates decision, and Monetary Policy Report released
  • 12.30pm GMT: Bank of England press conference


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