Pound rallies after Bank of England is split on interest rates - as it happened
All the day's economic and financial news, as the Bank of England is split over interest rates
- Latest: Bank votes 6-3 to leaves rates on hold
- Haldane, McCafferty and Saunders vote to raise rates
Earlier:
6.30pm BST
Hello again. The pound has continued to climb, on the back of the news that three Bank of England policymakers pushed to raise interest rates at this week's meeting.
Sterling has now risen to $1.325, up three quarters of a cent today, as traders anticipate a rate rise in August (maybe).
Equity markets are lower as dealers are worried about the global trade situation. The standoff between the US and China is not any closer to being resolved, and traders are fearful President Trump will turn up the heat on the EU next.
3.11pm BST
Time for a recap.
The Bank of England has voted to leave interest rates unchanged at 0.5%. But three policymakers, including chief economist Andy Haldane, pushed for rates to rise to 0.75%.
Related: Bank of England moves closer to August interest rate rise
3.00pm BST
Shares in Europe's carmakers are sliding after Germany's Daimler issued a profits warning, and blamed Donald Trump's trade disputes.
Related: Daimler issues profit warning on back of US-China trade dispute
2.55pm BST
In other news, the boss of Intel - Brian Krzanich - is resigning after conducting a relationship with an employee.
Although the relationship was consensual, it breached the chipmaker's 'no fraternisation' policy.
Related: Intel CEO Brian Krzanich quits over relationship with employee
2.52pm BST
Hannah Maundrell, Editor in Chief of money.co.uk, has some advice for savers and borrowers:
"Once again you can breathe a sigh of relief if you're on a variable rate mortgage; the Bank of England just bought you some time to get a cheaper, fixed deal sorted. You're not out of the woods yet though. With a rate rise still expected soon the clock is ticking loudly at you especially as the vote was split this month. Check if you're on a variable deal and speak to a decent mortgage broker about your options if so. It's likely you'll save a significant chunk of cash which I'm sure you could better spend elsewhere.
"If your fixed mortgage ends in the next 6 months consider prebooking a mortgage now too as it can help you to lock in a lower rate.
2.35pm BST
Via Kallum Pickering of Berenberg, here's a handy chart showing how the odds of an August rate hike have jumped to over 60% today:
Today's surprise vote for a rate hike by the Bank of England's chief economist Andy Haldane shifts the balance of probability for the next hike to the August meeting.
Previously we had called for a November hike, with a risk of a potential move in August already. However, the minutes from the June meeting show that, despite heightened uncertainty about the global economy linked to trade tensions, the Monetary Policy Committee (MPC) is confident that growth has rebounded to around its trend rate in Q2 (c0.4% qoq) after a soft patch in Q1.
2.11pm BST
Foreign exchange dealer Argentex suggests the next UK interest rate rise might come in the autumn, not his summer.
But it all depends on whether growth picks up, after slowing to just 0.1% in January-March.
An August move is still possibly too soon, but November is now far more realistic. We remain optimistic of a sterling recovery, aside from the ongoing political risks, we are moving closer to monetary tightening.
We'll need to see stronger economic fundamentals in the short-term. If the shaky first quarter was just an blip then the MPC is likely to act."
1.25pm BST
A new Brexit crisis could derail the Bank of England from raising interest rates in August, despite Haldane's hawkish conversion.
Silvia Dall'Angelo, senior economist at Hermes Investment Management, explains:
The Bank seems determined to deliver one more hike in the second half of the year, justified by a tight labour market and an economy now working close to potential.
However, there are several reasons to err on the side of caution. In particular, recent hard data on industrial production and surveys on economic activity suggest that the prospects of a significant rebound in economic performance are uncertain following a weak Q1. Moreover, risks of a disruptive Brexit event down the road are still high.
1.18pm BST
City economist Sam Tombs of Pantheon has spotted that the pound started to rally just before the Bank's decision was published.
Sterling was trading at $1.310 at 11.50am, but had snuck over $1.313 by 11.59am:
That's quite a suspicious appreciation of sterling prior to the MPC's 12pm decision, if you ask me. Was Haldane's vote switch leaked? pic.twitter.com/h4TZCBpKil
12.48pm BST
Another development: the Bank of England has changed its guidance about when it might start unwinding its quantitative easing (QE) stimulus programme.
The Bank currently holds 435bn of bonds bought through QE using newly-created electronic money.
A lower bar but whether 1.5% or 2% - neither are going to happen any time soon, so this is of marginal relevance to investors right now. It's indeed probably an admission it doesn't see rates hitting 2% for a very long time indeed, while 1.5% is a bit more achievable."
Another significant change was in QE guidance; the bank won't consider reducing the debt purchased until the rate reaches 1.5%, down from 2%. This suggests that they now think rates will have a lower peak this cycle than previously expected.
"This is mixed news for markets. In the short term, it's a positive for Sterling and we may see gilt yields rise modestly, but the outlook is still unclear, as is the message from the bank."
12.36pm BST
Andy Haldane's transformation to an interest rate hawk means there is more chance of an interest rate rise in August, says Craig Erlam of trading firm OANDA.
Prior to today's meeting, investors were unconvinced by the prospect of a rate hike in August but I think today's release will change that. Sterling rallied above 1.32 against the dollar from just above 1.31 prior to the release which suggests people's expectations for August are being quickly revised.
While a hike in November makes more sense as there'll be more clarity - hopefully - by then, I wouldn't be surprised if they go in August given the criticism they endured for holding off in May.
While market's reading of 1 more MPC member voting for hike is that Aug rate rise more likely, BoE keeping options open, notably using exact same vague line ("an ongoing tightening of monetary policy over the forecast period would be appropriate" ) as last meeting
12.26pm BST
Today's 6-3 split is a surprise, says Ben Brettell, senior economist at Hargreaves Lansdown:
But that doesn't mean that interest rates will definitely rise in August, he adds:
There was a small element of surprise in the voting, with the Bank's chief economist Andy Haldane joining Michael Saunders and perma-hawk Ian McCafferty in calling for an immediate rate rise. Economists had expected a 7-2 split, but in the event a forecast uptick in inflation was enough to split the committee 6-3.
Sterling jumped on the news, gaining almost a cent against the dollar as traders factored in a bigger chance of a move in August. But on balance I still think we might not see a rate rise for the rest of the year - policymakers will at the very least want confirmation that the weak first-quarter growth figure was just a blip before raising borrowing costs.
12.19pm BST
There is clearly a split at the Bank of England over the state of the British economy.
The minutes of today's meeting show that six members believe the UK economy isn't strong enough to handle higher interest rates, especially with the global economy looking shakier.
For the majority of members, an increase in Bank Rate at this meeting was not required. For these members, the news since the previous meeting had given them greater reassurance that the softness of activity in the first quarter had been largely temporary. In particular, indicators of household consumption had recovered strongly from their subdued levels at the time of the previous meeting.
Set against that, the outlook for global growth had weakened somewhat, and global financial conditions had tightened, with some modest impact on UK bank funding and corporate credit spreads. Data on manufacturing output and goods exports in April had been weak, although business surveys had generally suggested steady underlying GDP growth. For these members, there was value in seeing how the data evolved from here, in order to learn more about the extent to which conditions were evolving in line with the May Inflation Report projections.
Three members favoured an immediate increase in Bank Rate. These members had a higher degree of confidence that the slowdown in Q1 was temporary or erratic and would largely be unwound.
They felt that the economy was developing broadly in line with the May Inflation Report forecasts, but the most recent indicators of labour demand and pay settlements indicated some upside risks to the expected pickup in average weekly earnings and unit wage costs. These members also felt that the benefits of waiting for additional information were limited.
12.10pm BST
The pound is rallying, following the news that three Bank of England policymakers voted to raise interest rates today.
The Haldane spike. No change from the BOE, but it's an unexpected 6-3 split. Roll on August https://t.co/SnfJiVCxuC via @economics pic.twitter.com/M1mO9tAxcn
12.01pm BST
Newsflash: The Bank of England has voted to leave interest rates at 0.5%.
But it's a split vote! The Bak's chief economist Andy Haldane voted to raise borrowing costs to 0.75%, along with Ian McCafferty and Michael Saunders.
11.58am BST
The pound is weakening, as the City braces for the Bank of England's decision on interest rates at noon.
Sterling has fallen by 0.3% today to $1.313 against the US dollar. That's its lowest level this year.
11.55am BST
Over in Europe, the eurozone's bailout fund has warned that Greece still faces major "challenges" before it can end its bailout programme this summer
"Continuing on this path is decisive for the sovereign to regain stable market access. ["]
Despite strengthened market confidence, the Greek economy faces a difficult economic and financial environment. Greece must address remaining challenges before the programme concludes to ensure that it can build upon its significant programme achievements in the post-programme period."
11.19am BST
John Hawksworth, chief economist at PwC, says the drop in UK borrowing will allow the government to relax its austerity policies.
However, tax rises will still be needed to fund the increase in NHS spending announced this week, he adds:
"As a share of GDP, public borrowing in 2017/18 is now estimated to be just 1.9%, the first time the budget deficit has been below 2% of GDP since 2001/2. Since the OBR estimates that the output gap in 2017/18 was close to zero, the structural budget deficit was probably also just below 2% of GDP in that year, meaning that the Chancellor has already met his medium term fiscal target set originally for 2020 with further deficit reductions likely over the next couple of years.
"So the Chancellor can afford to ease off on austerity without endangering his medium term fiscal targets. We estimate that, of the proposed 25 billion of real NHS spending rises across the UK by 2023/24, around 10 billion is already implicit in current spending plans used in OBR forecasts. So we estimate that the Chancellor may only need to raise taxes or increase borrowing relative to previous plans by around 15 billion in 2023/24 to fund these plans, which is equivalent to around 0.6% of GDP in that year. A net tax rise of around 0.3% of GDP, plus a modest borrowing rise of a similar magnitude would be enough to fund the additional health spending over and above that implicit in current fiscal projections.
11.03am BST
Britain is on track to undershoot the government's borrowing forecast by around 9bn this financial year, says Andrew Wishart of Capital Economics.
He also agrees that chancellor Philip Hammond has more firepower than expected:
While we wouldn't place too much weight on the estimates of borrowing in the early months of the fiscal year, since they are largely based on forecasts rather than actual data, the continued improvement in the public finances suggests that the deficit will undershoot the OBR's forecast again this year.
What's more, if the economy holds up as we expect, borrowing is likely to undershoot the OBR's forecast by a more significant margin in subsequent years. This would allow the Chancellor to deliver the recently promised 15bn increase in health spending over the next five years while still meeting his fiscal target (for the cyclically-adjusted deficit to be less than 2% of GDP in 2020/21).
10.50am BST
Today's UK public finance figures look "fantastic", says Samuel Tombs of Pantheon Economics.
He warns that the trend probably won't continue, but there's still room to increase NHS spending.
We still expect full-year public borrowing to be only a little below the OBR's Spring Statement forecast.
The Chancellor, however, still will have scope to pause the fiscal consolidation at the Budget later this year, given that cyclically-adjusted borrowing as a share of GDP already will be below his 2020 target of 2% this year. Most of the likely extra borrowing, however, looks set to be earmarked for the NHS, leaving little scope for measures to boost households' spending or business investment.
10.39am BST
Howard Archer of the EY Item Club says:
The Chancellor will be heartened by the healthy start to the 2018/19 fiscal year following better-than-expected public finances in 2017/18.
It suggests that he may have more room for manoeuvre in November's Budget as he looks to find the extra funding needed for the high-profile increased spending promised for the NHS.
10.27am BST
Matt Whittaker of Resolution Foundation also believes chancellor Philip Hammond has more flexibility to boost government spending on services such as health.
After the first 2 months of the financial year, the deficit is down 26% on the same period last year - compared with the OBR's projection of a 6% decline for 2018-19 as a whole. V early days, but the ChX might have more room for manoeuvre than he thought come the Autumn Budget pic.twitter.com/Xf5L4KBbxE
10.24am BST
The improvement in the UK public finances suggests there is room to boost spending on key public services.
Rupert Harrison, former advisor to the Treasury, believes the NHS (just promised a spending increase) should benefit:
In fact today's ONS data show that the deficit in 2017/18 was 1.9% of GDP, the lowest since 2001/02. An incredible achievement, and a key reason why the government can now afford to spend more on priorities like the NHS pic.twitter.com/kcruEmbGlF
Of course as a result of the high deficits earlier in the decade public sector debt is too high for comfort and only just starting to come down as a % of GDP. In an ideal world the UK would aim to run a surplus to make sure it continues to fall... pic.twitter.com/KCYjGbnFsH
But this isn't an ideal world, especially given the impact of Brexit uncertainty on the economy, so in my view it's reasonable to push surplus goal a long way to the right. Binding constraint on public finances for now should just be to keep debt falling (slowly) as a % of GDP
10.12am BST
The government will be delighted by today's fall in borrowing, says Kamal Ahmed of the BBC:
Treasury heaves sigh of relief. @ONS "Public sector net borrowing April 2017/March 2018 39.5bn; 6.2bn less than in previous financial year and 5.7bn less than Office for Budget Responsibility expectation - lowest net borrowing since financial year ending March 2007."
UK Public Finances: 39.5bn borrowing (PSNB ex) in 2017/18: 6.2bn less than in 2016/17 and 5.7bn less than OBR forecast https://t.co/u0Pn9bYHCE pic.twitter.com/acZ6rjLIzR
.@ONS figures show lowest net government borrowing since the financial year ending March 2007 - we've reduced Labour's record budget deficit by over 3/4s, meaning our economy is more resilient and we're able to invest more in our public services
9.41am BST
Newsflash: UK government borrowing fell last month as the long, slow process of fixing the public finances continues.
Britain borrowed 5bn to balance the books in May, the Office for National Statistic reports. That's down from around 7bn in May 2017 and is the lowest borrowing for any May since 2005.
In the latest financial year-to-date, central government received 112.9 billion in income, including 82.6 billion in taxes. This was around 3% more than in the same period in 2017.
Over the same period, central government spent 123.6 billion, roughly equal to that spent in the same period in 2017. Of this amount, just below two-thirds was spent by central government departments (such as health, education and defence), around one-third on social benefits (such as pensions, unemployment payments, Child Benefit and Maternity Pay), with the remaining being spent on capital investment and interest on government's outstanding debt.
UK Public Finances: Debt (PSND ex) 1,781.4bn (85.0% of GDP) at end of May 2018 or 1,587.3bn (75.8% of GDP) excluding BoE (mainly quantitative easing) https://t.co/jUgfVdpLpB pic.twitter.com/HhBtVqPJXU
9.25am BST
Economists are all-but certain that the Bank of England won't raise interest rates today.
City AM's 'shadow MPC' of nine City experts unanimously agree that the BoE should hold borrowing costs, given recent mixed economic data and the ongoing Brexit talks.
There are three main sources of uncertainty in the UK economy: the source of the first-quarter slowdown, the progress of Brexit negotiations and the impact of higher petrol prices.
Hold bank rate while assessing these uncertainties further.
City economists say Bank of England must hold interest rates https://t.co/N4H9GBTbD6 via @CityAM
8.56am BST
Morgan Stanley predict that the Bank of England will hold interest rates today, in a 7-2 split (the same as last month).
They also expect the BoE to give a hawkish message in the minutes of the meeting (which are also released at noon).
June to reiterate May's wait-and-see message: As usual, we are sceptical of action at a non-Inflation Report meeting, given the lack of a new forecast, and expect an unchanged 7-2 vote to hold.
Mixed data also makes it unlikely that we get any strong new guidance on August.
8.06am BST
Good morning, and welcome to our rolling coverage of the world economy, the financial market, the eurozone and business.
The Bank of England is in the spotlight today as its Monetary Policy Committee meets to set interest rates. While borrowing costs probably won't change today, the City will be looking for hints that the long-awaited hike could come in August.
What to expect on this Bank of England decision day https://t.co/h1RHjHxTlq pic.twitter.com/CxU4dW1WMx
Some lead indicators suggest wage growth could soon start to accelerate, so the case for a rate hike is building.
However, there's no rush to raise to rates this week given still high political and economic uncertainty.
Bank of England today #whatever pic.twitter.com/8Cyd80Jguq
"We are optimistic that we are on the verge of a solution with substance."
"The accepted criteria for all sides is that this solution be convincing for markets and embed the creditworthiness of our country - the final act in restoring the credibility of Greece to be able to plan for the next day like any ordinary country.
Good morning. Today could be a Big Greek Day if the Eurogroup signs off the end of the Greek bailout. Most critical (and still open) issues: further debt restructuring and post-bailout surveillance.
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