Andrew Bailey says interest rates will have to rise again unless inflation falls

Almost four in 10 people have to use credit cards to cover such costs, says NationwideInflation and rising bills mean UK households are spending 12% more on essentials than they were a year ago, with almost four in 10 people having to use credit cards to cover these costs, new data shows.Two days after it emerged that the UK’s annual inflation rate unexpectedly jumped to 10.4% in February, Nationwide said its figures showed that consumers spent 34% more on utility bills and 17% more on mortgage payments last month than they did in February 2022. Continue reading...

UK central bank sets interest rates at 14-year high after inflation jumped to 10.4% in February

The Bank of England’s move risks squeezing the economy just as inflation is expected to start fallingTasked with striking a balance between an unexpected increase in February’s inflation numbers and concerns about a new banking crisis, the Bank of England has voted for an 11th consecutive rate rise. The question now is whether they will opt for a 12th.Markets are pricing in a further small hike to 4.5%. However, a glance at the forecasts for inflation show it declining rapidly this year, mostly in response to a dramatic fall in energy costs. While wholesale gas prices are expected to be double the pre-pandemic level next year, they will have fallen back from the five-fold increase in 2022.This article was amended on 23 March 2023. A previous version incorrectly referred to the Bank of England cutting interest rates. Continue reading...

Monetary policy committee votes to increase base rate after February’s surprise rise in inflation

How the new base rate of 4.25% might affect mortgages, house prices and credit cards

Unite says their analysis shows banks have made £7bn in extra profit from the rise in borrowing costsBritain’s biggest banks are under pressure to pass on higher interest rates to savers after figures showing they have made an extra £7bn by refusing to do so, and as they stand to benefit from a tax cut announced by Jeremy Hunt.On the day the Bank of England is expected to announce a further rise in interest rates, the Unite trade union said banks had already made billions of pounds in extra profit from the dramatic rise in borrowing costs. Continue reading...

US central bankers must decide whether to push on with monetary tightening, or pause rate hikes amid banking turmoil

Fed announces rise to a range of 4.75% to 5% – its ninth consecutive rate rise and the highest rate since 2007Facing the worst banking crisis since 2008 and the highest inflation rate in a generation, the Federal Reserve chose to keep fighting price rises and announced another hike in interest rates.The US central bank announced on Wednesday that its benchmark interest rate would rise another quarter of a percentage point to a range of 4.75% to 5% – its ninth consecutive rate rise and the highest rate since 2007. A year ago interest rates were close to zero. Continue reading...

International Monetary Fund breaks ground with first such support for a country at warThe International Monetary Fund, the global lender of last resort, has agreed a package of support for Ukraine of $15.6bn (£12.8bn).The loan, the first the Washington-based lender will make to a country at war, could represent one of the biggest tranches of financial support for Ukraine so far. It still needs to be signed off by the IMF’s executive board, a process that should conclude within weeks. Continue reading...

Britain appears to be an international outlier after the shock reading in double digits this week

From low-fat milk to sugar, energy bills to clothing, how costs have soared

Increase confounds forecasts of a modest dip and adds to pressure on Bank of England to raise interest rates

With food prices increasing at their fastest rate in 45 years, we hear how one family is coping with the financial pressure

Surprise increase makes hike more likely, but economy is perilously close to recession

The ghosts of 2008 return. Plus: 20 years after the Iraq invasion

While inflation remains high, traders are now uncertain if Bank of England and US Federal Reserve will hike rates – and how muchCentral banks on both sides of the Atlantic are facing one of the toughest calls on interest rates in years, as concerns over the worst banking crisis since 2008 cast doubt on the need for further action to reduce sky-high inflation.Financial markets expect the US Federal Reserve to raise its main rate by 0.25 percentage points on Wednesday, down from predictions just two weeks ago for the US’s central bank to increase borrowing costs by twice that amount. Continue reading...

UBS’s rescue of Credit Suisse is expected to result in tens of thousands of job cuts, while bank shares are recovering today on both sides of AtlanticUK government borrowing rose last month to the highest February deficit on record, largely because of spending on support schemes to help households and businesses with spiralling energy bills.The government borrowed £16.7bn in February, £9.7bn more than a year earlier and the highest February borrowing since monthly records began 30 years ago, according to the latest figures from the Office for National Statistics. Continue reading...

US officials step in to guarantee deposits after smaller US banks have been pummeled by a wave of withdrawals, triggering crisisThe treasury secretary, Janet Yellen, pledged to protect depositors at smaller US lenders on Tuesday from “contagion” after bank runs led to customers pulling billions in funds.US officials have stepped in to guarantee the deposits of two banks that collapsed earlier this month and in a speech in Washington Yellen gave the clearest signal yet that they will step in again if the crisis continues. Continue reading...

Inflation is receding, albeit slowly, so there’s no reason to risk more financial tumult. Will the central bank see it that way?The global financial system is facing a crisis of confidence. Which makes this week’s meeting of America’s central bankers critically important.None of the 12 members of the Federal Reserve Board’s Open Market Committee were elected to their posts. The vast majority of Americans don’t even know their names, except perhaps for the chairman, Jerome Powell. Continue reading...

Deficit increases despite higher tax receipts and lower interest paymentsUK government borrowing rose last month to the highest February deficit on record, largely because of spending on support schemes to help households and businesses with spiralling energy bills.The government borrowed £16.7bn in February, £9.7bn more than a year earlier and the highest February borrowing since monthly records began 30 years ago, according to the latest figures from the Office for National Statistics. Continue reading...

FTSE 100 rises and European banking shares are up after early jitters over what UBS takeover deal means for bondholders

Troubles at Silicon Valley Bank and Credit Suisse are due partly to impact of rising interest ratesIf you’re a banker, it’s been a month to forget. Two regional US banks have gone to the wall, central banks on both sides of the Atlantic have been forced to provide hundreds of billions of dollars in emergency lending to shore up the financial system, and the Swiss financial group Credit Suisse has been ignominiously absorbed into the larger UBS at the behest of its regulator. About half a trillion dollars have been wiped from banks’ stock market valuations.Although history doesn’t repeat itself, it rhymes sufficiently to ask whether we are on the brink of another global financial crisis. A bit of context for the current troubles might help answer. Continue reading...

Misguided policies are hurting the poorest in society, writes the UN’s independent expert; our focus should be on reducing inequality not increasing GDPA new report from the Center for Global Development claims extreme poverty may be eradicated by 2050 thanks to economic growth in low-income countries. However, a cause for celebration, this is not.Before we start putting our feet up, it’s worth remembering that extreme poverty is measured according to the World Bank’s international poverty line, which is set at $2.15 (£1.80) a day per person using 2017 prices. Continue reading...

Coordinated action echoes steps taken to offset the impact of the Covid-19 pandemic in 2020 and to shore up the system after the GFC

Swiss government forces through takeover at well below market value amid fears of global banking crisis

We now know what happens when central banks raise rates and reverse QE

Exclusive: David Blanchflower urges rethink after collapse of Silicon Valley Bank and lifeline thrown to Credit SuisseThe Bank of England should slash interest rates and stop selling government bonds in the wake of the turmoil in the banking sector, a former Threadneedle Street policymaker has said.David Blanchflower, a member of the Bank’s monetary policy committee during the global financial crisis of 2008, said official borrowing costs should be cut from 4% to 3% at this week’s meeting. Continue reading...

Institute for Fiscal Studies says the point of pensions is to fund retirement, not to bequeath large sums tax freeJeremy Hunt’s budget decision to scrap the limit on pensions savings has been criticised as “bizarre” by the UK’s leading economics research institute, which says it creates an unjustified extra inheritance tax loophole for high earners that should be closed as soon as possible.The Institute for Fiscal Studies (IFS) says that following last week’s budget many people on high incomes will now be able expand their pension pots in order to pass on hundreds of thousands of pounds more to their loved ones, tax free, when they die. The IFS says the purpose of pensions savings should be to fund retirement incomes not to escape tax. Continue reading...

Jeremy Hunt says the economy is his priority; but it and he are still really in thrall to the ideological blight of BrexitA budget for growth? Sorry, pull the other one. Below the spin, even the official forecasts are laden with gloom. Funnily enough, it is 50 years since one of Jeremy Hunt’s chancellarial predecessors, Tony Barber, produced a “budget for growth” that really worked – indeed, rather too well. It resulted in the “Barber boom”, when gross domestic product rose by some 6% in real, adjusted-for-inflation, terms in one year.They don’t come like that any more, which is just as well, because the Barber boom ended in tears. (In truth it was the Heath boom, because the prime minister was really in charge.) Continue reading...

The chancellor’s spring budget is stymied by arbitrary debt targetsMore than a decade of austerity trapped Jeremy Hunt as he delivered his first budget, leaving him cornered. Allowing himself only puny resources to begin rebuilding Britain after years of underinvestment, he was left to boast about an extension of childcare funding that nursery providers quickly damned as too little to save many from going out of business.The billions of pounds the chancellor needed to redress a multitude of financial shortfalls across the public sector were absent, even though the dire economic outlook he inherited from his predecessor, Kwasi Kwarteng, had eased somewhat. To mask his impotence, the chancellor mostly ignored the crumbling state apparatus to focus on eye-catching subsidies and tax breaks for business. In addition to the childcare funding, there was extra protection from energy price rises in April and millions of pounds to prevent another wave of swimming pool closures. This tinkering could not hide the fact that he failed to prevent the average household from suffering the largest fall in incomes adjusted for inflation since records began in the 1950s. Continue reading...

Concern about trouble in finance sector, plus renewed momentum in UK economy, could halt rises City analysts thought were a certaintyIn 2006 the US central bank completed a series of interest rate rises that took its base rate from 1% to 5.25%. The plan was to cool a booming economy, but ended two years later with the great financial crash.Earlier this month, the Federal Reserve was expected to push ahead with a 0.25 percentage point rise from its current range of 4.5% to 4.75%, this time to quell inflation generated by the Covid-19 pandemic and Ukraine war. Continue reading...

The travails of Credit Suisse and others have stirred up bad memories for a public still scarred by the financial crisisNo one in the Treasury had expected March to be easy. Last Monday’s economics-heavy review of defence and foreign policy, and last Wednesday’s budget, meant that a tough week for its mandarins was already priced in. But none of them had expected to have to sell a bank for £1.That happened in the early hours of Monday, when Treasury and central bank officials eventually brokered a deal for HSBC to buy the UK arm of Silicon Valley Bank (SVB UK) for a nominal fee – following the collapse of SVB’s California parent when a disastrous investment strategy unravelled. Continue reading...

Lifelines handed to Swiss bank and US regional bank First Republic fail to ease investor concerns

Was it the result of Trump-era regulation rollbacks, risk mismanagement at the bank, sharp interest rate rises – or a combination of all three?The collapse of Silicon Valley Bank continues to reverberate, hitting bank stocks, revealing hidden stresses, knocking on to Credit Suisse, and setting off a political blame-game.Why the $212bn tech-lender abruptly collapsed, triggering the most significant financial crisis since 2008, has no single answer. Was it, as some argue, the result of Trump-era regulation rollbacks, risk mismanagement at the bank, sharp interest rate rises after a decade of ultra-low borrowing costs, or perhaps a combination of all three? Continue reading...

Banking system is reeling from a series of shocks but is in better shape than at time of 2008 crashThe global banking system is reeling from a series of shocks over the past week, prompted by the collapse of California’s Silicon Valley Bank. That has stoked fears that this is the start of another banking crisis, posing big questions for central banks as they try to fight inflation while ensuring financial stability. Continue reading...

Organisation also says UK will be only G20 economy apart from Russia to shrink this yearCentral banks should maintain the fight against inflation with high interest rates despite fears of a global banking crash, according to the OECD, which said the UK will be the only economy in the G20 apart from Russia to shrink this year.The Organisation for Economic Cooperation and Development said it was concerned that inflation remained stubbornly high in many of its 39 members countries and urged central banks to persist with interest rate increases when necessary. Continue reading...

The US food assistance program offered expanded benefits during the Covid emergency, but they ended last monthGina Melton is facing a dilemma. Like millions of other Americans, Melton and her family relied on food assistance benefits boosted by Congress to help them through the pandemic. Now that extra cash is gone.The reduction has hit them hard. Three of her family members are disabled and one of her daughters works to take care of them through an agency. They had already relied on credit cards to pay for medical equipment that wasn’t covered by the federal health insurance schemes Medicare or Medicaid but have had to stop paying a couple of them in order to afford food. Continue reading...

Janet Yellen, the US treasury secretary, told Congress that the recent collapses of two US banks, Silicon Valley Bank and Signature Bank, does not reflect on the overall strength of the US banking system. She told Congress the US banking system 'remains sound', claiming that the government's swift response to the failures helped to restore public confidence in the banking system. 'I can reassure the members of the committee that our banking system remains sound, and that Americans can feel confident that their deposits will be there when they need them,' she said

Rachel Reeves, the shadow chancellor, accused Jeremy Hunt's budget of causing the 'biggest hit to living standards since records began'. She criticised Hunt for giving 'a huge handout to the richest 1% of pensions savers' while neglecting the needs of working people and businesses.Reeves stated that the pension reforms, which remove the higher tax rate on pension savings for people who have saved over £1m, were 'the wrong priority, at the wrong time, for the wrong people'. She vowed that Labour would reverse the measure if they won the next election

ECB presses on with 0.5 point increase in eurozone interest rates, and says it stands ready to respond to market turmoil

Unions recommend members accept pay offerSinn Féin’s US fundraising arm has caused a row by calling for a referendum on Irish unity in adverts in the New York Times, Washington Post and other US publications.The half-page ads were paid for by Friends of Sinn Féin and ran on Wednesday urging support for unity referendums in Northern Ireland and the Republic of Ireland. “It is time to agree on a date,” it said. “Let the people have their say.”They’re ads from Irish American organisations whose view on reunification is well known and held for a very long time and they take out ads every year. So, the focus now needs to be on getting back to work [at Stormont]. Continue reading...

Treasury secretary attempts to reassure nervous investors that emergency measure succeeded and bank deposits ‘will be there’The treasury secretary, Janet Yellen, told Congress on Thursday that despite two US bank failures over the past week the US banking system “remains sound”.The government’s response to the collapse of Silicon Valley Bank and Signature Bank last weekend were “decisive and forceful actions to strengthen public confidence in our banking system”, Yellen told the Senate finance committee. Continue reading...

Thinktank says taxes as share of GDP are on course to reach 70-year high but public services are being cut

Shadow chancellor says decision to axe lifetime allowance is ‘wrong priority at the wrong time for the wrong people’

IFS says budget pensions giveaway could open up loophole for avoidance of inheritance taxJeremy Hunt’s huge pensions giveaway for the wealthiest 1% may have no impact on increasing the number of people in work, while opening a loophole for avoidance of inheritance tax, a leading economic thinktank has warned.The Institute for Fiscal Studies said the surprise measure in the chancellor’s budget probably would not “play a big part, if any” in increasing the number of people in work. Continue reading...

European Central Bank could opt for smaller increase as concerns spread over health of banking systemThe European Central Bank is facing a dilemma over whether to push ahead with its plans for a large interest rise on Thursday amid fears over the strength of the banking system after Wednesday’s heavy sell-off of the Swiss banking firm Credit Suisse.After raising interest rates since last summer at a record pace to tackle high inflation across the eurozone, the ECB had in effect committed to another 0.5 percentage point increase in borrowing costs this week. Continue reading...

The struggling Welsh town wishes the UK government had done more to tackle deprivation

Jeremy Hunt has set out his first budget as chancellor. With plans to boost childcare and help people get back to work, can it provide the much-needed growth the economy needs? The Guardian’s John Harris is joined by former Conservative minister David Gauke and Miatta Fahnbulleh from the New Economics Foundation to discuss Continue reading...

The chancellor has put getting Britons back into work at the heart of his plan to grow the UK economy. But the danger signs are still flashing, reports Heather StewartJeremy Hunt delivered his first budget as chancellor and said he was “proving the doubters wrong”, having inherited a dire economic outlook from his predecessor last autumn.But, despite an improvement, Britain’s economy is still projected to contract this year and citizens are facing the deepest hit to their disposable incomes in their lifetimes. Continue reading...