Bank of England says most housing market indicators have continued to soften, as it increases UK interest rates to 14-year high of 3.5% in split decision

Rate rise to 3.5% affects everything from mortgages to credit cards, loans and savings. Here is all you need to know

Latest Bank of England rise offers little hope to generation of homebuyers weaned on ultra-cheap mortgages

Survey says many cutting down on showers and washing machine use, and going to bed early to cope with high energy billsA quarter of adults are struggling to keep warm in their living rooms – and many are going to bed earlier to stay comfortable this winter in the face of high energy bills.A study showed 23% of adults were occasionally, hardly ever, or never able to keep comfortably warm in their living room in the past two weeks. Continue reading...

Financial markets expect 0.5 percentage point increase as fears mount that UK is about to enter long recession

The US is facing a cost of living crisis with soaring inflation, with the latest interest rate hike the seventh increase this yearThe Federal Reserve lightly tapped the brakes on its high-speed interest rate rises on Wednesday following news that suggested two years of runaway inflation may be slowing down in the US.After a two-day meeting the Fed announced another half-point increase in interest rates, its seventh increase of the year but one that follows four straight three-quarter-point interest rate hikes. The increase brings the Fed’s benchmark interest rate – used for everything from setting mortgage rates and loans to credit cards – to a range of 4.25% to 4.5%, its highest level in 15 years. Continue reading...

Bonus pool could be slashed by up to 40%, in possibly the lender’s largest cut to payouts since the financial crisisGoldman Sachs bankers are reportedly at risk of having their bonus pool slashed by up to 40%, in what could be the lender’s largest cut to payouts since the 2008 financial crisis.The bank is still in the process of deciding the size of its bonus pools for 2022, but the prospective cut could mean its 3,000 investment bankers endure the most significant drop in variable pay among their peers, according to the Financial Times, which first reported the news. Continue reading...

Inflation falls back from 41-year high as motor fuels price rises slow, but costs rise faster in restaurants, hotels, cafes and pubs.

Some praise UK’s most powerful non-elected official for mini-budget response while some say Bank of England governor is out of touchOn Andrew Bailey’s first official day as Bank of England boss he was virtually alone in the palatial building. The footsteps of a skeleton security crew echoed as they hit the polished mosaic floors . In March 2020, the first Covid-19 lockdown had turned London’s financial district into a ghost town. Far below in the vaults, shelves of gold ingots rested on London clay beneath the fortress affectionately known as the Old Lady of Threadneedle Street.A trip to the deserted canteen failed to yield a sandwich. Bailey had to resort to rooting around in a fridge. It was slim pickings: a bottle of champagne, and half a loaf of sliced bread. He nabbed the bread and went back to his desk to call important figures in the short-term credit markets, which had become highly stressed. He was calm, reassuring, and “zero-bullshit”, said one City figure who received a call from Bailey, “far more impressive than he is at press conferences”. Continue reading...

Anticipated increase in interest rates will turn the screw on mortgage holders and businesses

Drop in consumer prices index had been forecast but costs continue to rise, adding to pressure on ministers to raise pay

Central bank to examine shadow banking sector amid fears it could put UK financial stability at riskHedge fund and private equity lending will be scrutinised by the Bank of England in the world’s first stress test of the shadow banking sector, amid fears the underregulated industry could put the UK’s financial stability at risk.The tests are meant to help the Bank understand the weaknesses within, and risks posed by, non-bank lenders including hedge funds and money market investment funds, a sector that has doubled in size since the 2007-08 financial crisis and accounts for about half of the loans currently issued to companies globally. Continue reading...

They are considered a means of levelling the playing field between countries with differing commitments to cutting carbon

Latest consumer price index figures showed prices rising by 7.1% from last November, down from 40-year high of 9.1% in JuneThe cost of living continued to rise at levels unseen in decades in November, the US Bureau of Labor Statistics reported on Tuesday, but the rate of inflation does appear to be finally slowing.The latest consumer price index (CPI) figures – which measure a broad range of goods and services – showed prices rising by 7.1% from last November with a 0.1% increase from October. Continue reading...

Real pay for all workers also lags behind inflation, piling on pressure amid cost of living crisis

Wage demands likely to cool as inflation starts to head down and unemployment rises

Chancellor Jeremy Hunt warns economy likely to get worse before improving, after UK GDP rose 0.5% in October, but shrank by 0.3% in the August-October quarter

Jeremy Hunt has said the UK's economy is 'likely to get worse before it gets better'. The chancellor also confirmed he had a 'plan that will more than half inflation over the next year'.His comments came after figures on Monday showed a bounce-back in growth in October but the weakest three-month performance since early 2021. Hunt also told the BBC he did not know whether inflation had peaked or not

Better than expected October GDP figure should not obscure risk of prolonged downturn

US tech company signs 10-year strategic partnership with LSEG for data analytics and cloud technologyMicrosoft will buy 4% of the London Stock Exchange as part of a multibillion-pound deal to work together on data analytics and cloud technology.The US tech company will acquire the stake from a consortium of Blackstone and Thomson Reuters, and will take a seat on the board of the London Stock Exchange Group (LSEG). The consortium previously sold the financial data company Refinitiv to LSEG in a £22bn takeover. Continue reading...

Growth figure shrank 0.3% in a quarter, reflecting concerns over lengthy recession

Industry body Make UK says ‘no sugar-coating poor outlook’ for next year and ‘possibly beyond’Fears are growing over the state of the UK economy as it emerged that the manufacturing sector shrank by about 4% this year and is forecast to decline by a further 3.2% in 2023.Increasing raw material costs, sagging consumer demand, staff shortages and higher borrowing costs have collectively formed the perfect storm for the UK manufacturing sector, according to the latest Make UK/BDO outlook report. The study showed that investment in the sector has gone “negative” for the first time in nearly two years. Continue reading...

The government says it wants to tame public sector pay to fend off a highly unlikely wage-price spiralFor all of the warnings against a repeat of the 1970s, of industrial unrest, soaring inflation and national decline, it is this period in recent British history that Rishi Sunak wants the country to think of most.Born in 1980, a year after the winter of discontent contributed to the fall of James Callaghan’s Labour government, Sunak, like millions of others, has no memory of this turbulent decade. Yet the prime minister is hoping to rekindle the idea of greedy union barons bringing the country to its knees. Continue reading...

Low rate of vaccination of elderly and a lack of natural immunity mean country may be in for a bumpy rideBeijing’s abrupt dismantling of zero-Covid controls has been welcomed by economists, even as the country braces itself for the human impact of letting the disease spread through a vulnerable population.The leadership’s abrupt U-turn on how it handles the pandemic appears to have been triggered by protests against controls that began last month, a nationwide show of discontent on a scale China had not seen in decades. Continue reading...

Power, in this disintegrating Tory party, seems as precarious as being an emperor in febrile ancient RomeClassical scholars must surely see parallels between the embarrassing sequence of prime ministerial changes in the British government this year and events in AD68-69 in the ancient Rome so beloved of Boris Johnson.AD68-69 was the year of the four emperors. First there was Galba, murdered by soldiers of his Praetorian Guard – this year’s parallel being the removal of Johnson by his long-suffering cabinet. Then there was Otho, who took his own life – this year’s version being the political suicide committed by Liz Truss with her lunatic budget. Continue reading...

There is a path out of this prosperity-killing shambles and Labour can lead the wayIt’s now official. Brexit has caused lasting damage to the UK economy and, with the Tories in denial, Labour needs to lead the way with a new policy agenda.Yet it’s almost a taboo topic: the Tory government won’t admit it and Labour is understandably reluctant to rekindle old Brexit flames. Continue reading...

The Bank is likely to raise borrowing costs again this week – but how much longer can they keep going up?Bank of England officials are expected to take their foot off the accelerator when they meet this week to decide by how much the cost of borrowing should increase.The prospect of a year-long recession that will hit living standards, cut business investment and damage the long-term productive capacity of the British economy might have made them think twice about any increase at all, but the betting in the financial markets is that a 0.5-percentage-point rise on Thursday looks certain. Continue reading...

Central banks are set on a path to cause recession – and marginalised people will pay the priceCentral banks’ unwavering determination to increase interest rates is truly remarkable. In the name of taming inflation, they have deliberately set themselves on a path to cause a recession – or to worsen it if it comes anyway. Moreover, they openly acknowledge the pain their policies will cause, even if they don’t emphasise that it is the poor and marginalised, not their friends on Wall Street, who will bear the brunt of it. And in the US, this pain will disproportionately befall people of colour.As a new Roosevelt Institute report that I co-authored shows, any benefits from the extra interest rate-driven reduction in inflation will be minimal, compared with what would have happened anyway. Inflation already appears to be easing. It may be moderating more slowly than optimists hoped a year ago – before Russia’s war in Ukraine – but it is moderating nonetheless, and for the same reasons that optimists had outlined. For example, high auto prices, caused by a shortage of computer chips, would come down as the bottlenecks were resolved. That has been happening, and car inventories have indeed been rising. Continue reading...

Changes to zero-Covid policy could prove insufficient if lockdowns are expected to continueChina’s nearly three-year policy of enacting strict lockdowns to contain outbreaks of Covid-19 came with a heavy price for the world’s second largest economy.The question for its president, Xi Jinping, and his inner court of advisers is whether a sudden relaxation of lockdown rules brought in this week will both prevent a recurrence of the shockwave of protests across the country and turn the economy around. Continue reading...

Amid signs that supply chain woes are improving, economists remain uncertain that China is ready to live with CovidGlobal shares and the price of some key commodities have risen on hopes that the easing of China’s strict zero-Covid measures would help to bring down inflation, even as some experts warned that the country was not prepared to live with the disease.China’s government on Wednesday announced a significant shift towards living with the virus. People with Covid-19 who have mild or no symptoms can quarantine at home, while officials have been instructed to stop launching temporary lockdowns. Testing will no longer be required for “cross-regional migrants”. Continue reading...

Hospitality bosses say 30% of bookings have been called off, with rail workers’ walkouts predicted to wipe £1.5bn from revenuesThe Christmas season is crucial for hospitality firms – money made during the party season keeps some pubs and restaurants afloat during the quiet times in January.Emma McClarkin, chief executive of the British Beer and Pub Association, says it’s becoming “increasingly difficult” to see how many businesses would make it through the quieter winter months until spring.“People aren’t confident they’ll be able to travel next week and so it’s almost too late now to save the festive season from ruin for pubs. Continue reading...

Comparisons with 1979 are misleading – strikes over pay now are smaller in scale and focus, and stoked by inflation

Party to give British Business Bank greater independence to raise capital in latest move to cement growing pro-business reputationLabour is aiming to seize ground abandoned by the Conservatives on economic growth with plans for a shake-up of business funding to help fast-growing startups secure billions of pounds in fresh investment.Rachel Reeves, the shadow chancellor, will use a speech to 350 business leaders in Canary Wharf, east London, on Thursday to announce the findings of the party’s review into startup funding led by Jim O’Neill, the former Tory Treasury minister and Goldman Sachs economist. Continue reading...

Average house prices fell 2.3% in November, biggest drop since financial crisis, knocking average house price down by almost £7,000

Battle focuses on what EU sees as bloc’s over-reliance on London’s clearing houses handling euro-denominated derivativesThe City of London faces another post-Brexit blow to its dominance after the EU moved to require firms to settle more financial-risk reducing trades within the bloc.The plan centres on trades in securities known as derivatives, and on financial market clearing houses, the intermediaries that enable the transfer of funds to sellers and financial products to buyers. Handling trillions of transactions each year, they are deemed an essential part of financial market plumbing that reduces risk. Continue reading...

Report’s author, the World Bank, states concern over poor countries’ increasing spending on debtThe world’s poorest countries are expected to pay 35% more in debt interest bills this year to cover the extra cost of the Covid-19 pandemic and a dramatic rise in the price of food imports, according to a World Bank report.More than £63bn will be spent by the 75 countries, many of them in sub-Saharan Africa, that make up the poorest nations, to cover loans taken out mostly over the past decade and higher interest rates. Continue reading...

Exclusive: Chancellor to meet heads of UK’s major lenders and consumer champion Martin Lewis on Wednesday

Total sales rose by 4% but figures were helped by inflation masking lower volumes, says BRCBritain’s retailers benefited from a November sales boost fuelled by Black Friday discounts and colder weather as consumers bought winter coats, hot water bottles and hooded blankets, according to industry data.In its latest snapshot of high street and online spending, the British Retail Consortium (BRC) said sales growth picked up last month compared with October, despite mounting concern over the cost of living crisis. Continue reading...

Rolling coverage of the latest economic and financial news, as CBI warns UK faces recession and a lost decade without a government growth plan

TUC data shows 18% increase on staples over year, while category including cranberry sauce is up 33%The cost of the items that make up a traditional Christmas dinner has risen three times faster than wages this year, according to research from the Trades Union Congress (TUC).In a series of calculations to back its calls for more government action on the cost of living crisis, the trade union body said Christmas staples such as a turkey, pigs in blankets, carrots and roast potatoes had risen in price by an average of 18% in the space of a year, while wages had gone up by only 5.7%. Continue reading...

Business bosses ‘confused and disappointed’ by PM’s lack of growth plan in face of recessionRishi Sunak’s government is “going backwards” on building a greener economy and lacks a growth plan to soften the blow from recession, the head of the UK’s leading business lobby group has said.Tony Danker, the director general of the Confederation of British Industry (CBI), said the prime minister’s lack of ambition for the low-carbon economy was leaving business bosses “confused and disappointed” after the progress made under Boris Johnson. Continue reading...

Exclusive: economic inactivity due to sickness at highest level since records began, with north, Wales and Northern Ireland disproportionately affectedPeople in the UK are getting “sicker and poorer”, with a gaping health and wealth divide between regions that is only getting worse, research has found.Economic inactivity because of sickness is at its highest level since records began, with 2.5 million working-age adults inactive due to their health, states the Institute for Public Policy Research report, which is due out later this week. Continue reading...

Rampant inflation and government policy has brought matters to a head: so where is disruption going to hit and what are the unions asking for?Strikes are not something most managers think about. The oft-mentioned “winter of discontent” and year-long miners’ strike were features of the late 1970s and mid-1980s. Since then, industrial action in the private and public sectors has fallen to a level so low that academics have given up studying it.When pay talks began a year ago for the current financial year, inflation was rising, but the Bank of England was reasonably certain it would be temporary. Union leaders prepared for a post-pandemic battle over pay, but not one that would probably end in strike action. Continue reading...

Business leaders fear Rishi Sunak is failing to grasp severity of situation and impact on economySomething odd is going on in Britain’s jobs market. Even as unemployment hovers close to its lowest level since the mid-1970s and businesses across the country struggle to recruit enough staff to fill roles, growing numbers are quitting the workforce altogether.The rise of economic inactivity – when working-age adults are neither in a job nor looking for one – is one of the biggest challenges facing the economy as the country grapples with the twin threats of rampant inflation and weaker economic growth. Both are influenced by the loss of more than 600,000 “missing workers” since the Covid pandemic. Continue reading...

With faith in Labour economic policies on the rise, and staunch voters losing faith, the next election will not be another 1992Economic menus have rarely sounded so bland. A mild recession in 2023, followed by a fall in inflation and, for dessert, a return to modest growth.The current consensus view among City economists of next year’s overarching economic outlook would appear to be fairly benign, compared with the Armageddon promised by the Truss/Kwarteng fiasco of a few months ago. They forecast an absence of job losses, except at the margins of the retail industry, hospitality and maybe construction, though worker shortages would mean that even in these sectors, most people looking for a job would find one. Continue reading...

In her first interview since joining the monetary policy committee, Britain’s newest interest-rate setter warns that inflation is not the biggest threat to the economy – because ‘the slowdown is here’As the newest policymaker at the Bank of England responsible for setting interest rates, Swati Dhingra can see a problem. Britain’s economy is heading for a lengthy and painful recession, while Brexit is making matters worse.After a year of the central bank driving up borrowing costs – the equivalent of stamping hard on the economic brakes – to tackle rampant inflation, the London School of Economics academic worries that much tougher action could intensify the crash. Continue reading...

Britons need to be kept aware of the cost of leaving the EU, says Swati Dhingra• ‘The slowdown is here’ – read the Observer business profileBrexit is contributing to a surge in food prices as the country heads into recession, a senior Bank of England policymaker has warned.Swati Dhingra – the newest member of the Bank’s monetary policy committee (MPC), which sets interest rates – also used an interview with the Observer to suggest that the coming run of central bank rate rises should peak below 4.5%, which is the level that some City investors are expecting. “The market is probably underestimating what damage that [level of interest rates] might cause to the UK economy,” she said. Continue reading...

Union members working on England’s roads have announced 12 days of strike action over Christmas and the new year, while US added 263,000 jobs in NovemberThe UK’s financial regulator has warned insurers not to undervalue cars and other property when making payouts to customers.The Financial Conduct Authority says it has seen evidence that some consumers who have had their cars written off after an accident are being offered a price lower than the vehicle’s fair market value, and only improving the offer when customers complain.‘When making an insurance claim, people shouldn’t need to question whether they are being offered the right amount for their written off car or other goods that they need to replace.‘Insurance firms should offer settlements at the fair market value. This is especially important now as people struggling with the cost of living will be hit in the pocket at precisely the time they can ill afford it. Continue reading...

Script was set when interest rates started rising 11 months ago and slump has some way to go“The fallout from the mini-budget continued to impact the market,” says Nationwide’s chief economist, explaining the 1.4% decline in house prices in November.There’s never a wrong moment to kick Liz Truss and Kwasi Kwarteng’s excursion into fantasy economics – and, yes, the shambles, and the spike in bond yields, will have been a factor. But let’s not pretend that the mini-budget is the sole cause of falling house values, or that declines will be halted by the subsequent policy U-turn in the Treasury. Continue reading...

Average UK house prices fell 1.4% in November, as “the fallout from the mini-budget continued to impact the market,” says Nationwide