Still a ‘long way to go’ to control cost of living crisis, Bank of England governor warns – business live

Introduction: BOE Governor warns UK has a ‘long way To go’ in inflation fight

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

The Bank of England governor Andrew Bailey has warned UK households there was still a “long way to go” before the cost-of-living crunch is brought under control.

After lifting interest rates to 4% on Thursday, the highest level since 2008, Bailey warned that the UK had not won its battle against inflation.

In an interview on Bloomberg TV, Bailey warned:

“We have started to turn a corner, but there’s a long way to go and there’s a lot of risks.”

Bailey reiterated this point yesterday, in a video clip warning that inflation is “still much too high”. CPI did drop in December, but at 10.5% it’s five times higher than the Bank’s target.

This latest rise in interest rates – the 10th in a row – will drive up borrowing costs, adding to the strain on struggling household and businesses.

But Bailey insisted it’s the right decision:

We need to be absolutely sure we get inflation down. That’s why we’re raised rates.

The Bank predicted yesterday that the UK recession will be shorter and less severe than previously thought, and milder than recessions in the 1980s and 90s, and after the 2008 financial crisis.

Bank of England recession forecasts Photograph: Bank of England

The financial markets now expect just one more interest rate rise, to 4.25%, from the Bank in the next few months. Interest rates are expected to start falling at the end of 2023.

But Bailey told reporters yesterday that pay in the private sector has been rising faster than the Bank expected – as workers seek pay increases to protect them against inflation.

The pace of wage increases will determine what future action the Bank takes, he explained.

Also coming up today

Ofgem has asked suppliers to suspend the forced installation of prepayment meters.

The energy regulator acted after an investigation by The Times found that Arvato Financial Solutions, used by British Gas to pursue debts, had broken into homes of vulnerable customers.

UK rail passengers face fresh travel chaos on Friday as train drivers hold a fresh strike which will leave large parts of the country with no services all day.

Members of Aslef and the Rail, Maritime and Transport union (RMT) will walk out in a long-running dispute over pay and conditions.

Shares in Amazon, Apple and Alphabet (Google’s parent company) have all dropped in after-hours trading after their latest financial results underwhelmed investors.

Apple, whose iPhone production has been hit by strict Covid-19 lockdowns and protests, posted a disappointing first-quarter earnings report, including rare misses on revenue, profit and sales.

Amazon’s cloud computing division, AWS, reported a slowdown while Google’s advertising revenue fell in the last quarter, for only the second time in the company’s history,

Investors are now bracing for the latest US jobs report, which is expected to show that job creation slowed last month.

Economists predict America’s non-farm payroll rose by 185,000 people in January, down from 223,000 in December.

The agenda

• 9am GMT: Eurozone services PMI for January

• 9.30am GMT: UK services PMI for January

• 10am GMT: Eurozone PPI report on producer price inflation

• 1.30pm GMT: US Non-Farm Payroll employment report

• 3pm GMT: 9.30am GMT: UK services PMI for January

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Turkish inflation drops, but still over 57%

Speaking of inflation…. the cost of living crisis in Turkey has eased slightly.

Turkish annual inflation dipped to 57.7% in January, official data showed on Friday, down from December’s 64.3% but higher than expected.

Month-on-month, consumer prices rose 6.65%, the Turkish Statistical Institute said, nearly twice a Reuters poll forecast of 3.8%.

The sharp monthly rise was due to a raft of new-year price hikes including for public transit, tobacco products and services, as well as rising food prices.

Turkey’s inflation rate hit a 24-year high in October, over 85%, after a series of interest rates cuts which hammered the value of the lira and pushed up import costs.

UK faces ongoing recruitment crisis

UK employers are facing huge problems attracting staff, with more childcare and training needed to tackle the issue, a new survey has found.

Four out of five of 5,600 businesses polled by the British Chambers of Commerce (BCC) said they had problems recruiting workers in recent months.

Hospitality firms were most likely to face challenges when recruiting, followed by manufacturers and those in construction, although the public sector was also finding it difficult to take on staff, the BCC said.

Investment in training remains low, according to the report, with fewer than one in four firms surveyed having increased their investment plans over the last three months.

The BCC’s director of policy and public affairs, Alex Veitch, said the recruitment crisis is worsening.

“Today’s findings reveal that British businesses are facing the highest level of recruitment difficulties on record.

“Instead of seeing any easing of our extremely tight labour market, this issue only continues to head in the wrong direction.

The Bank of England is concerned that this struggle to find workers will keep pushing salaries up, creating inflationary pressures that could require higher interest rates.

Pound lowest since mid-January

The pound has weakened this morning, adding to yesterday’s losses, as traders weigh up whether the Bank of England could stop raising interest rates soon.

Sterling has lost a third of a cent this morning to $1.219, the lowest since 17 January.

Yesterday, the BoE dropped a pledge to keep increasing rates “forcefully”. And two of its nine policymakers voted against raising interest rates to 4%.

James Lynch, fixed income investment manager at Aegon Asset Management, predicts interest rates could now be at their peak – unless any nasty surprises hit the UK economy.

Lynch says:

“The real story is that it looks like we are at the end of the rate hike cycle.

The BoE have dropped language for ‘forceful’ hikes in favour of saying that ‘if there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.’

Which leads us onto what persistent pressures are: these appear to be wages and services inflation, also only if it is worse that they expect.

“The market will be sensitive now to incoming data around inflation and employment, but the impact on interest rates will be less given the step down we now expect in terms of rate increases. If the BoE feels it has the information that requires it to increase again, it will most likely be in 25bp moves not 50bps. However, it is looking likely that, if no more surprises, 4% could be the top in policy rates.”

European stock markets have opened a little lower, as last night’s disappointing results from Amazon, Apple and Alphabet weigh on the mood.

The UK’s FTSE 100 has dipped by 8 points, or 0.1%, while the pan-European Stoxx 600 has lost 0.5%.

Wall Street is on track to open lower, after solid gains yesterday, as Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains:

The S&P500 gained around 1.50% [on Thursday]. Nasdaq 100 jumped more than 3.5% and entered bull market as Meta jumped more than 23%.

But today will probably not be as fantastic as yesterday, as Apple, Amazon and Google announced earnings after the bell yesterday, and they all disappointed.

So it’s not surprising that the US futures are in the red this morning, and Nasdaq futures are leading losses.

The Nasdaq, which freshly stepped into the bull market yesterday, may not stay there long, at least in the very short run.

The tech stocks, at least the largest ones, have had a mixed quarter. In summary, Tesla, Netflix and Facebook did well, while Microsoft, Apple, Amazon and Google disappointed.

BoE chief economist: we mustn't raise interest rates too high

Bank of England chief economist Huw Pill appears to have hinted that interest rates may be near their peak.

In an interview with Times Radio this morning, Pill said the Bank was reasonably confident that inflation will fall this year.

And he explained the importance of not raising interest rates too high, pointing out that the full impact of recent increases haven’t yet been felt in the economy.

Pill told Times Radio:

“It’s also important that we enguard against the possibility of doing too much.”

This chart shows just how quickly borrowing costs have shifted away from the historic lows after the financial crisis, the Brexit vote and the pandemic:

Pill also cautioned that we have to be prepared for shocks, and that Thursday’s interest rate rise was necessary and appropriate.

Introduction: BOE Governor warns UK has a ‘long way To go’ in inflation fight

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

The Bank of England governor Andrew Bailey has warned UK households there was still a “long way to go” before the cost-of-living crunch is brought under control.

After lifting interest rates to 4% on Thursday, the highest level since 2008, Bailey warned that the UK had not won its battle against inflation.

In an interview on Bloomberg TV, Bailey warned:

“We have started to turn a corner, but there’s a long way to go and there’s a lot of risks.”

Bailey reiterated this point yesterday, in a video clip warning that inflation is “still much too high”. CPI did drop in December, but at 10.5% it’s five times higher than the Bank’s target.

This latest rise in interest rates – the 10th in a row – will drive up borrowing costs, adding to the strain on struggling household and businesses.

But Bailey insisted it’s the right decision:

We need to be absolutely sure we get inflation down. That’s why we’re raised rates.

The Bank predicted yesterday that the UK recession will be shorter and less severe than previously thought, and milder than recessions in the 1980s and 90s, and after the 2008 financial crisis.

Bank of England recession forecasts Photograph: Bank of England

The financial markets now expect just one more interest rate rise, to 4.25%, from the Bank in the next few months. Interest rates are expected to start falling at the end of 2023.

But Bailey told reporters yesterday that pay in the private sector has been rising faster than the Bank expected – as workers seek pay increases to protect them against inflation.

The pace of wage increases will determine what future action the Bank takes, he explained.

Ofgem has asked suppliers to suspend the forced installation of prepayment meters.

The energy regulator acted after an investigation by The Times found that Arvato Financial Solutions, used by British Gas to pursue debts, had broken into homes of vulnerable customers.

UK rail passengers face fresh travel chaos on Friday as train drivers hold a fresh strike which will leave large parts of the country with no services all day.

Members of Aslef and the Rail, Maritime and Transport union (RMT) will walk out in a long-running dispute over pay and conditions.

Shares in Amazon, Apple and Alphabet (Google’s parent company) have all dropped in after-hours trading after their latest financial results underwhelmed investors.

Apple, whose iPhone production has been hit by strict Covid-19 lockdowns and protests, posted a disappointing first-quarter earnings report, including rare misses on revenue, profit and sales.

Amazon’s cloud computing division, AWS, reported a slowdown while Google’s advertising revenue fell in the last quarter, for only the second time in the company’s history,

Investors are now bracing for the latest US jobs report, which is expected to show that job creation slowed last month.

Economists predict America’s non-farm payroll rose by 185,000 people in January, down from 223,000 in December.

• 9am GMT: Eurozone services PMI for January

• 9.30am GMT: UK services PMI for January

• 10am GMT: Eurozone PPI report on producer price inflation

• 1.30pm GMT: US Non-Farm Payroll employment report

• 3pm GMT: 9.30am GMT: UK services PMI for January