Bank of England splits on rates, paving way for May rise

LONDON (Reuters) – The Bank of England kept interest rates steady on Thursday but two policymakers unexpectedly voted for a hike, reinforcing the view among economists that borrowing costs will rise in May for only the second time since the 2008 financial crisis.

Ian McCafferty and Michael Saunders – the first BoE officials to call for rates to rise before November’s increase – said it was now time to push them above the emergency level at which they have sat for most of the past decade.

The world economy is growing at its fastest rate since the financial crisis, helping Britain offset Brexit uncertainty.

The U.S. Federal Reserve raised rates for the sixth time since the financial crisis on Wednesday. Even the European Central Bank – which is still struggling with anemic price growth – has its eye on phasing out its massive bond purchases.

The BoE’s Monetary Policy Committee voted 7-2 to keep rates at 0.5 percent but said “ongoing tightening” was likely to be needed to return inflation, which stood at 2.7 percent in February, back to its 2 percent target.

“The message from the Bank of England to borrowers couldn’t really be clearer: get ready for higher rates now,” said Ed Monk of fund managers Fidelity International.

Some investors were more equivocal. Sterling slipped after initial gains, rate-sensitive two-year gilt yields shed a couple of basis points, and longer-dated bonds yields fell to a 2018 low after the decision.

One gauge of market interest rate expectations priced in a 60 percent chance of a May rate rise, down from 70 percent before the decision, and the probability of a further rise during 2018 fell to less than 50 percent.

However, sharp falls in share prices and a global bond rally due to concerns about a trade war between the United States and China muddied the market signal.

The BoE said there could be significant economic damage if tensions over tariffs mooted by U.S. President Donald Trump developed into widespread protectionism.

But there was nothing to suggest policymakers are looking any less closely at raising rates in May.

FILE PHOTO: A statue is silhouetted against the Bank of England in the City of London, Britain, December 12, 2017. REUTERS/Clodagh Kilcoyne/File Photo

Last month BoE Governor Mark Carney and his colleagues said rates might need to rise faster than expected. On Thursday, the BoE said developments since then broadly backed up their view.

“Given the prospect of excess demand over the forecast period, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target,” the BoE said.

RBC economist Sam Hill said Thursday’s bond yield falls should be weighed against strong gains on Wednesday, when the two-year yield ended close to its highest since 2011.

“It is very difficult to read into these minutes any clues that the MPC is trying to downplay a May rate hike,” he said.

FILE PHOTO: The Bank of England is seen through the columns of the Royal Exchange in the City of London, Britain, November 2, 2017. REUTERS/Toby Melville/File Photo


The BoE raised rates for the first time in over a decade in November, reversing an emergency cut when the economy briefly appeared to be going into shock after the June 2016 Brexit vote.

No economist polled by Reuters had expected another 25-basis-point rate rise on Thursday.

One major stumbling block to a May rate rise was removed this week when Prime Minister Theresa May agreed a 21-month transition deal with the European Union.

On Wednesday data showed pay growth at its highest since 2015. The BoE said that underscored how domestic cost pressures were building.

However, Britain’s growth outlook remains muted. The BoE expects growth of 1.8 percent this year and next, well below the historic average.

Some economists said the BoE was overlooking signs of a steeper slowdown – as forecast last week by government economists – and the wage pick-up would prove a false dawn.

“We expect no further change after May,” HSBC economists Liz Martins and Simon Wells said. “Despite the hawkishness of today’s communications – and even if the tone in May is hawkish too – we think the Bank’s intentions to tighten will be thwarted by the data.”

Editing by Larry King and Hugh Lawson

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BoE's Vlieghe sees interest rates rising once or twice a year

LONDON (Reuters) – Bank of England rate-setter Gertjan Vlieghe said on Friday that interest rates will probably need to rise once or twice a year over the next few years, comments that are likely to help cement investors’ expectations of a BoE rate hike in May.

FILE PHOTO: The Bank of England is seen through the columns of the Royal Exchange in the City of London, Britain, November 2, 2017. REUTERS/Toby Melville

Speaking after two of his colleagues on the Monetary Policy Committee split ranks this week by voting to raise interest rates this month, Vlieghe said was he increasingly confident that inflation pressure was building in Britain’s economy.

So long as a strong global economy continues to help Britain shrug off the negative effects of the 2016 Brexit vote, and provided wage pressure continues to grow, then the BoE will need to raise interest rates, Vlieghe said.

“The current central outlook is, in my view, consistent with one or two quarter-point rate increases per year over the forecast period,” Vlieghe said in a speech due to be given to business representatives in Birmingham.

The BoE kept rates steady at 0.5 percent on Thursday but two of its nine policymakers – Ian McCafferty and Michael Saunders – unexpectedly voted for a hike, reinforcing the view among economists that borrowing costs will rise in May for only the second time since the 2008 financial crisis.

Vlieghe said recent surveys and wage data had made him more confident than in previous years that a recovery in wage growth was underway in Britain.

Official data this week showed workers’ overall pay rose at the fastest pace in more than two years in the three months to January.

But Vlieghe said weak productivity growth meant the “new normal” for wage growth was likely to be around 3 percent a year compared with around 4 percent previously.

British government bond futures touched their lowest level of Friday’s session after Vlieghe’s comments. Sterling was little changed.

Vlieghe also said he thought Brexit had probably dampened investment in British companies, although the effect was difficult to quantify.

The world economy picked up pace in 2017 helping Britain to offset Brexit uncertainty. But Vlieghe said the possibility of a trade war had emerged as a new risk to the world economy.

Earlier on Friday, China urged the United States to “pull back from the brink” as President Donald Trump’s plans for tariffs on up to $ 60 billion in Chinese goods moved the world’s two largest economies closer to a trade war.

Reporting by Andy Bruce; Editing by William Schomberg

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Pay awards at British employers hit highest in over two years – IDR

LONDON (Reuters) – Pay awards by British employers are rising by the most in more than two years, according to a survey on Wednesday that suggests the Bank of England’s expectations of higher pay are on track.

Workers walk through the More London business district with Tower Bridge seen behind in London, Britain, November 11, 2015. REUTERS/Toby Melville/File Photo

Median pay awards rose by an annual 2.5 percent over the three months to January, the strongest growth since the three months to December 2015, research company Incomes Data Research (IDR) said.

“Our latest figures suggest that the pay growth we saw in the private sector in the three months to October 2017 has continued into 2018,” said Ken Mulkearn, editor of IDR Pay Climate.

Last month BoE Chief Economist Andy Haldane said he expected to see the official measure of wage growth pick up from January onwards, likely hitting 3 percent for the first quarter of 2018.

A BoE survey last month also showed that businesses expected to raise pay by an average of 3.1 percent this year – the highest since 2008 – compared with 2.6 percent in 2017’s survey.

The forecast increases in pay growth are a major reason why the BoE said in February that it expected interest rates to rise faster and to a greater extent than they thought a few months previously.

Official wage data covering the November-January period are due at 0930 GMT. The median forecast from a Reuters poll of economists suggests whole-economy pay growth likely picked up to 2.6 percent, from 2.5 percent in the three months to December.

IDR’s survey covered 50 pay settlements from businesses employing almost 330,000 workers. It did not include the public sector – where pay rises tend to be lower – as these public pay reviews tend to take place in April.

Reporting by Andy Bruce, editing by David Milliken

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UK wage growth near two-and-a-half year high, boosting chances of Bank of England rate hike

LONDON (Reuters) – British workers’ overall pay rose at the fastest pace in more than two years during the three months to January, bolstering the chances that the Bank of England will raise borrowing costs in May.

A worker walks past office skyscrapers in the City of London financial district, London, Britain, January 25, 2018. Picture taken January 25, 2018. REUTERS/Toby Melville

Sterling gained and British government bond prices fell after data showed wage growth including bonuses caught up with inflation for the first time in 10 months and employment grew more than analysts had expected. “It’s strong across the board,” Sam Hill, an economist with RBC Capital Markets, said. “This will trump any softness in yesterday’s inflation numbers and will definitely reinforce expectations of a move by the BoE in May.”

Britain’s economy slowed in 2017 as higher inflation – caused by the post-referendum fall in the pound – hurt the spending power of consumers, although forecasts of a bigger hit to growth were confounded and job creation was strong.

The Office for National Statistics said workers’ total earnings, including bonuses, rose by an annual 2.8 percent in the three months to January, the biggest increase since the three months to September 2015, after an upwardly revised 2.7 percent rise in the three months to December.

That beat all forecasts in a Reuters poll of economists, which had pointed to a reading of 2.6 percent.

Last month, BoE Chief Economist Andy Haldane said he expected to see overall wage growth pick up from January onwards, probably reaching 3 percent at the end of the first quarter, as well as a return to wage growth in real terms.

Excluding bonuses, the pick-up in wage growth was a little more muted. Regular pay rose by 2.6 percent, as expected, following a 2.5 percent rise in the three months to December.

January is an important month for wage settlements and a survey published overnight suggested pay awards by British employers rose by the most in more than two years in the November-January period, increasing by a median annual rate of 2.5 percent.

The expected increase in pay growth is a major reason why the BoE said in February that it expected interest rates to rise faster and to a greater extent than they had thought a few months previously.

The BoE is expected to keep rates on hold when it announces the outcome of its March policy meeting on Thursday.

Earlier on Wednesday, the BBC reported that more than a million staff in England’s National Health Service may receive pay increases of more than 6 percent over three years – something that would further add to overall wage growth.

The ONS said the number of people in work grew by 168,000 in the three months to January. A Reuters poll of economists had pointed to a much smaller rise of 84,000.

The data also showed the unemployment rate edged back down to its four-decade low of 4.3 percent after it rose briefly to 4.4 percent.

The number of unemployment benefit claimants rose by 9,200 to 838,000 in February. The number of vacancies fell to 816,000 in the three months to February from 824,000 in the three months to January, marking the first drop in seven months.

Economists taking part in the Reuters poll had expected the number of benefit claimants to rise by 5,400.

Separate ONS figures showed Britain’s government recorded a February budget deficit of 1.3 billion pounds, slightly more than the Reuters poll consensus of 1.1 billion pounds.

That took the deficit in the first 11 months of the current financial year to 41.4 billion pounds, down 5.7 percent from the same point a year ago.

Last week, Britain’s official budget forecasters cut their projection for the full 2017/18 financial year shortfall to 45.2 billion pounds, or 2.2 percent of GDP, the lowest since 2001/02.

Editing by Larry King

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UK mortgage approvals edge lower, consumer lending robust

LONDON, (Reuters) – Britain’s housing market and consumer economy kept most of their momentum last month, lending figures from the Bank of England showed on Monday, leaving the central bank on track to raise interest rates for the first time in more than a decade on Thursday.

A crane is seen above some high rise building construction works at Lewisham, in London, Britain October 10, 2017. REUTERS/Afolabi Sotunde

The number of mortgages approved for house purchase fell to a three-month low in September at 66,232 from an upwardly revised 67,232 in August, slightly above economists’ average forecast for it to slip to 66,050 in a Reuters poll.

The growth rate in unsecured consumer lending nudged down to 9.9 percent on a year-on-year basis in September from 10.0 percent in August, matching July’s growth.

In cash terms, net consumer lending rose by 1.606 billion pounds last month, a fraction above the highest forecast in a Reuters poll.

Last month the BoE said British lenders needed to hold an extra 10 billion pounds of capital to guard against consumer loans going sour, as it was concerned that banks had overestimated the creditworthiness of their borrowers.

Government data on Friday showed that personal insolvencies rose to a five-year high in the third quarter.

Official data last week showed an unexpected pick-up in gross domestic product growth to a quarterly rate of 0.4 percent in the third quarter – still well below its long-run trend, but an improvement after the weakest first half since 2012.

Moreover, with inflation at a five-year high of 3.0 percent and unemployment at its lowest in more than 40 years, the BoE looks on track to raise interest rates on Thursday for the first time since 2007, reversing a rate cut made in August 2016.

The initial impact of raising rates back to 0.5 percent – their level for seven years until August 2016’s rate cut – may be muted for most Britons.

Less than 30 percent of households have mortgages, and 60 percent of these are fixed-rate, compared with just 30 percent 15 years ago. For the average borrower with a variable rate mortgage, interest payments will rise by 180 pounds ($ 237) a year if rates return to 0.5 percent, according to mortgage lender Nationwide.

Mortgage lending, which lags behind approvals, rose by 3.848 billion pounds in September and is 3.2 percent higher on the year. Mortgage and consumer lending combined is up 4.0 percent.

Britain’s housing market has slowed since June 2016’s vote to leave the European Union, especially in London and neighbouring parts of England.

Reporting by David Milliken and Andrew MacAskill

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HSBC hit by second online banking outage in four days

LONDON (Reuters) – HSBC (HSBA.L) suffered its second online banking outage in four days in Britain on Monday, as customers complained on social media that they could not log in.

FILE PHOTO: The HSBC bank logo is seen at their offices in the Canary Wharf financial district in London, Britain, March 3, 2016. REUTERS/Reinhard Krause/File Photo

HSBC said it had resolved the problem, which lasted around 30 minutes and was due to a temporary technical issue.

HSBC customers had also said on Friday they were unable to access online accounts, when many were expecting pay cheques.

The bank said that disruption was caused by a scheduled upgrade which failed to complete properly.

Disruption to online and mobile services has become more of a problem for banks in recent years, as lenders cut branch networks and steer customers towards those digital platforms.

Reporting by Lawrence White; editing by Alexander Smith

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