Bank of England sees modest pick-up in pay settlements

LONDON (Reuters) – A Bank of England survey of companies published on Wednesday showed employers increased slightly the pace of pay increases for staff in early 2018 and their hiring plans pointed to modest growth in headcount.

FILE PHOTO: Workers emerge from Bank underground station with the Bank of England (L) and Royal Exchange building (R) seen in the City of London financial district, London, Britain, January 25, 2018. REUTERS/Toby Melville/File Photo

“Growth in total labour costs remained modest, though average pay settlements this year were a little higher than in 2017 for many contacts, at between 2.5 percent and 3.5 percent,” the BoE said.

The survey was considered by policymakers at their March meeting when they kept interest rates unchanged at 0.50 percent.

The BoE has said it expects pay growth to pick up speed this year, one of the main reasons it raised interest rates in November and has signalled further increases ahead.

Writing by William Schomberg; editing by Kate Holton

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Bank of England considered bank capital buffer hike but waiting to watch risks

LONDON (Reuters) – The Bank of England said it considered this month increasing the amount of money banks must set aside to counter their risks as lending in Britain grows, but it held off taking a decision until June.

A man wears a bowler hat outside the Bank of England in the City of London, Britain, November 2, 2017. REUTERS/Toby Melville

The BoE said on Tuesday its Financial Policy Committee, which oversees risks to the economy from the banking system, had seen arguments for setting the so-called countercyclical capital buffer (CCyB) a little above its current level of 1 percent of a bank’s risk-weighted assets.

“Risks had increased since the Committee first judged that a 1 percent UK CCyB rate was appropriate, in Q1 2016,” the BoE said in a series of minutes from the FPC’s meeting on March 12.

Although British economic growth slowed last year following the 2016 vote to leave the European Union, it held up better than the BoE and most economists had expected. A Brexit transition deal struck by London and Brussels earlier this month has further eased short-term concerns about growth.

The FPC said on Tuesday that risks of a Brexit hit to Britain’s huge financial services industry had eased since its previous meeting in November.

On the possibility of raising the CCyB, the FPC said it had to be forward-looking and “waiting for a more marked evolution in domestic risks before acting could result in a need to consider sharper adjustments to the UK CcyB rate, which would likely carry larger economic costs”, the minutes said.

A “measured increase” in the first quarter of 2018 could be accommodated by banks without a need to tighten credit conditions and would not have been a shock, they said.

But the FPC also listed arguments for keeping the CCyB at 1 percent, including modest growth in lending, and it said signs of intensifying risk appetite would need to persist to justify an increase in the CCyB.

More targeted options could be appropriate and the FPC stressed its preference of raising the CCyB rate only gradually.

“At this stage, it might be beneficial to note the probable direction for the UK CCyB rate, given how risk-taking had developed, and to observe the evolution of risks over the coming months in considering whether a rise was warranted,” the minutes said.

The central bank also noted there had been an increase in lending close to the riskiest end of the mortgage market.

In 2014, the BoE limited lenders’ ability to issue mortgages that were worth more than 4.5 times a borrower’s annual income.

The share of lending just below the highest loan-to-value ratio had recovered from troughs seen during the global financial crisis although it remained significantly below pre-crisis levels, the BoE said.

Reporting by William Schomberg and Andrew MacAskill; editing by David Stamp

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Mortgage approvals fall 11 percent in February – UK Finance

LONDON (Reuters) – The number of mortgages approved by British banks during February fell by 11 percent compared with the same month last year after rising for the first time in four months in January, industry data showed on Monday.

A row of houses are seen in London, Britain June 3, 2015. British house prices rose at their slowest annual rate in nearly two years in May, as growth continued to moderate after double-digit increases in the middle of 2014, figures from mortgage lender Nationwide showed on Wednesday. REUTERS/Suzanne Plunkett

Mortgage approvals fell to 38,120 from 40,031 in January, industry association UK Finance said, suggesting a downturn in Britain’s housing market since the 2016 Brexit vote remains.

Consumer credit rose by 0.8 percent in annual terms in February, having risen by 0.6 percent in January which was its weakest increase since UK Finance’s new consumer credit series started in April 2017.

British households have been hit by a squeeze in their spending power after the 2016 Brexit vote pushed up inflation.

Net credit card lending amounted to 309 million pounds last month, down slightly from a net increase of 325 million pounds in January.

Eric Leenders, managing director of personal finance at UK Finance, said more home-owners were seeking remortgaging deals ahead of expected further interest rate rises by the Bank of England later this year.

“We are also seeing a continuing rise in credit card spending, reflecting the growing number of transactions carried out using cards, while other forms of borrowing such as overdrafts continue to fall,” he said.

Stephen Pegge, UK Finance’s managing director for commercial finance, said bank lending to businesses saw modest year-on-year growth in February, driven by investment by manufacturers.

“Credit balances have risen at an even faster rate as companies build reserves in the face of economic uncertainty and its effect on longer term business confidence,” he said.

The Bank of England is due to publish broader lending figures on Thursday.

Reporting by William Schomberg, editing by Andy Bruce

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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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