Bank of England official hints interest rates may not rise as much as market expects
Might interest rates not peak as high as the market is expecting?
That is certainly the conclusion that has been drawn today following a speech by Ben Broadbent, deputy governor for monetary policy of the Bank of England, in which he discussed the impact of the pandemic and Russia’s invasion of Ukraine.
Speaking at Imperial College London, Mr Broadbent – in language rarely used by a member of the Bank’s rate-setting Monetary Policy Committee (MPC) – more or less told financial market participants that they were pricing in too many future increases in Bank rate.
In his speech, Mr Broadbent discussed recent movements in the market’s expectations for how high Bank rate might go, pointing out that, as recently as the Monetary Policy Report in August, prices in financial markets were consistent with Bank Rate rising to a peak of 3% next spring and then falling back a little over the following year.
But he pointed out that, despite a decline in recent days, that expected peak was now around 5.25%. He said that this was “by some distance” the largest rise in market interest rates between MPC forecasts since the committee was founded in 1997.
Mr Broadbent said that, were that to come to pass, the cumulative impact of interest rate rises over the “entire hiking cycle” would be sufficient to reduce the UK’s GDP by just under 5%.
He added: “It would imply a pretty material hit to demand over the next couple of years.”
In his crucial concluding remarks, Mr Broadbent said: “Whether official interest rates have to rise by quite as much as currently priced in financial markets remains to be seen.”
His comments immediately had an interest on market expectations. Last night, the market was pricing in a peak for Bank Rate of 4.785% but that has slipped today to 4.68%. A week ago, prior to the new chancellor Jeremy Hunt tearing up most of his predecessor Kwasi Kwarteng’s mini-Budget, market expectations for peak Bank rate were at 5.099%.
Ben Broadbent, deputy governor for monetary policy of the Bank of England
Impact of the energy price guarantee
Central to the MPC’s deliberations, Mr Broadbent made clear, would be the government’s energy price guarantee aimed at protecting households and businesses from soaring energy bills this winter.
He noted that, for as long as it was in place, the guarantee would have the effect of limiting headline inflation and, with it, any related so-called ‘second-round’ effects – the term used to describe how a high level of inflation can feed into further inflation by, for example, prompting workers to demand inflation-busting pay increases.
But he pointed out that the guarantee would also reduce “the severity of the hit to household incomes” by soaring energy prices and, as a result, would support demand – something that would, in normal circumstances, add to inflation. He reminded his audience that the MPC had already judged that the second effect was likely to outweigh the first.
Mr Broadbent pointed out that on Monday, Mr Hunt had said the energy price guarantee would be maintained only for six months, rather than the two-year period originally planned.
He added: “He suggested support was likely to continue, beyond six months, albeit in a more targeted fashion. But we are unlikely to know for a while precisely the form that will take.”
Mr Broadbent said that, if government support for households and businesses on energy prices were to mitigate the impact of higher inflation, there would be “more at the margin for monetary policy to do”.
And he went on: “The MPC is likely to respond relatively promptly to news about fiscal policy.”
That was a clear hint that were Mr Hunt to continue with the energy price guarantee beyond March next year, having said on Monday this week that it would come to an end then, the MPC might have to respond by setting a higher level of Bank rate than might otherwise be the case.
Governor of the Bank of England, Andrew Bailey
A change in policy outlook
Mr Broadbent’s remarks today are all the more significant because they underline just how much the policy outlook for the UK has changed during the last week.
It was only as recently as last Saturday that Andrew Bailey, the Bank’s governor, delivered a speech at the International Banking Seminar in Washington in which he said: “We will not hesitate to raise interest rates to meet the inflation target. And, as things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August.”
Since then, in a bid to pacify the bond market, Jeremy Hunt has unwound most of Mr Kwarteng’s unfunded giveaways and set a date, 31 October, on which he is expected to come up with further tax increases and public spending cuts to plug the government’s fiscal hole.
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Gilt yields – implied government borrowing costs – have fallen sharply from where they were immediately after the mini-budget.
Mr Broadbent’s comments today suggest that, so too, should market expectations of where Bank rate will peak.
The cost of rural crime in Wales is at its highest in more than a decade, a new report has revealed.
Last year, rural crime cost an estimated £2.8m in Wales, according to insurance provider NFU Mutual.
That’s an 18% increase on the previous year, with Wales the only UK nation to have seen a rise.
For farmers like Caryl Davies, that makes their work harder.
The 21-year-old farms on a beef and sheep farm in Pembrokeshire.
She told Sky News that having the quad bike stolen from her family farm last August had made them feel “really unsafe at home”.
Caryl Davies farms in North Pembrokeshire
The fact it happened in such a rural area was a “really big shock” for Ms Davies and her family.
“We’d rely on the bike day in day out, to look after our cows and sheep, and it’s had a really negative impact on us,” she said.
The cost of replacing a bike exactly like theirs would be “close to £10,000”.
“They’re a really expensive piece of kit, but you can’t be without them, especially in these rural areas where we’ve got the mountain and maybe places that aren’t very accessible,” she added.
“The bike is totally crucial for our day-to-day running of the farm.”
Caryl Davies
The incident was caught on camera in the calving shed, but the Davies family have since invested in an enhanced CCTV system. That comes at an additional cost.
“For some farmers, this is spare money that we haven’t really got,” Ms Davies added.
“Farming is hard enough as it is, without people stealing your things and having to spend this extra money on making your home farm safe.”
The total cost of rural crime across the UK has fallen since 2023 – down from £52.8m to £44.1m.
Quad bike and All Terrain Vehicles (ATVs) remained the top target for thieves during the past year, NFU Mutual’s figures show.
James Bourne farms in Pontypool, Torfaen, and claims to have had over 200 sheep stolen from common land adjoining his farm over a four-year period.
The 32-year-old told Sky News that losing sheep from his herd was a “big hit” on his business as well as the young family he is trying to support.
“The way agriculture is at the moment anyway, we’re struggling to make ends meet, and any profit that is in it is obviously being taken from me,” he said.
“So I really need to try and find out and get to the bottom of where they’re going because obviously it’s an ongoing issue.”
James Bourne
Andrew Chalk, from NFU Mutual, told Sky News that while there had been a “significant drop” across the UK, there were “worrying signs”.
“In Wales, especially, rural crime’s gone up which just shows that organised criminals are looking for ways to target the countryside again and again,” he said.
“What we’ve found increasingly is that organised criminals are targeting certain areas of the countryside, so they’re hitting multiple farms in one night.
“They’re raiding them, they’re moving away to another area and then hitting multiple farms there. So it is hugely concerning.”
Andrew Chalk
Mr Chalk said NFU Mutual had also heard reports of criminals using drones and other equipment to “look at the lay of the land”.
“What it does show is that organised criminals are always going to find new ways to target rural crime and that’s why we need to be on top of it and to work together to actually disrupt them,” he added.
Police forces in Wales say they are aware of the “significant impact” that rural crimes have on those affected.
A Dyfed-Powys Police spokesperson said the force had acquired new technology to help combat rural crime, including “advanced DNA asset-marking kits” and hopes to “empower farmers with effective tools and advice”.
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The spokesperson acknowledged the difficulty of patrolling the entire police force area, “given the huge area” it has to cover, and thanked rural communities for their “continuing vigilance and for reporting any suspicious activity”.
Temporary Chief Superintendent Jason White, from Gwent Police, said the force would be “increasing resources” within the rural crime team throughout this financial year and urged anyone in a rural area who believes they have been a victim of crime to get in touch.
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