US rate cut will not be matched by Bank of England
The US central bank has announced an interest rate cut, just hours before the Bank of England is tipped to refrain from following suit.
The Federal Reserve cut its main funding rate by a quarter point to a new target range of 4.25%-4.5%, as markets had expected, but signalled that future reductions would happen more slowly.
A resurgence in the pace of inflation is a big worry, with the prospect of new trade tariffs under Donald Trump from 20 January also risking a leap in the pace of US price growth in the New Year as imported goods would cost more.
Money latest: Most pension credit claims made recently have been denied
Data on Tuesday showed resilient consumer spending among other reasons for Fed policymakers to be wary of inflation ahead.
The Federal Open Markets Committee expected two rate cuts in 2025. Market expectations had been for four just weeks ago, in line with the Fed’s September guidance.
Fed chair Jay Powell told reporters solid growth, improved employment and progress in the battle against inflation meant the central bank was in a “good place”.
But he acknowledged that “policy uncertainty” relating to the incoming Trump administration was a concern for the inflation outlook among some of the committee’s membership.
Fed chair Jay Powell is seen taking reporters’ questions File pic: Federal Reserve
“We just don’t know very much at all about the actual policies, so it’s very premature to try and make any conclusion”, he added.
Government bond yields, which reflect perceived future interest rate paths, ticked upwards.
The dollar found support, gaining 0.5% against both the pound and euro, while major US stock markets retreated.
The Fed’s rate decision was announced just hours before the Bank of England gives its own rate verdict.
No cut is expected while financial markets are expecting a similar message on the possible interest rate path ahead.
UK yields – the effective cost of servicing government debt – have moved sharply higher this month, with the gap between British and German 10-year bond yields rising to its highest level in 34 years earlier on Wednesday.
It reflects the diverging interest rate outlooks for the Bank of England and European Central Bank, which has been cutting rates consistently to boost the euro area’s economy.
The UK’s problem is that the paces for both wage and price growth have accelerated.
At the same time, economic growth has stalled.
Please use Chrome browser for a more accessible video player
Businesses react to shrinking economy
The scenario presents the Bank with a particular challenge.
Its governor Andrew Bailey has admitted that the budget’s effect on businesses is casting the biggest question mark over the future rate path.
Worries include the extent to which firms seek to recover costs from tax hikes and minimum pay rises in the form of price rises.
On the other hand, the pressure on wage growth could be eased if firms carry out their threat to limit pay growth as a result of the budget burden.
As it stands, UK borrowing costs look set to be higher for longer, hampering the economy as they are designed to do but also driving up the government’s bill to service its debts.
Please use Chrome browser for a more accessible video player
Chancellor reacts to inflation rise
While the Bank is widely expected to hold off on a cut on Thursday, financial market forecasts for a reduction in February, seen as nailed on just weeks ago, are now running at just 50% in the wake of the latest wage and inflation data.
Just two rate cuts are priced in for 2025 currently.
What the Bank has to say about the price pressures it is currently seeing will be closely scrutinised.
Commenting on the US outlook Matthew Morgan, head of fixed income at Jupiter Asset Management, said: “As it stands, the market expects only two further cuts in the whole of 2025. This is perhaps not surprising given consumer spending, policy uncertainty (particularly around tariffs) and jobs looking in decent health.
“However, we think we are likely to see [US] rate cut expectations increase next year as growth softens. The labour market is clearly cooling, inflation is softening, and Europe and China are a drag on global growth.
“Given the high inflation of the Biden presidency was very unpopular with the public, we think Trump will be wary of overdoing inflationary policies, like tariffs. Together with potential government spending cuts in the US, next year could well see positive conditions for the performance of government bonds.”
The cyber attack on Jaguar Land Rover (JLR), which halted production for nearly six weeks at its sites, cost the company roughly £200m, it has been revealed.
Latest accounts released on Friday showed “cyber-related costs” were £196m, which does not include the fall in sales.
Profits took a nose dive, falling from nearly £400m (£398m) a year ago to a loss of £485m in the three months to the end of September.
Money blog: Apple launches £220 iPhone ‘sock’ today – fans are divided
Revenues dropped nearly 25% and the effects may continue as the manufacturing halt could slow sales in the final three months of the year, executives said.
The impact of the shutdown also hit factories across the car-making supply chain.
Slowing the UK economy
The production pause was a large contributor to a contraction in UK economic growth in September, official figures showed.
Had car output not fallen 28.6%, the UK economy would have grown by 0.1% during the month. Instead, it fell by 0.1%.
Please use Chrome browser for a more accessible video player
How cyber attack ‘effectively hacked GDP’
Read more from Sky News:
Telegraph future in limbo again as RedBird abandons £500m deal
Reacting to JLR’s impact on the GDP contraction, its chief financial officer, Richard Molyneux, said it was “interesting to hear” and it “goes to reinforce” that JLR is really important in the UK economy.
The company, he said, is the “biggest exporter of goods in the entire country” and the effect on GDP “is a reflection of the success JLR has had in past years”.
Recovery
The company said operations were “pretty much back running as normal” and plants were “at or approaching capacity”.
Production of all luxury vehicles resumed.
Investigations are underway into the attack, with law enforcement in “many jurisdictions” involved, the company said.
When asked about the cause of the hack and the hackers, JLR said it was not in a position to answer questions due to the live investigation.
A run of attacks
The manufacturer was just one of a number of major companies to be seriously impacted by cyber criminals in recent months.
Please use Chrome browser for a more accessible video player
Are we in a cyber attack ‘epidemic’?
High street retailer Marks and Spencer estimated the cost of its IT outage was roughly £136m. The sum only covers the cost of immediate incident systems response and recovery, as well as specialist legal and professional services support.
The Co-Op and Harrods also suffered service disruption caused by cyber attacks.
Four people were arrested by police investigating the incidents.
Sir Keir Starmer and Rachel Reeves have scrapped plans to break their manifesto pledge and raise income tax rates in a massive U-turn less than two weeks from the budget.
The decision, first reported in the Financial Times, comes after a bruising few days which has brought about a change of heart in Downing Street.
Read more: How No 10 plunged itself into crisis
I understand Downing Street has backed down amid fears about the backlash from disgruntled MPs and voters.
The Treasury and Number 10 declined to comment.
The decision is a massive about-turn. In a news conference last week, the chancellor appeared to pave the way for manifesto-breaking tax rises in the budget on 26 November.
She spoke of difficult choices and insisted she could neither increase borrowing nor cut spending in order to stabilise the economy, telling the public “everyone has to play their part”.
Please use Chrome browser for a more accessible video player
‘Aren’t you making a mockery of voters?’
The decision to backtrack was communicated to the Office for Budget Responsibility on Wednesday in a submission of “major measures”, according to the Financial Times.
The chancellor will now have to fill an estimated £30bn black hole with a series of narrower tax-raising measures and is also expected to freeze income tax thresholds for another two years beyond 2028, which should raise about £8bn.
Tory shadow business secretary Andrew Griffith said: “We’ve had the longest ever run-up to a budget, damaging the economy with uncertainty, and yet – with just days to go – it is clear there is chaos in No 10 and No 11.”
How did we get here?
For weeks, the government has been working up options to break the manifesto pledge not to raise income tax, national insurance or VAT on working people.
I was told only this week the option being worked up was to do a combination of tax rises and action on the two-child benefit cap in order for the prime minister to be able to argue that in breaking his manifesto pledges, he is trying his hardest to protect the poorest in society and those “working people” he has spoken of so endlessly.
Please use Chrome browser for a more accessible video player
Ed Conway on the chancellor’s options
But days ago, officials and ministers were working on a proposal to lift the basic rate of income tax – perhaps by 2p – and then simultaneously cut national insurance contributions for those on the basic rate of income tax (those who earn up to £50,000 a year).
That way the chancellor can raise several billion in tax from those with the “broadest shoulders” – higher-rate taxpayers and pensioners or landlords, while also trying to protect “working people” earning salaries under £50,000 a year.
The chancellor was also going to take action on the two-child benefit cap in response to growing demand from the party to take action on child poverty. It is unclear whether those plans will now be shelved given the U-turn on income tax.
A rough week for the PM
The change of plan comes after the prime minister found himself engulfed in a leadership crisis after his allies warned rivals that he would fight any attempted post-budget coup.
It triggered a briefing war between Wes Streeting and anonymous Starmer allies attacking the health secretary as the chief traitor.
Please use Chrome browser for a more accessible video player
Wes Streeting: Faithful or traitor? Beth Rigby’s take
Read more: Is Starmer ‘in office but not in power’?
The prime minister has since apologised to Mr Streeting, who I am told does not want to press for sackings in No 10 in the wake of the briefings against him.
But the saga has further damaged Sir Keir and increased concerns among MPs about his suitability to lead Labour into the next general election.
Insiders clearly concluded that the ill mood in the party, coupled with the recent hits to the PM’s political capital, makes manifesto-breaking tax rises simply too risky right now.
But it also adds to a sense of chaos, given the chancellor publicly pitch-rolled tax rises in last week’s news conference.
-
Sports2 years agoStory injured on diving stop, exits Red Sox game
-
Sports3 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports2 years agoGame 1 of WS least-watched in recorded history
-
Sports3 years agoButton battles heat exhaustion in NASCAR debut
-
Sports3 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports4 years ago
Team Europe easily wins 4th straight Laver Cup
-
Environment2 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Environment1 year agoHere are the best electric bikes you can buy at every price level in October 2024