Connect with us

Published

on

The Bank of England is set to impose another interest rate hike on the UK economy today, the 12th consecutive increase in its battle to curb rampant inflation.

Both financial markets and economists widely expect a 0.25 percentage point rise to 4.5%.

The Bank Rate had stood at 0.1% in December 2021 before the tightening cycle began to tackle the pace of price rises, which were initially caused by economies getting back in gear after the COVID pandemic.

Russia’s invasion of Ukraine the following February then exacerbated the inflation problem, with soaring energy costs piling additional misery on western nations.

Those considerable extra costs, not only faced by households, are still filtering through in the form of stubborn inflation for many goods and services despite wholesale energy costs easing in recent months.

The latest official figures showed the headline consumer prices index (CPI) measure at 10.1% – fed by the highest grocery inflation for 45 years.

The bank will have also been concerned that higher-than-expected wage increases will embed inflation in the economy over the months ahead.

More on Cost Of Living

But there is good news on the CPI number just around the corner.

The inflation data for April is set to strip out the effects of the leap in household energy bills seen in April 2022 while fuel, which was also on the march at that time, is now well down on the levels seen in the same month a year ago.

Some economists predict a CPI number for April below 8% just because of the energy impact alone.

Read more:
‘Greedflation’ explored: Are businesses making inflation worse through excessive profits?

This does not mean that prices are necessarily coming down and the cost of living crisis is over.

It is just that the contributions to inflation from the energy components are not so severe when it comes to measuring the pace of price increases over a 12-montn period.

Raising Bank Rate is a tool to reduce demand in the economy – to cool activity and help inflation ease back towards the Bank’s 2% target.

But there are consequences.

Please use Chrome browser for a more accessible video player

April: Another interest rate rise ‘almost a done deal’

Chief among them is the impact on borrowers, especially households on variable mortgage deals or those who have had to secure a new fixed deal over the past year.

According to research by TotallyMoney and Moneycomms, a further quarter point interest rate rise will add £26 to monthly repayments for variable customers on the average UK property costing £270,708 with a 75% loan to value ratio.

The Bank rate increases, they said, meant the same customers were now facing forking out an extra £482 per month compared to pre-December 2021.

The Bank is mindful of the impact its actions are imposing on millions of households that are already struggling under the weight of meaty bills.

With that in mind, the remarks contained in the minutes of the Bank’s meeting and wider monetary policy report, all released at midday, will be crucial to understanding the likely way forward for borrowing costs.

The Bank is formally expected to raise its forecasts for economic growth as its staff no longer expect a recession this year but the outlook for Bank rate is a bit more clouded as inflation has proved more stubborn to bring down.

Bank governor Andrew Bailey’s comments to reporters will be especially closely watched for signs the rate-setting committee is edging towards a pause in its rate hikes.

The prospect of an end to the tightening will largely depend on the data ahead.

Andrew Hagger, personal finance expert at Moneycomms.co.uk, said: “Consumers and businesses will be praying that this is the last rate hike…. they will have their fingers crossed that inflation numbers will fall sharply before the next MPC (monetary policy committee) rate decision on 22nd June.

“Savers may be enjoying the best returns on cash savings for more than a decade but those with borrowing have been pushed to the brink by the financial impact of a dozen consecutive rate hikes.”

Continue Reading

Business

UK economy figures not as bad as they look despite GDP fall, analysts say

Published

on

By

UK economy figures not as bad as they look despite GDP fall, analysts say

The UK economy unexpectedly shrank in May, even after the worst of Donald Trump’s tariffs were paused, official figures showed.

A standard measure of economic growth, gross domestic product (GDP), contracted 0.1% in May, according to the Office for National Statistics (ONS).

Rather than a fall being anticipated, growth of 0.1% was forecast by economists polled by Reuters as big falls in production and construction were seen.

It followed a 0.3% contraction in April, when Mr Trump announced his country-specific tariffs and sparked a global trade war.

A 90-day pause on these import taxes, which has been extended, allowed more normality to resume.

This was borne out by other figures released by the ONS on Friday.

Exports to the United States rose £300m but “remained relatively low” following a “substantial decrease” in April, the data said.

More on Inflation

Overall, there was a “large rise in goods imports and a fall in goods exports”.

A ‘disappointing’ but mixed picture

It’s “disappointing” news, Chancellor Rachel Reeves said. She and the government as a whole have repeatedly said growing the economy was their number one priority.

“I am determined to kickstart economic growth and deliver on that promise”, she added.

But the picture was not all bad.

Growth recorded in March was revised upwards, further indicating that companies invested to prepare for tariffs. Rather than GDP of 0.2%, the ONS said on Friday the figure was actually 0.4%.

It showed businesses moved forward activity to be ready for the extra taxes. Businesses were hit with higher employer national insurance contributions in April.

Read more:
Trump plans to hit Canada with 35% tariff – warning of blanket hike for other countries
Woman and three teenagers arrested over M&S, Co-op and Harrods cyber attacks

The expansion in March means the economy still grew when the three months are looked at together.

While an interest rate cut in August had already been expected, investors upped their bets of a 0.25 percentage point fall in the Bank of England’s base interest rate.

Such a cut would bring down the rate to 4% and make borrowing cheaper.

Please use Chrome browser for a more accessible video player

Is Britain going bankrupt?

Analysts from economic research firm Pantheon Macro said the data was not as bad as it looked.

“The size of the manufacturing drop looks erratic to us and should partly unwind… There are signs that GDP growth can rebound in June”, said Pantheon’s chief UK economist, Rob Wood.

Why did the economy shrink?

The drops in manufacturing came mostly due to slowed car-making, less oil and gas extraction and the pharmaceutical industry.

The fall was not larger because the services industry – the largest part of the economy – expanded, with law firms and computer programmers having a good month.

It made up for a “very weak” month for retailers, the ONS said.

Continue Reading

Business

UK economy remains fragile – and there are risks and traps lurking around the corner

Published

on

By

UK economy remains fragile - and there are risks and traps lurking around the corner

Monthly Gross Domestic Product (GDP) figures are volatile and, on their own, don’t tell us much.

However, the picture emerging a year since the election of the Labour government is not hugely comforting.

This is a government that promised to turbocharge economic growth, the key to improving livelihoods and the public finances. Instead, the economy is mainly flatlining.

Output shrank in May by 0.1%. That followed a 0.3% drop in April.

Ministers were celebrating a few months ago as data showed the economy grew by 0.7% in the first quarter.

Hangover from artificial growth

However, the subsequent data has shown us that much of that growth was artificial, with businesses racing to get orders out of the door to beat the possible introduction of tariffs. Property transactions were also brought forward to beat stamp duty changes.

More from Money

Read more:
Trump to hit Canada with 35% tariff
Woman and three teens arrested over cyber attacks

In April, we experienced the hangover as orders and industrial output dropped. Services also struggled as demand for legal and conveyancing services dropped after the stamp duty changes.

Many of those distortions have now been smoothed out, but the manufacturing sector still struggled in May.

Signs of recovery

Manufacturing output fell by 1% in May, but more up-to-date data suggests the sector is recovering.

“We expect both cars and pharma output to improve as the UK-US trade deal comes into force and the volatility unwinds,” economists at Pantheon Macroeconomics said.

Meanwhile, the services sector eked out growth of 0.1%.

A 2.7% month-to-month fall in retail sales suppressed growth in the sector, but that should improve with hot weather likely to boost demand at restaurants and pubs.

Struggles ahead

It is unlikely, however, to massively shift the dial for the economy, the kind of shift the Labour government has promised and needs in order to give it some breathing room against its fiscal rules.

The economy remains fragile, and there are risks and traps lurking around the corner.

Please use Chrome browser for a more accessible video player

Is Britain going bankrupt?

Concerns that the chancellor, Rachel Reeves, is considering tax hikes could weigh on consumer confidence, at a time when businesses are already scaling back hiring because of national insurance tax hikes.

Inflation is also expected to climb in the second half of the year, further weighing on consumers and businesses.

Continue Reading

Business

Government to announce new scheme as it ramps up AI adoption with backing from Facebook owner Meta

Published

on

By

Government to announce new scheme as it ramps up AI adoption with backing from Facebook owner Meta

The government is speeding up its adoption of AI to try and encourage economic growth – with backing from Facebook parent Meta.

It will today announce a $1m (£740,000) scheme to hire up to 10 AI “experts” to help with the adoption of the technology.

Sir Keir Starmer has spoken repeatedly about wanting to use the developing technology as part of his “plan for change” to improve the UK – with claims it could produce tens of billions in savings and efficiencies.

Politics live: Follow the latest updates

The government is hoping the new hires could help with problems like translating classified documents en masse, speeding up planning applications or help with emergency responses when power or internet outages occur.

The funding for the roles is coming from Meta, through the Alan Turing Institute. Adverts will go live next week, with the new fellowships expected to start at the beginning of 2026.

Technology Secretary Peter Kyle said: “This fellowship is the best of AI in action – open, practical, and built for public good. It’s about delivery, not just ideas – creating real tools that help government work better for people.”

More on Artificial Intelligence

He added: “The fellowship will help scale that kind of impact across government, and develop sovereign capabilities where the UK must lead, like national security and critical infrastructure.”

The projects will all be based on open source models, meaning there will be a minimal cost for the government when it comes to licensing.

Meta describes its own AI model, Llama, as open source, although there are questions around whether it truly qualifies for that title due to parts of its code base not being published.

The owner of Facebook has also sponsored several studies into the benefits of government adopting more open source AI tools.

Please use Chrome browser for a more accessible video player

Minister reveals how AI could improve public services

Read more:
UK to be AI ‘maker not taker’ – PM
Govt AI adviser stands down

Mr Kyle’s Department for Science and Technology has been working on its mission to increase the uptake of AI within government, including through the artificial intelligence “incubator”, under which these fellowships will fall.

The secretary of state has pointed to the success of Caddy – a tool that helps call centre workers search for answers in official documents faster – and its expanding use across government as an example of an AI success story.

He said the tool, developed with Citizens Advice, shows how AI can “boost productivity, improve decision-making, and support frontline staff”. A trial suggested it could cut waiting times for calls in half.

My Kyle also recently announced a deal with Google to provide tech support to government and assist with modernisation of data.

👉Listen to Politics at Sam and Anne’s on your podcast app👈       

Joel Kaplan, the chief global affairs officer from Meta, said: “Open-source AI models are helping researchers and developers make major scientific and medical breakthroughs, and they have the potential to transform the delivery of public services too.

“This partnership with ATI will help the government access some of the brightest minds and the technology they need to solve big challenges – and to do it openly and in the public interest.”

Jean Innes, the head of the Alan Turing Institute, said: “These fellowships will offer an innovative way to match AI experts with the real world challenges our public services are facing.”

Continue Reading

Trending