Attacks on two oil facilities in Saudi Arabia led to a 6% reduction in global oil supply and a 15% oil price spike within days. Saudi Arabian assurances that oil production levels will return to normal within weeks have been greeted sceptically. Meanwhile the Federal Reserve lowered the Fed Funds Rate by 25 basis points following a round of monetary easing by the ECB. Bank of England decided to save its firepower for later.
Imagine taking out a mortgage and not only having to pay no interest, but actually being paid by your bank to borrow. It sounds like something from a Carlsberg ad, but it is the reality at present in Denmark, where negative interest rates are in place.
The Bank of England is more upbeat about the UK economy than three months ago, but its hands are tied by Brexit. Across the Atlantic booming employment coupled with a 50yr low in the unemployment rate looks set to keep a lid on expectations of a rate cut by the Federal Reserve.
The UK Treasury painted a downbeat picture for the UK economy in the event of a no-Brexit deal but was surpassed by an even more pessimistic prognosis from the Bank of England. Still, all major UK banks passed the latest annual stress tests assuming a worst case scenario, highlighting significantly enhanced capital positions.
The Bank of England’s latest forecasts show inflation staying above the 2% target, despite rising UK rate expectations. Prices should get a further boost from the looser fiscal policy announced in the Budget. But, as ever, all those forecasts hinge on a smooth Brexit.
As expected the BoE kept its powder dry following August’s rate hike. Meanwhile, the ECB remains on course to halt QE by year-end but tame inflation suggests a rate hike is some way off. In contrast, the Fed looks odds on to tighten policy further later this month.
The US economy is humming and wage pressures are building, keeping the Fed on track for another modest tightening in September. UK growth, however, remains lacklustre with manufacturing in the doldrums. A BoE rate hike appears a distant prospect.
An upbeat speech from Bank of England governor Mark Carney shortens the odds of an August rate hike
A sharp slowdown in economic activity adds to calls for the Bank of England to pause before raising interest rates.
Bank of England Governor Mark Carney has taken some flak for talking about interest rate rises in the past, but not delivering. That ended last week when the MPC’s raised Bank Rate. Now to see how the economy responds. Continue reading