Pound jumps after three Bank of England officials support rate rise, as FTSE 250 suffers worst day in 11 months – Telegraph.co.uk

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Surprise for markets as trio of Bank of England gurus call for interest rates to rise

Three Bank of England officials have called for UK interest rates to rise in a surprise move that signals policymakers are becoming more concerned about higher inflation even as the economy slows.

Bank policymakers voted 5-3 on Thursday to keep interest rates on hold at a record low of 0.25pc.

External members Ian McCafferty and Michael Saunders joined MIT professor Kristin Forbes in voting to raise rates by 0.25 percentage points to 0.5pc.

The last time there were three dissenting votes to tighten policy was May 2011.

The Monetary Policy Committee (MPC) said inflation had picked up more quickly than expected in since its last economic forecast in May.

Inflation, as measured by the consumer prices index (CPI) stood at 2.9pc in May.

Read the full report by Szu Ping Chan here

UK retail sales fall more sharply than expected in May 

UK retail sales fell more sharply than forecast last month, data showed today, in what is the latest sign of the growing hit to the economy from rising inflation since the Brexit vote. 

Data from the ONS showed retail sales volumes fell 1.2pc month-on- month in May, a heavier fall than forecasts suggested (-0.8pc). 

Other highlights: 

5:16PM

Market report: Next slumps to 10-week low on rating downgrade, as FTSE 250 suffers worst day in 11 months on retail gloom

Investors piled out of retailer Next after Credit Suisse described the FTSE 100 stock as “a value trap”, sending shares to a ten-week low.

The Swiss investment bank downgraded its rating from “hold” to “underperform” and lowered its price target by 6pc to £40 citing soft demand, ongoing price pressure across Europe and fierce competition from online rivals.

A price survey conducted by Credit Suisse of 13 retail brands also suggested that Next has cut entry level pricing during the summer-spring season.

Analyst Simon Irwin said: “We continue to believe that its strategy of expanding UK space is incorrect for a mature retailer.”

Next, the UK’s most successful clothing chain in recent years, is one of a number of companies to feel the impact of a squeeze on consumer spending as inflation bites. Mr Irwin added: “We would be concerned about the impact of slowing residential transactions on Next’s homeware sales.”

The FTSE 100 plunged 264p, or  6.1pc, to £40.37, while rival Marks & Spencer dropped 17.5p to 351.8p.

Next was little helped by official UK retail sales data, which showed a sharper than forecast slide in volumes in May as a jump in inflation and low wage growth weighed on consumers.

A profit warning from DFS Furniture also weighed on the retail sector. The furniture seller suffered its worst day since it listed in March 2015, down 52p to 200p, as it blamed uncertainty around the general election for a drop in customer orders.  Its peers Howden Joinery surrendered 23.3p to 431p and ScS nursed a loss of 13.6p, closing at 153.8p.

Rattled by a sharp slowdown in UK retail sales, the domestically-focused FTSE 250 index fell 2.1pc, marking its worst day in 11 months, while the FTSE 100 dropped 55.04 points, or 0.74pc, to a five-week low of 7,419.36.

UK indices were also hurt by a number of stocks trading ex-dividend. Private equity firm 3i fell 14.5p to 880.5p, Persimmon lost 163p to £22.59, Severn Trent tumbled 81p to £24.02, Marshalls shed 33.9p to 378.4p, Restaurant Group dropped 20.7p to 329.3p and Pets At Home ended down 9.4p at 154.9p. 

After a tumultuous trading session, only a handful of stocks finished the day in positive territory. HSBC added 6p to 686.7p, Royal Bank of Scotland gained 1.6p to 251.5p and Lloyds rose 0.1p to 68p.

Broadcaster ITV slipped 5.7p to 179.1p after Macquarie downgraded its rating to “neutral” from “outperform”. Although the bank thinks ITV remains a credible takeover target, it cautioned: “We believe wandering British politics will inevitably affect advertising spending in 2017/18.”

Meanwhile, South African-exposed miners were hurt after the government confirmed plans to raise the minimum threshold for black ownership of mining companies to 30pc from 26pc. Anglo American slipped 63.9p to 995.1p and Glencore fell 3.6p to 283.1p.

Financial services technology firm Monitise nudged 0.5pc higher as one of its top shareholders Cavendish Asset Management said an offer from US rival Fiserv was “far too low” and would vote against the deal. Earlier this week, Fiserv announced plans to buy Monitise for £70m..

Home safety supplier Sprue Aegis bounced 10.3pc to 215p after it made a positive start to the year. It also said it expects a “strong” return to profitability in the first half of this year.

Finally, Aim-listed sports nutrition company Science in Sport became the Official Sports Nutrition Supplier to British Triathlon, propelling shares 1.2pc higher.

 With that, it’s time to close for today. Thanks for following our markets coverage today. 

4:38PM

FTSE 250 posts biggest one-day loss in 11 months  

The domestically-focused FTSE 250 index suffered its worst day in 11 months rattled by a sharp slowdown in UK retail sales. 

It fell 2.11pc on the day, marking its biggest one-day loss since July 5 (Brexit vote aftermath) when it tumbled 2.37pc.

Meanwhile, the FTSE 100 surrendered 0.74pc as commodity-related stocks fell. 

In Europe, provisional closes showed the German DAX fell 0.98pc, the CAC in Paris lost 0.79pc and the Spanish IBEX dropped 0.79pc.

Joshua Mahony, of IG, said: “Stock markets have tumbled once more today, as we move into the final day of a week which has been characterised by monetary tightening despite recent economic weakness. The skyrocketing inflation figures from the UK, set against a falling wage growth environment, will explain a lot of what was seen when UK retail sales fell back to multi-year lows.

“However, rather than worrying about the need to prop up a slowing economy, we saw three MPC members focus on their core mandate; price stability. However, despite the sterling rally, there is little to worry about quite yet, for the loss of rate hike voter Kristen Forbes will likely bring us back to 6-2 next time out.”

3:47PM

Pound edges back from earlier gains

The pound has edged back from its initial surge following the Bank of England split vote, but still remains well above $1.27. 

It is currently trading down 0.22pc on the day at $1.2766, that’s well above it’s intraday low of $1.2651.

GBP


Credit:
Bloomberg

3:18PM

IMF hopes to reach solution on Greece with eurozone today

Another update from Luxembourg this afternoon, Reuters reports: 

The International Monetary Fund hopes it can reach a solution for Greece at the end of a meeting with eurozone finance ministers on Thursday while respecting its principles, the Fund’s Managing Director Christine Lagarde said.

The IMF has been reluctant to join the latest euro zone bailout for Greece, the third one since the sovereign debt crisis started in 2010, until Greece implements agreed reforms and the euro zone spells out in more detail what debt relief it can offer Athens in 2018.

lagarde

Greece has legislated the required reforms, but the euro zone has been reticent in providing more clarity on future debt relief measures, insisting these should be decided in 2018 and only if necessary.

Yet without the IMF’s participation the euro zone would be unable to pay out the next tranche of loans to Greece, setting the country up for a default in July when it has to repay maturing debt.

“Hopefully differences will narrow enough so that it can help the process,” Lagarde said on entering the talks with the ministers in Luxembourg.

“We commit money from the international community and we have to respect the functioning principles of the institution,” Lagarde said. “We hope to have a good solution by the end of the meeting.”

3:16PM

Germany’s Schaeuble confident on deal on next Greek loan tranche

Over in Luxembourg, Eurogroup finance ministers have gathered to discuss Greek debt. Here’s the latest from Reuters: 

German Finance Minister Wolfgang Schaeuble said he was confident that euro zone ministers would agree on a next disbursement of loans to Greece and was hopeful the International Monetary Fund would be on board.

“For Greece, as before, I am confident that we will reach a deal about the payment of the next tranche today,” Schaeuble said on arrival at the meeting.

“We have found a way which hopefully will allow the IMF management to propose a programme to its board,” he continued, adding that he did not believe it amounted to a substantial change of the programme.

German Finance Minister Wolfgang Schaeuble, right, speaks with Dutch Finance Minister and head of the eurogroup Jeroen Dijsselbloem during a meeting at the office of the European Stability Mechanism in Luxembourg 

German Finance Minister Wolfgang Schaeuble, right, speaks with Dutch Finance Minister and head of the eurogroup Jeroen Dijsselbloem during a meeting at the office of the European Stability Mechanism in Luxembourg 

Credit:
 Geert Vanden Wijngaert/AP

Germany’s parliament has insisted on IMF participation.

“We cautiously believe that the goal of the programme will be reached and that Greece will again have access to the finance markets at the end of the programme,” Schaeuble said.

3:10PM

Inflation hits shoppers as prices rise faster than wages 

Here’s our retail sales report by economics correspondent Tim Wallace: 

British households are feeling the squeeze from higher prices and sluggish pay rises, resulting in retail sales growth slowing to the lowest level in the past four years.

Sales in May were up just 0.9pc on the year – the joint-weakest increase since April 2013.

Economists fear this is a threat to overall GDP growth, as enthusiastic shoppers have helped to boost the economy over the past year.

The numbers may be distorted by the timing of Easter, which provided a bumper month of sales for shops in April. As a result sales dropped by 1.2pc month-on-month.

But even when the impact of Easter is smoothed out by looking at sales in the three months to May, volumes only rose by 2.3pc compared with the same period a year earlier – one of the weakest growth numbers seen since 2013.

The impact of inflation can be seen clearly as households spent an extra 4.2pc last month compared with May 2016, yet only went home with an additional 0.9pc of goods.

Read the full story here

2:43PM

Wall Street opens lower as tech stocks resume slide

US indices slipped at the opening bell as technology stocks resumed their decline. 

At the opening bell: 

  • Dow Jones: -0.38pc
  • S&P 500: -0.61pc
  • Nasdaq: -0.98pc
2:40PM

ONS to stop giving government officials early access to economic statistics

Britain’s statistics regulator will stop giving government officials early access to sensitive economic figures ahead of publication, a move which follows concern about possible abuse of market-sensitive data.

The change would be effective from July 1, John Pullinger, Britain’s national statistician, said. 

2:34PM

BoE’s hawkish surprise provides some much needed support for the pound

The timing of the BoE’s shift to a more hawkish policy stance is surprising in the aftermath of the UK general election result, but it has provided some “much needed” support for the pound, FX strategists at MUFG said this afternoon. 

Here’s the reaction from MUFG to the split vote and its implications for the pound:

  1. We had anticipated that the heightened political uncertainty and the potential for a more disorderly Brexit would have prompted the BoE to become more cautious over the policy outlook, but it does not appear to have been overly concerned by the latest political developments
  2. The market will now have to acknowledge that there is a higher risk of the BoE raising interest rates, and the resulting higher UK yields will offer more support for the pound. It creates the potential for the pound to strengthen more significantly if there are positive signs of progress towards a softer Brexit as well, which could further reinforce the case for BoE rate hikes
  3. However, it is more likely that the market will remain sceptical for now that Brexit risks will ease materially and that the BoE will raise rates. As a result, the scope for the pound to strengthen in the near-term should prove more modest. A return for EUR/GBP back towards its average over the last year of 0.8585 could prove as good as it gets for now for the pound.
2:28PM

FTSE 250 set for biggest one-day drop since aftermath of Brexit vote

The FTSE 250 index is set for its biggest one-day drop since the immediate aftermath of the Brexit vote last year. 

The domestically-focused mid-cap index is currently nursing losses of 2.7pc, which is its sharpest daily slide since June 27 last year when it plunged 6.96pc.  

FTSE 250


Credit:
Reuters

2:27PM

Bank of England says Carney’s Mansion House speech to be given ‘due course’

A speech that Bank of England Governor Mark Carney had been due to deliver on Thursday at the annual Mansion House dinner will be given “in due course,” the BoE said, after the event was cancelled following London’s deadly tower block fire.

1:57PM

Mansion House dinner cancelled

The Mansion House dinner has been cancelled due to the Grenfell Tower tragedy. 

A City of London Corporation spokesperson said:

“In the light of the tragedy at Grenfell Tower we are cancelling tonight’s Mansion House Dinner.

“Our thoughts are focussed with the victims and their families and friends.”

1:36PM

No reference to ‘smooth’ Brexit in June minutes

In May, Bank of England said its projections were based on “smooth” Brexit. This month there was no reference to it this month, Danske Bank highlights.  

1:28PM

Berenberg: Bank of England is preparing the grounds for a rate hike

Berenberg’s Senior UK Economist  Kallum Pickering says the Bank of England seems to be heading for a first rate hike soon, despite elevated political and economic uncertainty.

“Today’s minutes of the monetary policy committee (MPC) meeting that ended on 14 June, nearly a full week after the UK general election that ended in a hung parliament and added new uncertainties to the Brexit outlook, revealed that three committee members voted in favour of a rate hike this month.

“The MPC minutes noted that, ‘the inflation overshoot relative to the target could be more pronounced than previously thought. This lessened the trade-off that the MPC was required to balance and, all else equal, reduced the MPC’s tolerance of above-target inflation.’ This represents the third consecutive step the BoE has taken toward a first rate hike. First, Forbes voted in favour of a hike in March. In May, the MPC then introduced the guidance that, ‘monetary policy could need to be tightened by a somewhat greater extent over the forecast period than the very gently rising path implied by the market yield curve’, with Forbes again voting for a hike.

“Today, three members – all known hawks – voted for a higher rates. This gradual shift in stance represents the MPC’s efforts to foretell and communicate a forthcoming hike. Don’t ignore it.”

1:25PM

ING: Knee-jerk move higher in sterling could prove ‘short-lived’ as a sustained hawkish BoE looks ‘unlikey’

Viraj Patel, FX strategist, at ING, said the post-election rise in domestic political – as well as Brexit policy – uncertainty should arguably have led the Bank to retain a more cautious tone at this meeting.

He added: “Some may suggest one could argue that it is a tad irrational for some MPC officials to consider hiking rates at this stage – especially given that the cost of above -target inflation doesn’t outweigh the long-run growth uncertainties stemming from Brexit.”

Patel highlights that the hawkish calls have been from external members. He reckons this shows the clear divergence of views between the “insiders” and “outsiders” within the MPC.

He added: “This is not the first time we’ve had this; history tells us you that it may be prudent to side with the view of the core MPC members – who clearly place a greater preference on the economy and output gap.”

Once the dust settles, Patel reckons the pound isn’t likely to buy into these hawkish calls. 

He said: “This is certainly where our economists see the balance of risks; the knee-jerk GBP move higher could prove to be short-lived given that a sustained hawkish BoE re-pricing looks highly unlikely.”

1:18PM

Will the ‘hawkish momentum’ continue after Forbes’ departure? 

The 5-3 split on rates stunned markets at midday but Jamie McGeever, of Reuters, wonders if the “hawkish momentum” will continue with MPC member Kristin Forbes imminent departure. 

Forbes’ three-year term on the MPC expires at the end of this month. Due to election campaigning Chancellor Hammond has not yet announced a replacement for the US academic. 

Also it’s worth remembering that Charlotte Hogg, who left the central bank after lawmakers criticised her failure to declare potential conflicts of interest, is yet to be replaced. 

1:14PM

If one more MPC member voted for rate hike, it would have been first split vote since 1998

Sky’s Ed Conway highlights that if one more MPC member had voted for a rate rise this week, it would have been the first split vote since 1998. 

1:10PM

Chancellor Hammond pulls out of Mansion House speech

Away from the BoE momentarily, Chancellor Philip Hammond said he no longer planned to deliver a high-profile speech later on Thursday because of a deadly fire which struck a London tower block on Wednesday.

He tweeted: 

Hammond had been expected to spell out his views on the need for a Brexit deal that suits the needs of British business.

1:04PM

FTSE 100 extends losses; on track for worst day since April

The FTSE 100 has extended its losses following the shock 5-3 vote on rates this afternoon. 

It is now off by 1.23pc at 7,382. The blue chip index hit an all-time high of 7,598.99 just two weeks ago on June 2. 

Only two FTSE 100 stocks are in positive territory this afternoon: LSE Group (+0.5pc) and HSBC (+0.3pc). 

Reuters

Only two FTSE 100 are in positive territory this afternoon

Credit:
Reuters

The index is now on track for its worst day since April 18, when it plunged 2.46pc.  

12:59PM

Pantheon Macroeconomics: The new hawks likely won’t get their way

Samuel Tombs, of Pantheon Macroeconomics, thinks an interest rate hike is the last thing the economy needs right now.

He said: “Inflation is only above its target because of sterling’s depreciation, which represents a one-off shock to inflation.  Inflation in the services sector has remained low and wage growth has slowed to slightly below 2pc this year, rather than tracked inflation higher. We fear the hawks also are placing too much weight on business surveys, which have been a poor guide to GDP growth in recent quarters. Official data on industrial production, construction and retail sales have been weak so far in Q2. The first rate hike in a decade also would have a disproportionate impact on confidence.”

12:48PM

Bank of England surprise 5-3 split: Analysts react

Here’s the reaction from the City after the Bank of England’s MPC come the closest to voting for a rate hike since 2007: 

Geoffrey Yu, Head of the UK Investment Office at UBS Wealth Management, points out that the 5-3 vote is “clearly one that markets were not positioned for and sterling’s reaction reflects this”.

He added: “There is a clear emphasis on the risk of a sustained inflation overshoot and the Bank of England probably does not want to be seen as being dismissive of such concerns.”

Ben Brettell, Senior Economist, Hargreaves Lansdown, thinks it’s “somewhat surprising” three MPC members voted for higher rates this week given the backdrop of disappointing retail sales, slowing growth, shrinking real wages and heightened political uncertainty. 

“It seems the willingness of the MPC to ‘look through’ higher inflation and leave rates on hold is wearing thin, and if inflation continues to surprise we could see higher rates by the end of the summer.” 

Meanwhile, Craig Erlam, of OANDA, notes that the Bank caught traders off-guard this lunchtime. 

He said: “The belief prior to today’s meeting was that we’ll be waiting until at least 2019 for a rate hike and that policy makers will look through temporary spikes in inflation in the meantime, in favour of supporting the economy. The minutes suggested something very different though, instead suggesting that continued employment growth could suggest space capacity and the central banks tolerance of above-target inflation is being eroded.” 

Neil Wilson, of ETX Capital, said the significant hawkish surprise from the Bank of England has rekindled fond memories of when interest rates could go up or down and changed more than once a decade.

He said: “It looks like rising inflation and falling real incomes is at the forefront of policymakers’ minds. As previously noted, the widening gap between inflation and wages poses a significant challenge for the Bank and it was indeed lower household income growth and persistent low consumption that formed the focus of the meeting’s discussions.” 

12:38PM

Bank of England minutes: Key points

Here are some of the key points from the Bank of England’s minutes: 

The Bank highlights that to offset fully the effect of the pound weakness on inflation would only be possibly at “the cost of higher unemployment”. 

Monetary policy cannot prevent either the necessary real adjustment as the United Kingdom moves towards its new international trading arrangements or the weaker real income growth that is likely to accompany that adjustment over the next few years. Attempting to offset fully the effect of weaker sterling on inflation would be achievable only at the cost of higher unemployment and, in all likelihood, even weaker income growth. For this reason, the MPC’s remit specifies that, in such exceptional circumstances, the Committee must balance any trade-off between the speed at which it intends to return inflation sustainably to the target and the support that monetary policy provides to jobs and activity.

Little data to challenge the MPC’s projection for moderate GDP growth this year: 

Although the outlook remained uncertain, there had, on balance, been little clear news in the economic data to challenge the Committee’s projection for moderate GDP growth over the remainder of the year. The Markit/CIPS composite output index had fallen in May to around its historical average, while the composite expectations index had risen slightly but remained a little below its mean. Composite CBI balances had fallen this month, but remained above their historical averages. Bank staff’s expectation was for GDP growth of 0.4pc in 2017 Q2, in line with the projection in the May Inflation Report.

On inflation, the MPC notes the driving force behind the recent uptick in inflation has remained the pound weakness since the Brexit vote: 

Twelve-month CPI inflation could rise above 3pc by the autumn, and it was expected to remain above the 2pc target for an extended period as the depreciation of sterling continued to feed through into the prices of consumer goods and services.

The MPC also highlights that the overshoot in inflation could be more pronounced than previously thought: 

Overall, the degree of spare capacity in the economy appeared limited but, at the same time, the inflation overshoot relative to the target could be more pronounced than previously thought. This lessened the trade-off that the MPC was required to balance and, all else equal, reduced the MPC’s tolerance of above-target inflation. The Committee discussed the appropriate response of monetary policy.

Read the Bank of England’s minutes here

12:29PM

Two-year gilt yields hit highest since May 10 on rate decision

On bond markets, two-year gilt yields hit their highest since May 10 as prices tumbled after the Bank of England surprised markets with a 5-3 split on interest rates.

Meanwhile, the eurozone’s benchmark German 10-year bond yield also hit a day’s high of 0.265pc. 

12:27PM

Reaction to surprise 5-3 split on rates

12:12PM

Last three MPC voted for a rate rise was in 2011

It’s also worth noting that the last time three MPC members voted for a rate rise was in 2011 – when there were nine members serving on the MPC – and the last time a single vote could have swung the decision on rates was in June 2007 when the committee split 5-4.

12:12PM

Fall in sterling after election could push prices higher

The Bank of England also said in its policy update that a jump in inflation last month to 2.9pc meant it was likely to exceed 3pc this autumn – higher than the BoE forecast just a few weeks ago and well above its 2pc inflation target.

It also noted that a fall in the pound after Prime Minister Theresa May failed to win a majority in last week’s election could push prices yet higher. 

Britain’s economy slowed sharply in the first quarter of this year as the effect of higher inflation caught up with consumers at a time of sluggish wage growth.

But the central bank said it was unclear how persistent this weakness would be, as consumer confidence remained solid. Moreover, indicators of investment and exports looked upbeat, the BoE said

“The continued growth of employment could suggest that spare capacity is being eroded, lessening the trade-off that the MPC is required to balance and, all else equal, reducing the MPC’s tolerance of above-target inflation,” the BoE said.

“Looking ahead, key considerations in judging the appropriate stance in monetary policy are the evolution of inflationary pressures, the persistence of weaker consumption and the degree to which it is offset by other components of demand.”

12:09PM

Markets react: Pound surges above $1.27  after three MPC members support rate rise

The pound has spiked above $1.27 against the US dollar after the Bank of England’s latest policy meeting, showed that three MPC members called for a rate rise. 

It jumped half a cent to an intraday high of $1.2795 against the dollar in the immediate aftermath of the policy release. Against the euro, it climbed 0.7pc to 87.27p per euro. 

On equity markets, the FTSE 100 extended its fall, down 1.1pc after the decision was announced, while the FTSE 250 index also fell further. 

Short sterling for December 2017 fell 5 basis points, reflecting a larger chance of a rate rise by the end of the year. 

Eurozone’s benchmark German bond yield extends its rise back to a day’s high in reaction to the Bank’s latest decision. 

GBP


Credit:
Bloomberg

12:05PM

Three MPC members call for rate rise 

Here’s our full story on the Bank of England by our economics correspondent Szu Ping Chan: 

Three Bank of England officials have called for UK interest rates to rise in a surprise move that signals policymakers are becoming more concerned about higher inflation even as the economy slows.

Bank policymakers voted 5-3 on Thursday to keep interest rates on hold at a record low of 0.25pc.

External members Ian McCafferty and Michael Saunders joined MIT professor Kristin Forbes in voting to raise rates by 0.25 percentage points to 0.5pc.

The last time there were three dissenting votes to tighten policy was May 2011.

The Monetary Policy Committee (MPC) said inflation had picked up more quickly than expected in since its last economic forecast in May.

Inflation, as measured by the consumer prices index (CPI) stood at 2.9pc in May.

The minutes said there was a risk that inflation would rise “above 3pc by the autumn”, which would force Mark Carney, the Governor of the Bank of England, to write an open letter to Chancellor Philip Hammond.

The Bank had previously expected inflation to peak at around 2.8pc in the second half of this year.

The MPC noted that measures of domestically generated inflation were also picking up, even as members noted the weakness in growth, which slowed to 0.2pc in the first quarter, forcing policymakers to revise down their growth forecast at the start of the year.

Policymakers also said it was “striking” that wage growth had remained so weak, even as employment continued to grow and unemployment stood at its lowest rate since 1975.

Annual retail sales growth has slowed sharply, while wages have started to fall in real terms, according to recent official data.

“It remains to be seen how large and persistent this slowdown in consumption will prove,” the minutes of the MPC’s June meeting said on Thursday.

Officials said they still expected the UK economy to expand by 0.4pc in the second quarter of the year, unchanged from its May projection.

Members voting for a rate hike said “the withdrawal of part of the stimulus that the Committee had injected in August last year would help to moderate the inflation overshoot while leaving monetary policy very supportive”.

The MPC stressed that “all members agreed” that any increases in Bank Rate would be gradual and limited.

12:03PM

Bank of England comes closest to voting for a rate rise since 200

Despite policy being unchanged, the big shock from the latest policy meeting comes as the MPC came its closest to voting for a rate rise since 2007. 

External MPC members Ian McCafferty and Michael Saunders joined existing rate rise advocate Kristin Forbes in calling for a reversal of the BoE’s decision last August to cut rates to 0.25pc. 

Bank of England Governor Mark Carney and four other policymakers voted to leave rates unchanged.

12:01PM

Breaking: Bank of England leaves monetary policy unchanged

The Bank of England has left its monetary policy unchanged as widely expected. 

11:56AM

Pound and UK stocks extend losses ahead of Bank of England policy update

Let’s take a look at how markets are faring with minutes to go until the Bank of England announces its decision on interest rates: 

  • FTSE 100 has fallen 0.82pc to 7,414.49;
  • FTSE 250 remains on course for its worst day this year, down 1.66pc;
  • Pound is down 0.75pc at $1.268 against the US dollar;
  • Against the euro, the pound is off by 0.94pc at €1.1167.
11:52AM

ING:  Little prospect of Bank of England rate hike until post-Brexit outlook is clearer

With less than ten minutes until the latest Bank of England policy update is released, ING says there is little prospect of a Bank of England interest rate hike until the post-Brexit outlook is clearer.  

11:50AM

Bank of England should ‘stand pat’ on rates amid uncertainty over economic outlook and Brexit

Ahead of the Bank of England rate decision, which is widely expected to remain on hold, FXTM Research Analyst Lukman Otunuga previews the event: 

“The political chaos in Westminster, uncertainty over the UK’s economic outlook and ongoing Brexit concerns should encourage the Bank of England to “stand pat” on rates in Thursday’s MPC meeting. With the central bank highly unlikely to make any changes to monetary policy amid the instability, investors will most likely direct their attention towards Mark Carney for insights on how he plans to tackle the various challenges that the UK political climate and Brexit developments have presented.

“While inflation in the UK has hit a four-year high at 2.9pc, wage growth remains subdued and this creates further headaches for the BoE. Although raising interest rates to cool inflation is seen as a practical strategy, it may simply end up pressuring borrowers ultimately eroding business confidence and pinching consumers further.

“Prior to the anticipated BoE meeting, the British pound was vulnerable to heavy losses following the disappointing 1.2pc decline in UK retail sales in May which fueled fears of Brexit negatively impacting the UK economy. UK retail sales have plunged for the second time in three months as rising inflation diminishes the purchasing power of consumers. With wage growth struggling to keep up with inflation, concerns may mount over the sustainability of the UK’s consumer-driven economic growth.”

11:35AM

Sentance: Rise in inflation is squeezing growth of retail sales volumes

Weighing in on the retail sales figures, Andrew Sentance, senior economic adviser at PwC and former MPC member,  said the rise in inflation which was reported earlier this week is squeezing the growth of retail sales volumes.

“Last autumn, the annual growth of sales volumes was close to 6pc but in the last three months, the rate of increase on a year ago has slipped to 2.3pc. This is further evidence that the surge in consumer spending, which sustained UK economic growth since the EU referendum, has come to an end. With prices rising more rapidly, shoppers find their money does not go so far and they are therefore reining in their spending.”

He expects this subdued growth of consumer spending to continue while inflation remains around 3pc- and there is a risk it could go even higher.

He added: “The result is likely to be relatively sluggish economic growth this year and next – with GDP rising by around 1.5pc in 2017 and 2018, the weakest period of growth since the euro crisis in 2011 and 2012.”

10:56AM

Number of stocks hurt by trading ex-dividend

A number of stocks are trading without entitlement to their latest dividend pay-out, which is also weighing on UK indices. Here are a list of stocks trading ex-dividend today: 

  1. 3i Group
  2. Persimmon
  3. Severn Trent
  4. 3i Infrastructure
  5. Assura
  6. Electrocomponent
  7. Intermediate Capital 
  8. Marshalls
  9. Pets At Home
  10. Restaurant Group
  11. Shaftesbury
  12. Stobart Group
10:45AM

Pound sinks back below $1.27 

The pound has extended its losses and is now trading back below $1.27. 

It is currently down 0.77pc at $1.2696 against the US dollar after data from the ONS showed that UK retail sales fell sharply last month. 

10:33AM

Retail sales send a warning on the economy

Chris Beauchamp, of IG, says this morning’s dismal retail sales figures highlight the problems facing the Bank of England.

He added: “The economy is clearly not in the right place, while the constant background music of government negotiation has managed, for the time being, to drown out Brexit. But this is still the big event – and should mean that the BoE keeps policy on hold for the foreseeable future, if not much longer. The more you think about it, the more the UK seems to be facing a Japan-style future.”

Ian Gilmartin, Head of Retail & Wholesale at Barclays,said: “After a stronger than anticipated April, a more modest May was expected by most of the industry. The run up to a general election often provides a bit of a slowdown for the retail sector, with consumers less willing to commit to large purchases, but the reasons for the softer result this time are more complex.”

Mr Gilmartin notes thats inflation is “really starting to kick in”, with prices in the sector increasing at the highest rate for more than five years and expected to rise further.

He added: “Coupled with lower wage growth, it’s likely that consumer spending power will continue to weaken and it appears that retailers are going to have to navigate some choppy waters in the coming months.

“There are no easy solutions. With persisting currency challenges and rising supply chain costs, many retailers simply have to pass on some of this to their customers through price increases. Striking the right balance on price point between what is viable from a cost perspective and what is acceptable to the consumer is now the crucial strategic decision for retail heads to consider.”

10:16AM

FTSE 250 on track for worst day this year 

The domestically-focused FTSE 250 is on track for its sharpest one-day drop this year. 

It’s currently off by 1.3pc hurt by the pound weakness, which slipped back towards $1.27 after UK retail sales fell sharply in May. 

Meanwhile, the FTSE 100 has surrendered 0.7pc to trade at 7,422 as commodity-related stocks and retail stocks falter. 

10:09AM

Pound falls back towards $1.27 after UK retail sales slide in May

The pound extended its losses this morning after data showed UK retail sales fell more than expected last month. 

It is currently down 0.7pc at $1.2706 against the US dollar. Against the euro, it’s off by 0.82pc at €1.1182.

Sterling is also under pressure from broad dollar strengthen following yesterday’s move by the Fed to raise interest rates. 

GBP


Credit:
Bloomberg

10:04AM

Pantheon Macroeconomics: Retail sales consistent with GDP growth remaining weak in Q2

Samuel Tombs, of Pantheon Macroeconomics, said May’s retail sales figures confirm that consumers are struggling to spend more now that real wages are falling at the fastest rate for three years.

He added: “Admittedly, the sharp fall in sales volumes follows April’s 2.5pc month-to-month increase, so the trend is not as bad as May’s figures suggest in isolation. Even so, the decline in sales in May was broad-based, with food sales falling by 0.9pc and non-food sales declining by 2.3pc. Household goods sales plunged by 5.7pc month-to-month, suggesting that consumers have become very reluctant to make big-ticket purchases.” 

Mr Tombs thinks it’s hard to see the trend in retail sales improving soon. He highlights that retailers have not finished yet passing on higher import prices to consumers, wage growth looks set to remain depressed and banks are reporting that they intend to restrict the supply of unsecured credit.

He said: “As a result, we expect quarter-on-quarter growth in households’ real spending to average just 0.2pc in the remaining three quarters of 2017, ensuring that the overall economy continues to struggle.”

9:57AM

Analysts react to UK retail sales slide

After UK retail sales recorded its slowest annual growth since April 2013, here’s what the experts had to say: 

Ipek Ozkardeskaya, of London Capital Group, said: “The weakness in today’s retail sales print, following Tuesday’s solid inflation and Wednesday’s soft wages growth data, inclined the market in favour of a softer pound.”

Naeem Aslam, of Think Markets, says the retail sales data shows how how reluctant the consumers have become in terms of their spending.

He added: “Consumer spending has been feeble and wage growth is lacklustre also as it was confirmed by the average earning index data yesterday. Investors have been feeling the pinch due to the higher inflation,  the concussion of Brexit.” 

Meanwhile, economist Rupert Seggins noted that despite the sharp fall in retail volumes, the underlying trend for retail sales is “still one of growth”. 

9:47AM

ONS: We have not seen lower growth on the year since April 2013

 Ole Black, ONS Senior Statistician, weighs in on the sharp slide in UK retail sales: 

“The year-on-year growth in the quantity bought for retail sales in May 2017 was at 0.9pc. We have not seen lower growth on the year since April 2013.

“Increased retail prices across all sectors seem to be a significant factor in slowing growth.”

9:44AM

UK retail sales: Key charts 

Here are the key charts from the ONS data release on UK retail sales: 

Figure 1 explains the long-term picture within the retail industry: 

ONS

Implied deflator, non-seasonally adjusted in main retail sectors excluding automotive fuel

Credit:
ONS

Figure 2 shows the underlying pattern for the quantity bought, amount spent and average store prices for all retailing excluding fuel, as suggested by the 3 month on 3 month movement.

ONS

Rolling 3 month on 3 month, seasonally adjusted sales volumes, values and implied deflator, non-seasonally adjusted

Credit:
ONS

Figure 3: In May 2017, retail sales in non-food stores showed their first year-on-year decrease since December 2015.

ONS

Contributions to year-on-year volume and value growth in non-food stores from their four main sub-sectors, May 2017 compared with May 2016

Credit:
ONS

 Figure 4:  Contributions to year-on-year volume and value growth from the four main retail sectors

ONS

Contributions to year-on-year volume and value growth from the four main retail sectors, May 2017 compared with May 2016

Credit:
ONS

 Figure 5: The monthly picture shows that all main retail sectors except petrol stations saw decreases in the quantity bought (volume) and the amount spent (value). The largest contributions to the decrease in both the quantity bought and amount spent came from non-food stores.

ONs

Contributions to month-on-month volume and value growth from the four main retail sectors, May 2017 compared with April 2017

Credit:
ONS

9:38AM

Retail sales fall as consumers feel the hit of Brexit vote inflation

Here are the key points from the ONS release which showed UK retail sales fell more sharply than expected last month: 

  1. UK retail sales fell 1.2pc  month-on-month in May, compared to forecasts of a 0.8pc fall; 
  2. It follows strong growth in April (which economists said was probably a blip);
  3. Average store prices (excluding fuel) increased by 2.8pc on the year; the largest growth since March 2012;
  4. Earlier this week, inflation figures for May showed a jump to 2.9pc (its highest level in almost four years);
  5. Retail sales in the three months to May rose by 0.6pc, stronger than a rise of 0.2pc in the three months to April; 
  6. The jump in sales in April was revised higher; 
  7. Compared with a year earlier, retail sales rose 0.9pc compared with economists’ forecasts for a 1.7pc rise, the joint weakest increase since April 2013.
9:33AM

Breaking: UK retail sales fall more sharply than forecast 

UK retail sales fell more sharply than forecast last month, data showed today, in what is the latest sign of the growing hit to the economy from rising inflation since the Brexit vote. 

Data from the ONS showed retail sales volumes fell 1.2pc month-on- month in May, a heavier fall than forecasts suggested (-0.8pc). 

More to follow…. 

9:19AM

Analysts preview UK retail sales

Ahead of the UK retail sales data, due for release at 9.30am, here’s the predictions from the City: 

Naeem Aslam, Think Markets

“The UK retail sales data is going to charm a lot of attention amid investors. The sharp rise in inflation is alarming and this could hamper consumer spending and have a negative influence on the retail data. We do expect the number to be below the market expectations -0.9pc. ” 

Kathleen Brooks, City Index

“Retail sales figures could give the pound a boost if they manage to defy expectations of a 1pc decline. However, the squeeze on real wage growth suggests that the UK consumer is likely to be hobbled for some time, and this could weigh on GBP in the long term.” 

Simon French, economist at Panmure Gordon

“We get UK retail sales at 0930BST with soft UK cyclical indicators since the start of the year raising doubts over the resilience of the UK consumer. Things do not get much easier in H2 2017 with annual comparisons difficult given the strength of H2 2016 – however it should be noted that the volume of retailers surveyed by the CBI reporting higher sales is hovering around its highest level for two years.”

Panmure Gordon


Credit:
Panmure Gordon

9:03AM

Next slumps on rating downgrade

DFS isn’t the only retailer under pressure today. Fashion chain Next has dropped 3.9pc this morning after Credit Suisse slashed its rating to “underperform” from “neutral”. 

The Swiss investment bank also lowered its price target by 6pc to £40.

Analysts think the retailer’s strategy of expanding UK space is incorrect for a mature retailer. 

Simon Irwin, of Credit Suisse, said: “With earnings, margins and cash conversions continuing to fall we regard Next as a value trap.” 

9:00AM

DFS shares plunge after profit warning

DFS Furniture is set for its biggest one-day drop in almost a year after it warned on profits. Sam Dean reports: 

Shares in sofa giant DFS tumbled more than 20pc in early trade after it issued a profit warning, saying that trading has “weakened beyond our expectation”.

The largest furniture manufacturer in Britain said it had been hit by “significant” declines in the number of people coming into its stores.

That decrease has caused a drop in customer orders, prompting the retailer to warn that its full-year profits would be below market expectations.

The stock crashed to 197p a share as investors absorbed the news.

DFS had already warned this year that the weaker pound was taking its toll on margins and that the softer market would have an impact in the second half of the year.

But it has now said that trading environment is worse than originally feared, as industry-wide uncertainty weighs on profits.

Read the full story here

8:58AM

Pound skids back towards $1.27 as dollar strengthens

The pound slipped back towards $1.27 against the US dollar in morning trade in London on the back of a stronger greenback following last night’s decision by the Fed to raise rates. 

Sterling fell by more than half a percent to an intraday low of $1.2723, having crossed $1.28 in early trade. 

Investors remain anxious ahead of Chancellor Philip Hammond’s Mansion house speech, UK retail sales and over Prime Minister Theresa May’s efforts to gain the backing she needs for a new minority government.

The Bank of England will release its monetary policy update at midday, but the Bank is expected to make no changes to policy. 

Against the euro, the pound fell 0.75pc to €1.1189.

GBP


Credit:
Bloomberg

8:48AM

European shares fall towards two-month low

Back to this morning, European shares are deep in the red, heading towards a two-month low, as retailer and commodity-related stocks came under pressure. 

Oil prices dropped towards a seven-month low as concerns about Opec’s ability to cut oil supplies heightened, weighing on oil majors. 

Retailers took a beating on disappointing results, while investors also remained cautious ahead of interest rate decisions from the Bank of England and Swiss National Bank due later in the day. Both are expected to leave rates unchanged. 

Here’s a snapshot of the current state of play: 

European bourses


Credit:
Reuters

 Mike van Dulken, of Accendo Markets, said: “A flat opening call comes as investors digest a mixed Fed update where it elected to keep calm and carry on, delivering another US interest rate hike as markets had priced, in spite of stateside data continuing to disappoint. It also suggested just one more hike this year but tried to balance this with much detail (except start date) on how it plans to deflate that QE-bloated $4.2tn balance sheet.” 

8:43AM

US Federal Reserve raises interest rates, maintains forecast for one more hike in 2017

For those who missed it yesterday evening, the Fed hiked rates as widely expected. Here’s the full story: 

The US Federal Reserve has raised interest rates and outlined plans to reduce its massive balance sheet as policymakers signalled another rate hike this year despite a double dose of soft economic data.


Policymakers raised the Federal Funds target range to between 1pc and 1.25pc on Wednesday, up from 0.75pc to 1pc.


While the tightening represents the second rate rise this year, it is just the fourth increase since the financial crisis, when policymakers pushed rates down to zero.


The Fed’s decision to tighten policy also contrasts with the Bank of England, which cut rates last August in the wake of the Brexit vote and is expected to maintain rates at a record low of 0.25pc on Thursday.


US officials maintained a projection of one more rate hike in 2017 amid slightly stronger growth projections and downward revisions to its unemployment forecasts after the jobless rate fell to a 16-year low in May.


Read the full story here

8:40AM

Treasury to bolster protection for infrastructure projects

Chancellor Philip Hammond will use his Mansion House speech tonight to signal how the government will respond to the weariness among many voters over the spending cuts needed to turn Britain’s budget deficit into a surplus, something the government says will take until the mid-2020s. Szu Ping Chan reports: 

Philip Hammond will outline plans to increase support for key infrastructure projects with extra government funding and guarantees to keep Britain building through Brexit.

The Chancellor will use his annual Mansion House speech on Thursday night to ensure key infrastructure projects are protected as the UK leaves the European Union.

Chancellor Philip Hammond and Bank of England Governor Mark Carney

Chancellor Philip Hammond and Bank of England Governor Mark Carney will both deliver a speech at the Mansion House dinner tonight

Credit:
 Paul Grover

In his first major speech since the general election, Mr Hammond will tell City leaders that the Treasury is working with the European Investment Bank (EIB) to ensure access to cheap funding for projects is maintained while the UK remains inside the EU.

Mr Hammond, who is said to be the leading proponent of a “soft” Brexit, will buttress these guarantees with extra support for the British Business Bank (BBB), which will be given the ability to bring forward some of the £400m cash injection announced at last year’s Autumn Statement.

Read the full report here 

8:32AM

Agenda: Investors eye Bank of England rate decision

Good morning and welcome to our live markets coverage. 

Overnight, Asian shares came under pressure hurt by soft US economic data, a relatively hawkish Fed and reports that US President Donald Trump is being investigated by a special counsel for possible obstruction of justice. 

Last night, the Fed raised rates as widely expected and projections of the Fed board members also showed they expect one more rate hike by the end of year.

European shares had a tentative start this morning and the pound has slipped back towards $1.27 against the US dollar as investors await the Bank of England rate decision. It is widely expected that the UK central bank will leave rates on hold. 

Before the Bank of England policy update at midday, UK retail sales will be released at 9.30am. 

Previewing the retail sales data release, Michael Hewson, of CMC Markets, said: “The last two quarters retail sales numbers have been a negative contributor to GDP and unless wages start to pick up and keep track of the rise in prices then it is unlikely that we’ll get to see a recovery in spending soon, though input prices would appear to suggest that inflationary pressures may be plateauing in the short term.

“The sharp rise in inflation seen earlier this doesn’t bode well for today’s May retail sales with predictions that we could well see a sharp drop of -1pc.” 

The Bank’s governor Mark Carney will also deliver his regular Mansion House speech tonight at 9pm. Attention will also be on Chancellor Philip Hammond, who will also deliver a speech at the event. 

Later this afternoon at 2pm, eurozone finance minister gather in Luxembourg to discuss Greece’s bailout programme with the most immediate question being the unblocking of new loans vital to prevent Athens from defaulting on its existing debts due in July.

Also on the agenda: 

Full-year results: Consort Medical, Majestic Wine, Mountview Estates, WS Atkins

Interim results: Safestore Holdings

Trading update: PZ Cussons, Drax Group

AGM: Metals Exploration, Loopup Group, Serabi Mining

Economics: Retail sales m/m (UK), official bank rate (UK), monetary policy summary (UK), asset purchase facility (UK), MPC asset purchase facility votes (UK), MPC official bank rate votes (UK), unemployment claims (US), Philly Fed manufacturing index (US), Empire State manufacturing index (US), import prices m/m (US), industrial production m/m (US), trade balance (EU)