Bank of England Poised to Raise Interest Rates

The Bank of England is poised to raise interest rates above the level set since the aftermath of the financial crisis for the first time, despite a weakening outlook for the British economy and growing risks from Brexit.

Economists widely expect the Bank’s monetary policy committee (MPC) to lift the cost of borrowing above 0.5% on Thursday to reach 0.75%. Financial markets suggest a 91% chance of rates returning to levels unseen since March 2009, when Britain was in the grip of recession.

However, recent readings for the economy have painted a mixed picture for economic growth. Survey data on Wednesday showed factory output falling to the lowest levels for 16 months in July, amid fears over Brexit and trade wars.

On the eve of the interest-rate decision, the latest snapshot from IHS Markit and the Chartered Institute of Procurement and Supply showed weaker domestic activity for the manufacturing sector, which could suggest weaker growth lies ahead for the British economy.

However, inflation has remained stubbornly above the 2% target set for the Bank by the government, after having risen sharply straight after the EU referendum result.

Some rate setters on the MPC, including the Bank of England’s chief economist, Andy Haldane, also believe wage growth is just around the corner for workers, amid the lowest levels of unemployment since the mid 1970s, a factor that could help boost workers’ bargaining power for higher pay.

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The summer heatwave, royal wedding and England progressing to the semi-final of the World Cup helped boost the economy, triggering stronger retail sales in April and May before they unexpectedly fell back in June. The Office for National Statistics found that the warmer weather helped the economy rebound from a slowdown earlier this year after heavy snowfall from the “beast from the east”.

Having watched the economy grind to a halt in the cold weather as building cranes and diggers fell idle across the country, the Bank delayed raising interest rates in May above 0.5%, preferring to wait for better news.

Keeping them on hold again could test the Bank’s credibility after a series of speeches from MPC members suggesting that higher interest rates would be required if economic growth continued to recover.

Despite some stronger readings for the economy, some economists have warned the Bank against raising rates amid increasing uncertainty over Brexit, as Theresa May is faced with widening parliamentary divisions over her plans.

Writing in the Guardian last month, David Blanchflower, a former MPC member , said there was no basis for the MPC to raise rates amid the uncertainty.

Threadneedle Street has previously warned that lower interest rates could be required if the UK left the EU without a deal.

Mark Carney, the Bank’s governor, has said Brexit developments would have a significant influence on monetary policy. While the MPC has a mandate to steer inflation towards 2%, it also has the ability to deviate from this course to support the economy through difficult periods.

Some economists have argued the unemployment rate of 4.2% masks the precarious nature of work for many people, which could hold back wage growth as workers’ bargaining power remains subdued. The most recent official figures show wage growth dropped to the lowest level in six months in the three months to May.

While higher interest rates would add to financial pressure facing consumers, there are fewer people than in previous years who would immediately feel the difference from higher borrowing costs.

Nationwide said the share of outstanding mortgages on variable interest rates – which would lead to an increase in payments – has fallen to its lowest level on record, at around 35%, down from a peak of 70% in 2001.

Robert Gardner, chief economist at Nationwide, said: “While the impact for most borrowers is likely to be modest, it’s important to note that household budgets have been under pressure for some time because wages have not been rising as fast as the cost of living.”

Via: https://www.theguardian.com/business/2018/aug/02/bank-of-england-poised-to-raise-interest-rates

Interest rates set to rise above 0.5% for first time since 2009 as economy improves – but expert warns it could be tricky to hike them any further before Brexit

Britons could be in for higher borrowing costs as economists expect interest rates to go up next week.
Confidence the economy has rebounded after a blip in the first three months and that wages will improve in the coming months are major factors in the potential rise.

If the Bank of England’s nine policymakers do raise the base rate from 0.5 per cent to 0.75 per cent on Thursday, it would be the highest it has been since March 2009, when it was cut from one per cent to 0.5 per cent during the financial crisis.

The predictions come as doubt was cast on a possible hike earlier this month. That came after inflation held steady at 2.4 per cent, instead of rising to 2.6 per cent as economists expected.

However, it still looks more likely that policymakers will vote to raise interest rates by a small 0.25 per cent on 2 August, with recent data suggesting economic growth rebounded in the second quarter after a slowdown at the start of the year.

A survey of nine economists by website Finder.com shows all of them predict a base rate rise, mostly because they believe the economy has improved, inflation is set to go up and so are wages, despite having stagnated so far.

Wage growth (excluding bonuses) slowed to 2.7 per cent while the figure including bonuses remained stuck at 2.5 per cent in the three months to May, according to the latest figures by the Office of National Statistics.

However, the economy is predicted to have grown by 0.4 per cent in the second quarter, up from 0.2 per cent between January and March.

Read more: www.thisismoney.co.uk/money/news/article-6000007/Interest-rates-set-time-2009-economy-improves.html

Northern Ireland offers landlords the best yield

Data from Direct Line for Business has revealed that Northern Ireland offers landlords the best returns in the UK. This is 2% above the average yield for landlords in the UK, which currently stands at 3.6%.

With an annual return of 5.6%, the region offers landlords the highest return- followed by Scotland (5.3%) and the North East (5%).

The figures revealed Belfast ranked third in terms of offering the best returns for landlords with an annual rental yield of 6.4%- following behind Burnley (7.1%) and Glasgow (6.9%).

Business manager at Direct Line for Business, Christina Dimitrov, explained: “As the number of renters across the UK increases, so too has the number of private landlords, with more than five million privately-let properties currently in the UK.”

Via: https://content.propertynews.com/northern-ireland-offers-landlords-the-best-yield/

Northern Ireland ‘to see biggest UK house price growth’

Northern Ireland is predicted to see the strongest house price growth in the UK over the next four years, according to a forecast from PwC.

The financial services giant expects prices to increase by 4% by 2022, compared to an overall UK rate of 3.4%.
Northern Ireland experienced a steeper fall in house prices than other parts of the UK during the financial crisis.

Prices in the rest of the UK have passed pre-crisis peaks but in Northern Ireland they are still well below.
Even if prices do increase by the forecast rate, they will still be about 28% lower than the 2007 pre-recession average.

‘Better than expected’

The forecast also predicts the Northern Ireland economy will grow by just 0.8% in 2018, but should experience some improvement to 1.2% in 2019.

That is still well below the forecast UK average of 1.3% for 2018 and 1.6% in 2019.

“The NI property market continues to perform better than expected, with a positive balance between earnings and house prices,” said PwC Northern Ireland chairman and UK Head of Regions, Paul Terrington.

“However, prices still remain well below the peak level in 2007, and this gap is unlikely to close in the near future.

“We have also considered the effect of future interest rate rises, and believe that only around 11% of UK households would be immediately affected if rates increased.”

Via: https://www.bbc.co.uk/news/amp/uk-northern-ireland-44852642