The Bank of England pushed interest rates above their financial crisis lows on Thursday but signalled it was in no hurry to raise them further as Brexit approaches with its terms still unclear.
The BoE’s nine rate-setters were unexpectedly unanimous in their vote to raise rates to 0.75 from 0.50 per cent, the level at which they have spent most of the past decade apart from 15 months after the Brexit vote when they were cut even lower.
Economists polled by Reuters had mostly expected a 7:2 vote in favour of raising rates.
The BoE said Britain’s economy, while growing more slowly than in the past ahead of Britain’s departure from the European Union next year, was operating at almost its “speed limit,” or full capacity, raising the prospect of more home-grown inflation pressure ahead.
But the message for interest rates remained one of gradual and limited increases as the central bank saw inflation only a fraction above its 2 per cent target over the next few years.
The forecast was based on bets by investors who expect another rate hike only in late 2019 or early 2020, with Bank Rate creeping up to 1.1 per cent in late 2020. That was a fraction lower than a projection of rates of 1.2 per cent the last time the BoE published forecasts for the economy in May.
The reaction in financial markets was muted. Sterling rose modestly against the dollar, while British government bond yields rose briefly, but soon fell again.
“The economy has done just about enough for the Bank of England to justify a hike today. But no one should get too excited about this being a sign of things to come,” said Luke Bartholomew, an investment strategist at Aberdeen Standard Investments.
“It is almost unthinkable that the Bank of England will follow up with further rate rises in the next few months given the risks on the horizon.”
The world’s fifth-biggest economy has slowed since the referendum decision in 2016 to leave the EU.
With less than eight months until Brexit, London and Brussels — as well as key members of Prime Minister Theresa May’s Conservative Party — remain far apart on what their future trading relationship should look like.
The BoE said the economy “could be influenced significantly by the response of households, businesses and financial markets” to news on Brexit.
But the central bank continued to stress that Britain’s economy was at risk of too much inflation even with slow growth.
The central bank said inflation in two years’ time was likely to be 2.09 per cent, above the BoE’s 2 per cent target.
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Read more:
Bank of England's likely rate rise may by counter intuitive
Mixed fortunes for sterling as Brexit negotiations rumble on
UK economy exits bleak winter as World Cup boosts spending
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The BoE said it expected Britain’s economy would grow by 1.4 per cent this year, unchanged from its forecast in May, but it nudged up its forecast for growth in 2019 to 1.8 per cent from a previous projection of 1.7 per cent.
Wages were likely to be growing by an annual 2.5 per cent at the end of this year, a bit slower than forecast in May, before picking up to 3.25 per cent in 2019, unchanged from before.
Several private-sector economists have challenged the BoE’s view that inflation pressures are building and say raising rates now only risks a U-turn by the central bank if Britain fails to get a Brexit deal.
BoE Governor Mark Carney has said all bets on future BoE rate hikes would be off if there is a no-deal Brexit.
Some investors think the risk of a global trade war is another reason for caution by the BoE.
In its statement on Thursday, the central bank said it saw “tentative signs that actual and prospective protectionist policies were starting to have an adverse impact” on global trade.
It also fleshed out its thinking on how far it is likely to go with its planned rate hikes by publishing a new long-term forecast for what it called Britain’s trend real interest rate, or “R*”, of zero to 1 per cent, more than 2 percentage points below its pre-financial crisis level.
Adjusted for the BoE’s inflation target, this would imply Bank Rate of 2-3 per cent to keep growth and inflation rates stable when the economy is running at full capacity.
In the shorter term, the Bank Rate implied by a so-called equilibrium real interest rate, or “r*”, was likely to be somewhat lower, the BoE said but it did not give an estimate.
Tips for newlyweds to better manage finances
All couples are unique and have to create a financial blueprint that is most suitable for their relationship, says Vijay Valecha, chief investment officer at Century Financial. He offers his top five tips for couples to better manage their finances.
Discuss your assets and debts: When married, it’s important to understand each other’s personal financial situation. It’s necessary to know upfront what each party brings to the table, as debts and assets affect spending habits and joint loan qualifications. Discussing all aspects of their finances as a couple prevents anyone from being blindsided later.
Decide on the financial/saving goals: Spouses should independently list their top goals and share their lists with one another to shape a joint plan. Writing down clear goals will help them determine how much to save each month, how much to put aside for short-term goals, and how they will reach their long-term financial goals.
Set a budget: A budget can keep the couple be mindful of their income and expenses. With a monthly budget, couples will know exactly how much they can spend in a category each month, how much they have to work with and what spending areas need to be evaluated.
Decide who manages what: When it comes to handling finances, it’s a good idea to decide who manages what. For example, one person might take on the day-to-day bills, while the other tackles long-term investments and retirement plans.
Money date nights: Talking about money should be a healthy, ongoing conversation and couples should not wait for something to go wrong. They should set time aside every month to talk about future financial decisions and see the progress they’ve made together towards accomplishing their goals.
On Instagram: @WithHopeUAE
Although social media can be harmful to our mental health, paradoxically, one of the antidotes comes with the many social-media accounts devoted to normalising mental-health struggles. With Hope UAE is one of them.
The group, which has about 3,600 followers, was started three years ago by five Emirati women to address the stigma surrounding the subject. Via Instagram, the group recently began featuring personal accounts by Emiratis. The posts are written under the hashtag #mymindmatters, along with a black-and-white photo of the subject holding the group’s signature red balloon.
“Depression is ugly,” says one of the users, Amani. “It paints everything around me and everything in me.”
Saaed, meanwhile, faces the daunting task of caring for four family members with psychological disorders. “I’ve had no support and no resources here to help me,” he says. “It has been, and still is, a one-man battle against the demons of fractured minds.”
In addition to With Hope UAE’s frank social-media presence, the group holds talks and workshops in Dubai. “Change takes time,” Reem Al Ali, vice chairman and a founding member of With Hope UAE, told The National earlier this year. “It won’t happen overnight, and it will take persistent and passionate people to bring about this change.”
Coffee: black death or elixir of life?
It is among the greatest health debates of our time; splashed across newspapers with contradicting headlines - is coffee good for you or not?
Depending on what you read, it is either a cancer-causing, sleep-depriving, stomach ulcer-inducing black death or the secret to long life, cutting the chance of stroke, diabetes and cancer.
The latest research - a study of 8,412 people across the UK who each underwent an MRI heart scan - is intended to put to bed (caffeine allowing) conflicting reports of the pros and cons of consumption.
The study, funded by the British Heart Foundation, contradicted previous findings that it stiffens arteries, putting pressure on the heart and increasing the likelihood of a heart attack or stroke, leading to warnings to cut down.
Numerous studies have recognised the benefits of coffee in cutting oral and esophageal cancer, the risk of a stroke and cirrhosis of the liver.
The benefits are often linked to biologically active compounds including caffeine, flavonoids, lignans, and other polyphenols, which benefit the body. These and othetr coffee compounds regulate genes involved in DNA repair, have anti-inflammatory properties and are associated with lower risk of insulin resistance, which is linked to type-2 diabetes.
But as doctors warn, too much of anything is inadvisable. The British Heart Foundation found the heaviest coffee drinkers in the study were most likely to be men who smoked and drank alcohol regularly.
Excessive amounts of coffee also unsettle the stomach causing or contributing to stomach ulcers. It also stains the teeth over time, hampers absorption of minerals and vitamins like zinc and iron.
It also raises blood pressure, which is largely problematic for people with existing conditions.
So the heaviest drinkers of the black stuff - some in the study had up to 25 cups per day - may want to rein it in.
Rory Reynolds
In-demand jobs and monthly salaries
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Tips to avoid getting scammed
1) Beware of cheques presented late on Thursday
2) Visit an RTA centre to change registration only after receiving payment
3) Be aware of people asking to test drive the car alone
4) Try not to close the sale at night
5) Don't be rushed into a sale
6) Call 901 if you see any suspicious behaviour
Election pledges on migration
CDU: "Now is the time to control the German borders and enforce strict border rejections"
SPD: "Border closures and blanket rejections at internal borders contradict the spirit of a common area of freedom"
