All eyes are on the Bank of England this morning. The UK central bank is on track for its biggest rate hike in decades as it tries to control persistently high inflation. The BoE is expected to raise its key interest rate by three-quarters of a percent, lifting the bank rate from 2.25% to 3%, the highest since autumn 2008, in one of the most anticipated monetary policy meetings here and many years. It would be the eighth rate hike in a row, raising borrowing costs even as the country risks slipping into recession. A rise of 75 basis points would be the biggest rate hike since 1989 (excluding the chaos on Black Wednesday, when rates briefly rose from 10% to 12%, to no avail). The Bank will be determined to tighten monetary policy after it saw consumer price inflation hit a 40-year high of 10.1% in September, five times higher than its 2% target, as food prices rose as and the energy crisis. He fears that high inflation will cause a wage-price spiral, with workers (reasonably) seeking wage increases to protect them from the cost-of-living squeeze. Shweta Singh, senior economist at fund manager Cardano, says the Bank faces a very difficult task: The BoE is faced with an incredibly difficult balancing act of orchestrating large rate hikes in an economy in recession. Markets are pricing in a terminal rate of 480 bps through September 2023, which is 100 bps lower than in early October, but pretty sharp nonetheless. The Bank also wants to reassure markets after the turmoil caused by the disastrous mini-budget that sank the pound and raised the cost of government borrowing. But policymakers are operating in the dark after Chancellor Jeremy Hunt’s budget statement outlining tax rises and spending cuts was delayed until November 17. It has been scheduled for three days ago, so the lack of clarity about government policy makes the work of the CoE difficult. Singh explains: “If September’s fiscal uncertainty focused on how loose government policy would become, November’s uncertainty focuses on how tight it will become. And, if September’s dilemma for the Bank was that they might not be tightening enough, November’s dilemma is that they end up doing too much. It therefore appears that the MPC is still stumbling in the dark. Markets are already jittery after the U.S. central bank raised its key lending rate by another three-quarters of a percent last night, dampening hopes that it may ease soon. Wall Street sank after Federal Reserve Chairman Jerome Powell warned that U.S. interest rates may peak higher than expected and stay high longer than expected to squeeze inflation. Powell warned that it was “too early” to think about pausing interest rate hikes and warned that: “The data from our last meeting suggests that the final level of interest rates will be higher than expected. (5) Top 3 takeaways from Jerome Powell’s speech last night — 1- “If they were too strict, we could use our tools to support the economy later. from a risk management perspective, that’s a better risk to take than to suffer through tightening and the risk of high inflation.” — Madhur Jain (@Madhur_1910) November 3, 2022 (6) 2- ”Incoming data from our last meeting (jobs and CPI) suggest that the final Fed Funds rate will be HIGHER than previously expected (4.63%) and we will remain on track until the end of work” . When asked about the stock market rally during his press conference: — Madhur Jain (@Madhur_1910) November 3, 2022 (7) 3- ”We have a ways to go in terms of raising interest rates and we will ensure that financial conditions are tight enough to reduce economic activity and inflation”. I think the FED is doing the right thing to reduce inflation and there will be stagnation in the global economy. — Madhur Jain (@Madhur_1910) November 3, 2022 We also find out how the UK and US service sectors fared in October, as well as the latest Eurozone unemployment statistics.
THE AGENDA
9 a.m. GMT: Norges Bank of Norway rate decision 9.30 am GMT: UK Services PMI for October 10 am. GMT: Eurozone unemployment rate for September Noon GMT: Bank of England rate decision 12.30 p.m. GMT: Bank of England press conference 2 p.m. GMT: US services sector PMI for October
Updated at 09.04 GMT Important events BETA filters Key facts (6) Bank of England (4) United Kingdom (4) Chancellor Jeremy Hunt is facing calls to come to the House of Commons or hold a press conference to explain how mortgage holders will be helped if the Bank raises rates as expected today. Liberal Democrat Treasury spokeswoman Sarah Olney said: “The chancellor must address the nation immediately after the rate hike decision to set out a plan to save home owners on the brink. “He should either come to parliament or hold a press conference to announce support for families facing hundreds of pounds a month in mortgage increases. “Hard-working families are being left to pay the price for weeks of Tory chaos. People are desperately worried about how they’re going to pay those dreaded mortgage payments the day after tomorrow. “The government cannot hide, especially after its long list of economic failures.” European stock markets opened lower after the US central bank warned last night that US interest rates would peak higher than expected. Britain’s FTSE 100 index of blue-chip shares fell 40 points, or 0.5 percent, in early trading. Germany’s DAX and France’s CAC are down 1%. The Fed raised interest rates by 0.75 percentage points and signaled plans to keep raising them. He also hinted at a possible slowdown in the pace of increases. https://t.co/CoBzSkKYJh — John Ashcroft (@jkaonline) November 3, 2022
Sainsbury’s: life is tough for millions of households
The boss of supermarket chain Sainsbury’s has warned that life is “tough for millions of households”. Chief executive Simon Roberts pointed to the squeeze on families as Sainsbury’s reported an 8% fall in profits for the first half of the year. Roberts said the group, which gave low-wage store workers a second pay rise this year, was investing in keeping prices low for customers. He says: We truly understand how difficult it is for millions of households right now. Customers watch every penny and every pound and we know they rely on us to keep food prices as low as we can. We will have invested more than £500 million by March 2023 to keep prices lower by reducing our costs at a faster rate than our competitors, meaning we have more firepower to tackle inflation. Roberts also told reporters that Sainsbury’s is seeing a significant move towards own-brand customers, with customers also buying some Christmas items early to spread the cost. He is not overly optimistic about the sales boost from the men’s soccer World Cup. Shares in Sainsbury’s jumped 3% in early trading as underlying pre-tax profits came in higher than the City had expected. Updated at 09.04 GMT
Twitter may ‘halve its workforce’ as key investor backs job cuts
Dan Milmo Photo: Dado Ruvić/Reuters Elsewhere this morning, there are reports that Elon Musk has drawn up plans to lay off up to half of Twitter’s 7,500 employees. The major cost-cutting review, just days after Musk took control, could take place on Friday. Musk is also expected to order other staff to return to the office, instead of working from home. One investor backs the job cuts, as my colleague Dan Milmo reports: Changpeng Zhao, CEO and founder of Binance, said “a leaner workforce would make more sense” on the social networking platform. The cryptocurrency exchange has invested $500m (£441m) in Twitter as part of Musk’s $44bn buyout, which was completed last week and has since been followed by a series of changes and overhauls of the company. According to the latest reports, in the Verge and Bloomberg overnight, Musk plans to cut around 3,800 jobs, with staff affected by any layoffs at the San Francisco-based company not being notified until Friday. Zhao said Thursday, before the Verge and Bloomberg reports were published, that Twitter had been too slow to roll out new features under its previous ownership. Here’s the full story: The exodus of top executives at Twitter is already underway. The company’s advertising and marketing executives recently announced their departures, as well as its chief people and chief differentiation officer, general manager of core technologies, chief product officer and vice president of global sales. Last week, Elon Musk fired CEO Parag Agrawal, chief financial officer Ned Segal, and head of legal affairs and policy Vijaya Gadde shortly after taking over the company. Alex Lawson People are also facing higher prices at the petrol pump again, as well as rising borrowing costs, as my colleague Alex Lawson explains: Motorists suffered a “severe shock” after the price of diesel soared in October amid the fallout from the OPEC+ oil cartel’s decision to cut output, the RAC said. The price of diesel rose by 10p a liter to an average of 190.5p – the third-worst monthly increase on record, behind previous rises this year, according to figures from the motoring group. The RAC said a full tank of diesel rose by more than £5 to £105 as prices threatened to rise to an all-time high of £199.09 a liter at the end of June. The figures showed the price of petrol rose, although less than diesel – up by almost 4p/litre from 162.67p to 166.38p. This meant a full tank costs £2 more at £91.51. Here’s the full story: Decision on BoE interest this midday + we’ll hear from Governor Andrew Bailey Rate currently 2.25%. Expectations for an increase of 0.75 p.m. to 3%. It will be the biggest increase since 1989 and will push interest rates to their highest…
