Rolling coverage of the latest economic and financial news
1m agoOil trading near two-month low
11m agoIntroduction: Bank of England sets interest rates today
The Bank of England will be reassured to see that the oil price has tumbled this week.
Brent crude crashed through the $100 a barrel mark yesterday, hitting its lowest level in two months, and this morning is trading around $95 a barrel.
Traders appear to be concluding that Donald Trump might try to deescalate the Middle East conflict after his Republican party got a hoofing in this week’s midterms.
Nothing is certain, though, as Kyle Rodda, senior financial market analyst at Capital.com, explains:
Peace talks are in rhetoric alone currently. Meanwhile, it’s feared an increasingly lame-duck President Trump could become more active (and arguably reckless) in foreign policy as he seeks to influence policy at a time when there are fewer self-interested reasons to show restraint. For now, market participants are pricing out the geopolitical risk premium that had been baked into the market leading into the midterms on fears the US would launch fresh strikes after the election.
Peace talks are in rhetoric alone currently. Meanwhile, it’s feared an increasingly lame-duck President Trump could become more active (and arguably reckless) in foreign policy as he seeks to influence policy at a time when there are fewer self-interested reasons to show restraint.
For now, market participants are pricing out the geopolitical risk premium that had been baked into the market leading into the midterms on fears the US would launch fresh strikes after the election.
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Predicting a central bank’s actions can be risky, but there will certainly be surprise in the City of London today if the Bank of England doesn’t raise interest rates at midday.
The BoE is widely expected to announce its first increase in UK interest rate in more than three years, at noon today. A quarter-point rise would take Bank Rate up to 4% from 3.75%.
With inflation rising faster than the Bank’s target, most of its policymakers are expected to decide now is the moment to tighten monetary policy. This, they might hope, would dampen the risk that high energy costs spill over and push up the cost of other goods and services.
The Bank hasn’t hiked borrowing costs since August 2023, when bank rate hit 5.25%.
It will also be playing ‘catch-up’ with other central banks – rates have already risen in the US, Japan, the eurozone, Australia and Canada this year.
Peder Beck-Friis, economist at bond trader PIMCO, says a hike to 4% is “fully priced by markets,” explaining:
The BoE is primarily responding to higher energy prices, but macro data have also turned more hawkish. Growth has been resilient, the labour market has stabilized, and core inflation has edged higher. However, the economy does not look overheated, and pass-through from higher energy prices into core inflation has been modest overall.
The BoE is primarily responding to higher energy prices, but macro data have also turned more hawkish.
Growth has been resilient, the labour market has stabilized, and core inflation has edged higher. However, the economy does not look overheated, and pass-through from higher energy prices into core inflation has been modest overall.
Andrew Wishard, senior UK economist at Berenberg, predicts the decision will be almost unanimous:
We expect an 8-1 vote in favour of the move, with only Alan Taylor dissenting. Although several rate setters will vote for the hike reluctantly, developments in the real economy justify it. Strong economic growth and a tentative stabilisation of the labour market suggest that an interest rate hike will restrain economic activity only modestly.
The agenda
9am GMT: UK car sales report for October
9.30am GMT: UK construction PMI for October
Noon GMT: Bank of England interest rate decision
12.30pm GMT: Bank of England press conference
1.30pm: US jobless claims report
