US adds 531,000 jobs in October; Bank of England ‘sorry’ about rising inflation – as it happened

Last modified: 05: 08 PM GMT+0

FTSE 100 at pandemic high on Pfizer pill boost

Stocks in London have closed at a new pandemic high.

The blue-chip FTSE 100 ended the day 24 points higher at 7304, its highest close since the start of the market crash in February 2020.

Travel and hospitality stocks led the risers, on hopes that Pfizer’s experimental antiviral pill, paxlovid, could help avoid future lockdowns and pandemic restrictions.

IAG, which owns British Airways, jumped 6% to 180p, followed by jet-engine maker Rolls-Royce which gained 5.8%.

Conference organiser Informa (+5.6%), engineering firm Melrose (+4.3%) and broadcaster ITV (+3.3%) also rallied.

On the FTSE 250 index, cruise operator Carnival jumped 9.5% and ticketing firm Trainline gained 7.3%, on optimism of a pick-up in travel bookings.

Danni Hewson, AJ Bell financial analyst, says:

“More records fell across the pond with those travel operators boosting the S&P 500, particularly the cruise sector which relies on trade from older travellers who might still have been a little wary despite the vaccination programme roll outs. Pfizer’s antiviral is making headlines across the globe and it and a similar treatment from MSD could well be game changers for a world still a little wobbly and uncertain about what the future will hold as colder weather rushes in.

“The week has been tumultuous, it’s delivered surprises, both to delight and dismay. Earnings have held up despite rising prices and supply chain log jams, plus in the US jobs and more jobs are back on the menu. Next week there’s plenty more data to dig into from the latest US inflation numbers to a look at how the UK economy performed once the long summer holidays came to an end and normal service was just about resumed.”

Back in the UK, more Bank of England policymakers have been explaining yesterday’s decision to leave interest rates on hold at record lows.

The BoE’s new chief economist Huw Pill told an online briefing that officials see “some need” to raise interest rates to fend off a jump in inflation.

Pill, one of seven officials to vote to leave Bank Rate at 0.1%, said:

“I think across the committee, there is a recognition that, at least on the basis of today’s information, there is some need for action with the Bank Rate.

Deputy governor Sir Dave Ramsden, one of just two who did vote for a rate hike, said he was concerned about a recent rise in inflation expectations in Britain.

Ramsden explained:

“That move in the UK above, and materially above, what was a relatively stable historical average, has been something I’ve been concerned about.

[A survey last month showed a record proportion of the British public thinks inflation will accelerate over the next 12 months]

But a more dovish MPC member, Silvana Tenreyro, argued for a cautious approach to raising interest rates.

Tenreyro, who voted ‘no change’ yesterday, told a conference hosted by the International Monetary Fund that the Bank shouldn’t move too quickly, while the economy is below its pre-crisis level and the health of the labour market is hard to read

“Central banks, not just the Bank of England, will need to balance their inflation and real-economy objectives. This balancing requires in my view a cautious approach,”

Tenreyro echoed governor Andrew Bailey’s point this morning, that the Bank wants to see the impact of ending the UK’s job protection scheme.

Policymakers should meanwhile be “very watchful” of wage pressures, she added.

“As soon as we see that picking up, that’s where monetary policy has a bite. Monetary policy cannot really do anything about a spike in energy prices”

[Many thanks to Reuters for the quotes]

Silvana Tenreyro, one of the more dovish MPC members, says the Bank of England now finds itself in "trade-off territory" between supporting growth and combating inflation pressures.
But overall, a "cautious" approach to tightening policy remains right. https://t.co/Q90Q3TZHoO

— David Milliken (@david_milliken) November 5, 2021

The rather more hawkish BoE chief economist Huw Pill said the MPC sees "some need" to raise rates (but clearly not enough to have done so yesterday) https://t.co/iOTvz6rvAD

— David Milliken (@david_milliken) November 5, 2021

Biden welcomes jobs report

President Joe Biden has welcomed the jump in job creation last month.

Today is “another great day for our economic recovery.” Biden declared, after seeing 531,000 jobs added in October, and more gains in September and August than previously thought.

Speaking from the White House, Biden says:

“America is getting back to work. Our economy is starting to work for more Americans,”

The president credits the economic plan introduced earlier this year, and the successful vaccine deployment, for the ‘historically strong’ jobs recovery. He also welcomes the substantial fall in unemployment among Hispanic Americans.

[as flagged earlier, the US has added 18m jobs since the record losses in April 2020, but is still over 4m shy of pre-pandemic level]

After jobs report showing employers added 531,000 jobs last month, Pres. Biden calls today "another great day for our economic recovery." https://t.co/MdZysNwPAd pic.twitter.com/t7zruP0GsI

— This Week (@ThisWeekABC) November 5, 2021

President Biden also said on Friday that the United States has secured millions of doses of Pfizer experimental antiviral pill for Covid-19, which the company says can cut hospitalisations and deaths by nearly 90%

“If authorized by the FDA we may soon have pills that treat the virus in those who become infected,” Biden said.

“We’ve already secured millions of doses. The therapy would be another tool in our toolbox to protect people from the worst outcomes of Covid.”

Our US Politics Liveblog has full coverage, with the US House of Representatives is expected to vote on the social policy and climate-change bill and a bipartisan infrastructure bill that form the centerpiece of Biden’s legislative agenda.

Full story: US employers added 531,000 jobs in October as economy continues recovery

US employers added a solid 531,000 jobs in October as the American economy appeared to withstand the impact of coronavirus and continued its recovery.

The strong number provides a boost to Joe Biden, whose presidency has been battered by political setbacks in recent months as it struggles to enact his domestic agenda and suffered a major defeat in the race for governor of Virginia.

October’s job growth outpaced the 450,000 new jobs economists had predicted from the job market, mitigating fears of slow growth in the jobs sector after far fewer jobs were added in September than was expected.

The boost in jobs was expected after Covid cases and hospitalization rates declined in October.

The rise has meant a continued decrease in the unemployment rate, which was 4.6% in October. The decrease in unemployment was mostly seen among white and Hispanic workers, while the Black and Asian unemployment rate has remained unchanged. The Black unemployment rate stands at 7.9% – more than 3% higher than the white unemployment rate of 4.2%.

* Nasdaq's first-ever move over 16K

* S&P 500 first-ever move above 4700@CNBC pic.twitter.com/bxK3QHahsy

— Carl Quintanilla (@carlquintanilla) November 5, 2021

Pharmaceuticals giant Pfizer has also given good news - its experimental antiviral pill for Covid-19 cut rates of hospital admission and death by nearly 90%.

Shares in Pfizer have surged 10% in early trading, as it joins the race to bring the first easy-to-use medication against the coronavirus to the US market.

Wall Street hits record after jobs report

The New York Stock Exchange has opened at a new record high, as October’s strong jobs report boost the markets.

The Dow Jones industrial average, the broader S&P 500 and the tech-focused Nasdaq all hit new highs in early trading

  • Dow: up 277 points or 0.77% at 36,401
  • S&P 500: up 33 points or 0.7% at 4,713
  • Nasdaq Composite: up 91 points or 0.6% at 16,031

The pick-up in job creation is boosting market confidence in the recovery.

Ben Laidler, global markets strategist at the multi-asset investment platform eToro, says:

The US jobs market bounced back sharply last month, setting up the economy for a strong rebound into the end of the year and validating the Fed’s move to taper its bond buying programme this week.

The US economy saw 531,000 new jobs last month, above expectations and well up from the prior month’s negative surprise of 194,000 jobs. Gains were broad-based, led by re-opening sectors like hospitality and leisure, and left the economy around 5m jobs short of pre-pandemic levels. The unemployment rate fell to 4.6%, whilst wage growth accelerated to a strong 4.9% growth.

A rebounding jobs market will boost the GDP and earnings growth outlook and validate the Fed’s slow march to hiking interest rates. This is a positive combination for markets.

Updated

More evidence of the pick-up in the leisure and hospitality sector:

Some charts from the blog: Wage growth for production and nonsupervisory workers in leisure and hospitality is still booming, at 12.4% year over year. Also booming in the rest of the economy at 5.9% year over year (highest since the early 1980s) pic.twitter.com/7XmtxCPsW6

— Matthew B (@boes_) November 5, 2021

This chart tracks the number of jobs thru Oct in Leisure & Hospitality (arts-entertainment-recreation- restaurants-hotels). An an oldster, I find it heartening that, at 15.532 million, it's gained back lost ground & is now "just" 1.383 mm shy of its Feb 2020 high of 16.915 mm. pic.twitter.com/HRX5KW4zLO

— Gene Epstein (@GeneSohoForum) November 5, 2021

Updated

Today’s US jobs report is a welcome surprise, says Seema Shah, chief strategist at Principal Global Investors.

It “gives credence” to the view that the weaker August and September numbers (revised up today) were due to the impact of Delta outbreaks, she says, adding

Leisure and hospitality employment have picked up too, signalling that more normal mobility has started to resume.

The one cloud on the horizon was the stubbornly depressed participation rate. At this point, with reduced benefits, a return to in-person schooling and the drop in Covid rates, we should be seeing a recovery in participation. It’s a little mystifying – is it because the massive cushion of savings is still weighing on the incentive to return to work? Or is there a fundamental shift in the psychology of working, in which case the Fed may soon decide that central bank policy alone cannot encourage people back into the labour market.

The Great Resignation will be key to central bank policy going forward and what’s more, until workers return, supply chain issues will only linger.

Updated

Over 18m jobs created since April 2020 shock

This chart from Heather Long of the Washington Post shows the jobs recovery since April 2020:

The US has recovered 81% of the jobs lost in the pandemic. (Put another way, that means over 18 million people have returned to work).

There are still 4.2 million jobs to go. https://t.co/dNbFXogSCU

— Heather Long (@byHeatherLong) November 5, 2021

NOTABLE: Restaurants & bars have gained back 1.5 million jobs in 2021.

Jan +22,100
Feb +336,600
March +118,600
April +168,000
May +209,200
June +242,300
July +279,600
Aug. -8,800
Sept. +39,000
Oct. +119,400

We need 784,000 more jobs to get back to Feb 2020 staff levels pic.twitter.com/24TXmyvy8w

— Heather Long (@byHeatherLong) November 5, 2021

THIS is the key chart to watch (from @calculatedrisk)

This recovery has been incredibly fast thanks to strong gov't aid and the vaccines.
18 million jobs already back (out of 22 million lost)

In 2021 alone, over 5.8 million jobs have come back. pic.twitter.com/gMwZmX7IL2

— Heather Long (@byHeatherLong) November 5, 2021

Updated

Economist professor Justin Wolfers of University of Michigan points out that the rise in hiring coincided with the fall in Covid infections since mid-September.

Why was the October jobs report so strong?

It's always hard to interpret any single monthly figure, but it's worth noting that this was a period over which covid cases were falling dramatically.

Bad news: That decline has stalled...
Good news: 5-11's can now get vaccinated... pic.twitter.com/G3fgLww1OK

— Justin Wolfers (@JustinWolfers) November 5, 2021

But... labor force participation unchanged

There is one disappointment in an otherwise strong report: the labor force participation rate didn’t rise last month.

That measure, which tracks the number of Americans employed or looking for a job – stuck at 61.6% in October.

Mohamed A El-Erian, chief economic adviser at Allianz SE, calls it a ‘notable’ disappointment.

A strong US #jobs report including
A nice beat on consensus expectation job creation (531,000);
Favorable revisions;
Bigger-than-expected drop in the unemployment rate (4.6% ); and
4.9% annual increase in hourly earnings
Notable disappointment:
Stagnant labor force participation.

— Mohamed A. El-Erian (@elerianm) November 5, 2021

US economy added 531,000 jobs in October, a strong rebound

The good news:
-Big decline in long-term unemployed (-357,000)
-Wages up 4.9% in past yr
-Job gains across the board, inc. drycleaners!

Not good news: Labor force participation isn't going uphttps://t.co/8rCnBkbopa

— Heather Long (@byHeatherLong) November 5, 2021

Liz Young, head of investment strategy at finance company SoFi, tweets that the report is generally a ‘major improvement’.

Major improvement from last month's jobs report: Nonfarm Payrolls came in at 531K, above 450K consensus. Last month revised up by 118K to 312K total, good topline figures. Unemployment rate down to 4.6%, but labor force participation still stuck at 61.6%.

— Liz Young (@LizYoungStrat) November 5, 2021

Updated

So far this year, monthly job growth has averaged 582,000 as America’s economy has recovered from the economic shock of Covid-19.

Non-farm employment has increased by 18.2m since April 2020, when the economic shutdown saw more than 20 million workers cut from payrolls in a single month.

That’s very encouraging progress. But it still leaves total employment down by 4.2m, or 2.8%, from its pre-pandemic level in February 2020.

Slowly but surely ... the US jobs gap is closing. Total employment is still 4.2 million jobs down from pre-pandemic peak. pic.twitter.com/MUQgvyCoYr

— Jamie McGeever (@ReutersJamie) November 5, 2021

Updated

Leisure and hospitality lead job gains

There were “notable job gains in leisure and hospitality, in professional and business services, in manufacturing, and in transportation and warehousing”, says the report.

Employment in leisure and hospitality increased by 164,000, as bars and restaurants continued to hire staff. But, this sector is still missing 1.4m jobs since February 2020.

Professional and business services added 100,000 jobs in October, including a gain of 41,000 in temporary help services

Employment in manufacturing increased by 60,000 in October, led by a gain in motor vehicles and parts (+28,000) – a sector where semiconductor shortages have been hampering firms.

Employment in transportation and warehousing increased by 54,000 in October and is 149,000 above its February 2020 level – reflecting the shift in the economy since the pandemic.

But employment in public education declined over the month, down 43,000 in local government education and by 22,000 in state government education.

Monthly changes in education continue to puzzle (and possibly distort monthly movements) a bit, as some of it is due to changing seasonality.

But since Feb 2020, we have lost -370k workers in local govt education, -205k in state education, and -148k in private education.

— Justin Wolfers (@JustinWolfers) November 5, 2021

Updated

Average hourly earnings in the US rose by 0.4% in October, meaning they have risen by 4.9% over the last year.

October’s jobs report explains:

In October, average hourly earnings for all employees on private non-farm payrolls increased by 11 cents to $30.96, following large increases in the prior six months.

Over the past 12 months, average hourly earnings have increased by 4.9%. In October, average hourly earnings of private-sector production and nonsupervisory employees rose by 10 cents to $26.26.

Average hourly earnings jumped +4.9% y/y vs. +4.6% in prior month pic.twitter.com/9clbRBMEoT

— Liz Ann Sonders (@LizAnnSonders) November 5, 2021

Updated

US economy creates 531,000 jobs in October; jobless rate falls

Just in: America’s economy created 531,000 jobs in October, more than expected, as hiring picks up.

That’s better than the 450,000 jobs that economists forecast, in a welcome sign that the labor market is continuing to recover as Covid-19 cases fall.

The US unemployment rate also fallen, to 4.6% from September’s 4.8%.

And in further good news, more jobs were created over the summer than previously thought.

In what looks like a solid jobs report, September’s non-farm payroll has been revised higher to show 312,00 new gains, up from the 194,000 first reported.

And August’s jobs report has also been revised, to 483,000 from 366,000 jobs previously.

Upside result on October non-farm payrolls at 531k vs 450k expected. Revisions add back a net 235k over August and September. #NFP pic.twitter.com/ydVlyRfvaW

— James Foster (@JFosterFM) November 5, 2021

Change in Non-Farm Payrolls: pic.twitter.com/LTar92GCGN

— Michael McDonough (@M_McDonough) November 5, 2021

Solid jobs report all around.

*U.S. OCTOBER UNEMPLOYMENT RATE FALLS TO 4.6% VS 4.8%

*U.S. OCTOBER PAYROLLS INCREASE 531,000; EST. 450,000

*REVISIONS ADD 235,000 U.S. JOBS IN PRIOR TWO MONTHS

Fed's gotta...

— Brian Chappatta (@BChappatta) November 5, 2021

More details and reaction to follow...

Updated

Over in the eurozone, retail sales have fallen unexpectedly in a sign that consumer spending could be cooling.

Retail sales volumes fell 0.3% in September, statistics body Eurostat reports, weaker than the 0.3% rise which economists expected.

Sales of ‘Non-food products’ fell by 1.5% while food, drinks and tobacco rose 0.7% and automotive fuels picked up by 1.1% as people returned to offices and schools as lockdowns lifted this year.

Eurozone households are also facing a cost of living squeeze; inflation rose to 3.4% in September, eating into incomes (and then hit 4.1% in October).

Euro area #RetailTrade -0.3% in September 2021 over August, +2.5% compared with September 2020 https://t.co/uQtiZKx9ml pic.twitter.com/AnAJTwRQy4

— EU_Eurostat (@EU_Eurostat) November 5, 2021

Updated

Suez Canal to raise tolls by 6% amid supply chain crunch

People play in the water as a ship sails on the Suez Canal in Ismailia Province, Egypt, last month.
People play in the water as a ship sails on the Suez Canal in Ismailia Province, Egypt, last month. Photograph: Xinhua/REX/Shutterstock

The Suez Canal is lifting its transit tolls by 6%, after a year of record revenue as demand for the critical waterway has surged as lockdown lifted.

The Suez Canal Authority announced the move yesterday. It will begin next February, adding to the costs within already-stretched global supply chains. Cruise ships and LNG ships will be excluded from the increase.

The Authority cited ‘global economic conditions’, and forecasts that trade and global growth are expected to keep recovering. That will mean more demand for the shortest maritime route to Asia from Europe.

It said:

The International Monetary Fund (IMF) and the World Trade Organization (WTO) are also expecting continued growth in world trade traffic and rise in the demand for maritime transport at rates of 6.7% and 4.7% respectively, in 2022, thereby predicting continued high levels of the freights and good profits for shipping companies.

Admiral Osama Rabea: “Increasing the transit tolls of all the types of transiting ships through the canal with 6% during 2022 and fixing/ stabilizing the tolls of LNG ships and cruise ships only..for more details 🔗https://t.co/Gw8X2S49B1 pic.twitter.com/3ZuEI55Yqq

— هيئة قناة السويس Suez Canal Authority (@SuezAuthorityEG) November 4, 2021

Bloomberg adds:

The Suez Canal, which made headlines this spring when the Ever Given container ship got stuck in the waterway, posted record revenue of $5.8 billion for the year ended June thanks to strong demand for goods from consumers hunkered down at home during the pandemic.

The Suez Canal raises toll for ships by 6% despite record revenue https://t.co/FDwx1zKQet#OOTT

— Helen Robertson (@HelenCRobertson) November 5, 2021

British Airways’ owner, IAG, is pinning its hopes on the revival of transatlantic travel next week as it warned that pandemic disruption would drive a loss of €3bn for 2021.

IAG’s chief executive, Luis Gallego, said the reopening of the US border to foreign nationals from Monday was a “pivotal moment for our industry”.

The Financial Times say Andrew Bailey has ‘little wriggle room’ not to lift interest rates in the coming months, after pledging not to ‘bottle’ the issue this morning.

Bank of England governor Andrew Bailey insisted on Friday that the UK central bank will not “bottle it” when it comes to raising interest rates in the coming months.

The governor said the only reason the BoE surprised financial markets on Thursday by holding rates at the historic low of 0.1% was that it wanted to gather more information about the effects on the labour market of the end of the furlough scheme in October.

Bailey did not give an indication when the central bank would start to raise rates for the first time since 2018 but was categorical that they would rise, leaving little wriggle room for him or the bank to change its mind.

“We do think interest rates will need to rise and they will rise,” Bailey told the BBC’s Today programme, adding that his clear commitment to higher interest rates was meant to be heard in financial markets and the country.

“That was deliberate,” the governor said.

More here.

Bank of England head insists interest rates will rise in the coming months https://t.co/kE3sJwtLtZ

— Financial Times (@FT) November 5, 2021

As covered earlier, the Bank wants to see the impact of ending the UK furlough scheme, which should be visible in upcoming labour market reports.

Yesterday, an Office for National Statistics survey found that two-thirds of workers who were still on the job retention scheme programme when it closed at the end of September returned to their employers on the same hours.

Updated

Dario Perkins of TS_Lombard has some pithy observations about the Bank of England’s communication challenge:

Last week a client asked if the BoE's hawkishness was a clue to what the Fed might do. I told them it wasn't even a clue about what the BoE might do 😆

— Dario Perkins (@darioperkins) November 4, 2021

In Italian football there is a thing called "psychological subjection" to explain why referees always favour big teams in 50-50 decisions (it causes a huge media fuss if they are wrong). Let's see if BoE now suffers psychological subjection from markets 😀 https://t.co/CpQcsXttQN

— Dario Perkins (@darioperkins) November 5, 2021

Markets.com: No relief for sterling amid BoE mess

The wild moves in the foreign exchange and bond markets yesterday after the Bank of England’s meeting does not reflect very well on the BoE or its governor.

For a contrast, look at America’s central bank chief Jerome Powell. On Wednesday he announced the Federal Reserve will cut the amount of money pumped into the system each month through its bond-purchase programme, due to rising inflation and improvements in the jobs market.

This tapering had been well-telegraphed for months, with Powell repeatedly explaining the progress which the Fed was looking for.

So rather than a repeat of the ‘taper tantrum’ of 2013, the bond market took Wednesday’s move calmly, the dollar merely dipped, and equities on Wall Street hit fresh record highs.

Neil Wilson of Markets.com points out that “a key part of the central banker role is communication”. So there’s no relief for the pound today amid the Bank of England’s ‘mess’, he writes:

Loose – in retrospect - remarks over recent weeks led the market to expect an interest rate rise yesterday, only to be confounded by not just a failure to deliver on that but an apparent indifference to the fact that policy was so poorly communicated.

Yesterday, Bailey told Bloomberg that it wasn’t the Bank’s job to guide the markets on interest rates - which may leave investors more flummoxed about how to interpret future comments.

Wilson adds that it feels that the Bank of England has lost credibility.

It seems like the BoE thinks ‘we’ll say something and the market can make of it what it likes, that’s not our business”. To a degree, that’s true. You can’t account for what others make of your statements. But you can be a lot more careful about those statements in the full knowledge that the market will read something into them since you are the governor of the Bank of England and not just anybody.

There were several opportunities in recent weeks to lean against the aggressive market pricing, to gently nudge the market in the right direction, but the governor elected not to do that.

The feeling is now that the BoE under Bailey has lost credibility and we will not be able to read as much into his remarks as we have done. This is not a good situation for a central banker to be in. I leave you with this, among the listed candidate requirements from the BoE’s job spec for Governor: “The ability to communicate with authority and credibility internally, to Parliament, the media, the markets and the wider public.”

Chris Weston of brokers Pepperstone says the BoE pushed back against rate hike expectations in a “far cruder manner” than other central banks such as the European Central Bank and the Reserve Bank of Australia.

Instead, it has injected ‘a degree of uncertainty’ into the markets about how future MPC meetings will play out. That could make the pound more volatile in the run-up to December’s meeting, Weston adds.

It’s worth noting that many City economists didn’t forecast a hike yesterday -- but a lot of investors in the financial markets clearly thought they’d been guided to expect one.

Hard to have much sympathy for people who bet the house on a Nov hike (after all, why did <20% of economists polled by Reuters predict a hike?)

But there is legitimate grievance along these lines. Some comments served only to ramp up volatility - needlessly👇 https://t.co/CJmaQAzAPf

— Andy Bruce (@BruceReuters) November 5, 2021

Updated

Pound hits five-week low

Sterling is continuing to swoon after the Bank of England left rates unchanged yesterday, wrongfooting many investors.

The pound has dropped by 0.7 of a cent, or 0.5% today, to $1.343 – adding to Thursday’s heavy losses of almost two cents.

The pound vs the US dollar this week
The pound vs the US dollar this week Photograph: Refinitiv

It started falling again around 8am, and kept dropping since Andrew Bailey’s Today Programme interview, where the governor stuck to a cautious tone on interest rates.

This puts sterling at its lowest level against the dollar since late September (when it hit the weakest levels this year).

The pound vs the US dollar over the last year
The pound vs the US dollar over the last year Photograph: Refinitiv

Jeremy Thomson-Cook, chief economist at international business payments firm Equals Money, says the pound ‘tumbled through a trap door’ on Thursday:

Sterling fell across the board yesterday as the Bank of England defied market expectations and stood pat on rates. The press conference that followed up the decision was an object lesson in confirming that the recent pull higher in rates was too much, too soon, and while rates will rise, we now think the earliest opportunity for them to do so would be February. Three policymakers need to change their minds for the decision to hike to be in the majority; we don’t see that happening this year.

The delay allows for many things but chiefly data on how the labour market has developed post-furlough and for further insights as to how energy prices develop through the winter.

For sterling, the decision was akin to a trap door through which the pound tumbled. We have pointed out for many weeks now that these rate expectations were really the only thing holding the pound up and with them either gone or severely weakened GBP is looking for what else can support it.

In a winter of Covid-19, Brexit supply and legal issues, higher energy costs and an uncertain employment outlook there’s not too much to be banging the drum on sterling for. It will still likely outperform the euro in the coming weeks but those looking for strong material gains against the USD may have to reappraise their thinking

Updated

Homebuyers have been given a few more months to lock into the record low mortgage rates that have helped keep the housing market booming during the pandemic, after the Bank of England held the base rate at 0.1%.

Lenders had been repricing their home loans upwards in recent days amid speculation the rate would rise to 0.25%, and many of the cheapest deals have been withdrawn.

However, while there are no longer three- and five-year mortgages for sale at interest rates below 1%, borrowers with large deposits still have a large choice of loans priced at less than 2%.... More here.

The early reviews of Andrew Bailey’s performance are in... and not too favourable:

Claus Vistesen, macroeconomist for Pantheon Macroeconomics, tweets:

It's just about fair play that they stood pat, despite having teased markets with a hike; communication-mishaps happens. But now that they decided to leave rates unchanged, we get this?! Anyway, if they're so sorry, I guess we know what comes next ... https://t.co/uOEBdTFVEW

— Claus Vistesen (@ClausVistesen) November 5, 2021

Economist Timothy Ash says the BoE appears to be dithering - not a good look for a central bank.

Terrible performance from Bailey on R4 this morning. Impression of dither from BOE, and waiting for ECB to move. I thought we left the EU? https://t.co/HO1CRNoz7k

— Timothy Ash (@tashecon) November 5, 2021

Bloomberg’s Lisa Abramowicz says we still don’t have much clarity on rates, as the bond markets continue to reel from yesterday’s meeting.

Bank of England Governor Andrew Bailey does a post-meeting news tour that doesn't do much to clarify his position on hiking rates, except that he's "very sorry" households are grappling with higher prices. https://t.co/ecKV8BBNA8

— Lisa Abramowicz (@lisaabramowicz1) November 5, 2021

Meanwhile, the UK bond market is still reeling from betting central bankers would hike rates at yesterday's meeting and being surprised at the lack of action. pic.twitter.com/zmx1CjfkCj

— Lisa Abramowicz (@lisaabramowicz1) November 5, 2021

Economist Huw Dixon points out that the tumble in sterling yesterday will push up the cost of imports - creating more inflationary pressures...

Sorry seems to be the easiest word. Andrew Bailey claims "Putting interest rates up, I'm afraid, isn't going to get us more gas." Sterling fell as soon as the MPC policy was announced, and this will raise UK energy prices, from petrol to gas. Great interview by BBC. https://t.co/ehRzXzfLTD

— Huw Dixon (@Econdixon) November 5, 2021

Bank of England governor 'very sorry' for rising inflation

Bank of England governor Andrew Bailey says he’s ‘very sorry’ that households are being hit by rising inflation.

Asked whether people won’t feel much better off this winter, he tells the Today programme:

Inflation is clearly something that bites on people’s real household income.

They will feel that. I’m sure they’re already feeling that, in terms of prices going up.

I am very sorry that’s happening. None of us want to see that happen.

[Reminder: As flagged here, the Bank predicts real labour incomes (ie, adjusted for inflation) after tax will fall in 2022 and 2023. That means a two-year wage squeeze on households]

NB “normal” on this chart would be the two decade pre financial crisis average of + 3.25% not less than 1%, let alone actual negative forecasts for two years… it is some considerable distance from rhetoric about a high wage “new economy” pic.twitter.com/YbDw4zI3eg

— Faisal Islam (@faisalislam) November 4, 2021

Having left interest rates on hold at just 0.1% yesterday, Bailey points to the global factors such as supply chain disruption which have pushed up goods prices.

We want to see those cause of inflation tackled as soon as possible, so we can return to a world of stable inflation and down at the Bank’s 2% target, he says.

Q: We’re not going back to the 70s?

Bailey wraps up the interview by insisting we’re not returning to the 1970s, that was a ‘very different era’ (he was still at school).

For background: retail price inflation hit around 25% in 1975. UK consumer price inflation is currently expected to hit 5% next year, which would be the highest since 2011.

Andrew Bailey, Governor of the Bank of England, tells @JustinOnWeb people are feeling the 'bite' of rising prices on their household incomes and he is sorry for that.https://t.co/ObImqXn4yy #R4Today pic.twitter.com/c7Da8HF6A0

— BBC Radio 4 Today (@BBCr4today) November 5, 2021

Andrew Bailey then explains that the increased take-up of fixed-rate mortgages has weakened the transmission of monetary policy.

When the BoE raises Bank Rate, it percolates through the economy through higher interest rates. With far fewer households on variable rate mortgages, a hike could take longer to filter through.

Q: Isn’t that an argument for acting now...

Bailey says no, due to the ‘underlying causes of the problem’ (gas prices, global supply chain problems).

Updated

How “transitory” is the current high inflation? Do you have to wait months before deciding, @justinonweb asks @bankofengland Governor Andrew Bailey. “Oh no, no” he replies. #r4today

— Rob Young (@robyounguk) November 5, 2021

Will rates hit 1% in coming months? “Interest rates need to rise...I’m not going to endorse 1%, but…it’s correct to think in those terms,” Andrew Bailey says #r4today @bbcr4today

— Rob Young (@robyounguk) November 5, 2021

UK interest rates are not going back to their levels before the financial crisis, governor Andrew Bailey pledges.

He won’t say whether the markets are correct to forecast UK rates at around 1% by the end of next year, but it’s correct to think in those terms.

Before the financial crisis, we’d have regarded interest rates at 4% or 5% as normal, says Bailey.

“We’re not going back there,” he insists, citing global factors such as aging populations and demand for saving that will keep long-term borrowing costs lower.

When we talk about interest rates rising, it’s important to put it into that context.

It’s still in a framework of low interest rates.

The @bankofengland Gov Andrew Bailey on @BBCr4today blames rising energy prices specifically LNG for high UK inflation. Anyone follower of @SPGlobalPlatts coverage will understand 👇. pic.twitter.com/ywjU39lnIw

— Andy Critchlow (@baldersdale) November 5, 2021

Bank of England governor: move to net zero may be pushing up gas prices

Andrew Bailey won’t say how long inflation would have to stay high to no longer be “transitory”.

Judging when inflation is transitory is a judgement, he tells the Today Programme. A key measure is whether it is embedded into wage negotiations, he says (people demand higher pay to cover rising prices).

Energy prices, particularly gas, are the biggest single cause of the greater inflationary pressure we’re seeing.

We think, based on a lot of evidence from the past, that these shocks are temporary.

Q: But how sure are you? We now have net zero targets around the world - how will they affect how you think about energy?

Bailey say a range of factors are pushing up gas - such as stronger demand in economies in Asia.

But he suggests that the energy transition is also pushing up gas prices, as power producers shift away from coal.

Bailey says that it is reasonable to think that economies will transition from high-polluting hydrocarbons (such as coal), through greater use of less polluting hydrocarbons, on the path to hopefully a more renewable economy.

It is possible that some of what we’re seeing with gas prices at the moment is already climate change starting to have an effect, if there is a switch out of coal, which obviously we want to see.

It’s possible it’s part of the story.

If so, that could lead to a ‘level change’ in prices (ie, they’d remain permanently higher).

Bailey: We do expect rates to rise, and won't bottle it

Q: Have you bottled this decision because you’re not as independent as you should be? The government wants to run the economy hot - your job is to take the punchbowl away, and you haven’t.

Andrew Bailey says the Bank does expect interest rates to rise (and said as much yesterday).

But it didn’t hike yesterday, because it doesn’t know the impact of the end of the furlough scheme in September.

The labour market looks tight, but the missing piece of evidence is what has happened to unemployment since the furlough scheme finished, Bailey explains.

[The Bank will see two labour market reports before its next MPC meeting in mid-December]

Bailey says the Bank will be looking at measure of activity (employment and unemployment) as well as earnings for signs of wage pressure.

Let me assure you. We won’t bottle this.

Q: So if unemployment is higher than you expect, rates won’t go up?

It’ll be an important piece of evidence, but not the only one, Bailey says.

Updated

Bank of England governor Andrew Bailey is on the Today Programme now.

He’s asked about whether the Bank’s signals to the markets about interest rate moves had been misleading (many investors expected a rate rise yesterday, after Bailey spoke about ‘having to act’ over inflation last month).

Bailey says there was a reassessment by markets - not just due to his comments, but what was going on more generally.

We have to occasionally make “quite direct comments about what we think will happen”, but at no point, did he or any other MPC member say rates would rise at the November meeting yesterday.

Q: But some cheap mortgages deals were taken off the markets on the expectation that you would act.

Bailey says there had been a big expansion of very good, very cheap mortgages in the last six months - but yes, some have been withdrawn as rates have gone up.

Mortgage offers come and go, he adds, it’s part of the cycle.

Q: So you’re rejecting the ‘unreliable boyfriend’ tag

We have to communicate, Bailey replies with a laugh.

Updated

Return of super-rich to central London fuels house price surge

The return of the international super-rich to London amid the easing of coronavirus pandemic restrictions has fuelled the highest annual growth in property prices in the capital’s most expensive district since 2015.

Average home prices in “prime central London” – which stretches from Chelsea to Camden and Notting Hill to Westminster – have risen by almost 7% since the start of the year, according to research by the estate agent Knight Frank.

Prime property prices in central London i

It said prices had risen consecutively each month for the past six months “something last achieved before the Brexit referendum in 2016”.

More here:

House prices edge up again to hit record high says ⁦@HalifaxBankpic.twitter.com/TONEi0Ozs5

— Henry Pryor (@HenryPryor) November 5, 2021

Halifax’s Russell Galley also predicts the market could cool if UK interest rates start to rise:

“With the Bank of England expected to react to building inflation risks by raising rates as soon as next month, and further such rises predicted over the next 12 months, we do expect house buying demand to cool in the months ahead as borrowing costs increase.

That said, borrowing costs will still be low by historical standards, and raising a deposit is likely to remain the primary obstacle for many. The impact on property prices may also be tempered by the continued limited supply of properties available on the market.”

Halifax: house prices jump 0.9% in October

UK house prices have hit a record high, according to lender Halifax.

British house prices rose by 0.9% in October, the fourth monthly increase in a row. It takes the average house price on its index to over £270,000, with price up 8.1% in the last year.

Russell Galley, managing director at Halifax, said demand for larger homes following the move to homeworking is still driving the market:

“One of the key drivers of activity in the housing market over the past 18 months has been the race for space, with buyers seeking larger properties, often further from urban centres.

Combined with temporary measures such as the cut to Stamp Duty, this has helped push the average property price up to an all-time high of £270,027. Since April 2020, the first full month of lockdown, the value of the average property has soared by £31,516 (13.2%).

“First-time buyers, supported by parental deposits, improved mortgage access and low borrowing costs, have also helped to drive price growth in recent months.

First-time buyer annual house price inflation (+9.2%) is now at a five-month high, and has pushed ahead of the equivalent measure for homemovers
(+8.1%).

Instant Info – Halifax UK House Price Index pic.twitter.com/TGjzDXaOhp

— BuiltPlace (@BuiltPlace) November 5, 2021

Introduction: UK faces two-year squeeze as inflation heads to 5%

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The UK is facing a painful cost of living squeeze after the Bank of England predicted that inflation will peak at 5% early next year, the highest in a decade.

Under the Bank’s new forecasts, released yesterday, wages after tax will not keep pace with inflation over the next two years - a blow to households across the country.

Real post-tax labour incomes are expected to fall by 1.25% in 2022, and by another 0.75% in 2023, worse than previously expected -- with the energy crunch and supply chain disruption driving up prices.

.
Bank of England forecasts

Bank of England governor Andrew Bailey has warned that people are already feeling the impact of rising prices, telling the BBC.

“I’m very sorry that’s happening,”

“None of us want to see that happen.”

Bailey acknowledged that people are already feeling the impact of recent price rises:

Inflation is clearly something that bites on people’s household income. I’m sure they’re already feeling that in terms of prices that are going up.”

More here: Bank of England ‘sorry’ for rising cost of living

The governor will be discussing the issue on Radio 4’s Today programme this morning.

Bank of England forecasts, November 2021
Bank of England forecasts, November 2021 Photograph: Bank of England

This squeeze undermines the government’s claims to be building a high-wage economy, as the jump in wholesale energy costs and supply chain frictions continue to hit businesses and households.

Coming up on #BBCNewsSix I ask the Governor of the Bank of England if there is any evidence in his new forecast of the “PM’s new economy” of rising wages and productivity…

He says 2 year squeeze on real post tax incomes is result of higher inflation that “no one wants to see” pic.twitter.com/4cuZo1A7Fi

— Faisal Islam (@faisalislam) November 4, 2021

NB “normal” on this chart would be the two decade pre financial crisis average of + 3.25% not less than 1%, let alone actual negative forecasts for two years… it is some considerable distance from rhetoric about a high wage “new economy” pic.twitter.com/YbDw4zI3eg

— Faisal Islam (@faisalislam) November 4, 2021

Controlling inflation is the Bank’s job - but Bailey argues that lifting interest rates won’t get more gas into the pipes, or more semiconductor chips to manufacturers, for example.

"Many of the causes of inflation would not be tackled directly by raising interest rates."

Bank of England Governor Andrew Bailey says rates were not increased from 0.1% as it would 'slow down the economy' and "probably cause unemployment to rise".https://t.co/13JpjKYolB pic.twitter.com/KBv2d4X53f

— Sky News (@SkyNews) November 4, 2021

Yesterday the Bank surprised the markets by leaving interest rates on hold - startling some investors, sending the pound plunging by almost two cents yesterday.

Bailey was among those voting to leave borrowing costs at 0.1% - despite having previously suggested the Bank would have to act over inflation.

The confusion risks undermining the Bank’s credibility - as communicating to the markets is another crucial part of its remit.

As Oliver Blackbourn, multi-asset portfolio manager at Janus Henderson Investors, put it:

It had seemed in recent weeks that the Governor and Chief Economist were going out of their way to make sure that there was to be no surprise if interest rates rose.

Former governor, Mark Carney, was labelled the ‘unreliable boyfriend’ over his confusing communication, and there is a risk that the new governor inherits this moniker following his public statements ahead of today’s announcement. After taking time to seemingly warn markets about potential lift off, it may be particularly perplexing for many that the Bank then chose to push against markets that had priced in a steeper path for interest rates.

However, the Bank pointed to its estimates that such a path would take inflation back below target by the end of the forecast period, something that markets seem less convinced of given the inflation outlook being expressed by 10-year breakeven rates.

FT: BoE sends investors scrambling by keeping interest rates on hold #TomorrowsPapersToday pic.twitter.com/OSmu8HvSVF

— Neil Henderson (@hendopolis) November 4, 2021

The agenda

  • 7am GMT: Halifax house price index for October
  • 8.10am GMT: BoE governor Andrew Bailey interview on the Today Programme
  • 8.30am GMT: Eurozone construction PMI for
  • 10am GMT: Eurozone retail sales for September
  • 12.30pm GMT: US Non-Farm Payroll jobs report for October

Updated

Contributors

Graeme Wearden

The GuardianTramp

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