Bank of England deputy governor could vote to cut interest rates if inflation pressures ease – as it happened

Last modified: 03: 27 PM GMT+0

Sir Dave Ramsden expects to vote to keep raising borrowing costs, but sees potential for rate cuts if persistent inflation stops being a worry

Closing summary

Time for a recap, after a day in which the pound climbed despite hints from a Bank of England deputy governor that interest rate cuts could soon be on the agenda…

…the government faced a deepening bill for protecting households from energy bills….

…. budget airline easyJet launched a recruitment drive urging people over the age of 45 to join its cabin crews…

… single parents bore the brunt of the surge in food inflation….

… the RMT vowed to press on with rail strikes unless a pay deal was finally reached…

…business leaders and unions urged Rishi Sunak to abandon a planned bonfire of EU regulations….

… boot maker Dr Martens flagged rising prices…

Kingfisher reported a jump in sales of energy-efficency products…

…and chip firm Nexperia vowed to keep fighting the government’s decision to block its takeover of a semiconductor factory in Newport.

The pound continues to rally against the US dollar, reaching a new three-month high of $1.213.

Hopes that the US central bank will slow its interest rate increases are continuing to lift sterling to the highest since August.

Matthew Ryan, head of market strategy at global financial services firm Ebury, says that optimism that Britain’s recession will be mild are also helping.

Once again, macroeconomic data out of the UK came in stronger-than-expected on Wednesday, a common trend in the past few months.

Activity data out of Britain continues to largely dumbfound some of the bleak predictions, which have warned of a deep and prolonged contraction. The November composite PMI came in well above consensus, edging up to 48.3 (from 48.2). While still in contractionary territory, and consistent with a mild recession, this is far from levels that would suggest a deep downturn is in the offing.

Markets mostly overlooked comments from BoE chief economist Pill on Wednesday. His comments were largely in line with the bank’s recent rhetoric, saying that more rate hikes would be required, though not to the extent priced in by markets.”

Christmas rail strikes 'still on'

Mick Lynch, General Secretary of the National Union of Rail, Maritime and Transport Workers
Mick Lynch, General Secretary of the National Union of Rail, Maritime and Transport Workers Photograph: Toby Melville/Reuters

The RMT’s Mick Lynch said that rail strikes planned around Christmas would still go ahead but added that the union had “started a dialogue” after a first meeting with the new transport secretary, Mark Harper.

The Rail, Maritime and Transport union general secretary said he did not expect the secretary of state “to be at the table” but had been promised a “constructive” letter setting out his position – and said Harper had “got rid of the bellicose nonsense” from one of his predecessors, Grant Shapps.

However, Lynch ruled out calling off the eight days of strikes in December and January.

He said:

“If we call off the strikes, we’ll never get a settlement …

My members won’t forgive me. I’ve given a commitment – until we get a tangible outcome, the action will be on.”

BOE’s chief economist rejects calls to cut interest paid on reserves

Back in London, the Bank of England’s chief economist has firmly rebutted claims that the central bank should cut the interest it pays on reserves held by commercial lenders.

Huw Pill told today’s BoE conference that he was “not a fan” of the proposal to pay less interest on the roughly £850bn of deposits which those banks hold in the central bank’s digital vaults.

Those deposits were build up though the Bank’s quantitative easing programme, in which it created hundreds of billions of pounds of electronic reserves, which it used to buy government bonds from the banks.

QE was profitable for the Bank of England for many years, as the interest payments it received on those bonds more than made up fr the interest it paid out on the extra reserves.

But… by raising interest rates to 3%, the Bank has now tilted the seesaw the other way, and also faces making a loss on the bonds it is now selling as it unwinds QE.

Handing tens of billions of pounds to commercial banks is politically unpalatable, at a time when the public are facing £55bn of spending cuts and tax rises.

Pill, though, insists the Bank shouldn’t change its rules. A cleaner approach, he argued, would be for ministers to tax the banks more.

He said:

“If governments want to tax banks or they want to subsidise them, they should do that transparently, they shouldn’t do it through the central bank balance sheet and hope that nobody notices.”

Forceful reply from Bank of England chief economist Huw Pill to @Frances_Coppola question on ending reserve remuneration: he's not a fan, and says government should tax banks directly if it needs more revenue, not cut the interest they're paid by the BoE

— David Milliken (@david_milliken) November 24, 2022

Former BoE policymaker Gertjan Vlieghe weighed in behind Pill’s position – insisting it would be a “disaster” to stop paying interest on reserves.

Vlieghe warned that such a move was particularly risky when Britain’s institutional credibility has already been hurt by recent volatility.

He told delegates at the Bank of England Watchers’ Conference at Kings College, London, that failing to pay interest on reserves could be seen as a default.

“Think about outside investors looking at the UK ... This is a really, really bad signal to send.

“If you want to tax the banks, fine, just put a tax on them, rather than saying: ‘I owe you a lot of money - and as we know, when you owe money you pay interest on it - (but) I’m just not going to pay it.’ That’s a default in my book.”

Former BoE MPC member Jan Vlieghe says stopping full remuneration of reserves would be tantamount to a debt default by UK government - a "really, really bad signal" for UK credibility

— David Milliken (@david_milliken) November 24, 2022

Royal Mail staff to 'fight as long as it takes' as strike begins

Postal workers on the picket line at the Central Delivery Office and Mail Centre in Birmingham.
Postal workers on the picket line at the Central Delivery Office and Mail Centre in Birmingham. Photograph: Jacob King/PA

Postal workers will “fight as long as it takes”, a union chief has said, as a two-day strike to coincide with Black Friday began today.

CWU general secretary Dave Ward said the Government should “intervene”, vowing that his union will not give up in its long-running dispute over jobs, pay and conditions.

Ward told PA Media:

“The situation at the moment is that we are not budging; no worker and no union would accept the jobs, losses and the terms that they’re attaching for a future of an industry that we care about.

“It’s time for the Government to intervene. The Government should be calling them to account, the Government should be looking at their actions over the last six months.

“We’re going to fight as long as it takes because we’re not giving up, and we’re not putting up with what is really corporate negligence to a point that we’ve not seen in this country for decades.

CWU general secretary Dave Ward speaking to the media on the picket line at the Camden Town Delivery Office in north west London
CWU general secretary Dave Ward speaking to the media on the picket line at the Camden Town Delivery Office in north west London Photograph: Yui Mok/PA

Asked if further strike action is possible, he said:

“If we don’t fight, we can be absolutely certain that our members’ jobs are going to be destroyed and the service is going to be destroyed.

“We’ve got some other things we’re looking at now because we need to pile the pressure on.”

As well as striking today and tomorrow, Royal Mail workers will walk out on 30th November and 1st December with further action inked in for 9, 11, 14, 15, 23 and 24 December.

ECB minutes show concern over eurozone recession

European Central Bank policymakers are concerned that Europe could fall into recession, as the global economy weakened.

The minutes of their meeting in late-October, released this lunchtime, point out that the economic outlook has deteriorated.

They say:

As regards the external environment, the latest data confirmed signals of slowing economic growth across countries and sectors and implied a substantial reversal of the pick-up in global activity recorded earlier in the year.

It was observed that an increasing number of economies were expected to enter a recession. The concern was expressed that the cumulative impact of the slowdown, also including spillovers from synchronised monetary policy tightening, could even result in a “technical recession” at the global level.

However, ECB policymakers aren’t convinced that a limited recession will be enough to fix the eurozone’s inflation woes.

The minutes explain:

It was argued that a shallow or technical recession was unlikely to keep inflation in check given its recent momentum and the risk that price increases would be difficult to reverse.

Reading between the lines of the ECB minutes, there seem to be growing recession concerns, which could lead to a pause in the hiking cycle in the coming months, says @carstenbrzeski

— ING Economics (@ING_Economics) November 24, 2022

Sweden’s central bank has lifted its key interest rate to a 14-year high today, as policymakers try to dampen infation.

The Riksbank raised borrowing costs by 75 basis points today, taking its benchmark rate to 2.5%. It also warned that further tightening is needed to cool policies, even as it predicted that Sweden’s downturn will continue.

It said:

“The forecast shows that the policy rate will probably be raised further at the beginning of next year and then be just below 3%,”.

The Riksbank added that there is still a substantial risk that “current high inflation will become entrenched” meaning it is “very important that monetary policy acts to ensure inflation falls back.”

They also outlined a scenario where inflation becomes entrenched in price and wage formation, meaning a powerful monetary policy reaction will be required.

🇸🇪 Riksbank in line with expectations. But do note the alternative scenario where inflation doesn't drop as expected but stays above 3.5%, which clearly is possible. Then the peak repo rate rises from 2.84% to 4.65%. Ouch!

Far from impossible...

— Mikael Sarwe (@MikaelSarwe) November 24, 2022


A coalition of influential trade unions, business and environmental groups have urged Rishi Sunak’s government to scrap plans for a bonfire of EU regulations by the end of 2023.

The group warn that ripping up these laws could put the UK’s economic growth at risk –

In a letter signed by organisations including the Trades Union Congress (TUC), Institute of Directors (IoD) and Chartered Institute of Personnel and Development, leaders said sweeping away thousands of pieces of EU legislation and legal principles would “cause significant confusion and disruption for businesses, working people and those seeking to protect the environment”.

Close to a third of single parents have resorted to skipping meals to make ends meet because of rising food costs – a bleak example of the damage caused by high inflation.

Three in 10 single parent households surveyed said they had missed meals as a consequence of runaway food prices.

That compared with one in seven parents in couples and an overall figure of 14% in the poll by the consumer group Which?

Rocio Concha, Which?’s director of policy and advocacy, says:

“Our research has found that families across the UK are struggling with the rising cost of living, with single parents most likely to be skipping meals or turning to food banks to make ends meet.”

Turkey cuts interest rates again

Turkey’s central bank has cut interest rates again despite inflation soaring over 80%.

The Central Bank of the Republic of Turkey voted to cut its benchmark rate to 9%, from 10.5%, as it continues to bow to pressure from president Recep Tayyip Erdoğan.

Erdoğan had pushed the CBRT to take interest rates into single digits by the end of the year, arguing this would reduce price pressures.

That defied conventional economic wisdom – a central bank would normally tighten policy, not loosen it, to cool inflation.

So having cut borrowing costs dramatically over the last year, policymakers are now signalling that they have done enough.

Announcing today’s cut, they say “the current policy rate is adequate”, so they have decided to end the rate cut cycle.

Turkey cuts rates by 150 basis points and ends easing cycle

— CNBC (@CNBC) November 24, 2022




— (@Investingcom) November 24, 2022


TW3 remembered

Dave Ramsden’s speech today is titled “That was the year that was”, a nod to the 1960s TV show which took a famously satirical take on the weekly news.

And the deputy governor points out that inflation was a problem for the UK through that decade, and beyond…

Ramsden says:

That Was The Week That Was was a popular TV programme which ran for two series in 1962 and 1963.

That was the time when inflation was just starting to rise and although it averaged well below 5% throughout the 1960s it picked up sharply in the early 1970s and didn’t fall back to below the MPC’s current 2% target until 1998.

Today in 1962 the influential British satirical television programme That Was the Week That Was is first broadcast.

— the painter flynn (@thepainterflynn) November 24, 2022

The difference this time, though, is the UK now has an independent central bank with a remit to control inflation. In the 1970s, chancellors could raise or lower rates with an eye on the political landscape, leading to Boom and Bust as they pressed down the accelerator before an election, before hammering the brakes afterwards.

Incidentally, today is the 60th anniversary of the first episode of That Was The Week That Was, on 24 November 1962.

Hosted by David Frost (as he began to rapidly rise without trace*, as Kitty Muggeridge later put it), the cast was Millicent Martin, Kenneth Cope, David Kernan, Roy Kinnear, Bernard Levin, Lance Percival and Willy Rushton. Happy Birthday TW3.

That was the week that That Was The Week That Was... Satirical comedy show TW3 began #OTD 60 years ago, described as "the most irreverent programme on television". Don Smith captured the line-up for @RadioTimes in January of 1963.

— Mark Braxton 💙 (@BraxM) November 24, 2022

The BBC’s online history explains:

Each week TW3 mixed songs with sketches and cartoons in a free-wheeling format overseen by Frost.

The incredible team of writers were helped by the fact that the programmes coincided with the Profumo scandal, and were not afraid to highlight the murkier areas of political life.

* – Kitty Muggeridge’s pointed verdict was mild compared to Peter Cook. He branded Frost the “bubonic plagiarist”, for allegedly appropriating some of Cook’s gags from Beyond the Fringe.


Bottles of Old Speckled Hen real ale.

More industrial action news: Workers at brewery firm Greene King have voted to strike for five days, which could lead to shortages this Christmas, unions say.

The 188 workers who are members of Unite, the UK’s leading union, are based at Bury St Edmunds, Eastwood in Nottinghamshire and Abingdon, Oxfordshire.

The workers brew and distribute Greene King’s products including IPA, Old Speckled Hen and Abbot Ale. They plan to take ‘an initial five days of strike action’, starting on Monday 5 December.

The GMB union says workers were only offered a 3% pay rise plus a one-off payment of £650 – well below the retail price index inflation measure of 14.2%.


Delivery drivers serving KFC, Burger King, Pizza Hut and Wagamama vote to strike

Wagamama takeaway bags being collected from Wagamama’s Hackney delivery kitchen in East London.
Wagamama takeaway bags being collected from Wagamama’s Hackney delivery kitchen in East London. Photograph: Victoria Jones/PA

Just in: Almost 400 workers who deliver food to KFC, Burger King, Pizza Hut and Wagamama have voted to strike, which could disrupt deliveries over the festive period.

The GMB union reports that 76% of workers at logistics group Bestfood who voted in a ballot are in favour of industrial action, in a dispute over pay.

Strike dates will be announced “imminently”.

Nadine Houghton, GMB National Officer, said the drivers are seeking a pay rise that reflects soaring inflation (the consumer prices index hit 11.1% last month).

“The parent companies of Bestfood - Booker and Tesco – are making serious money.

“Shareholders are trousering large dividends, while the people who do the graft are struggling to make ends meet.

“All these workers want is a pay deal that protects them from this crushing cost of living crisis.

“Now, some of the best know restaurants on the UK’s high streets will face shortages over Christmas.”


It’s rare to hear a Bank of England policymaker floating the idea of cutting interest rates.

Back in early 2020, the Bank cut rates to alltime lows of 0.1%. But after inflation started to climb, its monetary policy committee made their first rate increase since the pandemic last December.

It has then steadily raised rates at every meeting this year, as inflation soared to its highest in over 40 years.

This month’s hefty interest rate hike, from 2.25% to 3%, was not unanimous, though – MPC member Swati Dhingra voted for a smaller rise to 2.75%, while colleague Silvana Tenreyro favoured a quarter-point increase to 2.5%.

There are nine members of the MPC, all trying to weigh up the merits of tightening monetary policy when the economy is falling into recession.

Chief economist Huw Pill, for example, has warned there is ‘still more to do’ to curb inflation, so December meeting could see hot debate between the hawkish and dovish members of the committee…..

BoE's Ramsden: I could consider case for cutting interest rates

A senior Bank of England policymaker has suggested that he could consider voting to cut UK interest rates, if growth and inflation are weaker than expected.

Sir Dave Ramsden, BoE deputy governor, says that while he expects that interest rates will need to rise higher, there are “considerable uncertainties" about the economic outlook.

Giving a speech at the Bank of England Watchers’ Conference in London, Ramsden pledges to take a ‘watchful and responsive’ approach to setting borrowing costs.

Given the uncertainties we face it is important also to be humble about what we don’t know or still have to learn. I favour a watchful and responsive approach to setting policy.

Although my bias is towards further tightening, if the economy develops differently to my expectation and persistence in inflation stops being a concern, then I would consider the case for reducing Bank Rate, as appropriate.

Bank of England inflation forecasts
Bank of England inflation forecasts Photograph: Bank of England

The Bank has already raised UK base rate to 3%, up from 0.25% at the start of this year, and the City expects rates to peak at 4.5% next summer.

Ramsden has been one of the hawkish members of the Monetary Policy Committee, pushing a faster pace of tightening earlier this year.

Today, he emphasies the uncertainties inherent in the future path of the economy and in the forecasting process, pointing out that the Bank’s predictions for GDP and unemployment are more pessimistic than many other forecasters.

Economic forecasts for UK GDP and unemployment
Economic forecasts for UK GDP and unemployment Photograph: Bank of England

Ramsden adds that 2022 has been a very challenging year for the UK economy, and that higher interest rates are adding to the strain:

Millions of households and businesses are experiencing great hardship as a result of the cost of living crisis. As a member of the MPC I am acutely conscious that our actions are adding to the difficulties caused by the current situation.

But he concludes by warning that households and businesses will suffer more damage if high inflation persists.

However challenging the short term consequences might be for the UK economy, the MPC must take the necessary steps in terms of monetary policy to return inflation to achieve the 2% target sustainably in the medium term.

By restoring low inflation, consistent with its remit, the MPC can best contribute to securing stability and certainty, the foundations for sustainable growth.

Dave Ramsden looks back over 2022 and reflects on why the economy and path for inflation have turned out differently. Read his speech in full:

— Bank of England Press Office (@BoE_PressOffice) November 24, 2022

Trade-weighted sterling rises to highest since late August

— Andy Bruce (@BruceReuters) November 24, 2022

"Hope is back" as German business morale improves

German business morale has improved this month, in a sign that the slump in confidence in Europe’s largest economy may be ending.

The IFO Institute’s business climate index, just released, has risen to 86.3, up from 84.5 in October. Although that’s a low level, it shows the outlook has improved.

#Chart of the Day:

Ifo-#Geschäftsklima von revidiert 84,5 auf 86,3 gestiegen - stärker als erwartet. Die Erwartungen haben sich aufgehellt. Zuvor waren sie katastrophal, jetzt sind sie nur noch düster. Lage erneut schlechter. Insgesamt spricht weiter viel für eine #Rezession

— LBBW Research (@LBBW_Research) November 24, 2022

The improved outlook follows unexpected economic growth in the third quarter, with Germany having filled its gas storage tanks to help it through the winter.

Carsten Brzeski, ING’s global head of macro, says the data adds to recent glimmers of hope that the German economy might avoid a winter recession.

These hopes are built on the back of several government stimulus packages, filled national gas reserves, a better and faster adaption of businesses and households to reduce gas consumption, and hopes that consumers will simply spend away the energy crisis.

But there are still several downsides hitting the economy, Brzeski adds:

New orders have dropped since February and inventories have started to increase again, a combination that never bodes well for future industrial production.

Despite some relief in global supply chain frictions, early leading indicators from Taiwan and Korea point to a weakening of global trade in the winter. High energy prices are gradually being passed through to consumers, therefore gradually weighing on private consumption.


Stocks subdued as oil dips

In the City, stocks have opened cautiously with Wall Street closed for Thanksgiving.

The blue-chip FTSE 100 index is flat, while the pan-European Stoxx 600 index is 0.2% higher.

Victoria Scholar, head of investment, interactive investor says:

On a quieter than normal day because of the Thanksgiving holiday stateside, European markets have opened tentatively higher except for the FTSE 100, which is trading softer.

The oil price has weakened, with Brent crude down half a dollar at $84.86 after China recorded record high Covid infections.

Scholar explains:

“Oil prices are trading lower after the G7 proposed a price cap on Russian oil that is higher than current market prices, helping to ease concerns about restrictive supply in the market.

Plus, China’s Covid infections hit a record high, also pushing oil prices lower amid expectations of softening demand from the world’s second largest economy. China continues to pursue its aggressive zero tolerance to covid approach, creating a severe headwind for its economic outlook.

To offset this, there are growing expectations that its central bank could cut the reserve requirement ratio (RRR) soon.


Lecturers, teachers and Royal Mail staff on strike today

The UK’s autumn wave of strike action is turning into a winter of discontent.

Royal Mail workers, university lecturers and teachers are walking out on strike today, as workers continue to seek better pay deals to protect them from soaring inflation.

Picket lines are being mounted outside postal delivery and sorting offices, universities and schools as unions edge closer to co-ordinated industrial action, in one of the biggest walkouts of the year.

Around 70,000 members of the University and College Union (UCU) will strike on Thursday and Friday, and again on Wednesday November 30, in a dispute over pay, pensions and contracts.

Up to 2.5 million students could face disruption, in what has been billed as the biggest strike in the history of UK higher education.

Unions have warned of escalated action in the new year if the row is not resolved.

Lecturers and other academic staff have suffered a decade of below-inflation pay rises, with a 3% increase announced in the summer.

UCU general secretary Jo Grady said:

“University staff are taking the biggest strike action in the history of higher education. They have had enough of falling pay, pension cuts and gig economy working conditions - all whilst vice-chancellors enjoy lottery-win salaries and live it up in their grace and favour mansions.

“Staff are burnt out, but they are fighting back and they will bring the whole sector to a standstill.

“Vice-chancellors only have themselves to blame. Their woeful leadership has led to the biggest vote for strike action ever in our sector.

“Students are standing with staff because they know this can’t go on, and they know that a sector which generates tens of billions of pounds each year from tuition fees can afford to treat its staff fairly.

“Further disruption can be avoided if the concerns of staff are addressed with urgency. But the overpaid vice-chancellors killing our sector should be under no illusion - 70,000 dedicated university workers are ready to take even bigger action in the new year.”

Yesterday, unions rejected a pay offer from Royal Mail. As well as striking today and on Friday, they also plan to walk out on 9, 11, 14, 15 and 23 December and on Christmas Eve.

Strong dollar casts shadow over Dr Martens outlook

A pair of Dr Martens classic design boot
A pair of Dr Martens classic design boot Photograph: Bailey-Cooper Photography/Stockimo/Alamy

The strength of the dollar could weigh on Bootmaker Dr Martens.

Shares in Dr Martens have plunged by over 16% in early trading, after it became the latest retailer to warn that profitability is coming under pressure.

It reported weaker-than-expected demand – with ‘direct to consumers’ sales growth slower than expected.

The strength of the US dollar this year has actually helped revenue growth in sterling terms. Dr Martens has a ‘natural currency hedge’, because it makes around 43% of its sales in the US.

But the stronger dollar will also dilute margins, it says.

With the key Christmas trading period ahead, the group now expects core earnings margins for the full year to be between 100 basis points and 250 basis points lower than last year. Revenues in the last six months rose 13%, but pre-tax profits fell 5%.

Russell Pointon, director at Edison Group, says:

In spite of the economic headwinds plaguing the retail sector, including rising inflation and the cost-of-living crisis, Dr Martens is maintaining its high teens revenue growth for the remainder of the year, however management now expects the EBITDA margin to be 1-2.5 margin points below the prior year given the strength of the US Dollar.


Hornby hopes for better Christmas

Hornby model railway trainset snow sceneKW71N8 Hornby model railway trainset snow scene

Model railway maker Hornby has reported that shipping costs have dropped – a sign that supply chain tensions are easing as the economy slows.

Last year, Hornby had a bleak Christmas – supply chain problems meant that products only arrived after the Christmas trading period.

Lyndon Davies, Hornby executive chairman, says the company is in a stronger position this year.

The situation has now greatly eased and shipments from our factories are 40% ahead of last year.

We are still suffering with late departure dates, however, as the shipping industry trims capacity by cancelling sailings. Despite this, although costs are not back to pre-Covid levels, container rates continue to fall.

We have also mitigated potential supply disruptions this Christmas by bringing forward the shipping dates on key product lines, which are already available in our warehouse.

Hornby could use a good Christmas. It made a pre-tax loss of £2.9m in the six months to 30 Setpember, compared with a £700,000 loss a year earlier, leaving it with net debt of almost £5m.

A man adjusting a radiator thermostat valve.

Home improvement retailer Kingfisher has seen a surge in demand for energy efficient products, as households try to curb their use of gas and electricity.

CEO Thierry Garnier told the City:

While the market backdrop remains challenging, DIY sales continue to be supported by new industry trends such as more working from home and a clear step-up in customer investment in energy saving and efficiency. DIFM and trade activity also continues to be well supported by robust pipelines for home improvement work.

Kingfisher, which owns the B&Q, Screwfix, TradePoint and Castorama Poland chains, grew like-for-like sales by 0.2% in the last quarter, putting them 15% higher than before the pandemic.

Customers have been snapping up items such as smart thermostats, and home insulation.


Cost of supporting households with energy bills to jump

The price that the UK government will have to pay to support households with their energy bills is set to increase from January.

Regulator Ofgem has lifted its energy price cap, which would have meant households faced average bills of £4,279 from the start of 2023, up from £3,549.

However, the government’s support package means average bills will be £2,500 from last month, and rise to £3,000 from April (although there is no cap on the actual bill you could pay).

That means winter energy bills support will cost taxpayers around £1,800 per household.

Here’s the full story:


Weak data = good news for markets.

Markets rallied over the last 24 hours, due to weak economic data and the latest Federal Reserve minutes.

Investors are dialling back the amount of rate hikes they’re expecting from the Fed over the months ahead, which is good for risk assets – and lifting the pound.

As Jim Reid of Deutsche Bank explains, bad news is good news (even if that bad news includes a likely recession).

It may seem paradoxical that weak data is being treated as good news by markets, but in large part it’s because the focus is now so heavily on above-target inflation, which has prompted the most aggressive cycle of rate hikes in decades. So signs of slower growth are seen as bringing fewer inflation pressures and hence fewer rate hikes.

On top of that, since a US and Eurozone recession is now the consensus expectation among economists (and leading indicators are increasingly pointing that way too), contractionary data isn’t as likely to be as surprising to markets as it normally is.


The weaker dollar is also pushing up commodity prices, including gold.

The gold price has risen to $1,755 per ounce, towards the three-month highs set earlier this month.

Tai Wong, a senior trader at Heraeus Precious Metals in New York, says last night’s minutes from the Federal Reserve had cheered markets:

“Gold traded higher in a relief rally after the Fed minutes contained no hawkish surprises, and just about confirmed the pace of hikes would drop to 50 bps in December.

“The financial markets are convinced the Fed is overtightening so it is dovishly interpreting the minutes which contains no real surprises given Fed commentary the past two weeks.”

#Gold rises past $1,750 as Fed members tout slower rate hikes -

— News (@newsinvesting) November 24, 2022

Introduction: Pound rallies on hopes of more dovish Fed

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

After a rough year against the US dollar, the pound is ending 2022 with a late spurt.

Sterling has hit $1.21 this morning, for the first time since mid-August, lifted by hopes that America’s central bank might slow the pace of its interest rate rises soon.

The pound has now clawed back almost 20 cents since hitting its record low in September after the mayhem caused by the now-ditched mini-budget.

It has strengthened today, on the news that a “substantial majority” of Federal Reserve officials want to slow the pace of interest rate rises soon.

A stronger pound could help cool the UK’s inflation crisis, as it’ll make imported goods like fuel and energy less expensive – although sterling is still down 10% against the dollar this year.

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

Minutes from the Fed’s November meeting, where it hiked its benchmark rate by 75-basis points for the fourth time in a row, suggest that many officials could push for a smaller rise of 0.5 percentage points in December.

The Fed has already raised their target rate to to 3.75%-4%, up from 0%-0.25% at he start of the year, as it tried to stamp out elevated inflation. Consumer price inflation has now slowed, and is expected to keep dropping.

So with the global economy weakening, officials are wondering whether they can be less aggressive now.

As the minutes put it:

“A slower pace in these circumstances would better allow the committee to assess progress toward its goals of maximum employment and price stability.

Government bonds have also strengthened in recent weeks, as the tough spending cuts and tax rises outlined by chancellor Jeremy Hunt reassured the markets.

Sterling and gilts build head of steam - pound hits highest since August vs $ and 3-week high vs euro; 10 and 30-year gilt yields slide to lowest since early Sept

— Mike Dolan (@reutersMikeD) November 23, 2022

The Bank of England is expected to raise its own interest rates by another 50 basis points in December too, from 3% to 3.5%.

And a surge in people quitting the British workforce because of ill health or early retirement could force the BoE to further increase interest rates.

Chief economist Huw Pill warned last night that the departure of more than half a million workers from the jobs market since the Covid pandemic risked stoking inflationary pressures, long after the shock from sky-high energy prices is likely to fade.

But with the UK falling into recession, it may be hard for the pound to climb much higher.

Marios Hadjikyriacos, senior investment analyst at XM, says:

The latest business surveys suggest the UK economy is already in recession, on pace to contract 0.4% this quarter, which will likely deepen further considering the sharp drop in forward-looking indicators such as new orders.

With the economy rolling over just as the government tightens its belt, it’s difficult to be optimistic on the pound, especially considering its close links to global risk sentiment.

The UK central bank may move the pound later, as it holds its Bank of England Watchers’ Conference. Deputy governor Dave Ramsden, chief economist Huw Pill and external MPC maker Catherine Mann are all due to speak.

We also get the latest healthcheck on UK factories, and Germany’s business climate, plus results from DIY chain Kingfisher.

Resilient sales trends continue at Kingfisher with total sales +1.7% in constant currency and LFL +0.2% #homeimprovement #homeandgarden #diy #trade #retail #retailnews #q3results #Kingfisher

— Insight DIY (@InsightDIY) November 24, 2022

The agenda

  • 9am GMT: German IFO business climate index for November

  • 9.30am GMT: Latest weekly UK economic activity and social change data

  • 9.45am GMT: BoE deputy governor Dave Ramsden speaks at the Bank of England Watchers’ Conference

  • 11am GMT: CBI industrial trends for November

  • 12.30pm GMT: ECB monetary policy meeting accounts



Graeme Wearden

The GuardianTramp

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