Bank of England economist warns ‘persistent inflation’ could slow pace of rate cuts
Huw Pill, chief economist at the Bank of England and one of four members of the monetary policy committee who voted against the interest rate cut this week, has warned “persistent inflation” could slow the pace of future rate cuts.
Pill said in an online presentation to businesses:
There’s still a little bit further downward to go with Bank Rate. I think the pace at which those downward moves perhaps go forward is a little bit less clear than the pace that we’ve seen over the last year.
On Thursday, the Bank of England’s monetary policy committee (MPC) voted to cut the base rate by a quarter point to 4%, its lowest level for more than two years.
It was one of the closest decisions since its independence more than 25 years ago, with the vote split 5-4. Pill was one of the MPC members who voted to keep rates unchanged.
The latest official figures show that inflation rose to 3.6% in June, ahead of the Bank’s 2% target.
Pill said:
There is some shift in the balance of risks on inflation. There is a risk of spillover into more persistent inflation.
When inflation is high due to external forces, we need to be aware of the risk they might affect domestic price-setting.
…Our mandate is that we will get inflation to 2%, that’s the target, on a sustainable rate. We will do whatever we need with the Bank rate to do that.
They may be a bit lower than where we are but nothing is set.
On Thursday, the Bank warned that rising food prices could dirve to inflation to 4% in September.
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River Island’s restructuring plan approved
River Island has secured approval for a restructure plan designed to stop the fashion retailer from falling into administration.
The plan received approval from a high court judge on Friday after the majority of creditors gave their backing to the plan earlier this week.
Ben Lewis, the retailer’s chief executive, said approval of the plan would enable the company to “align our store estate to our customers’ needs.
We are pleased that River Island’s restructuring plan has been approved by the High Court.
We have a clear transformation strategy to ensure the long-term viability of the business, and this decision gives us a strong platform to deliver this. Recent improvements in our fashion offer and shopping experience are starting to show results, and the restructuring plan will enable us to align our store estate to our customers’ needs.”
You can read the full story by my colleague Sarah Butler here:
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Bank of England economist warns ‘persistent inflation’ could slow pace of rate cuts
Huw Pill, chief economist at the Bank of England and one of four members of the monetary policy committee who voted against the interest rate cut this week, has warned “persistent inflation” could slow the pace of future rate cuts.
Pill said in an online presentation to businesses:
There’s still a little bit further downward to go with Bank Rate. I think the pace at which those downward moves perhaps go forward is a little bit less clear than the pace that we’ve seen over the last year.
On Thursday, the Bank of England’s monetary policy committee (MPC) voted to cut the base rate by a quarter point to 4%, its lowest level for more than two years.
It was one of the closest decisions since its independence more than 25 years ago, with the vote split 5-4. Pill was one of the MPC members who voted to keep rates unchanged.
The latest official figures show that inflation rose to 3.6% in June, ahead of the Bank’s 2% target.
Pill said:
There is some shift in the balance of risks on inflation. There is a risk of spillover into more persistent inflation.
When inflation is high due to external forces, we need to be aware of the risk they might affect domestic price-setting.
…Our mandate is that we will get inflation to 2%, that’s the target, on a sustainable rate. We will do whatever we need with the Bank rate to do that.
They may be a bit lower than where we are but nothing is set.
On Thursday, the Bank warned that rising food prices could dirve to inflation to 4% in September.
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Competition watchdog clears Boeing’s $4.7bn Spirit deal
The Competition and Markets Authority (CMA) has cleared Boeing’s $4.7bn (£3.5bn) deal to buy Spirit AeroSystems, the parts supplier it spun out nearly 20 years ago.
The US plane manufacturer agreed to buy Spirit last year in an all-stock deal which valued it at $4.7bn. The total transaction value, including Spirit’s net debt, was $8.3bn.
The CMA started to investigate the deal in June to determine whether it would affect competition in the UK. It has not yet released the full details behind its decision but it has said it has cleared the acquisition.
The deal to bring Spirit back in-house marks a move away from Boeing outsourcing key components for its planes. Spirit was spun off from the business in 2005, but last year it still accounted for about 70% of all of its orders. Around 25% came from Boeing’s rival, Airbus.
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Updated at 11.59 BST
Turning to the world of healthcare, shares in the US pharmaceutical company Eli Lilly slumped by 14% last night, after disappointing results from its obesity pill.
Eli Lilly said on Thursday that patients taking its pill orforglipron lost an average of 12.4% of their body weight, at the lower end of expectations. People taking a placebo lost 0.9%.
Shares in rival Novo Nordisk, the Danish drugmaker behind the Ozempic and Wegovy weight-loss drugs, are up 4% this morning.
Elsewhere in the sector, FTSE 100 pharmaceutical company GSK said this morning that it will receive $370m as part of a US patent settlement between CureVac and BioNTech related to its Covid-19 jab. It will also receive a 1% royalty on future US sales of influenza, Covid-19 and related combination mRNA vaccine products by BioNTech and Pfizer.
Shares in GSK are up about 1% this morning
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Takeover of NHS landlord Assura takes another turn
There has been another twist in the attempted takeover of the NHS landlord Assura: this morning the competition watchdog blocked the full integration of Primary Health Properties (PHP) with Assura, as it investigates the £1.79 bllion deal.
A bidding war for the company between PHP and the private equity firm KKR had been going on since February – but in June Assura’s board recommended a cash offer from PHP which valued it at £1.79bn.
But the Competition and Markets Authority (CMA) launched the first stage of its investigation into the deal last month, and has now served an initial enforcement order on the firms.
KKR still argues that its bid for Assura is superior to the offer from Primary Health. The firm said it had met with Assura in recent days to lobby for its own cash takeover of the company.
Assura owns a property portfolio worth about £3.1bn, including a number of NHS buildings such as doctors’ surgeries.
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Updated at 08.58 BST
Oil prices fall as investors brace for possible Trump-Putin talks
Oil prices are headed for their worst week since June, as investors prepare for the possibility of talks between Donald Trump and Vladimir Putin, and as the latest round of US tariffs weigh on the global economic outlook.
Brent crude futures are on track to fall by around 4% this week, currently trading at $66.36. West Texas Intermediate crude futures are on track to fall by about 6% compared with last week.
Analysts think this is largely because of the impact that Trump’s latest tariffs will have on the global economy. This week, more than 60 countries were hit by sweeping “reciprocal” rates, which range from 10% to 39%, 40% and 41% for Switzerland, Brazil and Syria.
A widely expected meeting between the US president and the Russian leader is also affecting the market, with investors anticipating that eased sanctions on Russia could increase the oil supply. This week Trump increased tariffs on India, in a move he described as punishment for continuing to buy Russian oil.
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UK stocks nudge higher after interest rate cut
The UK’s blue chip FTSE 100 stock index has opened slightly higher this morning, up 0.26%.
JD Sports is the strongest riser in the index, with its shares up 2.2%. It is followed by Glencore, with its shares up 1.9% after news this week that the miner decided to keep its primary listing in London, ditching a possible plan to move to New York.
The mid-cap FTSE 250 index is not performing as well, down by about 0.1%. TBC Bank is the worst performer, with its shares falling by as much as 12% in early trading, though the Georgian bank reported a 5% rise in its profits for the second quarter, as well as a new buyback.
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Meanwhile, the pound is slipping against the US dollar this morning, even after the Bank of England’s monetary policy committee (MPC) voted to cut its key base rate by a quarter-point to 4% yesterday.
The pound is down 0.13% against the dollar, although it is still above $1.34.
While the Bank has cut rates, it was one of the closest decisions since its independence more than 25 years ago with a 5-4 vote split. The market has lowered its expectations of another quarter cut point this year, in contrast to growing expectations that the Federal Reserve will cut interest rates in the US next month.
On Thursday, Donald Trump said he will nominate Stephen Miran to the Fed’s board of governors for four months, and reports suggest that current governor Christopher Waller is the favourite candidate to serve as the next Fed chair.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says both men are viewed as dovish, which should align with Trump’s ambition for lower rates.
However, the US 2-year yield has barely reacted—reminding us (again) that rate cuts don’t always lower borrowing costs if they aren’t seen as credible or justified. Remember last September, when the Fed unexpectedly slashed rates by 50bps? The 2-year yield jumped nearly 30bps over the following two months. For now, markets still expect the next cut to come in September, keeping the S&P 500 near record highs despite trade uncertainty and policy inconsistency.
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Updated at 12.04 BST
Introduction: Gold futures hit record high after reports of surprise US tariff on gold bars
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Gold futures hit a record high on Friday after a Financial Times report that the United States has imposed tariffs on imports of one-kilo gold bars, a move that is expected to ramp up pressure on Switzerland, the biggest precious metal hubs in the world.
The FT has seen a letter from the Customs Border Protection agency which said one-kilo and 100 ounce gold bars should be classified under a customs code subject to higher tariffs.
One-kilo bars are the most popular form of the metal traded on Comex, the biggest gold futures market, and make up most of Switzerland’s bullion exports to the US.
US gold futures rose by. 1.3% at $3,499.30, after hitting an all-time high of $3,534.10. Meanwhile, the price spread between New York futures and spot prices widened by about $100.
US gold futures rose by. 1.3% at $3,499.30, after hitting an all-time high of $3,534.10.
It marks another blow for Switzerland, which Donald Trump has hit with a shock 39% export tariff. Swiss companies, whose exports to the US account for about one-sixth of their total foreign sales, face one of the steepest tariff rates in Trump’s trade war regime. Only Laos, Myanmar and Syria had higher figures, at 40-41%. The EU and the UK have negotiated 15% and 10% respectively.
Switzerland exported $61.5bn of gold to the US in the 12 months ending in June, the FT said. This would be subject to a further $24bn in levies under Switzerland’s 39% tariff rate, which came into effect on Thursday, according to the report.
The agenda
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Updated at 12.05 BST