Bank of England expected to leave UK interest rates on hold today after jumbo Fed rate cut – business live

Key events

The pound has been climbing against the US dollar this morning.

It’s currently up a third of a cent at $1.3245.

Last night, sterling jumped to almost $1.3297, a two and a half year high, shortly after the half-point cut to US interest rates was announced, before dropping back.

FTSE 100 jumps, lifted by Fed rate cut and Next

Shares have opened higher in London this morning, as investors welcome last night’s cut in US interest rates.

The blue-chip FTSE 100 share index has jumped by 71 points, or 0.85%, to 8,325 points, close to a two-week high.

Next’s shares have surged 5.5% to a new alltime high of £109.10, after it lifted its profit forecasts this morning. Other retailers are also rallying.

Mining stocks are also higher.

Online supermarket Ocado has also lifted its forecasts.

Ocado Retail lifted its revenue guidance for its 2023-2024 year after sales jumped 15.5% in its latest quarter, as a focus on value attracted more customers.

Ocado Retail, a joint venture between Ocado Group and Marks & Spencer, said it now expected annual revenue to rise by low double digits, up from previous guidance for mid-high single digits.

It said its core earnings margin would come in around 2.5%, unchanged from its previous view.

Next on track for £1bn profits after raising guidance again

UK retailer Next have hiked profit forecasts again, helped by strong overseas sales.

Next now expects to make £995m of profits this financial year, a £15m increase on its previous guidance.

It says:

We are upgrading the profit guidance we issued on 1 August by +£15m to £995m. This is as a result of the strength of our full price sales over the last six weeks. We now estimate that full price sales in the second half will be up +3.7% (against our previous estimate of +2.5%).

This represents an increase of £30m of full price sales which, after accounting for other anticipated changes in our cost base, is expected to deliver an additional £15m of profit.

Next says its overseas business did “exceptionally well” in the first half of the financial year, with sales growth up +23%.

The UK business, though, only grew by +1.0%, which Next blames on “tough comparisons with last year’s exceptionally warm Q2”.

The Next brand was down -0.9% in the UK, which it calls “potentially worrying and warrants further analysis”.

But, it’s probably due to the poor weather this summer – and Next point out that sales have recovered sharply in the last six weeks (when the weather have been better than a year ago).

Photograph: Next

The Bank of England will probably take a ‘slow and steady’ approach to easing monetary policy, predicts Michael Brown, senior research strategist at Pepperstone:

My base case is for an 8-1 MPC vote in favour of holding Bank Rate steady, with just external member Dhingra dissenting in favour of back-to-back cuts, though there is a chance that either, or both, Deputy Governor Ramsden, and new external member Taylor, join her in this dovish camp.

Either way, the policy statement should be a ‘copy and paste’ of that issued las time out, signalling a slow and steady approach to removing policy restriction.

Asia-Pacific markets rally after Fed rate cut

Trader Peter Tuchman working on the trading floor at The New York Stock Exchange last night. Photograph: Andrew Kelly/Reuters

Wall Street closed slightly lower last night, after the Fed delivered its half-point cut to US interest rates.

The S&P 500 shares index dipped by 0.3% by the end of trading, down 16 points at 5,618 points.

Asia-Pacific markets, though, are rallying today. Japan’s Nikkei has gained 2.1%, Hong Kong’s Hang Seng index is 1.9% higher, and China’s CSI300 index is up 0.8%.

Stephen Innes, managing partner at SPI Asset Management, says investors are hopeful that other central banks might follow the Fed’s lead and cut interest rates:

Asia’s markets are riding high, as the ripple effect from the Fed’s jumbo rate cut suggests it’ll be much easier for central banks across the region to cut rates, potentially fueling growth and boosting equity market valuations.

With the Fed taking the plunge, these more cautious central banks may finally feel encouraged to join the rate-cut party.

Donald Trump says Fed’s half-point rate cut may be ‘playing politics’

Federal Reserve Board Chair Jerome Powell holding a press conference last night Photograph: Tom Brenner/Reuters

Last night, Fed chair Jerome Powell insisted that the Fed’s large rate cut had nothing to do with the US election.

As we blogged last night, he told reporters:

“This is my fourth presidential election at the Fed and it’s always the same. We’re going into this meeting in particular and asking what the right thing to do for the people we serve. And we do that and we make a decision as a group and then we announce it.

That’s always what it is, it is never about anything else.”

But one presidential candidate doesn’t sound convinced. Donald Trump argued that the scale of the cut – a full half percent – showed the US economy was either “very bad” or the central bank was “playing politics.”

He told reporters:

“To cut it by that much, assuming they’re not just playing politics, the economy would be very bad.”

Trump nominated Powell to be Fed chair in 2017, but then swiftly fell out with him, claiming the Fed was hiking interest rates to harm the economy during his term in office.

Introduction: Bank of England interest rate decision today

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

After a hefty interest rate cut in the US last night, it’s the turn of the Bank of England to set monetary policy – but we’re not expecting as many fireworks.

The Bank of England is widely expected to leave UK interest rates on hold today, at 5%, having cut them from 5.25% back in August.

The betting in the City is that just two policymakers will vote for a cut, and be outvoted by the other seven members of the Bank’s Monetary Policy Committee.

According to the money markets this morning, there’s an 80% chance of ‘No Change’ at noon today from the Bank, and just a 20% prospect of a cut in rates to 4.75%.

Yesterday, the MPC learned that UK inflation remained over their 2% target, running at 2.2% in August, while both core inflation and services inflation accelerated. That’s probably going to encourage some caution at Threadneedle Street, even though the economy has stagnated for the last two months.

Professor Andrew Angus at Cranfield School of Management explains:

“With economic growth and inflation having hit a plateau, I’m expecting the Bank of England to play it safe and hold interest rates.

“The economy had a good start to the year but businesses are now waiting for clarity on the government’s plans in next month’s all-important budget. This has cooled the economy and, combined with falling wage growth and unemployment levels, signals that a hold will be seen as the prudent choice for now. But, come November, the heat will be back on to cut rates.”

The Federal Reserve didn’t show much caution last night, though. It slashed US interest rates by half a percentage point, in its first interest rate cut since 2020, and a bigger cut than some investors expected.

It lowered its benchmark federal funds rate to between 4.75% and 5% – a significant turning point in its battle against inflation.

Chair Jerome Powell insisted the Fed was ‘recalibrating’ its policy to be more neutral, rather than panicking that the US was being dragged into recession by high interest rates.

He told reporters:

“I don’t see anything in the economy right now that suggests that the likelihood of a recession — sorry, of a downturn — is elevated.

You see growth at a solid rate, you see inflation coming down, and you see a labor market that’s still at very solid levels, so I don’t really see that.”

Powell casts the Fed’s 50-bps cut in non-scary terms: “We are committed to maintaining our economy’s strength.”

“This decision reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labor market can be maintained.”

— Nick Timiraos (@NickTimiraos) September 18, 2024

The Bank of England could also adjust the pace of its bond-buying programme, known as quantitative tightening (QT) – under which it is selling securities bought during its stimulus programmes.

Some economists reckon it will speed up the pace of its active bond sales, even though it crystallises losses sustained by the BoE, because more of its bonds will mature this year (meaning it would need fewer active bond sales to hits its sales target).

We should also get interest rate decisions in Norway and South Africa today.