Inflation Rises To 2.3%

 

Inflation Data Overview: Today's inflation data revealed a rise to 2.3% in October, surpassing the forecasted 2.2%. This marks a significant increase from the previous month's 1.7%. The rise was primarily driven by higher energy bills, with household gas and electricity costs increasing due to the energy price cap.

Comparison to Previous Month and Expectations:

• Previous Month: September's inflation rate stood at 1.7%, indicating a substantial month-on-month increase.

• Expectations: Economists had predicted a 2.2% rate, making today's figure a slight but notable overshoot.

Main Reasons for the Increase: Higher energy bills were a significant driver. The energy price cap led to increased household gas and electricity costs. Additionally, core inflation, which excludes volatile food and energy prices, rose to 3.3%, higher than the expected 3.1%. Services inflation also increased to 5%, above the previous month's rate and forecasts.

Likely Impact on Interest Rates: The higher-than-expected inflation data reduces the likelihood of an interest rate cut by the Bank of England in December. Before the data release, there was a 21.7% chance of a 0.25 percentage point cut, which has now decreased to 84% chance of no cut. The Bank of England is expected to maintain a cautious approach, potentially keeping rates unchanged at 4.75%.

Effect of Rachel Reeves' Budget on Future Inflation Figures: Labour's recent budget, which includes increases in employers' national insurance contributions, is expected to inject a significant fiscal stimulus into the economy. This could lead to higher prices and potentially slow the pace of interest rate cuts. The budget's impact on inflation forecasts is likely to be substantial, with concerns that it may push inflation higher in the coming months.

In summary, today's inflation data indicates a notable increase driven by energy costs and core inflation. The Bank of England is likely to maintain a cautious stance on interest rates, and Labour's budget could further influence future inflation figures.

In short this, coupled with the appalling growht figures, means we are entering a period of stagflation. 

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Retail Sector Slams Reeves' Budget

 

Rachel Reeves' recent budget, which includes a significant increase in National Insurance (NI) and a hike in the minimum wage, has been met with fierce criticism from the retail sector. More than 70 major retailers have warned that these measures will lead to shop closures, job losses, and higher prices for consumers. This budget is a clear example of misguided policy-making that threatens to undermine the very fabric of the UK's economy.

Crushing Business Confidence

The increase in NI contributions from 13.8% to 15% is a heavy blow to businesses already struggling with rising costs. Retailers, both large and small, have expressed their inability to absorb such significant cost increases over a short period. This hike in NI will inevitably lead to higher operational costs, forcing many businesses to make difficult decisions, including cutting jobs and closing stores. The retail sector, which is a vital part of the UK economy, is now facing an existential threat due to these ill-conceived policies.

Impact on Employment

The hike in the minimum wage, while intended to benefit low-paid workers, will have unintended consequences. Retailers have warned that the increased wage bills will make it unsustainable for them to maintain their current workforce levels. As a result, job losses are inevitable, particularly at the entry level. This will not only affect the livelihoods of thousands of workers but also reduce the overall spending power of consumers, further dampening economic growth.

Higher Prices for Consumers

With businesses unable to absorb the increased costs, the burden will ultimately fall on consumers. Retailers have already indicated that they will have no choice but to raise prices to offset the higher NI contributions and wage bills. This will lead to higher inflation, making everyday goods and services more expensive for the average consumer. The cost-of-living crisis, already a significant concern for many households, will be exacerbated by these budget measures.

Conclusion

Rachel Reeves' budget, with its increases in NI and minimum wage, is a recipe for economic disaster. The warnings from over 70 major retailers about shop closures, job losses, and higher prices should not be taken lightly. These policies threaten to destabilise the retail sector, undermine business confidence, and place an additional financial burden on consumers. It is imperative that the government reconsiders these measures to avoid further damage to the UK's economy.

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Failure Praises Failure - Bailey Calls For Closer Links To The EU

Andrew "Two Lunches" Bailey's speech at the Mansion House yesterday, where he called for greater ties with the European Union, has been widely criticised as inappropriate and out of touch, especially given his disastrous tenure as Governor of the Bank of England.

A Disastrous Tenure

Bailey's time at the helm of the Bank of England has been marked by numerous failures. Under his leadership, the UK has faced persistent economic challenges, including high inflation, sluggish growth, and a lack of confidence in the financial markets. His inability to effectively manage these issues has left the economy in a precarious state. The recent GDP figures, showing a meagre growth of just 0.1%, are a testament to his ineffective policies.

Inappropriate Political Comments

As the Governor of the Bank of England, Bailey's role is to provide independent and impartial economic guidance. However, his call for rebuilding ties with the EU crosses the line into political territory. It is not the Governor's job to make political comments or advocate for specific policy directions. His remarks undermine the independence of the Bank and raise questions about his judgment and suitability for the role.

The EU Economy is Tanking

Bailey's call for closer ties with the EU is particularly baffling given the current state of the EU economy. The Eurozone is grappling with significant economic challenges, including low growth, high unemployment, and rising inflation. The European Commission's recent forecast paints a grim picture, with growth expected to remain sluggish and risks largely tilted to the downside. Aligning more closely with an economy in such dire straits is not a prudent strategy for the UK.

Conclusion

Andrew Bailey's speech at the Mansion House was a misguided and inappropriate intervention in political matters. His disastrous tenure as Governor of the Bank of England has left the UK economy in a fragile state, and his call for greater ties with the EU only adds to the confusion and uncertainty. It is time for Bailey to focus on his primary responsibilities and leave political commentary to elected officials.

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Bank of England Cuts Rates To 4.75%

Today, the Bank of England announced a cut in the base interest rate from 5% to 4.75%, marking the second reduction this year.

While this move is intended to provide relief to borrowers and stimulate economic activity, it comes with a caveat: the recent budget unveiled by Chancellor Rachel Reeves is expected to slow down the pace of future rate cuts.

The Interest Rate Cut

 

The Bank of England's Monetary Policy Committee (MPC) voted 8-1 in favor of reducing the base rate by 0.25 percentage pointsThis decision was driven by a significant drop in inflation, which fell to 1.7% in September, its lowest level since April 2021.

The cut aims to ease borrowing costs for households and businesses, providing much-needed relief after a period of elevated interest rates.

Impact of Rachel Reeves' Budget

However, the budget announced by Rachel Reeves last week has introduced several measures that could counteract the benefits of the rate cut. The budget includes substantial tax increases and higher public spending, which are expected to boost economic growth by 0.75 percentage points at its peak next year.

While this might sound positive, it also means increased inflationary pressures.

The Office for Budget Responsibility (OBR) has projected that the budget will push up the Consumer Prices Index (CPI) inflation by just under 0.5 percentage points in late 2026This means that inflation will now reach the Bank's 2% target in the second quarter of 2027, a year later than previously projected.

As a result, the Bank of England will need to be cautious in cutting rates further to ensure that inflation remains under control.

Higher Borrowing Costs and National Debt

The increased borrowing costs due to higher gilt yields will also impact the government's finances. As gilt yields rise, the cost for the government to borrow money increases, leading to higher interest payments on national debt

This means that more of the government's budget will be spent on servicing debt, leaving less money available for public services and investments.

Conclusion

While today's interest rate cut by the Bank of England is a welcome relief for borrowers, the recent budget by Rachel Reeves introduces complexities that could slow down the pace of future rate cuts. The increased inflationary pressures and higher borrowing costs will require careful management to ensure that the economy remains stable and sustainable.

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Rising Gilt Yields Cause Lenders To Pull Mortgage Deals

In the wake of the recent budget announcement, UK gilt yields have seen a significant rise. The yield on 10-year UK government bonds has now surged to 4.5%, a notable increase from the previous rate of 4.37%. This rise in gilt yields is a direct result of market reactions to the budget's fiscal policies, which have led to increased borrowing costs.

Why Rising Gilt Yields Lead to Higher Mortgage Costs

Gilt yields and mortgage rates are closely linked. When the government issues bonds (gilts), investors buy them, and the yield is the return they get on their investment. Higher gilt yields mean the government has to pay more to borrow money, and this increased cost is often passed on to consumers in the form of higher interest rates on loans, including mortgages.

Examples of Lenders Pulling Mortgage Deals

Several lenders have already reacted to the rising gilt yields by pulling mortgage deals or increasing rates. For instance, Nationwide Building Society recently withdrew several of its mortgage products, citing the volatile market conditions. Similarly, HSBC and Barclays have also adjusted their mortgage offerings, with some fixed-rate deals being pulled from the market.

Conclusion

The recent rise in gilt yields following the budget announcement is a clear indicator of the market's reaction to increased borrowing costs. This trend is likely to continue, leading to higher mortgage costs for consumers. As lenders pull mortgage deals and adjust their rates, it's crucial for potential homebuyers to stay informed and consider their options carefully.

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