Markets brace for Bank of England interest rate decision – business live | Business

The UK’s financial watchdog has warned UK lenders to provide more support for customers who are struggling with soaring living costs.

The Financial Conduct Authority has written to banks and lenders, urging them to act now to offer help to borrowers who are struggling with payments and customers in vulnerable circumstances.

The FCA is concerned that some customers in vulnerable circumstances are not getting the support they need.

Last month, British Gas said it was taking on more staff to handle a rise in customers struggling to cope with soaring energy bills, while water regulator Oftwat has warned some people need support with utility bills.

The FCA is asking lenders to:

• make sure that their approach to taking on new borrowers takes account of the financial pressure they may face and the impact on their expenditure.
• consider and, if necessary, improve how they treat consumers in vulnerable circumstances.
• effectively direct customers who need it to money guidance or free debt advice.

Food price rises in the UK could hit 15% this summer – the highest level in more than 20 years – with inflation lasting into the middle of next year, according to a report.

Meat, cereals, dairy, fruit and vegetables are likely to be the worst affected as the war in Ukraine combines with production lockdowns in China and export bans on key food stuffs such as palm oil from Indonesia and wheat from India, the grocery trade body IGD warns.

Products that rely on wheat, such as chicken, pork and bakery items, are likely to face the most rapid price rises as problems with exports and production from Ukraine, a big producer of grain, combine with sanctions on Russia, another key producer.

The report suggests inflation will last at least until next summer but could persist beyond that as a result of a range of factors such as additional key agricultural countries introducing export bans, trade disruption connected to Brexit, unfavourable weather in the northern hemisphere or further weakening of sterling.

The report says Britain’s food and consumer goods industry is “uniquely exposed to current pressures due to a reliance on food imports and the impacts of EU exit”.

It says the new regime has added to costs through additional administration at the EU border and other legislation changes – as well as labour shortages prompting higher wages for farmers and food producers.

James Walton, the chief economist at IGD, said:

“From our research, we are unlikely to see the cost of living pressures easing soon.

This will undoubtedly leave many households – and the businesses serving them – looking to the future with considerable anxiety. If average food bills go up 10.9% in a year, a family of four would need to find approximately £516 extra a year. We are already seeing households skipping meals – a clear indictor of food stress.

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

Over to you, governor. After America’s central bank announced its largest interest rate rise since 1994, the Bank of England must now decide whether, and how fast, to lift UK borrowing costs.

Governor Andrew Bailey and colleagues on the Bank’s Monetary Policy Committee faced a difficult decision at this week’s meeting, with the economy slowing sharply and inflation heading towards double-digit levels.

The MPC are very likely to lift Bank Rate, currently 1%, at noon today – and some economists believe we could get the first 50 basis point increase since 1995, which would take rates to 1.5%.

Conall MacCoille, chief economist at wealth managers Davy, believes there are compelling reasons for the BoE to raise interest rates by as much as 50bps.

“CPI inflation at 9% and a tight labour market are creating a risk that employee price expectations could become entrenched.”

Furthermore, MacCoille points out that some Bank policymakers wanted a larger rise last month.

“The MPC’s vote was split 6-3 in May, with the minority favouring a 50bps rise in interest rates”.

James Lynch, fixed income manager at Aegon Asset Management, reckons the committee could split into three camps, making a smaller 25bp rise more likely.

The dovish view can be emboldened by the slowdown in GDP growth, the hawkish camp encouraged by the labour market strength/higher wages and ever rising inflation and finally, the more neutral members who are finding it all a bit confusing.

Therefore, there is a strong possibility of a split vote this week – some members vote for no rise, some for 25bps and some for 50bps.

The Bank has already raised interest rates at four meetings in a row. This month, it could also be concerned about the weak pound, which has hit its lowest level against the US dollar since early in the pandemic.

Surging inflation means UK real wages shrank at the fastest rate in at least 20 years in April, squeezing households.

And there is more pain ahead, with a grocery industry research group warning that food price inflation in Britain is likely to peak at up to 15% this summer and will remain high until 2023.

Red-hot inflation is forcing central bankers to become more hawkish, with the US Federal Reserve hiking its key rate by 75 basis points last night.

It blamed higher energy prices following the Ukraine war, supply chain disruption from the pandemic, and ‘broader price pressures’, as last week’s unexpected surge in US inflation forced the Fed to move more aggressively.

It said:

The invasion of Ukraine by Russia is causing tremendous human and economic hardship.

The invasion and related events are creating additional upward pressure on inflation and are weighing on global economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks.

Fed chair Jerome Powell signalled that a similar hefty rise was possible in July unless inflationary pressures soften, telling reporters:

“We at the Fed understand the hardship inflation is causing.

Inflation can’t go down until it flattens out. That’s what we’re looking to see.”

The Bank of England would love to see that too.

The agenda

• 7am BST: European new car registrations
• 8.30am BST: Swiss National Bank’s interest rate decision
• 9.30am BST: Latest economic and business activity data from the Office for National Statistics
• 12pm BST: Bank of England interest rate decision
• 1.30pm BST: US weekly jobless figures
• 1.30pm BST: US building permits and housing starts
• 5pm BST: Russia’s Q1 GDP report