Oil price surge revives prospect of Bank of England rate rise this year

{"text":[[{"start":8.76,"text":"Surging oil prices are set to reopen debate at the Bank of England over whether it needs to increase interest rates before the end of the year, as policymakers prepare to meet later this week."}],[{"start":19.44,"text":"The Monetary Policy Committee will convene to discuss both its key rate and the pace at which it shrinks its balance sheet under the shadow of a bond-market sell-off that is putting mounting pressure on the government of Prime Minister Andy Burnham ahead of the October 28 Budget."}],[{"start":35.22,"text":"Markets are pricing in a less than one-in-three chance of a rise in borrowing costs on Thursday at the MPC’s September policy meeting. But rising energy prices driven by a renewed escalation of the war in the Middle East, accelerating inflation, and relatively robust UK GDP growth are set to prompt an intensifying debate within the BoE over how long it can keep its key rate at 3.75 per cent."}],[{"start":59.24,"text":"“The MPC’s patience may be running thin and the case for staying on hold is weakening slowly,” said Sanjay Raja, an economist at Deutsche Bank."}],[{"start":68.24,"text":"The European Central Bank on Thursday raised its own key interest rate — albeit from lower levels — and the US Federal Reserve is viewed by investors as likely to follow suit this week."}],[{"start":null,"text":"

"}],[{"start":79.4,"text":"Traders will be laser-focused on the voting split among BoE rate setters, with the market consensus expecting six votes for holding rates, and three for a rise, according to LSEG data."}],[{"start":90.48,"text":"Some think that the surge in oil prices above $100 is testing the assumptions of the doves that broader effects of the Iran inflation shock will be contained and could lead to a more hawkish outcome."}],[{"start":102.44,"text":"Official data on unemployment and inflation is also due to be published in the days before the rates announcement on Thursday."}],[{"start":109.8,"text":"“With [the GDP] figures, with oil and the energy shock being far more persistent than the expectation . . . I think there is a real risk of getting to 5-4, but even potentially having a surprise hike,” said Akshay Singal, global head of short-term interest rate trading at Citi."}],[{"start":125.64,"text":"The market is currently pricing in four quarter-point rate rises by this time next year, compared with the two or three earlier this month, according to levels implied by swaps contracts."}],[{"start":136.52,"text":"A move at the BoE’s November meeting is now fully priced in. Andrew Bailey, the BoE governor, signalled increased concern about inflation in a hearing at the Treasury select committee on Tuesday, saying the “upside risks” were rising given the ongoing Gulf war."}],[{"start":153.04,"text":"Some investors believe the BoE’s inflation-fighting credentials could be at risk if it fails to keep up with other central banks as they lift borrowing costs, potentially weakening the pound."}],[{"start":163.52,"text":"Ales Koutny, head of international rates at asset management giant Vanguard, said there was “an element of credibility now” if the BoE did not follow suit in the coming months."}],[{"start":174.24,"text":"Allan Monks, UK economist at JPMorgan, said he expects inflation to hit 4 per cent or higher by early next year — double the BoE’s official target."}],[{"start":185.12,"text":"Investors are also awaiting a decision on the future of the BoE’s so-called quantitative tightening programme of reducing the government bond holdings that it built up through widescale purchases in past crises, and which has added upward pressure to UK borrowing costs."}],[{"start":200.24,"text":"Gilt market participants expect the BoE to slow its balance sheet shrinkage from £70bn to £50bn in the year to September 2027, which would imply about £20bn of active sales of gilts, including some long-dated debt."}],[{"start":215.6,"text":"Some think the BoE could further reduce or pause long-dated sales to the market following a brutal global sell-off driven by rising energy prices and inflation worries, as well as mounting concerns over a borrowing glut. The selling drove 30-year gilt yields this week close to 6 per cent, a level they have not crossed since 1998."}],[{"start":235.24,"text":"“Clearly there is space for them to send a message of support to the long end,” said Vanguard’s Koutny."}],[{"start":245.92,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1789369965_8595.mp3"}