The Bank of England has held interest rates at 0.75% amid early signs of a pick-up in the UK and global economies.
In Mark Carney’s final interest rate meeting as governor, the Bank’s Monetary Policy Committee (MPC) voted 7-2 to keep rates unchanged.
Recent weak economic data had led to speculation rates could be cut, but Mr Carney said “the most recent signs are that global growth has stabilised”.
But the MPC said it was poised to cut interest rates if necessary.
Fewer companies in the UK are worried about Brexit, Mr Carney told a news conference following the rate decision. He added that survey data suggested UK growth will improve.
But he said: “To be clear these are still early days and it’s less of a case of so far so good than so far good enough,” he said, again referring to the UK economy.
“Although the global economy looks to be recovering, caution is warranted,” he said. “Evidence of a pick-up in growth is not yet widespread.”
He said the coronavirus outbreak was a “reminder of the need to be vigilant” when it comes to bumps in economic growth around the world.
Ready to cut
The nine MPC members have been split on rates since November.
Lower interest rates are good news for borrowers and bad news for savers because High Street banks use the Bank of England base rate as a reference point for many mortgages and savings accounts.
In a closely-watched decision, policymakers said they would monitor whether a recent improvement in business sentiment would lead to stronger economic growth.
The MPC said it stood ready to cut rates if there were signs that growth would remain subdued.
“Policy might need to reinforce the expected recovery in UK GDP growth, should the more positive signals from recent indicators of global and domestic activity not be sustained,” the MPC said.
Two members, Jonathan Haskel and Michael Saunders, argued that past business surveys of economic growth had not been reliable.
They continued to call for an immediate interest rate cut to 0.5%.
Weak UK growth
The Bank’s latest economic estimates suggest the economy did not grow at all in the final three months of last year.
Weaker growth at the turn of the year is also expected to drag overall economic growth down to just 0.75% in 2020. This is down from a projection of 1.25% last November.
The UK economy is expected to expand by 0.2% in the first three months of this year.
The Bank said a trade deal between the US and China that lowers some tariffs would provide a boost to the global economy.
An expected rise in spending by the government in the March Budget could provide a further boost to growth, policymakers said.
Ruth Gregory, senior UK economist at Capital Economics, said she also expected stronger growth ahead.
“Admittedly, the MPC left the door open to a rate cut in the coming months, but with the economy turning a corner and a big fiscal stimulus approaching, we suspect the next move in interest rates will be up not down, albeit not until next year.”
Brexit drag
The Bank said Brexit-related uncertainty had “weighed on investment” over the past few years.
Policymakers said companies’ Brexit plans had diverted money towards preparing for the UK’s departure from the EU that would otherwise be invested elsewhere.
This has reduced the UK’s long-term growth prospects by limiting the space in which the economy can grow without the risk of overheating.
This would force the Bank to raise interest rates, which would in turn slow the UK economy.
Policymakers now believe the UK’s potential growth has been reduced to 1.1%. This is down from 2.9% before the financial crisis and 1.6% over most of the past decade.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
