(Bloomberg) — The Bank of England sought to reassure investors that it won’t tighten monetary policy anytime soon despite the U.K. economy showing signs of a faster rebound than initially expected.
The pound gained after the central bank’s relatively robust projections and policy makers also hinted that they’re not ready to follow other central banks in taking borrowing costs below zero.
In a briefing to reporters following the decision, Governor Andrew Bailey said negative rates “are part of our toolbox, but at the moment we don’t have a plan to use them.”
Still, he also said the BOE is ready to do more if needed, and the Monetary Policy Committee stressed the economy is unlikely to fully recover before the end of 2021, slightly later than the previous scenario.
The committee voted unanimously to keep its asset purchase target at 745 billion pounds ($980 billion) while holding the benchmark interest rate at a record-low 0.1%. The pace of bond purchases will be slowed to 4.4 billion pounds a week from Aug. 11.
The MPC “does not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating” economic slack and “achieving the 2% inflation target sustainably,” it said.
The question is whether the comments will ultimately temper expectations that another round of bond purchases will be required before the end of the year, with renewed lockdowns in parts of the country and the government’s program to support jobs drawing to a close.
The mounting risks of a no-deal Brexit have also fueled speculation that the BOE might consider cutting interest rates below zero. Officials said that their review of such a policy is ongoing, but that its effectiveness could be hampered by the damage the crisis has wrought on bank balance sheets.
Investors are betting that rates will be cut below zero in about September 2021.
The updated projections see inflation getting back to the 2% target within its forecast horizon, which could suggest it currently doesn’t see a need to ease further. The new guidance on the path of policy could be an attempt to offset any investor concern that it’ll tighten too soon.
What Bloomberg’s Economists Say
“The Bank of England delivered a surprisingly upbeat message at its August meeting. We still think its likely the central bank’s forecasts will prove too optimistic and more stimulus will be on the cards later in the year.”
-Dan Hanson. Read his BOE REACT
Officials said the downturn will be less severe than outlined in a scenario it published in May, but added that the risk to the outlook is skewed to the downside, with gross domestic product not expected to exceed pre-virus levels until the end of 2021.
That scenario meshes with the views of policy maker Silvana Tenreyro, who has said the sharp bounceback so far could flatten out toward the end of the year.
BOE Chief Economist Andy Haldane — who voted against the last increase in quantitative easing in June — has been slightly more optimistic about a quick recovery, saying last month that it’s proved to be V-shaped so far.
In the shorter term, inflation is expected to fall further below the target and average around 0.25% in the latter part of the year, before returning in about two years.
Policy makers expect unemployment to rise materially to about 7.5% by the end of the year. That’ll be accompanied by an increase in inactivity of about 400,000 people relative to before the crisis.
Most officials agree that the labor market will be key to the recovery. Economists are warning more than 3 million could be out of work before the end of 2020. That would be the worst since the de-industrialization of Britain under Margaret Thatcher in the 1980s.
“The Committee does not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably”
–Bank of England August Policy Decision
Consistent with the government’s stated policy aims, the BOE’s forecasts don’t include a second nationwide lockdown, but do assume a slow recovery with the possibility of more restrictions.
“In our view, economic developments will very likely fall short of this near-perfect scenario and inflationary pressure will remain subdued for longer than the BOE currently expects,” said Kallum Pickering, a senior economist at Berenberg. “As a result, policy makers may eventually need to do more to support the recovery.”
(Adds comments from Bailey’s press briefing starting in third paragraph)
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="For more articles like this, please visit us at bloomberg.com” data-reactid=”42″>For more articles like this, please visit us at bloomberg.com
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Subscribe now to stay ahead with the most trusted business news source.” data-reactid=”43″>Subscribe now to stay ahead with the most trusted business news source.
©2020 Bloomberg L.P.
Asia Today: Morrison vows ‘titanic effort’ to lift economy – 660 News
CANBERRA, Australia — Prime Minister Scott Morrison says the Australian budget, to be delivered Oct. 6, will be a “titanic effort” to return the country to economic growth amid the coronavirus pandemic.
Morrison told reporters Sunday that the budget will the “most unprecedented investment in Australia’s future.”
Australia’s gross domestic product shrank 7% in the quarter form April to June, the largest contraction since record-keeping began in 1959. That followed a 0.3% decline in the first quarter, meaning Australia was technically in recession for the first time in 30 years.
Australia was the only major economy not to go into recession during the 2008 global financial crisis, its strength supported by strong demand, especially from China, for its natural resources — coal, natural gas and iron ore.
Even before the coronavirus, the economy was affected by massive bushfires in January that hit small businesses, which depend on tourism. Business shutdowns forced by the pandemic cost almost 1 million jobs and resulted in a major reduction in household spending despite Morrison’s government providing almost $200 billion Australian dollars ($140.5 billion) in economic stimulus.
Morrison said the upcoming budget “will be a titanic effort that we’re involved in to ensure that this country can get back on the growth path that we want to be on. That means we’re going to have to do some very heavy lifting in this budget and that comes at a significant cost.”
Treasurer Josh Frydenbeg, who will deliver the budget speech, on Thursday provided a downbeat economic outlook. Frydenberg said the economy likely will be 6% smaller by mid-2021 than forecast at the end of last year.
He said the government’s focus will be on economic recovery rather than budget repair until unemployment is “comfortably” less than 6%.
“Australia’s future population will be smaller and older than we previously assumed because of the sharp drop we are seeing in net overseas migration,” Frydenberg said. “While migration will eventually return to the levels we are accustomed to, lost migrants will not be replaced.”
Follow AP’s pandemic coverage at http://apnews.com/VirusOutbreak and https://apnews.com/UnderstandingtheOutbreak
The Associated Press
China is on a construction binge and that's good news for the global economy – Economic Times
By Matt Phillips
The coronavirus pandemic forced China to bring industrial activity to a halt earlier this year, but the country is revving its engines again — and global prices of metals are reflecting that renewed appetite for growth.
China consumes roughly half of the world’s industrial metals, according to analysts. As the country emerged from the worst of the pandemic in March, the Chinese government unleashed a program of enormous fiscal stimulus aimed at building bridges, roads, utilities, broadband and railroads across the country. As a result, the prices of iron ore, nickel, copper, zinc and other metals used to build infrastructure have surged in recent months.
Since late March, prices of iron ore — the key ingredient in steel — have risen more than 40%. Nickel, needed for stainless steel, and zinc, used to galvanize metal, are up more than 25%. Copper, which is used in wiring for power transmission, construction and car manufacturing, and has long been seen as a barometer for the world’s industrial economy, is also up around 35%.
“China, as usual, went the investment route and is massively investing in metals-intensive infrastructure,” said Caroline Bain, a commodities market analyst with Capital Economics in London. “So there’s been a very strong pick up in China’s demand for metals.”
Last month, China’s state railway operator announced plans to double the size of its high-speed rail network over the next 15 years. In July, investment from China’s state-owned enterprises, including giants such as China National Offshore Oil Corporation and China Mobile, surged by 14% compared with the prior year, according to Standard & Poor’s analysts. (Private companies, by comparison, bolstered investment by just 3%.)
In Guangdong, the country’s most populous province, regional officials plan to spend some 700 billion yuan — about $100 billion — this year on public medical facilities, 5G networking and transportation infrastructure.
In February, the coronavirus outbreak prompted a lockdown of much of the country’s economy, the second largest in the world after that of the United States. From January to March, China’s economy contracted by 6.8%, the first decline the country has acknowledged in roughly half a century. Industrial activity stopped, causing metal prices to plunge. Copper and aluminum prices all dove roughly 20% in that period, while iron ore fell about 15%. The sudden pause in demand from such a big buyer immediately strained several countries that have built large parts of their economy around digging ore out of the ground and shipping it to China.
Australia’s exports to China — mostly iron ore and coal — tumbled roughly 20%, as the country fell into its first recession in nearly 30 years. Metal exports from Brazil, Chile and Peru also slumped, driven by cratering demand from China and declines in mining production, but also because miners were forced to halt operations as the coronavirus spread locally. The share prices of global mining giants, which get large portions of their revenue from China, cratered. In local currency terms, Vale in Brazil and the Anglo-Australian giant Rio Tinto both tumbled roughly 40% from January to March.
But the response of the authoritarian government in China — its state-led model that gives Beijing significant influence over the direction of the economy — was enormous, helping China post one of the fastest recoveries of any of the world’s largest economies in recent months.
Goldman Sachs’s estimates of Chinese budget deficits — a measure that includes both official budget deficit numbers and a variety of off-balance sheet government support that is common in China — ballooned to 20% of gross domestic product in the first half of 2020 from about 10% at the end of 2019, as the country pumped money into the economy.
Recent economic reports from China show where that government money has flowed. August data on industrial production revealed 5.6% growth over the same month last year, firmly establishing a V-shaped recovery for the sector. Industrial production in sectors tied to infrastructure, such as cement, steel and iron, all posted strong gains. Other official data on investment showed growth in utilities, road and rail construction.
Economists at the Organization for Economic Cooperation and Development expect that China’s GDP will actually grow by 1.8% this year, making it the only member of the Group of 20 nations that will not suffer a recession this year. That’s the best expected performance of any of the countries the organization tracked in its latest economic update.
“The recovery in GDP is much faster and stronger than elsewhere,” said Bain of Capital Economics.
That’s good news not only for metals markets, but could also herald better times for the global economy. Analysts have studied the prices of some metals as a leading indicator of global economic growth, even referring to copper as “Dr. Copper” because of its supposed ability to predict the direction of the economy as well as any economist with a doctorate.
“People’s perception of the economy is how weakened it is, yet all the industrial metals are telling you a very different story,” said Chris Verrone, an analyst and partner at Strategas Research in New York. “We think copper is the market trying to tell us that the economy is stronger than we expect.”
U.S. September job report is going to show economy entering a weaker phase – MarketWatch
American households are used to television dramas where difficult problems are resolved in one hour, or perhaps eight one-hour episodes on Netflix.
So it is with the economy, and there is a growing perception the U.S. economy has been suffering for long enough that the worst must be behind us.
Gregory Daco, chief U.S. economist at Oxford Economics, said he routinely comes across people now who think the economy is out of the woods, given that the unemployment rate has dropped to 8.4% a peak of 15%.
They don’t seem to realize that the unemployment rate is still higher than the peak unemployment rate of prior recessions, Daco said, in an interview.
The fact is that even after what has been a fairly strong first phase of recovery, the economy has only recovered to reach levels close to the worst part of the 2008-2009 financial crisis, he added.
The economy now is closer to the gnarly 2009 period than the slow but steady recovery of 2014-2016.
“I think that is often times an eye opener for clients,” he said.
Daco said the September jobs report from the U.S. Labor Department due this coming Friday will signal the economy is entering a critical phase, with less assistance from government and a number of uncertainties from the November elections, the coronavirus pandemic, and uncertain financial markets.
“There are a number of risks and we are going into the fall without much insulation,” he said.
The rough consensus among economists is for September nonfarm payroll gains to moderate to slightly under one million in September from 1.37 million gains in the prior month.
Daco is forecasting a sharper slowdown to a gain of 600,000 jobs. He sees the unemployment rate dipping to 8%, but due in part to workers giving up looking for work and dropping out of the labor force.
While 600,000 jobs would be considered strong in an ordinary environment, it is not strong enough to put a dent in the 11 million Americans who have lost jobs during the pandemic and millions more who are underemployed, he said.
“I continue to view the glass as half-empty. We’re still a long ways from where we were pre-Covid,” Daco said.
Richard Moody, chief economist at Regions Financial Corp., thinks it may be hard to gauge the strength of the September report given the technical cross-currents in the data.
September is usually the month that summer vacation resort employment declines as the season ends, and without those job losses this year, the reported gain might look stronger. In addition, there was also a decline in temporary census workers in the month that may skew the data to the downside.
The job report will be released Friday at 8:30 a.m. Eastern on October 2. There will also be critical data during the week on the manufacturing sector for September from IHS Markit and ISM on Thursday, and on consumer spending and inflation for August.
Jays beat Orioles to keep momentum going – TSN
Quebec reports 698 new COVID-19 cases, seven more deaths – The Kingston Whig-Standard
We Finally Know How Much Radiation There Is on The Moon, And It's Not Great News – ScienceAlert
Silver investment demand jumped 12% in 2019
Iran anticipates renewed protests amid social media shutdown
Richmond BBQ spot speaks out about coronavirus rumours Vancouver Is Awesome
- Health22 hours ago
Toronto’s top doctor issues ‘warning to the entire city’ as new cases surpass 200 in single day
- Tech23 hours ago
Ring’s Flying In-Home Camera Drone Escalates Privacy Worries
- Sports24 hours ago
Steven Stamkos ruled out for Game 4 of Stanley Cup final – CBC.ca
- Investment19 hours ago
Why Canada Continues to Attract Real Estate Investors
- News22 hours ago
The latest on the coronavirus outbreak for Sept. 25
- Media23 hours ago
A Practical Guide to Social Media Crisis Management
- Sports14 hours ago
Lightning-Stars stream: 2020 NHL Stanley Cup Final – NHL
- News12 hours ago
B.C. university launches 1st peace and reconciliation centre in Canada – CBC.ca