Latest news with #BankOfEngland
Reuters
2 days ago
- Business
- Reuters
Bank of England poised to slow QT after rise in yields
LONDON, July 28 (Reuters) - The Bank of England is expected to soon slow the pace at which it shrinks its 558 billion-pound ($754 billion) holdings of government bonds, and economists hope next week will shed some light on its longer-term goals for the stockpile. Alongside a predicted quarter-point interest rate cut to 4%, the BoE's Aug. 7 policy statement will assess the past year's quantitative tightening, or QT, before policymakers decide in September on the pace of bond sales for the following 12 months. There is greater uncertainty over QT than usual due to recent bond market ructions and because liquidity in Britain's financial system is approaching a balanced level for the first time since before the 2008 financial crisis. Adding to the mix is political pressure over the hefty losses the BoE has made when selling bonds. "The official view from the Bank ... is that they see this as an operation that works almost in the background. But clearly it has come to their attention that they are not operating in a vacuum," said Peter Schaffrik, global macro strategist at RBC. Unlike other big central banks, the BoE's QT programme involves bond auctions as well as letting existing holdings mature. Over the past year, it has sold 13 billion pounds of gilts and let 87 billion pounds mature. Keeping up that 100 billion-pound pace for the next 12 months would require it to sell a record 51 billion pounds though, due to fewer redemptions. Schaffrik said market conditions had changed since it last sold close to 50 billion pounds of gilts, however, which was in the year to September 2024. "The market would probably take it quite negatively if they sold such a large amount," Schaffrik said. The BoE itself has said its sales so far have barely pushed up government bond yields. A BoE survey published in May showed investors mostly expected QT to slow to a yearly 75 billion-pound pace from September and to 50 billion in 2026-27 before active sales effectively end in 2028. One outlier is BNP Paribas' Europe economist Dani Stoilova, who expects the BoE to stop gilt sales from October onward to avoid impacting the market. British 30-year government bond yields hit their highest levels since 1998 in April after President Donald Trump's tariff bombshell rocked the markets and the BoE had to postpone a bond sale. Despite four BoE rate cuts over the past year, the difference between five- and 30-year gilt yields has doubled to 1.4 percentage points and the 2/10-year yield curve has steepened to 0.75 percentage points from near zero. "Active QT has never been done in this environment where Bank Rate has been falling. And so there is the potential that there are interaction effects that haven't been caught," Stoilova said. Last week BoE Governor Andrew Bailey said QT was not to blame for higher government borrowing costs. "We do need to look, however, at the interaction of those yield curve movements with the QT programme and with market functioning and with monetary policy impact," he said. The BoE might focus more on shorter-dated gilt sales or even halt sales of gilts with a maturity of 20 years or longer, former Monetary Policy Committee member Michael Saunders said. Equally, the BoE could decide that extra rate cuts are a better option, or that there is little it can do to offset the steeper yield curve, said Adam Dent, chief UK rates strategist at Santander CIB. "We believe that QT is only responsible for a small part of the steepness, so trying to use QT to control the slope should also have little lasting effect," he said. The BoE has said little about its long-term plans for its gilts. One of Bailey's original reasons for QT - which drains money from the financial system - was to lower banks' reserve holdings from excess levels. Reserves stand at around 680 billion pounds, well above the 385-540 billion-pound range bankers gave to the BoE as an estimate of the system's preferred minimum range of reserves. Once reserves hit this minimum level, the BoE might still see financial or market stability reasons to keep selling gilts and require banks to make greater use of its repos. But growing take-up of the BoE's repo operations - where banks temporarily borrow money from the BoE - suggests the floor could be nearer than the BoE thinks. "They could slow things down or feel their way to that level," Schaffrik said, noting the BoE had never given a steer on its ideal position. "But everything indicates they want to go quite a bit below it."
Telegraph
3 days ago
- Business
- Telegraph
Stablecoins: the next big financial crisis waiting to happen
Financial deregulation is once again all the rage. In the search for that ever more elusive commodity, economic growth, even Rachel Reeves, the Chancellor, has caught the bug. Excessive regulation is 'a boot on the neck of business, choking off the enterprise and innovation that is the lifeblood of economic growth', she declared in her recent Mansion House speech. The pendulum has swung too far in favour of stamping out risk. You could almost see the annoyance on the face of Andrew Bailey, the Governor of the Bank of England, seated beside her. In remarks last week to MPs, he confirmed that beyond a few tweaks of little significance, he was dead set against tearing up the regulatory reforms that came out of the global financial crisis. He is right to be concerned. Almost all major financial crises are strongly associated with deregulation and the 'financial innovation' that inevitably follows in its wake. Take the Depression-era Glass-Steagall restrictions in the US, which enforced separation of investment from retail banking. There was no banking crisis of systemic importance as long as they remained in force. But at the turn of the century, Glass-Steagall was repealed, and within a decade finance had once again blown up the world economy. It is admittedly debatable whether lifting Glass-Steagall of itself had much to do with it. Nonetheless, it was symbolic of a much wider pattern of financial deregulation that was to fuel such stars of the following credit bubble as the 'collateralised debt obligation'. These things are cyclical, and though history never repeats itself exactly, the US is once more tearing down the structures that keep finance in check. We might call it 'light touch' regulation 2.0. Should the UK be following suit? As I say, Bailey is right to be concerned, but the reality is that we do indeed need to replicate at least some of what the Trump administration is doing in the US if the City is to remain a force to be reckoned with as a global financial centre. Already, the signs of decline are all too visible, with the City failing to find a new raison d'etre after losing its position as Europe's de facto financial centre after Brexit. As with so much else, the big game changer is technology. The danger is that we get stuck in the same rut as the European Union, with an approach to regulating financial services that looks backwards to a bygone era of eviscerating catastrophe rather than forward to the transformative power of the new technologies. An analogue solution to a digital age is just what we don't need. As is its wont, the EU was first out of the traps in attempting to regulate the cutting edges of fintech, with its so-called 'Markets in Crypto Assets' directive. This is essentially just another attempt to predict what risks might materialise before they actually happen, and therefore acts as a significant barrier to innovation.
Reuters
6 days ago
- Business
- Reuters
BoE to cut rates in August and November with steady economic growth anticipated- Reuters poll
BENGALURU, July 24 (Reuters) - Britain's economy will grow at a slow, steady pace this year and next, keeping the Bank of England on course to cut interest rates on August 7 and again in November despite inflation remaining above target in coming months, according to most economists polled by Reuters. After starting the year on a strong footing, the economy lost steam with GDP shrinking in April and May, partly driven by weak factory activity. Manufacturing contracted for a tenth consecutive month in July, a separate survey showed on Thursday. Britain was the first major economy to secure a trade deal with the United States under President Donald Trump, partly shielding its economy. Many others, including the European Union, are still scrambling to land agreements with Washington ahead of a deadline next week. The British economy will grow 1.1% on average this year, the same as in 2024, according to median forecasts in the July 17-24 poll of 67 economists, a view largely unchanged since February. The economy is seen expanding 1.2% next year. "We are seeing some tangible signs the economy is stabilising after a bit of a pull down or a pull back in growth momentum," said Sanjay Raja, chief UK economist at Deutsche Bank. "There has been resilience. We have seen a pick-up in business seen consumer sentiment pick up slowly but surely. Credit conditions remain pretty optimistic." Consumer sentiment has reflected the tug-of-war between persistent inflation and easing borrowing costs. Inflation rose to 3.6% in June, driven by food and transport costs, but falling mortgage rates and expectations of further interest rate cuts later this year are offering some relief to households. "We're expecting inflation to get closer to 4% in Q3. But thereafter we think those price pressures will start to dumping from Asia into the UK and Europe could act as a disinflationary driver going forward," said Raja. The Bank of England has already cut rates four times since August 2024, bringing the Bank Rate down a full point from a peak of 5.25%. An 83% majority of economists, 62 of 75, expect two more 25-basis-point cuts this year – in August and November – maintaining the pace of one cut per quarter. That would put the Bank Rate at 3.75% at year-end, and two further reductions are expected in 2026. "We agree with the slow and steady approach. If wage growth starts to come down that will give (the BoE) hope for overall inflation to come down," said Elizabeth Martins, senior UK economist at HSBC. "Unfortunately, the risk is towards inflation staying higher and that's the way all the surprises have gone in recent times." Inflation is expected to remain above the central bank's 2.0% target at least until the end of next year, averaging 3.2% this year and 2.4% in 2026, according to the poll's median forecasts. (Other stories from the Reuters global economic poll)
Daily Mail
22-07-2025
- Business
- Daily Mail
QUENTIN LETTS: With his drip dry suburban ways, there's something furtive about the Governor
Bank managers are often thought stodgy presences. But as Andrew Bailey demonstrated at the treasury select committee, they are crazily optimistic loan sharks. Their purpose in life is to persuade happy people to borrow money, which frequently brings misery. 'It'll be fine,' they say. Bank managers are maniacs. Outwardly Mr Bailey is unexciting. They're always the most dangerous. The sober socks, bland suit, Pooterish manner, and a retinue of six clerical mice who traipse after him with earnest haircuts and dark shoes: it is a brilliant disguise. We think, 'he'll be safe', but we'd be safer being driven home from an all-night bender by the late Ayrton Senna. Mr Bailey is governor of the Bank of England. His time in charge has so far seen the mad printing of money, blindness to inflation after lockdown and a regulatory laxness that hastened the Truss government's destruction. Yesterday he was asked if Rachel Reeves was borrowing too much. Noooo, said Mr Bailey. Everything's under control. He slipped easily into jargon mode, burbling that yield curves were steeper across the world. As he did this he narrowed his eyes a little to convey shrewd expertise. He placed his elbows on the witness table and touched the skin of his brow, quite the expert intellectual. Carry on borrowing, Chancellor. It's all going swimmingly. That was his siren song. Dame Meg Hillier (Lab), chairman of the committee, was surprised. 'You sound unconcerned,' honked Mother-Goose Meg. Mr Bailey, suppressing just a hint of indigestion: 'I'm not unconcerned. It's reflective of conditions. There is an uncertainty in geopolitics, I'd say.' Dame Meg boggled a bit at his calm tone. We were talking here about trillions of pounds and an interest bill that could bankrupt us. Mr Bailey soothed Dame Meg with a not-quite convincing smile. He noted that the market capitalisation of a single US firm is now greater than Britain's gross domestic product. Was that meant to be reassuring? Unlike his talcum-powdered predecessor Mark Carney this Bank governor is not a magnetic figure. When he enters a room, people do not hush. When Mr Carney shimmered down a corridor, you could almost hear Sade's 'Smooth Operator'. Mr Bailey, with his crinkly hairdo and drip-dry, suburban ways, lacks charisma. He fiddles with his chin and neck when talking. His fingers twiddle with a slender ballpoint pen. There's something not quite right about him. Something flawed. Furtive. When Ms Reeves first started to meet him, she possibly suspected that she was the senior partner in the relationship. Now, as she looks at our economy going down the plughole, she must wish she had never listened to his burbling reassurances. He was accompanied by two external members of the Bank's financial policy committee. Carolyn Wilkins, a Canadian policy wonk, was largely inaudible. Prof Randall Kroszner, known as 'Randy', sat on the very edge of his chair, his spine ramrod straight. Randy was Norman R. Bobins professor of economics at Chicago university, a director of the George J. Stigler Center for the Study of the Economy and the John M. Olin visiting fellow of law at Chicago law school. Randy turns left on aeroplanes. We possibly need to keep Rachel Reeves away from such people. It being the last day of term, Westminster was pretty empty. The education committee was holding an inquiry about truancy. Jolly bad luck. It meant most of them had to turn up. And in the Commons chamber Wes Streeting took health questions. Wes is already quite bronzé. Not a fleck of grey taints his inky, modishly ridged fringe. Add a rich, blue suit and just a hint of tummy. During longueurs he effortlessly attended to his mobile telephone. He paid handsome tribute to his Tory shadow, Edward Argar, who is retiring from the front bench. And he relished talking about the resident doctors' strike, which we must all hope he wins. The Starmer Government has had a hellish first year but little Wes is loving life.
Reuters
22-07-2025
- Business
- Reuters
Bank of England's Bailey defends bank rules after Reeves attack
LONDON, July 22 (Reuters) - Bank of England Governor Andrew Bailey said on Tuesday he did not agree with finance minister Rachel Reeves' description of regulation as a "boot on the neck of businesses" and he defended rules for the banking sector which are overseen by the BoE. Bailey told lawmakers that the central bank was open to making changes to the detail of post-financial crisis financial regulation to help the government's economic growth push. But he favoured keeping rules on banks in areas such as ring-fencing - which separates consumer lending operations from more volatile investment banking - and said Britain was not imposing tougher regulation than elsewhere. "I do think that the ring-fencing regime is an important part of the structure of the banking system," he said, noting the rules made it easier to deal with troubled banks. Reeves last week promised "meaningful reform" of the ring-fencing rules, something sought by the leaders of several major lenders in Britain. Asked by a lawmaker about Reeves' describing regulation as a "boot on the neck" of businesses, Bailey said: "I don't use those terms. Let me say that ... it's not a term I use" before adding: "We can't compromise on basic financial stability. That would be my overall message." Bailey was speaking to the House of Commons' Treasury Committee alongside two other members of the BoE's Financial Policy Committee, Randall Kroszner and Carolyn Wilkins. Kroszner, a former U.S. Federal Reserve official, said he saw no specific clash at this stage between financial stability and the relaxation of regulations planned by Reeves. "But always the devil is in the detail," Kroszner said. Bailey also told the committee that a rise in British government borrowing costs - especially for long-dated bonds - was not out of line with increases in other countries. "We have seen steepening of yield curves going on now," Bailey told the Treasury Committee. "I think the important thing to say is that is a global phenomenon. It's not in any sense unique to this country. In fact, the pattern in this country is not in any sense out of line with what we've seen in other markets, and we've seen steeper increases in some other markets." Rising borrowing costs were being driven by concerns about the impact on global trade from tariff policy decisions and uncertainty about the scale of future public borrowing, he said. U.S. President Donald Trump has imposed tariffs on imports of many goods and has also won approval in Congress for tax cuts that are forecast to push up U.S. public debt.
