<h2>Key Highlights</h2> <ul><li>BoE Expected to Raise Rates to 5.25% from 5% on Aug. 3</li><li>Repeat of June's Half-Point Rate Rise Seen as Possible</li><li>UK Inflation of 7.9% Remains the Highest in the G7</li><li>Markets and Economists See Rates Hitting 5.75% This Year</li></ul> The Bank of England appears likely to increase interest rates by a quarter-point to 5.25% on Aug. 3, with the possibility of a repeat of June's surprise half-point hike, as inflation continues to outpace that of other major economies. <h2>A Divergence Among Central Banks</h2> While the U.S. Federal Reserve and the European Central Bank raised interest rates by a quarter of a percentage point this week, the market sentiment suggests that they might be nearing the end of their rate-tightening cycle. On the other hand, expectations regarding BoE rates have been fluctuating significantly since the last rate move on June 22. Investors are grappling with the question of whether the UK is facing a deeper inflation problem or if the rapid price growth will soon follow the trend seen in other economies, with a sharp slowdown. <h2>Evaluating Future Rate Scenarios</h2> Andrew Goodwin, Chief UK Economist at Oxford Economics, highlights that the trajectory of rates after August will hinge on the persistence of second-round effects, referring to the impact of last year's energy cost surge on wages and prices.Expectations for peak BoE rates reached 6.5% on July 11 following data showing record wage growth. However, these expectations subsided after a larger-than-expected decline in consumer price inflation. Presently, investors are divided between a peak rate of 5.75% or 6% later this year or in early 2024. <img src="https://cdn.forexoverflow.io/images/1690524309082-8p8xjtg8mlbxwbn-the-race-to-rasie-rates.png">Source from Reuters <h2>Economic Implications</h2> The surge in rate expectations has led to the highest mortgage costs since 2008, which, in turn, have put pressure on the housing and certain other sectors. Recent survey data revealed that private-sector growth had reached a six-month low this month. <h2>The Fine Balance of Decision Making</h2> In a Reuters poll, most economists predict a rate increase to 5.25% from the current 5% next week, with a potential peak at 5.75%. However, many analysts believe the decision is finely balanced. HSBC economists expect a rate rise to 5.5%, marking the central bank's 14th consecutive hike, in order to send a strong signal on inflation. BoE Governor Andrew Bailey emphasizes the importance of curbing inflation and Deputy Governor Dave Ramsden notes that inflation remains "much too high" despite recent declines. <h2>Inflation Figures and Labor Market Insights</h2> Consumer price inflation in June dropped to 7.9% from 8.7% in July, a significantly larger decline than anticipated, aligning it with the BoE's forecast in early May, when markets predicted rates to peak around 5%. Nonetheless, this inflation rate is nearly four times the BoE's 2% target and twice the rate of the United States. Regarding the job market, wage growth excluding bonuses remained at an annual rate of 7.3% in the three months to May, the joint highest since records began in 2001. However, unemployment unexpectedly rose to a 16-month high of 4%, and employers advertised fewer job vacancies. <h2>Perspectives on Data Interpretation</h2> RBC economists Peter Schaffrik and Cathal Kennedy assert that the interpretation of the data is subjective and could be used to support either 25 basis points or 50 basis points increases. With the end of Silvana Tenreyro's tenure on the BoE's Monetary Policy Committee, fellow external member Swati Dhingra may be the lone advocate arguing that producer price inflation is a better indicator of future consumer price inflation trends than wage growth. Annual producer price inflation fell to 0.1% in June, its lowest since December 2020, following a high of nearly 20% last July, which coincided with the peak of consumer price inflation at 11.1%. <h2>Anticipating Fresh Forecasts</h2> Alongside the rate decision, the BoE will update its growth and inflation forecasts. These are likely to be lower than the May forecasts due to higher market rate expectations, which significantly impact the overall forecast. The International Monetary Fund's forecast for Britain's economy predicts a growth rate of 0.4% this year, making it the second slowest among the Group of Seven advanced economies, only surpassing Germany. <h2>Emphasis on Inflation Persistence</h2> In recent months, the BoE has placed less emphasis on its medium-term forecast. BoE Governor Bailey and Chief Economist Huw Pill have shifted focus towards addressing the risk of inflation persistence, which may not be fully captured in the central forecast. This shift has led some, including HSBC, to assert that if the BoE believed its own forecasts, it would be considering rate cuts rather than rate hikes. In Summary, the Bank of England faces a delicate balancing act as it seeks to address the challenges of surging inflation while considering the nuances of economic data and projections. The upcoming rate decision and inflation forecasts will be crucial in shaping the path the central bank takes to stabilize the UK's economic landscape in the face of uncertainty.

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Bank of England Set to Raise Rates to 5.25% Amid Ongoing Inflationary Pressures. Explore the Factors Influencing the Central Bank's Decision and How it Aligns with Efforts to Tackle Inflationary Challenges in the Economy.

Bank of England's Rate Decision and Inflation

Bank of England Poised to Raise Rates to 5.25% as High Inflation Persists

In the latest employment report, the United States recorded its slowest job growth in 2-1/2 years in June. However, the consistently strong wage growth indicates tight labor market conditions. These factors are likely to prompt the Federal Reserve to resume its interest rate hikes later this month. Let's dive into the key highlights of the report. <h2>Key Highlights</h2> <ul><li>The unemployment rate fell from 3.7% in May to 3.6%.</li><li>Hourly earnings experienced a 0.4% increase, with a 4.4% year-on-year growth.</li><li>Nonfarm payrolls increased by 209,000 in June.</li><li>The average workweek rose from 34.3 hours to 34.4 hours.</li></ul> <h2>Challenges in Job Creation</h2> The Labor Department's report revealed that the U.S. economy added the fewest jobs in 2-1/2 years during June. The data also showed 110,000 fewer jobs were created in April and May. These figures indicate that higher borrowing costs have started to impact businesses' willingness to expand their workforce. The report also highlighted an increase in the number of individuals working part-time due to economic reasons—some experienced reduced hours due to slack work or unfavorable business conditions. <h2>Strong Labor Market Despite Weakening Job Growth</h2> Although the job growth rate has slowed, it remains robust in comparison to historical norms. The data, coupled with this week's findings of an acceleration in services sector activity, suggests that the economy is far from the long-predicted recession. Sean Snaith the director of the University of Central Florida's Institute for Economic Forecasting, emphasized that while the payroll numbers hint at weakening, the labor market remains strong. He stated that the Federal Reserve's work to combat inflation is far from complete, and today's report does not indicate otherwise. <h2>Details of Nonfarm Payrolls</h2> In June, nonfarm payrolls increased by 209,000 jobs, marking the smallest gain since December 2020. This figure fell below economists' expectations, making it the first time in 15 months that payrolls missed projections. However, job growth in the year's first half averaged 278,000 per month. To keep up with the change in the working-age population, the economy needs to create 70,000-100,000 jobs monthly. <h2>Factors Driving Employment Growth</h2> Companies hoarding workers is one of the factors contributing to employment growth. This practice stems from the severe labor shortages experienced during the economic recovery from the COVID-19 pandemic in 2021 and early 2022. While higher-paying industries, such as technology and finance, are reducing their workforce, sectors like leisure and hospitality and local government education are still playing catch-up after employee losses and accelerated retirements during the pandemic. <h2>Government and Private Payrolls</h2> Government employment saw an increase of 60,000 jobs, primarily due to a rise of 59,000 in state and local government payrolls. However, government employment remains 161,000 jobs below pre-pandemic levels. Private payrolls increased by 149,000, which is also the smallest gain since December 2020. Healthcare payrolls experienced a rise of 41,000, driven by increased hiring in hospitals, nursing and residential care facilities, and home healthcare services. Construction employment saw a significant jump of 23,000 jobs, indicating a revival in the housing market after being impacted by a surge in mortgage rates. <h2>Industry-Specific Highlights</h2> Professional and business services employment also witnessed increases, although temporary help, often considered a precursor to future hiring, declined by 12,600 jobs. Manufacturing payrolls experienced a moderate rebound as the sector faced challenges due to softening demand. On the other hand, retail jobs fell by 11,200. Meanwhile, leisure and hospitality payrolls increased by 21,000 jobs, albeit slower than the first quarter. This slowdown may indicate a deceleration in demand or difficulties businesses face in finding qualified candidates, as highlighted in the Institute for Supply Management's June survey, which reported that some services businesses struggle to find suitable candidates for open positions. In conclusion, the latest employment report reveals a slowdown in job gains in the U.S. economy. However, the labor market conditions remain tight, supported by strong wage growth. While businesses may be experiencing some challenges due to rising borrowing costs, the overall employment situation remains robust. As the Federal Reserve aims to manage inflation, the decision to resume raising interest rates seems imminent. Continued monitoring of these developments will be crucial to understanding the trajectory of the labor market and its impact on the broader economy.

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In the latest economic report, the United States saw its slowest job growth in two and a half years in June. However, despite this decline, the persistently strong wage growth indicates that the labor market conditions remain tight. These factors are likely to influence the Federal Reserve to resume its interest rate hikes later this month. Let's delve into the key highlights of the report.

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Bank of England Poised to Raise Rates to 5.25% as High Infla...

US Job Growth Slows to Lowest in 2-1/2 Years; Labor Market R...

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