Bank of England poised to lift interest rates to 14-year high – business live

The Bank of England faced an ‘acute policy dilemma’ this week, as policymakers weigh up whether (as expected) to hike interest rates today – the 10th rise in a row.

Our economics editor Larry Elliott explains:

On the one hand, the economy is showing signs of weakening. Higher mortgage costs have taken the heat out of the housing market, with the Nationwide building society reporting a fifth monthly fall in property prices. Business failures are rising as tougher financing conditions wipe out “zombie” companies only viable while rates were at ultra-low levels.

The International Monetary Fund said this week the economy would contract by 0.6% this year and the UK would be the only member of the G7 group of leading industrial nations to go backwards. Faced with this scenario in previous years, the Bank would have been cutting interest rates, not raising them.

Yet, after peaking at a 40-year-high of just over 11%, inflation as measured by the consumer prices index has fallen back only slightly and is still above 10%. The Bank’s legally mandated job is to bring inflation back sustainably to its 2% target and the MPC is concerned that if it allows price pressures to become embedded they will be hard to shift.

Larry also point out that “anything other than a half-point increase would be a surprise”, at a time when other leading central banks are raising rates, adding:

Assuming that is the case, attention in the markets will turn to whether an 11th and even a 12th successive rate rise is in prospect.

Here’s the full analysis:

The head of the TUC has described Shell’s $40bn of profits last year as “obscene” and “an insult to working families”.

TUC General Secretary Paul Nowak said the government must beef up its windfall tax, so that energy firms pay ‘their fair share’.

“As households up and down Britain struggle to pay their bills and make ends meet, Shell are enjoying a cash bonanza.

“The time for excuses is over. The government must impose a larger windfall tax on energy companies. Billions are being left on the table.

“Instead of holding down the pay of paramedics, teachers, firefighters and millions of other hard-pressed public servants, ministers should be making Big Oil and Gas pay their fair share.

“There is nothing stopping Rishi Sunak and Jeremy Hunt from making that political choice.”

Trade union Unite is calling for an emergency windfall tax on banks, saying they have enjoyed a profits bonanza from the increase in interest rates last year.

Unite said its research showed that in the first nine months of 2022, leading banks generated £19.8bn of profits.

Higher interest rates boost bank profitability, by increasing the earnings on their cash balances. Since the end of 2021, big banks’ bank net interest income has increased by 37%, the union reports.

Unite general secretary Sharon Graham said:

“It’s time the truth was told. Interest rate rises are putting the fear of death into households across Britain, but we know now that at the same time they are delivering billions in excess profits to the big City banks.

“Our economy is broken. Nothing symbolises that better than the spectacle of politicians demanding pay cuts from nurses whilst doing nothing to get City noses out of the ‘banking-billions’ trough.

“That’s why I am calling for a windfall tax on the excess profits of the big banks. Workers did not create this crisis and they should not be the ones to pay for it.

“It’s time the profiteers and their friends in the city were told profiteering won’t pay and it’s time they paid their fair share.”

Shell makes record $40bn in profits on back of surging gas prices

Alex Lawson

Oil giant Shell has reported record earnings of almost $40bn for 2022 this morning.

The surge in profits caps a tumultuous year – and one that was extremely profitable for oil majors, as Russia’s invasion of Ukraine drove up wholesale energy prices.

My colleague Alex Lawson has the details:

Shell’s annual profits have more than doubled to a record of nearly $40bn (£32.3bn) after a surge in wholesale gas prices linked to the war in Ukraine boosted its performance, as consumers struggled to pay huge energy bills.

The oil and gas company posted profits of $9.81bn in the final quarter of last year, compared with $6.4bn a year earlier. That took annual adjusted profits to $39.87bn, outstripping the $19.3bn notched up in 2021.

Analysts had expected Shell’s chief executive, Wael Sawan, to report adjusted earnings of $7.97bn for the fourth quarter and $38.17bn for the year, in his City debut. It represented an increase on the $9.45bn registered in the third quarter.

Shell shareholders will continue to benefit from the earnings surge: the company has announced a new share buyback scheme, with $4bn to shareholders over the next three months.

Here’s the full story:

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Despite the risk of a looming recession, the Bank of England is expected to raise UK interest rates for the 10th time in a row today as it continues to battle inflation.

Economists predict the BoE will lift Bank Rate by another half a percent, up to 4%, the highest since autumn 2008 – as this chart from last month shows:

UK consumer price inflation eased slightly to 10.7% in November, down from 11.1% in October, offering hopes that price pressures may have peaked.

But last month, the Bank of England’s chief economist warned that high rates of UK inflation could persist for longer than expected.

Huw Pill said:

“The distinctive context that prevails in the UK – of higher natural gas prices with a tight labour market, adverse labour supply developments and goods market bottlenecks – creates the potential for inflation to prove more persistent.”

Those concerns could spur policymakers on the Monetary Policy Committee to keep tightening policy. All nine MPC members get a vote, and their decision is released at noon.

Another interest rate rise would push up borrowing costs for the approximately 2.2 million people on a variable rate mortgage. More than a million households must renew their fixed-rate deals this year, and already face a jump in repayments.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains:

In one hand, the double-digit inflation continues taking a toll on the UK economy and on people’s lives. According to the latest data, food inflation in Britain hit the eye-watering level of 16.7% in the 4 weeks to January 22.

On the other hand, the rising rates take a toll on the British housing market.

Yesterday, Nationwide reported that house prices in the UK fell again in January, sliding for the fifth month in a row.

The Bank will also give its latest assessment of the UK economy. Three months ago, it warned the UK faced a lengthy recession, but it could upgrade its outlook today, as the market chaos following last September’s mini-budget has eased.

The BoE isn’t the only central bank battling inflation, of course. The European Central Bank sets its interest rates today too, and is also expected to raise borrowing costs by 50 basis points, or half a percent.

Last night, America’s Federal Reserve lifted its key rate by a mere quarter-point (25 basis points), and signalled a slowdown in its tightening programme.

Fed chair Jerome Powell said:

“We covered a lot of ground, and the full effects of our rapid tightening so far are yet to be felt. Even so, we have more work to do.”

But, Powell also tried to dampen expectations that the Fed could unwind some of its hefty interest rate increases, cautioning:

“If the economy performs broadly in line with those expectations, it will not be appropriate to cut rates this year.

The agenda

• 7am GMT: Germany’s trade balance for December

• Noon GMT: Bank of England releases interest rate decision, and publishes Monetary Policy Report

• 12.30pm GMT: Bank of England press conference

• 1.15pm GMT: European Central Bank interest rate decision

• 1.30pm GMT: US jobless claims data

• 1.45pm GMT: European Central Bank press conference