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Bank of England Says Smooth Brexit Could Mean Faster Rate Increases

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  • Bank of England Says Smooth Brexit Could Mean Faster Rate Increases

The Bank of England said it may need to raise interest rates faster than the market suggests, assuming that Brexit goes well.

While it didn’t say what deal would be best for the U.K., its latest forecasts are based on the assumption that the adjustment to a new relationship with the European Union is “‘smooth.” That means avoiding the so-called cliff edge where the U.K. leaves after the two-year negotiation period without transitional arrangements in place.

If the economy grows as expected, “then monetary policy will need to be tightened by a somewhat greater extent over the forecast period than the very gently rising path implied by the market yield curve underlying the May projections,” the Monetary Policy Committee said on Thursday in London.

Click here to set a reminder to watch Mark Carney’s press conference from 12:30 p.m. London time

It made the assessment alongside its latest policy decision and updated economic forecasts. The panel kept the benchmark interest rate at a record-low 0.25 percent, though Kristin Forbes dissented again, voting for an immediate increase. Others on the committee said it may not take much upside news for them to switch to her position.

In a quarterly update, officials cut their forecast for growth this year to 1.9 percent from 2 percent, though they raised it for the following two years and said expansion will remain around trend over the period.

Growth slowed to 0.3 percent in the first quarter, the weakest in a year, though the bank expects the figure to be revised up to 0.4 percent. Forbes said the initial reading exaggerated the extent of the slowdown.

Reflecting the weaker pound, the MPC lifted its 2017 inflation projection to 2.7 percent from 2.4 percent, meaning a bigger overshoot of its 2 percent target. The bank sees a slightly weaker path further out but expects inflation to be accelerating again at the end of the three-year forecast period. It also warned that domestic price pressures could be building at that time.

The pound fell against the dollar after the release of the Inflation Report and was at $1.2889 as of 12:20 p.m. London time, down 0.4 percent on the day.

“The medium-term inflation forecast is lower and that’s why markets have taken it as dovish,” Alan Clarke, an economist at Scotiabank in London, said by telephone. “All in all, it signals they’re moving no time fast.”

In addition to the crucial Brexit assumption, the latest forecasts are based on a rate increase not being fully priced in until the end of 2019. In February, the curve had priced in a hike by the first quarter of that year.

While inflation is set to reach 2.8 percent by the end of 2017, the BOE is balancing its price concerns against the threats from Brexit and weak wage growth.

It expects almost no increase in real incomes this year and sluggish consumer spending, though that will be offset by investment and exports. Wages will pick up in 2018 and 2019 as unemployment falls and the output gap closes, which will increase domestic price pressures.

The insights from the Inflation Report are the first in weeks. The snap general election called by Prime Minister Theresa May put policy makers into purdah from the middle of last month.

The MPC was short one member at this decision after Charlotte Hogg left the bank. She resigned after failing to disclose a potential conflict of interest.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Communities in Delta State Shut OML30 Operates by Heritage Energy Operational Services Ltd

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The OML30 operated by Heritage Energy Operational Services Limited in Delta State has been shut down by the host communities for failing to meet its obligations to the 112 host communities.

The host communities, led by its Management Committee/President Generals, had accused the company of gross indifference and failure in its obligations to the host communities despite several meetings and calls to ensure a peaceful resolution.

The station with a production capacity of 80,000 barrels per day and eight flow stations operates within the Ughelli area of Delta State.

The host communities specifically accused HEOSL of failure to pay the GMOU fund for the last two years despite mediation by the Delta State Government on May 18, 2020.

Also, the host communities accused HEOSL of ‘total stoppage of scholarship award and payment to host communities since 2016’.

The Chairman, Dr Harrison Oboghor and Secretary, Mr Ibuje Joseph that led the OML30 host communities explained to journalists on Monday that the host communities had resolved not to backpedal until all their demands were met.

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Crude Oil Recovers from 4 Percent Decline as Joe Biden Wins

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Oil Prices Recover from 4 Percent Decline as Joe Biden Wins

Crude oil prices rose with other financial markets on Monday following a 4 percent decline on Friday.

This was after Joe Biden, the former Vice-President and now the President-elect won the race to the White House.

Global benchmark oil, Brent crude oil, gained $1.06 or 2.7 percent to $40.51 per barrel on Monday while the U.S West Texas Intermediate crude oil gained $1.07 or 2.9 percent to $38.21 per barrel.

On Friday, Brent crude oil declined by 4 percent as global uncertainty surged amid unclear US election and a series of negative comments from President Trump. However, on Saturday when it became clear that Joe Biden has won, global financial markets rebounded in anticipation of additional stimulus given Biden’s position on economic growth and recovery.

Trading this morning has a risk-on flavor, reflecting increasing confidence that Joe Biden will occupy the White House, but the Republican Party will retain control of the Senate,” Michael McCarthy, chief market strategist at CMC Markets in Sydney.

“The outcome is ideal from a market point of view. Neither party controls the Congress, so both trade wars and higher taxes are largely off the agenda.”

The president-elect and his team are now working on mitigating the risk of COVID-19, grow the world’s largest economy by protecting small businesses and the middle class that is the backbone of the American economy.

There will be some repercussions further down the road,” said OCBC’s economist Howie Lee, raising the possibility of lockdowns in the United States under Biden.

“Either you’re crimping energy demand or consumption behavior.”

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Nigeria, Other OPEC Members Oil Revenue to Hit 18 Year Low in 2020

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Revenue of OPEC Members to Drop to 18 Year Low in 2020

The United States Energy Information Administration (EIA) has predicted that the oil revenue of members of the Organisation of the Petroleum Exporting Countries (OPEC) will decline to 18-year low in 2020.

EIA said their combined oil export revenue will plunge to its lowest level since 2002. It proceeded to put a value to the projection by saying members of the oil cartel would earn around $323 billion in net oil export in 2020.

If realised, this forecast revenue would be the lowest in 18 years. Lower crude oil prices and lower export volumes drive this expected decrease in export revenues,” it said.

The oil expert based its projection on weak global oil demand and low oil prices because of COVID-19.

It said this coupled with production cuts by OPEC members in recent months will impact net revenue of the cartel in 2020.

It said, “OPEC earned an estimated $595bn in net oil export revenues in 2019, less than half of the estimated record high of $1.2tn, which was earned in 2012.

“Continued declines in revenue in 2020 could be detrimental to member countries’ fiscal budgets, which rely heavily on revenues from oil sales to import goods, fund social programmes, and support public services.”

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