Rising home prices and income inequality priced many out of the market, but for strivers who aspired to homeownership, the latest ruptures to the economy hit hard. The release of the new government’s sweeping plan for debt-funded tax cuts led to a big uptick in interest rates this week that roiled the mortgage market. Many homeowners are calculating their potential future mortgage payments with alarm, amid soaring energy and food prices and a general cost-of-living crisis.

Before they were informed they were no longer eligible, the family had been in the final stages of applying for a five-year fixed-rate mortgage on an apartment priced at £519,000, or around $576,000, in the leafy parish of Loughton, a town about 40 minutes north of London by train where the streets fill with students in the afternoon and the properties span from lower-end apartments to million-pound mansions.

according to the Financial Conduct Authority. And more than a third of all mortgages are on fixed rates that expire within the next two years, most likely exposing those borrowers to higher rates, too. By contrast, the vast majority of mortgages in the United States are locked in for 30-year fixed terms.

And the abrupt surge in interest rates could threaten to set off a housing market crisis, analysts at Oxford Economics wrote in a note on Friday, adding that if mortgage rates stayed at the levels now being offered, that would suggest that house prices were around 30 percent overvalued “based on the affordability of mortgage payment.”

“This just adds a significant further strain to finances in the order of hundreds of pounds a month,” said David Sturrock, a senior research economist at the Institute for Fiscal Studies, adding that the squeeze on household budgets will affect the broader economy.

Uncertainty and even panic was clear this week, with many homeowners seeking financial advice. Mortgage brokers said they were receiving a higher volume of inquiries than normal from people stressed about refinancing their loans.

“You can feel the fear in people’s voices,” said Caroline Opie, a mortgage broker working with Ms. Anne who said she had not seen this level of worry in a long time. One couple this week even called her the morning of their wedding, she said, to set an appointment to refinance their mortgage next week.

the war in Ukraine. “Something has got to give,” he said. “Prices are too high anyway.”

To save for the deposit, Mr. Szostek, 37, picked up construction shifts and cleaning jobs when restaurants closed during Covid-19 lockdowns. A £5,000 inheritance from Ms. Anne’s grandfather went into their deposit fund. At a 3.99 percent interest rate, the mortgage repayments were set to be about £2,200 a month.

“I wanted to feel at home for real,” said Ms. Anne, adding she would have been the first in her family to own a property. Mr. Szostek called it “a lifelong dream.”

On Wednesday night, that dream still seemed in reach: The mortgage dealer Ms. Opie had found another loan, which they rushed to apply for.

The higher interest rate — 4.6 percent — will mean their new monthly mortgage payment will be £2,400, the upper limit of what the Szostek family can afford. Still, they felt lucky to secure anything at all, hoping it will mean their promises to their children — of bigger bedrooms, more space, freedom to decorate how they like — will materialize.

They would wait to celebrate, Mr. Szostek said, until they had the keys in hand.

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Bank Of England Raises Rates But Avoids Bolder Hike Like Fed

By Associated Press
September 22, 2022

Surging inflation is a worry for central banks because it saps economic growth by eroding people’s purchasing power.

The Bank of England raised its key interest rate Thursday by another half-percentage point to the highest level in 14 years, but despite facing inflation that outpaces other major economies, it avoided more aggressive hikes made by the U.S. Federal Reserve and other central banks.

It is the Bank of England’s seventh straight move to increase borrowing costs as rising food and energy prices fuel a cost-of-living crisis that is considered the worst in a generation. Despite facing a slumping currency, tight labor market and inflation near its highest level in four decades, officials held off on acting more boldly as they predicted a second consecutive drop in economic output this quarter, an informal definition of recession.

The bank matched its half-point increase last month — the biggest in 27 years — to bring its benchmark rate to 2.25%. The decision was delayed for a week as the United Kingdom mourned Queen Elizabeth II and comes after new Prime Minister Liz Truss’ government unveiled a massive relief package aimed at helping consumers and businesses cope with skyrocketing energy bills.

The new measures have eased uncertainty over energy costs and are “likely to limit significantly further increases” in consumer prices, the bank’s policymakers said. They expected inflation — now at 9.9% — to peak at 11% in October, lower than previously forecast.

“Nevertheless, energy bills will still go up and, combined with the indirect effects of higher energy costs, inflation is expected to remain above 10% over the following few months, before starting to fall back,” the monetary policy committee said.

The bank signaled it is prepared to respond more forcefully at its November meeting if needed. Its decision comes during a busy week for central bank action marked by much more aggressive moves to bring down soaring consumer prices.

The U.S. Federal Reserve hiked rates Wednesday by three-quarters of a point for the third consecutive time and forecast that more large increases were ahead. Also Thursday, the Swiss central bank enacted its biggest-ever hike to its key interest rate.

Three of the British bank’s nine committee members wanted a similar three-quarter-point raise but were outvoted by five who preferred a half-point and one who voted for a quarter-point.

The decision “suggests the Bank of England is concerned about the U.K.’s economic deteriorating outlook amid the looming threat of recession,” said Victoria Scholar, head of investment at interactive investor. “The timid increase will do little to stem the slide in sterling but may avoid inadvertently inducing unnecessary pain for the economy which is already grappling with slowing demand and deteriorating confidence.”

Surging inflation is a worry for central banks because it saps economic growth by eroding people’s purchasing power. Raising interest rates — the traditional tool to combat inflation — reduces demand and therefore prices by making it more expensive to borrow money for big purchases like cars and homes.

Inflation in the United Kingdom hit 9.9% in August, close to its highest level since 1982 and five times higher than the Bank of England’s 2% target. The British pound is at its weakest against the dollar in 37 years, contributing to imported inflation.

To ease the crunch, Truss’ government announced it would cap energy bills for households and businesses that have soared as Russia’s war in Ukraine drives up the price of natural gas needed for heating.

The Treasury is expected to publish a “mini-budget” Friday with more economic stimulus measures, and the bank said it won’t be able to assess how they will affect inflation until its November meeting..

The Bank of England expects gross domestic product to fall by 0.1% in the third quarter, below its August projection of 0.4% growth. That would be a second quarterly decline after official estimates showed output fell by 0.1% in the previous three-month period.

The weakness partly reflects a smaller-than-expected rebound after an extra June holiday to celebrate the queen’s 70 years on the throne and the impact of another public holiday Monday for her funeral, officials said.

The bank avoided pressure to go bigger even as other banks around the world take aggressive action against inflation fueled by the global economy’s recovery from the COVID-19 pandemic and then the war in Ukraine.

This month, Sweden’s central bank raised its key interest rate by a full percentage point, while the European Central Bank delivered its largest-ever rate increase with a three-quarter point hike for the 19 countries that use the euro currency.

But British policymakers signaled they will “respond forcefully, as necessary” if there are signs that inflationary pressure is more persistent than expected, “including from stronger demand.”

The bank said it’s also moving ahead with plans to trim its bond holdings built up under a stimulus program, selling off 80 billion pounds ($90 billion) worth of assets over the next year to bring its portfolio down to 758 billion pounds.

Additional reporting by The Associated Press.

Source: newsy.com

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Federal Reserve Attacks Inflation With Another Big Hike, Expects More

The central bank raised its key short-term rate by a substantial three-quarters of a point for the third consecutive time.

Intensifying its fight against high inflation, the Federal Reserve raised its key interest rate Wednesday by a substantial three-quarters of a point for a third straight time and signaled more large rate hikes to come — an aggressive pace that will heighten the risk of an eventual recession.

The Fed’s move boosted its benchmark short-term rate, which affects many consumer and business loans, to a range of 3% to 3.25%, the highest level since early 2008.

The officials also forecast that they will further raise their benchmark rate to roughly 4.4% by year’s end, a full percentage point higher than they had forecast as recently as June. And they expect to raise the rate further next year, to about 4.6%. That would be the highest level since 2007.

On Wall Street, stock prices fell and bond yields rose in response to the Fed’s projection of further steep rate hikes ahead.

The central bank’s action Wednesday followed a government report last week that showed high costs spreading more broadly through the economy, with price spikes for rents and other services worsening even though some previous drivers of inflation, such as gas prices, have eased. By raising borrowing rates, the Fed makes it costlier to take out a mortgage or an auto or business loan. Consumers and businesses then presumably borrow and spend less, cooling the economy and slowing inflation.

Fed officials have said they’re seeking a “soft landing,” by which they would manage to slow growth enough to tame inflation but not so much as to trigger a recession. Yet economists increasingly say they think the Fed’s steep rate hikes will lead, over time, to job cuts, rising unemployment and a full-blown recession late this year or early next year.

In their updated economic forecasts, the Fed’s policymakers project that economic growth will remain weak for the next few years, with rising unemployment. It expects the jobless rate to reach 4.4% by the end of 2023, up from its current level of 3.7%. Historically, economists say, any time the unemployment rate has risen by a half-point over several months, a recession has always followed.

Fed officials now see the economy expanding just 0.2% this year, sharply lower than its forecast of 1.7% growth just three months ago. And it expects sluggish growth below 2% from 2023 through 2025.

And even with the steep rate hikes the Fed foresees, it still expects core inflation — which excludes the volatile food and gas categories — to be 3.1% at the end of next year, well above its 2% target.

Chair Jerome Powell acknowledged in a speech last month that the Fed’s moves will “bring some pain” to households and businesses. And he added that the central bank’s commitment to bringing inflation back down to its 2% target was “unconditional.”

Falling gas prices have slightly lowered headline inflation, which was a still-painful 8.3% in August compared with a year earlier. Declining gas prices might have contributed to a recent rise in President Joe Biden’s public approval ratings, which Democrats hope will boost their prospects in the November midterm elections.

Short-term rates at a level the Fed is now envisioning would make a recession likelier next year by sharply raising the costs of mortgages, car loans and business loans. The economy hasn’t seen rates as high as the Fed is projecting since before the 2008 financial crisis. Last week, the average fixed mortgage rate topped 6%, its highest point in 14 years. Credit card borrowing costs have reached their highest level since 1996, according to Bankrate.com.

Inflation now appears increasingly fueled by higher wages and by consumers’ steady desire to spend and less by the supply shortages that had bedeviled the economy during the pandemic recession. On Sunday, though, President Biden said on CBS’ “60 Minutes” that he believed a soft landing for the economy was still possible, suggesting that his administration’s recent energy and health care legislation would lower prices for pharmaceuticals and health care.

Some economists are beginning to express concern that the Fed’s rapid rate hikes — the fastest since the early 1980s — will cause more economic damage than necessary to tame inflation. Mike Konczal, an economist at the Roosevelt Institute, noted that the economy is already slowing and that wage increases – a key driver of inflation — are levelling off and by some measures even declining a bit.

Surveys also show that Americans are expecting inflation to ease significantly over the next five years. That is an important trend because inflation expectations can become self-fulfilling: If people expect inflation to ease, some will feel less pressure to accelerate their purchases. Less spending would then help moderate price increases.

Konczal said there is a case to be made for the Fed to slow its rate hikes over the next two meetings.

“Given the cooling that’s coming,” he said, “you don’t want to rush into this.”

The Fed’s rapid rate hikes mirror steps that other major central banks are taking, contributing to concerns about a potential global recession. The European Central Bank last week raised its benchmark rate by three-quarters of a percentage point. The Bank of England, the Reserve Bank of Australia and the Bank of Canada have all carried out hefty rate increases in recent weeks.

And in China, the world’s second-largest economy, growth is already suffering from the government’s repeated COVID lockdowns. If recession sweeps through most large economies, that could derail the U.S. economy, too.

Even at the Fed’s accelerated pace of rate hikes, some economists — and some Fed officials — argue that they have yet to raise rates to a level that would actually restrict borrowing and spending and slow growth.

Many economists sound convinced that widespread layoffs will be necessary to slow rising prices. Research published earlier this month under the auspices of the Brookings Institution concluded that unemployment might have to go as high as 7.5% to get inflation back to the Fed’s 2% target.

Only a downturn that harsh would reduce wage growth and consumer spending enough to cool inflation, according to the research, by Johns Hopkins University economist Laurence Ball and two economists at the International Monetary Fund.

Additional reporting by The Associated Press.

Source: newsy.com

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U.S. Stocks Fall Broadly Ahead Of Key Fed Decision On Rates

By Associated Press
September 20, 2022

More than 90% of stocks and every sector in the benchmark index lost ground as traders wait to see how far the Fed will raise interest rates.

Stocks fell broadly in midday trading on Wall Street Tuesday ahead of a key decision on interest rates by the Federal Reserve.

The S&P 500 index fell 1% as of 11:46 a.m. Eastern. More than 90% of stocks and every sector in the benchmark index lost ground as traders wait to see how far the Fed will raise interest rates at its meeting that ends Wednesday.

The Dow Jones Industrial Average fell 312 points, or 1%, to 30,706 and the Nasdaq fell 0.5%.

U.S. crude oil prices fell 2.1% and weighed down energy stocks. Hess fell 1.7%.

Bond yields edged higher. The yield on the 2-year Treasury, which tends to follow expectations for Fed action, rose to 3.97% from 3.95% late Monday and is hovering around its highest levels since 2007.

The 10-year yield, which influences mortgage rates, rose to 3.57% from 3.52% and is trading at its highest levels since 2011.

Stocks have been slumping and Treasury yields rising as the Fed raises the cost of borrowing money in hopes of slowing down the hottest inflation in four decades. The central bank’s aggressive rate hikes have been making markets jittery, especially as Fed officials assert their determination to keep raising rates until they are sure inflation is coming under control.

Fed Chair Jerome Powell bluntly warned in a speech last month that the rate hikes would “bring some pain.”

“He has done everything he possibly can to signal that it’s going to be another aggressive move,” said Liz Young, head of investment strategy at SoFi. “He’s been clear as a bell about what they’ve been focused on.”

The Fed is expected to raise its key short-term rate by a substantial three-quarters of a point for the third time at its meeting on Wednesday. That would lift its benchmark rate, which affects many consumer and business loans, to a range of 3% to 3.25%, the highest level in 14 years, and up from zero at the start of the year.

Wall Street is worried that the rate hikes could go too far in slowing economic growth and push the economy into a recession. Those concerns have been heightened by data showing that the U.S. economy is already slowing and by companies warning about the impact of inflation and supply chain problems to their operations.

Ford fell 9.6% after slashing its third-quarter earnings forecast because a parts shortage will leave it with as many as 45,000 vehicles unfinished on its lots when the quarter ends Sept. 30. Last week, FedEx and General Electric warned investors about damage to their operations from inflation.

The U.S. isn’t alone in suffering from hot inflation or dealing with the impact of efforts to fight high prices.

Sweden’s central bank on Tuesday raised its key interest rate by a full percentage point to 1.75%, catching almost everyone off guard as it scrambles to bring down inflation that was measured at 9% in August.

Consumer inflation in Japan jumped in August to 3%, its highest level since November 1991 but well below the 8% plus readings in the U.S. and Europe. The Bank of Japan is set to have a two-day monetary policy meeting later this week, although analysts expect the central bank to stick to its easy monetary policy.

Min Joo Kang, senior economist, South Korea and Japan, at ING Economics noted inflation remained relatively low in Japan. Energy prices were rising, but not as much as in the U.S. or some parts of Europe. Housing prices haven’t risen and household income have remained stagnant.

Rate decisions from Norway, Switzerland and the Bank of England are next.

Markets in Europe were mostly lower, while markets in Asia gained ground

Additional reporting by the Associated Press.

Source: newsy.com

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King Charles III, In First Address, Vows ‘Lifelong Service’

King Charles III speech was broadcast on television at St. Paul’s Cathedral, where some 2,000 people were attending a service of remembrance.

King Charles III vowed in his first speech to the nation as monarch Friday to carry on Queen Elizabeth II’s “lifelong service,” as Britain entered a new age under a new sovereign. Around the world, the queen’s exceptional reign was commemorated, celebrated and debated.

Charles, who spent much of his 73 years preparing for the role of king, addressed a nation grieving the only British monarch most people alive today had ever known. He takes the throne in an era of uncertainty for both his country and the monarchy itself.

He spoke of his “profound sorrow” over the death of his mother, calling her an inspiration.

“That promise of lifelong service I renew to all today,” he said in the recorded, 9 1/2-minute address, delivered with a framed photo of the queen on a desk in front of him.

“As the queen herself did with such unswerving devotion, I, too, now solemnly pledge myself, throughout the remaining time God grants me, to uphold the constitutional principles at the heart of our nation,” he said.

The king’s speech was broadcast on television and streamed at St. Paul’s Cathedral, where some 2,000 people attended a service of remembrance for the queen. Mourners at the service included Prime Minister Liz Truss and members of her government.

As the country began a 10-day mourning period, people around the globe gathered at British embassies to pay homage to the queen, who died Thursday at Balmoral Castle in Scotland.

In London and at military sites across the United Kingdom, cannons fired 96 shots in an elaborate, 16-minute salute marking each year of the queen’s life.

In Britain and across its former colonies, the widespread admiration for Elizabeth herself was occasionally mixed with scorn for the institution and the imperial history she symbolized.

On the king’s first full day of duties, Charles left Balmoral and flew to London for a meeting with Truss, appointed by the queen just two days before her death.

He arrived at Buckingham Palace, the monarch’s London home, for the first time as sovereign, emerging from the official state Bentley limousine alongside Camilla, the queen consort, to shouts from the crowd of “Well done, Charlie!” and the singing of the national anthem, now called “God Save the King.” One woman gave him a kiss on the cheek.

Under intense scrutiny and pressure to show he can be both caring and regal, Charles walked slowly past flowers heaped at the palace gates for his mother. The mood was both grieving and celebratory.

The seismic change of monarch comes at a time when many Britons are facing an energy crisis, the soaring cost of living, the war in Ukraine and the fallout from Brexit.

As the second Elizabethan Age came to a close, hundreds of people arrived through the night to grieve together outside the gates of Buckingham Palace and other royal residences, as well as British embassies worldwide. Some came simply to pause and reflect.

Finance worker Giles Cudmore said the queen had “just been a constant through everything, everything good and bad.”

At Holyrood Palace in Edinburgh, mourner April Hamilton stood with her young daughter, struggling to hold back tears.

“It’s just such a momentous change that is going to happen,” she said. “I’m trying to hold it together today.”

Everyday politics was put on hold, with lawmakers paying tribute to the monarch in Parliament over two days, beginning with a special session where Truss called the queen “the nation’s greatest diplomat.”

Senior lawmakers will also take an oath to King Charles III.

Meanwhile, many sporting and cultural events were canceled as a mark of respect, and some businesses — including Selfridges department store and the Legoland amusement park — shut their doors. The Bank of England postponed its meeting by a week.

But while Elizabeth’s death portends a monumental shift for some, day-to-day life in Britain went on in other respects, with children in school and adults at work, facing concerns about inflation.

Charles, who became the monarch immediately upon his mother’s death, will be formally proclaimed king at a special ceremony Saturday. The new king is expected to tour the United Kingdom in the coming days.

The queen’s coffin will be brought to London, where she is expected to lie in state before a funeral at Westminster Abbey, expected around Sept. 19.

Elizabeth was Britain’s longest-reigning monarch and a symbol of constancy in a turbulent era that saw the decline of the British empire and disarray in her scandal-plagued family.

The impact of Elizabeth’s loss will be unpredictable. The public’s abiding affection for the queen had helped sustain support for the monarchy during the family scandals, including the divorce of Prince Charles and Princess Diana, but Charles does not command that kind of popularity.

“Charles can never replace her, you know,” said 31-year-old Londoner Mariam Sherwani.

Like many, she referred to Elizabeth as a grandmother figure. Others compared her to their mothers, or great-grandmothers.

But around the world, her passing revealed conflicting emotions about the nation and institutions she represented.

In Ireland, some soccer fans cheered.

In India, once the “jewel in the crown” of the British empire, entrepreneur Dhiren Singh described his own personal sadness at her death, but added, “I do not think we have any place for kings and queens in today’s world.”

For some, Elizabeth was a queen whose coronation glittered with shards of a stunning 3,106-carat diamond pulled from grim southern African mines, a monarch who inherited an empire they resented.

In the years after she became queen, tens of thousands of ethnic Kikuyu in Kenya were rounded up in camps by British colonizers under threat from the local Mau Mau rebellion. Across the continent, nations rejected British rule and chose independence in her first decade on the throne.

She led a power that at times was criticized as lecturing African nations on democracy but denying many of their citizens the visas to visit Britain and experience it firsthand.

While the global fascination with the British queen is puzzling to some, others felt a personal connection to a woman who seemed ubiquitous, from banknotes used on multiple continents to TV shows like “The Crown” — which is pausing production to honor her.

Adi Trivedi, a 33-year-old British lawyer living in Paris, called Elizabeth “a model of humility, a model of duty, taking the ego out of an office of state.” He hopes to join the mourners at Buckingham Palace soon, so that “we can really celebrate the life of Queen Elizabeth II together.”

Additional reporting by The Associated Press. 

Source: newsy.com

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Liz Truss Set To Become New Prime Minister Of The United Kingdom

By Associated Press

and Newsy Staff
September 5, 2022

Foreign Secretary Liz Truss received 81,326 Conservative Party votes, beating former Treasury chief Rishi Sunak, who received 60,399 votes.

Britain’s Conservative Party has chosen Foreign Secretary Liz Truss as the party’s new leader, putting her in line to be confirmed as prime minister.

Truss’s selection was announced Monday in London after a leadership election in which only the 180,000 dues-paying members of the Conservative Party were allowed to vote. Truss beat rival Rishi Sunak, the government’s former Treasury chief, by promising to increase defense spending and cut taxes, while refusing to say how she would address the cost-of-living crisis.

Truss received 81,326 votes to Sunak’s 60,399.

Queen Elizabeth II is scheduled to formally name Truss as Britain’s prime minister on Tuesday. The ceremony will take place at the queen’s Balmoral estate in Scotland, where the monarch is vacationing, rather than at Buckingham Palace.

The two-month leadership contest left Britain with a power vacuum at a time when consumers, workers and businesses were demanding government action to mitigate the impact of soaring food and energy prices. Prime Minister Boris Johnson has had no authority to make major policy decisions since July 7, when he announced his intention to resign.

With household energy bills set to increase by 80% next month, charities warn that as many as 1 in 3 households will face fuel poverty this winter, leaving millions of people to choose between eating and heating their homes. The Bank of England has forecast that inflation will reach a 42-year high of 13.3% in October, threatening to push Britain into a prolonged recession.

Johnson was forced to resign after a series of ethics scandals that peaked in July when dozens of cabinet ministers and lower level officials resigned over his handling of allegations of sexual misconduct by a senior member of his government.

Under Britain’s parliamentary system of government, the center-right Conservative Party was allowed to hold an internal election to select a new party leader and prime minister, without going to the wider electorate. A new general election isn’t required until December 2024.

Additional reporting by The Associated Press.

Source: newsy.com

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Pipes at the landfall facilities of the ‘Nord Stream 1’ gas pipeline are pictured in Lubmin, Germany, March 8, 2022. REUTERS/Hannibal Hanschke/File Photo

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A look at the day ahead in European and global markets from Tom Westbrook

As far as first days go, Monday is shaping as a doozy for Britain’s new Prime Minster. read more

That’s widely expected to be Liz Truss, who’d begin as leader with gas prices poised to fly after Russia cancelled the weekend’s resumption of gas flow down the Nord Stream pipe.

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Gazprom blamed an oil leak at a compressor station near where the pipeline plunges into the Baltic Sea, though Germany’s network regulator and turbine supplier Siemens said a leak was no technical reason for cutting flows. read more

The result is worst-case scenarios for Europe’s growth edging closer to reality.

The pound is within striking distance of its lowest levels since 1985. The euro is testing a fall below 99 cents for the fist time since the early 2000s, with outsized moves possible since a U.S. holiday will thin liquidity.

The latest storage figures show German facilities have already hit October’s 85% capacity target. But that achievement has required cuts to consumption so deep that they are unsustainable without damage to growth.

And the autumn has barely begun, so a lean season awaits.

Focus on Monday, apart from the appointment of Britain’s next leader, is likely to be on the fallout from the gas cut, which is already drawing emergency subsidies and liquidity guarantees in Germany and Baltic states. read more

Later in the week, the European Central Bank meets with markets pricing about a 75% chance of a 75 basis point rate hike.

Reuters Graphics

Key developments that could influence markets on Monday:

Economics: Final Europe and UK PMIs, euro zone retail sales

Speakers: Bank of England’s Catherine Mann

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Reporting by Tom Westbrook
Editing by Vidya Ranganathan & Shri Navaratnam

Our Standards: The Thomson Reuters Trust Principles.

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U.K. Energy Price Cap to Rise 80%, Regulator Says

Energy prices paid by most British households are set to rise 80 percent this fall, putting further pressure on consumers squeezed by higher prices and posing a daunting challenge for the next prime minister.

A big jump in energy bills had been forecast for weeks, but the specific numbers released Friday morning by Britain’s energy regulator — a typical British household would pay 3,549 pounds (about $4,200) over a year for electricity and natural gas, from the current £1,971 — hit like a thunderclap in a country already reeling from double-digit inflation.

It is the latest economic blow to European consumers and businesses as the war in Ukraine stretches already tight markets for energy.

54 percent rise in April.

The news of the price increases came during a moment of deep political drift in Britain, with Prime Minister Boris Johnson preparing to leave office and his Conservative Party preoccupied by a contest to replace him. Mr. Johnson has left it for his successor to craft a response to the skyrocketing energy costs.

The front-runner to replace Mr. Johnson, Liz Truss, has promised targeted aid to help those hardest hit by higher bills, though she has steadfastly refused to detail her plans. She and her opponent, Rishi Sunak, both reject more sweeping measures, like using state subsidies to freeze the energy price cap for two years.

Consumer prices in Britain rose 10.1 percent last month from a year earlier, the fastest pace in 40 years, squeezing household budgets. The Bank of England has predicted that inflation would peak at 13 percent in October as the new energy prices turn up in household bills. Other estimates are higher; analysts at Citi have said the rate could reach as high as 18 percent next year.

“The pressure on stretched households will only intensify, and the calls for support will get ever louder,” wrote Martin Young, a utility analyst at Investec, a financial services firm, in a recent note to clients. Mr. Young expects another jump, to £4,210, in January.

The price hikes and how to deal with them have become a hot subject of political discourse in Britain and across Europe. While the British government has offered a package that includes £400 per household to help residents with soaring bills, a wide range of politicians, consumer advocates and energy executives now say that more forceful intervention is needed to cushion households from the surge in energy costs.

Recently, Britain’s opposition Labour Party said that it would freeze energy tariffs where they are now, paying part of the £29 billion cost by increasing the so-called windfall taxes that the Conservative government imposed earlier this year on oil and gas giants operating in the North Sea.

The main component in Ofgem’s calculations was a more than doubling of wholesale electricity and natural gas costs. These account for about 70 percent of the new price cap.

Coping with increases of such magnitude is beyond the scope of Ofgem, whose role is to protect consumers from profiteering by suppliers, Mr. Brearley said. “The truth is this is beyond the capacity of the industry and the regulator to address,” he added.

Looking to the race for the next prime minister, Mr. Brearley called on the winning candidate to intervene decisively in the energy markets.

“What I am clear about is the prime minister with his or her ministerial team will need to act urgently and decisively to address this,” he said. “The outlook for the winter without any action looks very difficult indeed.”

The leadership contest has been dominated by Ms. Truss’s promise to cut taxes, which is popular with the rank-and-file Conservative Party members who will vote for the next prime minister. But economists say it will do little to protect the most vulnerable people from the ravages of soaring energy bills.

With another hefty price increase looming in October, the public outcry over energy costs is likely to haunt the next prime minister. Unless the government develops an effective response, some analysts said, the issue could cripple the government and tilt the next election to the Labour Party.

The peculiar nature of Britain’s price cap system, analysts said, also amplifies the sticker shock from rising increases.

“We have a sort of worst-of-both-worlds system,” said Jonathan Portes, a professor of a professor of economics and public policy at Kings College London. “Household prices are related to the spot market, and we sort of save up price increases and dump them on households all at once.”

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Stocks Slip On Wall Street, Erasing Weekly Gains For S&P 500

By Associated Press

and Newsy Staff
August 17, 2022

Pricey technology companies and retailers had some of the biggest losses. Utilities and energy stocks held up better than the broader market.

Stocks are moving broadly lower on Wall Street in afternoon trading Wednesday, led by drops in big technology companies and erasing the S&P 500’s gains for the week.

The S&P 500 fell 0.6% as of 2:07 p.m. Eastern. Trading has been choppy throughout the week as the benchmark index comes off a four-week winning streak.

The Dow Jones Industrial Average fell 124 points, or 0.4%, to 34,025 and the Nasdaq fell 1.1%.

Small-company stocks fell more sharply than the rest of the market. The Russell 2000 fell 1.6%.

Pricey technology companies and retailers had some of the biggest losses. Utilities and energy stocks held up better than the broader market.

Wall Street was absorbing a mix of retail updates that showed inflation pressure continues to affect businesses and consumers, but also shows that spending remains strong.

Target fell 2.3% after reporting a nearly 90% plunge in second quarter profits as it was forced to slash prices to clear unwanted inventories. The retailer warned earlier this summer that it was canceling orders from suppliers and aggressively cutting prices because of a pronounced spending shift by Americans as the pandemic eased.

Children’s clothing and accessories chain Children’s Place fell 12.4% after reporting a surprise second-quarter loss as it faced supply chain problems and pressure from inflation.

Bond yields rose significantly. The yield on the 10-year Treasury rose to 2.89% from 2.81% late Tuesday.

Sales at U.S. retailers were unchanged last month, according to the Commerce Department, and economists had expected a slight increase in July. Part of the weakness came from a 1.8% drop in gas sales, reflecting lower prices at the pump.

Wall Street has been closely reviewing the latest economic data and corporate updates to get a better sense of how inflation is affecting businesses and consumers and whether the hottest inflation in 40 years is peaking or beginning to cool. Investors are also monitoring inflation to determine how much further central banks have to go in their fight against higher prices.

Britain’s inflation rate rose to a new 40-year high of 10.1% in July, a faster pace than in the U.S. and Europe as climbing food prices in the United Kingdom tightened a cost-of-living squeeze fueled by the soaring cost of energy. Inflation pressures prompted the Bank of England to boost its key interest rate by half a percentage point this month, the biggest of six consecutive increases since December.

The Federal Reserve has been raising interest rates in order to slow the economy and temper inflation, but investors remain concerned that it could hit the brakes too hard and send the economy into a recession. The Fed in July raised its benchmark interest rate by three-quarters of a point for a second-straight time. Wall Street will get more details on the process behind that decision when the Fed releases minutes from that meeting later Wednesday.

Additional reporting by The Associated Press.

Source: newsy.com

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Inflation Hits Record 8.9% In Countries Using The Euro

Energy prices in the eurozone surged by 39.7% this month, while prices for food, alcohol and tobacco rose by 9.8%.

Inflation in the European countries using the euro currency shot up to another record in July, pushed by higher energy prices fueled by Russia’s war in Ukraine, but the economy managed better-than-expected, if meager, growth in the second quarter.

Annual inflation in the eurozone’s 19 countries rose to 8.9% in July, an increase from 8.6% in June, according to numbers published Friday by the European Union statistics agency.

For months, inflation has been running at its highest levels since 1997, when record-keeping for the euro began, leading the European Central Bank to raise interest rates last week for the first time in 11 years to tamp down prices.

The euro-area economy managed to expand by 0.7% from April through July over the previous quarter, contrasting with the contraction in the United States, where fears are growing of a recession. The outlook is just as gloomy for Europe.

Analysts say the economic growth tied to a rebound in tourism could be the last glimmer of upbeat news, with inflation, rising interest rates and a worsening energy crisis fueled by the war expected to push the euro area into recession later this year.

“This is as likely to be as good as it will get for the eurozone for the foreseeable future,” Andrew Kenningham, chief Europe economist for Capital Economics, wrote in an analyst note.

Growth already has stagnated in Germany, Europe’s traditional economic engine, after being hit with a series of cuts in Russian natural gas used for industry. France avoided fears of a recession by posting modest 0.5% growth in the second quarter, while Italy and Spain exceeded expectations with 1% and 1.1% expansions, respectively.

Energy prices, meanwhile, surged in the eurozone by 39.7% this month, only slightly lower than June due to gas supply concerns. Prices for food, alcohol and tobacco rose by 9.8%, faster than the increase posted last month because of higher transport costs, shortages and uncertainty around Ukrainian supply.

“Another ugly inflation reading for July,” said Bert Colijn, senior eurozone economist for ING bank, adding that there was “no imminent sign of relief.”

The U.S. is also facing high inflation, clocking in at 40-year highs, but unlike Europe, has already seen its economy shrink for two straight quarters. At the same time, the job market is stronger than before the COVID-19 pandemic, and most economists, including Federal Reserve Chair Jerome Powell, have said they don’t think the economy is in recession.

Many, however, increasingly expect an economic downturn in the U.S. to begin later this year or next, much like in Europe.

Europe’s risk is largely tied to its reliance on Russian energy, with Moscow throttling down flows of natural gas that power factories, generate electricity and heat homes in the winter.

More reductions this week through a major pipeline to Germany, Nord Stream 1, have heightened fears that the Kremlin may cut off supplies completely. That would force rationing for energy-intensive industries and spike already record-high levels of inflation driven by soaring energy prices, threatening to plunge the 27-nation bloc into recession.

While European Union governments approved a measure this week to reduce gas use by 15% and have passed tax cuts and subsidies to ease a cost-of-living crisis, Europe is at the mercy of Russia and the weather.

A cold winter, when natural gas demand soars, could draw down storage levels that governments are now scrambling to fill but has been made infinitely harder by Russia’s cuts.

While the European Central Bank has begun raising rates to cool inflation and expects another bump in September, it had trailed other central banks like the Fed and the Bank of England in making credit more expensive, fearing the outsize impact of soaring energy prices tied to the war.

Additional reporting by The Associated Press.

Source: newsy.com

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