Bank of England’s Swati Dhingra calls for interest rates to be held steady
Bank of England policymaker Swati Dhingra has called for UK interest rates to be kept on hold, warning that another increase in borrowing costs could damage the economy.
Speaking at the Resolution Foundation this morning, Dr Dhingra argues that there is little sign that the inflation shock from higher energy and imported good prices is becoming embedded in wages and margins.
She says:
Even after a year and a half of above-target inflation, there is little evidence for such cost-push inflation beyond what might be expected following an unprecedented terms of trade shock. Consumption remains weak and many of the tightening effects of monetary policy are yet to fully take hold.
Dhingra, a member of the Bank’s Monetary Policy Committee, opposed last month’s increase in interest rates from 3.5% to 4%, but she and fellow dove Silvana Tenreyro were outvoted by the other seven members.
The Bank is next scheduled to set interest rates on 23 March.
She fears that the Bank could “overtighten” policy. Increased borrowing costs could hurt the supply capacity of the UK at a time when the economy is weak, and households are struggling with high energy and housing costs, she says.
Instead, Dhingra argues, it would be ‘prudent’ to leave interest rates on hold (although, as flagged at 9.51am, the markets expect another rise to 4.25%).
She explains that raising borrowing costs too high risks driving inflation below the Bank’s 2% target in the future:
Recent research indicates the persistent scarring effects of deep contractions associated with monetary policy tightening and energy market disruptions, indicating the harmful consequences of overtightening.
Such an approach would increase the downside risks of missing the inflation target in the medium term. In my view, a prudent strategy would hold policy steady amidst growing signs external price pressures are easing, and be prepared to respond to developments in price evolution.
This would avoid overtightening and return the economy sustainably to our 2% inflation target in the medium-term.
Dhingra’s comments are a reminder of the split on the Monetary Policy Committee. Yesterday, the hawkish Catherine Mann said she was worried that UK companies could be exploiting the cost of living crisis to push through inflation-busting price increases.
Key events
US job openings dip to 10.8m
There are still more than 10 million unfilled job vacancies in the US, new figures show.
The closely watched JOLTS report, just released, shows that the number of job openings decreased to 10.8 million on the last business day of January.
That’s a drop of 410,000 during the month, down from over 11 million at the end of December, but still extremely high by historic standards.
The US department of labour reports that the largest decreases in job openings in January were in construction (-240,000), accommodation and food services (-204,000), and finance and insurance (-100,000).
The number of job openings increased in transportation, warehousing, and utilities (+94,000) and in nondurable goods manufacturing (+50,000).
Directionally, today’s #JOLTS report is consistent with a cooling labor market.
– Job openings declined slightly to a still sky-high 10.8 million
– Quits declined slightly to 3.9 million
– Layoffs increased to 1.7 million
– Hires remained strong at 6.4 million— Julia Pollak (@juliaonjobs) March 8, 2023
US investigates Tesla for steering wheels that can fall off
U.S. auto safety regulators have opened an investigation into Tesla’s Model Y SUV after getting two complaints that the steering wheels can come off while being driven, Associated Press report.
The National Highway Traffic Safety Administration says the probe covers an estimated 120,000 vehicles from the 2023 model year.
The agency says in both cases the Model Ys were delivered to customers with a missing bolt that holds the wheel to the steering column. A friction fit held the steering wheels on, but they separated when force was exerted while the SUVs were being driven.
The agency says in documents posted on its website Wednesday that both incidents happened while the SUVs had low mileage on them.
Messages were left seeking comment from Tesla, which has disbanded its media relations department.
In one complaint filed with NHTSA, an owner said he was driving with his family on Route 1 in Woodbridge, New Jersey, when the steering wheel suddenly came off on Jan. 29, five days after the vehicle was purchased. The owner wrote that there were no cars behind him, and he was able to pull toward the road divider. There were no injuries.
RMT to hold referendum on Network Rail offer
Gwyn Topham
The RMT union has said members will vote in a referendum over the next 12 days on the revised pay offer from Network Rail, in a move that could signal the end to the most damaging rail strikes, my colleague Gwyn Topham reports.
The union last night called off a 24-hour strike at Network Rail planned for next Thursday 16 March, which would have included thousands of signallers, critical for allowing the railway to run.
Four 24-hour strikes by RMT members at 14 train operators are still scheduled, but in most parts of Britain the action will have far less impact than a Network Rail strike.
RMT general secretary Mick Lynch said:
“Network Rail have made a new and improved offer and now our members will decide whether to accept it.
“We will continue our campaign for a negotiated settlement on all aspects of the railway dispute.”
Network Rail bosses have been confident that a referendum on the new offer will swing in favour of acceptance, after a substantial minority voted to accept a similar deal in a ballot before Christmas.
The union said it would not make a recommendation, after last time asking members to reject the offer. Voting in the referendum will start tomorrow 9 March, until midday on 20 March.
Although the overall headline pay increase, of 5% backdated to January 2022 and 4% from January 2023, has not changed, some revisions and more work explaining the pros and cons of new contracts was expected to bring sections of the workforce on board.
The RMT said the offer would raise overall earnings by over 15% for more than half the members, at the lower end of the pay scale, including increased backpay.
The deal is likely to still prove divisive, with many staff apparently angry at the lack of progress on pay, while others appear unwilling to continue strikes.
Train operators have urged the union to now put their offer to its members.
A Rail Delivery Group spokesperson welcomed the news of the RMT referendum, but added:
“Train operating staff will rightly be asking why their union continues to deny them the opportunity to have their say on our equivalent offer.
“Instead of inflicting more lost pay on its members and disruption to our passengers, we are calling on the union to call off their strikes and meet us for urgent talks to resolve this dispute.”
RMT members at train companies are due to go on strike on 16, 18 and 30 March and 1 April.
Government and industry figures are expressing optimism over a breakthrough to end the RMT’s long-running national rail strikes, after the union called off some of its industrial action last night.
The RMT’s decision to put a revised pay offer from Network Rail to members surprised some senior industry executives, the Financial Times reports.
One senior minister has told the FT that the union’s shift could signal an end to months of on-off strikes that started last summer, especially as inflation is forecast to fall from its highest level in decades this year.
The minister argued:
“It’s one thing to be making these big pay claims when inflation is in double digits, but experts now think it will fall to 5 per cent in the summer, then 3 per cent by the autumn and if that happens then you’d expect less public sympathy for the unions’ position.
“The union leaders know that which is why I think there will be pressure to settle soon.”
This morning’s news that GDP growth in the eurozone was revised down from 0.1% to 0% in the fourth quarter of 2022 is a concern, warns Bert Colijn, senior eurozone economist at ING.
Colijn says:
Poor household consumption and investment data show that underlying developments are weaker than expected, adding concern about eurozone economic performance.
US private payrolls beat forecasts in February
Just in: US companies hired more staff than expected last month, according to data from payrolls operator ADP.
ADP has reported that US private employers added 242,000 jobs in February, up from the 106,000 which it recorded in January.
Economist had expected a smaller rise, to around 200,000 new jobs.
ADP reports that job gains were solid last month, while wage growth remained elevated – up 7.2% over the year. Good for workers, but not what the Federal Reserve wants to hear….
Nela Richardson, ADP’s chief economist, says:
We’re seeing robust hiring, which is good for the economy and workers, but pay growth remains quite elevated. The modest slowdown in pay increases, on its own, is unlikely to drive down inflation rapidly in the near-term.
Leisure and hospitality led job growth with 83,000 additions. Financial activities added 62,000 while manufacturing showed a 43,000 gain.
This could be a sign that the official US jobs report, due on Friday, will be stronger than expected.
Although, that Non-Farm Payroll often doesn’t match up with ADP’s payroll work. In January, for example, the NFP smashed forecasts with over half a million new jobs, while ADP had only reported 106,000.
ADP employment report smashes past expectations (forecast was 205,000).
ADP was notably pessimistic last month when NFP went over 500k too.
We’ll see what claims tomorrow & NFP on Friday say — but Federal real-time employment taxes are saying labor mkt is still hot. pic.twitter.com/pw7tNDbY8m— Bill (@wabuffo) March 8, 2023
Darktrace warns of rise in AI-enhanced scams since ChatGPT release
Mark Sweney
The cybersecurity firm Darktrace has warned that since the release of ChatGPT it has seen an increase in criminals using artificial intelligence to create more sophisticated scams to con employees and hack into businesses.
The Cambridge-based company, which reported a 92% drop in operating profits in the half year to the end of December, said AI was further enabling “hacktivist” cyber-attacks using ransomware to extort money from businesses.
The company said it had seen the emergence of more convincing and complex scams by hackers since the launch of the hugely popular Microsoft-backed AI tool ChatGPT last November.
“Darktrace has found that while the number of email attacks across its own customer base remained steady since ChatGPT’s release, those that rely on tricking victims into clicking malicious links have declined while linguistic complexity, including text volume, punctuation and sentence length among others, have increased,” the company said.
“This indicates that cybercriminals may be redirecting their focus to crafting more sophisticated social engineering scams that exploit user trust.”
However, Darktrace said that the phenomenon had not yet resulted in a new wave of cybercriminals emerging, merely changing the tactics of the existing cohort.
More here:
Ericsson CEO’s pay cut by 18% amid scandals
Ericsson chief executive officer Borje Ekholm received an 18% pay cut in 2022, after a string of corruption scandals at the Swedish telecommunications company.
Ericsson’s annual report, released today, shows that Ekholm’s total remuneration dropped to 53.18m Swedish krona for 2022 (£4.18m), down from 64.96m SEK (£5.1m) in 2021.
Although Ekholm’s fixed pay rose, his variable pay dropped due to the fall in Ericsson’s share price last year.
Concerns over Ericsson’s corporate governance weighed heavily on investor sentiment in 2022, a year in which confidential documents revealed how Ericsson was alleged to have helped pay bribes to the Islamic State terrorist group, to keep selling its services after the militants seized control of large parts of Iraq.
The US Department of Justice has accused Ericsson of using third-party agents and consultants to make bribe payments to government officials and to manage “off-the-books slush funds” in Djibouti, China, Vietnam, Indonesia, and Kuwait.
The company agreed a Deferred Prosecution Agreement (DPA) in 2019. But last week, Ericsson agreed to pay a $206m penalty to US authorities for breaching this DPA, by failing to disclose evidence. It also pleaded guilty to engaging in a long-running scheme to violate the Foreign Corrupt Practices Act (FCPA) by paying bribes, falsifying books and records.
Russia lashes out at the WTO for ‘illegal’ trade curbs
Russia’s ambassador to the World Trade Organization is accusing Europe, the US and others of “blatantly” disregarding international trade rules.
During a WTO general council meeting in Geneva this week, Dmitry Lyakishev bemoaned the coalition’s “illegal and unjustified” restrictions on Russia, according to a copy of his speech obtained by Bloomberg.
Lyakishev added that the crackdown has caused…
“enormous and irreparable damage to the global economy by provoking and aggravating global economic, energy and food crises.”
More here:
Fiscal data yesterday showed that Russia’s budget deficit jumped in the first two months of the year to $34bn (£29bn). Government spending was pushed up by the Ukraine war, while energy revenues fell following the imposition of a price cap by the EU and the G7.
Sky News: BMW close to finalising £500m plan to secure Mini production in Britain
BMW, the German car manufacturer, is close to finalising plans to invest hundreds of millions of pounds into its Oxford plant, Sky News are reporting.
This would secure future production of the iconic Mini in Britain, at the Cowley car plant.
Sky News reports that BMW hopes to announce its decision later in the spring, with one industry insider saying on Wednesday that it was expected to be unveiled in several weeks’ time.
If confirmed, the investment package – which is thought to be worth close to £500m – would deliver a major boost to Britain’s car industry.
Exclusive: BMW, the German car manufacturer, is close to finalising plans to invest close to £500m at its Mini plant at Cowley, Oxfordshire, guaranteeing future production there of the iconic vehicles. The funding will include £75m of government money. https://t.co/kbTcZTscdA
— Mark Kleinman (@MarkKleinmanSky) March 8, 2023
One source confirmed that roughly £75m of the funding would be from the government’s Automotive Transformation Fund, having been signed off by the chancellor, Jeremy Hunt.
Martin Lewis backs ‘social tariff’ that could cut energy bills by up to £1,500
Alex Lawson
Charities and the consumer champion Martin Lewis have ramped up pressure on the government to implement a “social tariff” for energy, which new research estimates could save 12m households on the lowest incomes up to £1,500.
Citizens Advice and Lewis have backed a push to introduce a special tariff for those struggling to pay gas and electricity bills by next year, while energy suppliers have said they are “ready” to work up the proposals.
The energy crisis, exacerbated by the war in Ukraine, has sharply increased household costs, leading to calls for a revamp of gas and electricity billing. The prepayment meter scandal has added further urgency to the push for support for struggling households.
The government and regulator Ofgem are examining how a social tariff, designed to protect low-income households from energy price increases, could be constructed and funded.
A major report by Citizens Advice and the thinktanks Public First and the Social Market Foundation said a tariff could be constructed that identifies consumers with high energy use relative to their household income, using a combination of data from HMRC and energy suppliers.
The authors argue such a tariff should extend beyond just consumers on means-tested benefits. It could be paid through a lump-sum government cash payment taken directly off bills based on a set formula, they said.
More here:
The Office for National Statistics have released a new report on the impact of strikes on the UK economy since last June.
It shows that December saw the highest recorded monthly total of strike days since November 2011, although the total was much lower than in the 1970s and 1980s.
It also shows that:
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In total, 2.472 million working days were lost between June and December 2022; of these, over three-quarters (79%) came from workers in transport, storage, information and communication.
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There was evidence that rail strikes led to displacement of card spending towards buses and taxis as consumers changed their behaviour to mitigate the impact of strikes; in store transactions at Pret A Manger stores located in stations fell on most strike days.
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Nearly 1 in 5 people reported having their travel plans disrupted by rail strikes that occurred in December 2022 and early January 2023, however fewer than 1 in 10 of those disrupted were unable to work.
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Over half of parents reported that they would be affected if schools closed because of strikes, with 31% saying they would have to work fewer hours and 28% saying that they would not be able to work.
The ONS has also released an interactive map today showing how monthly mortgage repayments costs have risen across the country, as interest rates have increased. It’s online here.
Purchasing the avg detached UK property over 25ys at a 75% loan-to-value in Dec 2022 would have resulted in a monthly mortgage repayment of £2,041 (up by 60.7% on Dec 2021). For terraced houses, £1,063 (up by 59.6%). For flats & maisonettes, £1,028 (up by 54.6%) @ONS pic.twitter.com/cZoOYh1pcB
— Emma Fildes (@emmafildes) March 8, 2023
The International Air Transport Association (IATA) has announced that the recovery in air travel demand is continuing in 2023, after China relaxed Covid restrictions.
Statistics for January show that total traffic in January 2023 (measured in revenue passenger kilometers or RPKs) rose 67.0% compared to January 2022.
Globally, traffic is now at 84.2% of January 2019 levels.
Domestic traffic for January 2023 rose 32.7% year-on-year, which IATA says was helped by the lifting of the zero-COVID policy in China. Total January 2023 domestic traffic was at 97.4% of the January 2019 level.
International traffic climbed 104.0% versus January 2022, led by carriers in the Asia-Pacific region, but was 77% of January 2019 levels.
Willie Walsh, IATA’s Director General says air travel demand got off to “a very healthy start in 2023”.
Walsh adds:
The rapid removal of COVID-19 restrictions for Chinese domestic and international travel bodes well for the continued strong industry recovery from the pandemic throughout the year.
And, importantly, we have not seen the many economic and geopolitical uncertainties of the day dampening demand for travel.
The eurozone economy flatlined in the fourth quarter of last year, new downgraded data shows.
Statistics body Eurostat has downgraded its estimate for eurozone GDP in October-December 2022, to show that the economy stagnated – matching the UK’s performance.
Previously, euro area GDP was thought to have risen slighly, by 0.1%.
This follows downward revisions of growth in Germany and Ireland. Irish GDP growth in Q4 2022 was revised sharply lower, from +3.5% to 0.3% last week.
Greece (+1.4%) recorded the highest increase of GDP compared to the previous quarter, followed by Malta (+1.2%) and Cyprus (+1.1%).
The highest decreases in the EU were seen in Poland (-2.4%), Estonia (-1.6%) and Finland (-0.6%).
