How Many More Times Will the Bank of England Rescue Rachel Reeves?

Economic

Summary:

The City expects a cut in interest rates on Thursday but the economic prospects for 2026 complicate the picture

In the economic gloom of Labour’s first year in power, Rachel Reeves has had a reliable shred of comfort to cling to: five times since the general election, the Bank of England has cut interest rates.

This week, in all likelihood, the chancellor will get a sixth to shout about, as Threadneedle Street prepares to reduce borrowing costs in an early Christmas present that will be seized upon by the Treasury.

The view in the City is that a festive cut on Thursday is odds-on. After last week’s disappointing October growth figures, the jobs market and consumer prices data due out on Tuesday and Wednesday – before the rates decision – are expected to confirm that inflationary pressures in the UK economy are fading.

But while a cut will be good news for businesses, mortgage borrowers and the beleaguered occupants of Downing Street, attention will quickly shift to the prospects for 2026. How many more times could the central bank come to the chancellor’s rescue? Here things are a bit more complicated.

That Britain’s economy is in the doldrums should hardly come as a surprise. Continual tax speculation has sapped business confidence and household spending, while Reeves’s increase in employer national insurance contributions has played a part in UK unemployment hitting the highest levels since 2021, during the height of the Covid pandemic.

Celebrating a rate cut, in this context, is akin to an arsonist cheering the arrival of the fire brigade.

There are, though, factors beyond Reeves’s control. Not least the dire state Britain’s economy was left in by the Conservative party, and Donald Trump’s damaging tariff war.

The Bank has also played a role. Borrowers have been singed by three years of punitively high interest rates set in deeply restrictive territory. The policy is the central banker’s main tool for combating inflation as it chokes off demand by incentivising saving and discouraging spending.

After the inflation shock triggered by Russia’s invasion of Ukraine, Threadneedle Street argues it had little choice but to act. But the growth trade-off is clear. Even after successive rate cuts, the Bank’s own analysis shows the base rate continues to subtract about 2% from the level of GDP.

Anyone who has remortgaged their home since 2022 knows this first-hand. And despite progress since the Liz Truss debacle, millions of borrowers still face substantially higher loan repayments – and will continue to do so for years to come. That is hardly going to light a match under the UK’s consumption-driven economy.

This week the Bank’s policymakers are expected to be split on the appropriate way forward. Some on the nine-strong monetary policy committee (MPC) recognise the damage rates are doing at a time when inflation is cooling. Others think a tough approach is warranted to snuff out price rises.

Andrew Bailey is expected to hold the casting vote. The Bank’s governor has suggested he thinks inflation is more likely to fall back than stick at stubbornly high levels – paving the way for a quarter-point cut on Thursday.

Next year, however, it is tougher to anticipate how the MPC will respond. Policymakers are likely to remain divided on the inflation outlook and the “neutral” position for rates – the point at which they are neither stoking nor hosing down economic activity.

Reeves’s budget measures – including relief on energy bills, fuel duty, rail fares and prescription charges – could support the case for deeper cuts. The Bank predicts the policies could slash headline inflation by up to 0.5 percentage points by the middle of 2026.

All of this was part of a deliberate strategy inside the Treasury in the hope voters give credit to Labour for lower mortgage costs. Government borrowing costs could also fall back, unpicking some of the factors behind the recent years of fiscal drama in Westminster.

However, many economists warn the reprieve could be temporary.

Much of the disinflationary impulse will be in energy prices, and do little to help Britain’s issues with sticky service sector inflation. Other areas of government policy could also push in the wrong direction.

Business leaders warn a higher minimum wage, business rates, and other tax increases will drive up their costs – resulting in companies putting up prices for their customers, in turn stoking inflation.

That said, some of the factors the hawks are betting on look shaky.

Business costs are rising but hardly at breakneck speed. At 4.1%, the rise in the minimum wage from April is significantly below that in previous years – particularly when set against the context of 2022, when Jeremy Hunt ignored misplaced warnings about a wage-price spiral and increased the legal pay floor by 9.7% from April 2023.

By the time we get to spring, there should be signs that inflation is undershooting, and wage growth is slowing. The economy will probably still be lacking momentum. Household confidence may be picking up, and companies will probably lack the pricing power to push through yet more increases.

All of this means Reeves could see more rate cuts from the Bank.

Source: Theguardian

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Glendon

Forex

Economic

China's economic momentum slowed broadly in November, with a marked weakening in consumer spending, adding pressure on Beijing to stabilize household and business demand in the world's second-largest economy.

Industrial production (IP) growth edged down in year-on-year terms despite the notable improvement in export growth, with slower output growth in automobile and utilities industries more than offsetting faster output growth in the special equipment and pharmaceuticals industries.

Fixed asset investment (FAI) maintained its double-digit year-on-year contraction in November on a single-month basis, though we would not over-interpret its recent slump as our study suggests that the NBS statistical correction of previously over-reported data has played at least as large a role as fundamental factors (e.g., the "anti-involution" policies and a prolonged property downturn).

Retail sales growth dropped meaningfully in November despite a low base, reflecting slowing auto sales growth and the negative distortion from an earlier-than-usual start of the "Double 11" Online Shopping Festival (which had pulled forward some demand from November to October, similar to the patterns observed in June).

Year-on-year services industry output index growth – which is on a real basis and tracks tertiary (services) GDP growth closely – moderated in November.

Property sector weakness continued in November, while unemployment rates remained largely stable.

Regarding the labor market, the nationwide unemployment rate and the 31-city metric (not seasonally adjusted) both remained flat at 5.1% in November. The latest data available suggests the unemployment rate of the 16-24 age group declined to 17.3% in October from 17.7% in September, while Goldman cautions that this indicator may have underestimated the labor market challenges that younger generation is facing amid weak domestic demand, persistent deflation and fragile private sector confidence, because of the definition change.

Incorporating October-November activity data, Goldman's GDP tracking model based on the production approach points to a small downside risk to our Q4 real GDP growth forecast of 4.5% yoy.

And with downside economic risks building, Bloomberg reports that Chinese President Xi Jinping lashed out at inflated growth numbers and vowed to crack down on the pursuit of "reckless" projects that have no purpose except showing superficial results.

"All plans must be based on facts, aiming for solid, genuine growth without exaggeration, and promoting high-quality, sustainable development," Xi said last week, according to a report on Sunday in the People's Daily, the Communist Party's official newspaper.

"Those who act recklessly and aggressively without regard for reality, impose excessive demands, or deploy resources without careful consideration, must be held strictly accountable," he said at the Central Economic Work Conference.

Xi used stark language to call for quality in economic gains and listed examples of wrongdoing such as unnecessarily huge industrial parks, disorderly expansion of local exhibitions and forums, inflated statistics and "fake construction kickoffs."

Access to data in China can be sensitive and controlled, making it hard for observers to assess the health of the economy, but Xi's latest remarks seem to suggest that he wants a revamp of the existing metrics used to evaluate local officials.

Finally, we note that the initial downturn in Chinese stocks was quickly bid back into positive territory after the 'bad data' as it appeared 'bad news' would be 'good news' from a 'most stimmies' perspective, but Xi's rant dragged stocks down to end the day in the red...

And as a reminder, we warned last week that the pace of money growth in China has slowed for a second month. If that's sustained, global stocks could lose a hitherto supportive tailwind next year.

One snowflake doesn't make a winter, but if M1 in China continues to pare back, that's at least one tailwind global stocks won't have next year.

Source: Zero Hedge

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Winkelmann

Forex

Economic

Zand Bank, the first digital corporate lender in the UAE, is planning to expand to other markets in the Gulf and Africa within the next three years to boost growth and diversify its product offerings, its chief executive has said.

The digital lender, which is in its fourth year of operation, has already been approached by several African banks and financial institutions in the Gulf region for joint ventures and partnership, Michael Chan told The National on the sidelines of Abu Dhabi Finance Week.

"One and half years ago, many banks, at least from four countries in Africa and two in the GCC, approached us asking whether we want to be joint venture partners, leveraging their license, or co-create a new bank together in the region," Mr Chan said.

"But at that time, we were very busy on transformation and that's why I think the next three years is probably the right time."

The higher rate of digital adoption in Africa as well as its strong trade ties with the UAE builds the case for Zand to expand its presence in the continent.

"The UAE actually serves a few purposes – one as an investor and two, as a re-export hub for Africa – on both sides: African trade going out, and also the China trade going in," Mr Chan said.

Zand, he said, is confident its future business and growth based on payment corridors and border trade flows, which is already a strong focus area for the lender. "That's why Africa and GCC will be the next target," Mr Chan explained.

He said there is no particular Gulf or African market Zand is aiming for first. "Banks just follow the money," he said. "The country that's growing the fastest will be the country to go to."

The bank will maintain its UAE DNA, he added, even in new markets, and will not only provide specialty banking services but also serve FinTech sectors in new jurisdictions.

Zand, whose board is chaired by Emaar Properties founder Mohammed Alabbar, counts Abu Dhabi's Al Hail Holding as its largest shareholder with a 55 per cent stake. Other main shareholders include Emirates NBD; Templeton International, which is part of the Franklin Templeton group; and Lulu Group founder Yusuff Ali. Each have a 10 per cent shareholding.

Dual strategy

The second lender in the UAE to receive a digital banking licence from the UAE's Central Bank, Zand is primarily focused on organic growth. However, it is also open to acquiring technology that can help it accelerate growth, Mr Chan said.

Zand's dual growth strategy is based on broadening its "niche and unique propositions" and partnerships with top FinTech players to "create the market together", he said.

But "we are always open" to acquisitions as part of the bank's longer-term strategy, he added.

The ambition to position Zand as an international player explains why the lender pivoted from being a retail-focused bank to a corporate lender just months after its formal launch.

"We initially chose to be a digital corporate bank, and not a digital retail bank, because digital retail banking is a single market focus," Mr Chan said.

Zand relies on blockchain and on-chain banking, which is essentially borderless banking. That has also changed its competition dynamics in the UAE market.

It targets mid-to-large corporates, institutions and also government-sector entities. "We are in competition with legacy banks because we provide universal banking services," Mr Chan said.

Growth aspirations

The bank, which currently offers AI-powered transaction banking; digital asset custody; escrow services; as well as ESG (environmental, social, and governance) financing solutions, expects to grow between 50 per cent to 100 per next year.

Having expanded its revenue base by about 120 per cent last year, Zand is on track to achieve about 60 per cent annual growth this year, Mr Chan said.

The bank is still a start-up, but growth so far has been "quite promising", with Zand also the youngest digital lender to break even and become profitable.

There are more than 300 digital banks worldwide and it takes, on average, six years to reach the break-even stage. However, Zand achieved that milestone in 22 months after Mr Chan became chief executive in November 2022.

The lender established partnerships with several global giants, including Ripple and Mastercard, this year to broaden its suite of services.

In November, the UAE Central Bank also approved Zand AED, a fully regulated, multi-chain AED-backed stablecoin. Zand AED, which is backed one-to-one by the UAE dirham, is available across multiple public blockchains, enabling fast borderless settlement and integration for developers, enterprises, and financial institutions.

Zand is also gearing up to launch its wealth management services within the first quarter of next year, Mr Chan said.

Source: THENATIONALNEWS

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Warren Takunda

Economic

A leading candidate to be President Donald Trump’s choice for Federal Reserve chair said that he would present the president’s views to Fed officials for their consideration but they could reject them if they chose when making decisions on interest rates.

Kevin Hassett, in an interview Sunday on CBS News’ “Face the Nation,” said he would continue to speak with Trump if he becomes the Fed chair. But when asked if Trump’s opinions on interest rates would have “equal weighting” with members of the Fed’s interest-rate setting committee, Hassett replied, “No, he would have no weight.”

“His opinion matters if it’s good, if it’s based on data,” Hassett continued. “And then if you go to the committee and you say, well, the president made this argument and that’s a really sound argument, I think, what do you think? If they reject it, then they’ll vote in a different way.”

Hassett’s comments come as Trump is reportedly in final interviews with potential replacements for the Fed’s current chair, Jerome Powell. Trump has emphasized that he expects whomever he nominates to lead the Fed will sharply lower the central bank’s key rate, which currently stands at about 3.6%. Trump has said it should be cut to 1% or lower, a view almost no economist shares. Trump’s outspokenness has raised concerns about the Fed’s independence from day-to-day politics under any chair he appoints.

Until Trump’s first election in 2016, presidents of both parties for several decades had avoided commenting publicly on Fed decisions, and usually refrained from doing so privately as well. Economists generally believe that a politically independent Fed is better at combating inflation, because it can take unpopular steps to keep prices down, such as raise interest rates.

On Friday, however, Trump said that he “certainly should have a role in talking to whoever the head of the Fed is” about rates.

“I’ve done great. I’ve made a lot of money, I’m very successful,” he said. “I think my voice should be heard.”

The Wall Street Journal reported Friday that Kevin Warsh, a fellow at the right-leaning Hoover Institution and former Fed governor, is Trump’s current favorite to replace Powell, whose term ends next May. But Trump has previously hinted that he would pick Hassett.

“I think the two Kevins are great,” Trump told the Journal.

Hassett, for his part, on Sunday said that “in the end, the job of the Fed is to be independent.”

“In the end, it’s a committee that votes,” he said. “And I’d be happy to talk to the president every day until both of us are dead because it’s so much fun.”

Source: AP

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Michelle

Forex

Economic

Inflation in Canada unexpectedly held steady last month while core measures broadly cooled, as slowing price growth for services was offset by rising costs of goods.

Headline inflation rose at a 2.2% yearly pace in November, matching the pace in October, Statistics Canada data showed Monday. That was slower than the median expectation of 2.3% in a Bloomberg survey of economists.

On a monthly basis, the consumer price index rose by 0.1%, matching expectations.

The Bank of Canada's two so-called preferred core measures, the median and trim gauges, decelerated to a 2.8% annual pace, from 3% previously. On a three-month moving annualized basis, they slowed to 2.3%, from 2.6% in October.

The central bank has, in recent months, placed less emphasis on these two metrics and instead said a broad range of measures points to underlying inflation of about 2.5%.

Looking at a variety of metrics, core price pressures generally cooled or held steady in November. Excluding food and energy, prices rose 2.4% from a year earlier, down from 2.7% in October. Inflation excluding gasoline prices rose at a 2.6% pace for the third straight month. And the bank's previous measure of core inflation -- CPI excluding eight volatile components and indirect taxes -- held at 2.9%.

Still, the breadth of inflationary pressures widened, with about 42% of items in the consumer price index rising above a 3% yearly pace, from 34% previously.

Altogether, the report shows headline inflation trending down toward the central bank's 2% target, even as some measures of underlying inflation remain closer to 3%. The Bank of Canada is likely to be unfazed by ongoing core pressures, as it sees continued slack in the Canadian economy as US tariffs batter key sectors and weigh on business investment and consumer spending.

The central bank held its policy rate steady at 2.25% last week and reiterated it sees borrowing costs at "about the right level" to support growth while keeping inflation contained. Governor Tiff Macklem set the bar relatively high for a move off the sidelines, saying the bank will respond if there is "a new shock or an accumulation of evidence" that "materially changes the outlook."

Policymakers expect inflation to remain close to the 2% target, around where it's been for more than a year.

In November, lower prices for travel tours and accommodation, as well as slower growth in rent prices, put downward pressure on headline inflation. Higher costs of groceries, as well as a smaller decline in gasoline prices, were the main upside contributors.

Lower travel prices were driven partly by a base-year effect, as Taylor Swift performed in Toronto in November 2024.

Grocery prices rose 4.7% in November, the largest increase since December 2023, as the cost of fresh fruit jumped and prices for beef and coffee continued to be significant contributors. Prices rose at a faster pace in five provinces, led by New Brunswick.

The report is the first of two inflation releases before the central bank's next rate decision on Jan. 28. Traders expect the bank to hold rates steady until at least October 2026, when they see a possible hike.

Source: Bloomberg Europe

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Glendon

Economic

Russia is considering extending its diesel and gasoline export restrictions until February, according to reports from state news agencies on Monday that cited anonymous sources.

Russian Deputy Prime Minister Alexander Novak led a meeting on the fuel market on Monday with participants from the energy ministry, Federal Anti-Monopoly Service, and oil company representatives.

A spokesperson for Novak said no decision had been made yet regarding the extension of export restrictions. Following the meeting, the government stated that fuel producers had maintained a balanced supply.

"There is a downward trend in fuel prices in the small wholesale segment. Agricultural producers are being supplied with the necessary fuel volumes," the government said.

Russia implemented a partial ban on diesel exports in late September and has already extended its gasoline export ban through the end of the year.

Source: Investing

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Warren Takunda

Economic

London stocks had extended gains by midday on Monday at the start of a week that will see the release of UK jobs data, inflation figures and the latest Bank of England policy announcement.

The FTSE 100 was 0.9% higher at 9,734.21.

Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: "UK markets have a clear focal point this week, with the Bank of England in the spotlight and a rate cut on Thursday widely seen as a done deal.

"Markets are pricing in around a 90% chance of a move, so, absent any shocks, the decision itself matters less than the Bank’s tone. Beyond domestic policy, UK assets will also take cues from the flood of delayed US economic data, making this a week where macro forces are firmly in the driving seat.

"US markets are trying to find their feet, with futures pointing to a firmer open as dip-buyers step back in, hopeful that a Santa rally can still materialise after Friday marked the S&P 500’s worst session since 20 November. Attention now shifts to a heavy week of economic data, with a backlog of delayed releases finally hitting the tape following the government shutdown.

"The spotlight is firmly on Tuesday’s jobs report and Thursday’s inflation print, both of which could sway expectations for when, and how fast, interest rates might come down. Markets are tentatively pencilling in two cuts next year, but we know from history that these predictions can easily change."

Central bank policy announcements are also due on Thursday from the European Central Bank, Riksbank and Norges Bank.

On home shores, investors were mulling a long-running survey which showed that consumer sentiment has softened in the wake of this year’s Budget.

The latest S&P Global consumer index came in at 44.7, down from 45.2 in November and the lowest print since April.

Among the index’s sub-measures, expectations for finances in a year’s time fell to 44.2 from 45.3 before the Budget, a 24-month low. Current finances were also down, moving to 40.7 from 41.6. The overall household finance index shed one point at 42.4.

Cash available to spend edged up, but views on making major purchases remained depressed, at 38.1.

The labour market sentiment index ticked lower, off 0.4 points at 52.2, while the savings index rose to a two-month high of 43.1.

Maryam Baluch, economist at S&P Global Market Intelligence, said: "The first indicator of household confidence since the autumn Budget makes for disappointing reading.

"Overall, the combination of subdued household confidence and early signs of job insecurity underscores the ongoing challenges facing UK households as they navigate an uncertain economic environment at the turn of the year.

"Consumers are unlikely to provide much of a boost to the economy as we head into 2026."

The latest house price reviews and outlooks from Nationwide and Halifax were also out, with the former expecting house prices to grow between 2% and 4% next year and the latter expecting a more modest 1% to 3% increase.

In equity markets, luxury fashion brand Burberry shot higher on news that China is set to increase financial support for key consumption areas, with a focus on consumer finance services for durable goods and digital products.

Gold miners Hochschild and Endeavour shone as gold prices rose.

Britzman said: "Gold continues to sparkle, hovering just shy of record highs as investors wait on a packed slate of US economic data for fresh clues on the Federal Reserve’s next move.

"The precious metal is up more than 60% this year, on track for its strongest annual performance since 1979, fuelled by strong central‑bank buying, safe‑haven demand and a sweet spot of cooling US rates alongside inflation that’s expected to stay higher for longer."

Mike Ashley’s Frasers Group surged after announcing a share buyback programme of up to £70m.

Hikma Pharmaceuticals fell as it said its chief executive has stepped down just over a month after the blue chip warned on profits. Hikma said Riad Mishlawi - who has been with the business for 35 years, the last two of which as chief executive - was leaving by mutual agreement. He will be replaced by former incumbent and current executive chair Said Darwazah.

Retailers were in focus after Jefferies adjusted its ratings on a host of UK stocks, having updated its consumer disposable spend forecasts for 26/27. The bank said the update shows a potential mismatch developing between consensus like-for-like sales and a more muted spending environment.

"This more cautious view prevents us arguing for further multiples expansion at Tesco/Next after their justifiable year-to-date rerating," it said.

Jefferies downgraded both Tesco and Next to ‘hold’ from ‘buy’ but lifted the price targets to 450p from 440p and to 1,400p from 1,300p, respectively. Sainsbury’s was kept at ‘hold’ but its price target increased to 330p from 300p.

Associated British Foods slumped after Jefferies said it sees "more pressing concerns", with Primark's challenges likely to continue. As a result, it downgraded the shares to ‘underperform’ from ‘hold’ and cut the price target to 1,800p from 2,000p.

Marks & Spencer remained the bank’s key pick, rated at ‘buy’, although it cut the price target to 400p from 440p.

Elsewhere, RBC Capital Markets downgraded medical technology firm Smith & Nephew to ‘sector perform’ from ‘outperform’, but Citi reiterated its ‘buy’ rating on the company.