Bank of England expected to leave UK interest rates on hold today after jumbo Fed rate cut – business live

More consumers are defaulting on their direct debits, as high interest rates hurt borrowers.

The Office for National Statistics has reported that the direct debit failure rate has increased by 12% in the last year. On a monthly basis, it rose by 1% in August, to 2.23% of direct debits.

Year-on-year, the failure rate for “Electricity and Gas” increased by 43%, while “Loans”, “Mortgages”, and “Water” increased by 11%, 11%, and 20%.

The slump in electric vehicle sales across Europe in August (see 9.25am) has prompted the sector to call for “urgent action” ahead of 2025 emissions targets.

ACEA warns that concerns about meeting the 2025 CO2 emission reduction targets for cars and vans are rising. They are calling for “a package of short-term relief for the 2025 CO2 targets for cars and vans” and a review of the CO2 legislation.

ACEA’s board says:

We are missing crucial conditions to reach the necessary boost in production and adoption of zero-emission vehicles: charging and hydrogen refilling infrastructure, as well as a competitive manufacturing environment, affordable green energy, purchase and tax incentives, and a secure supply of raw materials, hydrogen and batteries.

Economic growth, consumer acceptance, and trust in infrastructure have not developed sufficiently either.

Carmakers now risk multi-billion-euro fines or unnecessary production cuts, ACEA warn.

Just in: Norway’s central bank has left interest rates on hold, and doesn’t expect to cut before 2025.

The Norges Bank’s Monetary Policy and Financial Stability Committee left its policy rate unchanged at 4.5% at its meeting this week.

That means rates have been on hold since last December, and Governor Ida Wolden Bache says:

“The policy rate will likely be kept at 4.5 percent to the end of the year.”

Explaining the decision, Norges Bank says that inflation has been lower than expected since June, and international policy rates appear to be coming down faster. On the other hand, the krone has depreciated (which is inflationary).

Over in the European Union, car sales took a tumble last month as take-up of electric cars slumped.

Industry body ACEA has reported that registrations of battery-electric (BEV) cars across the EU dropped by 43.9% to 92,627 units, down from 165,204 cars in August 2023.

This dragged the market share of BEVs down to 14.4% from 21% a year ago.

ACEA says this was due to a “spectacular drop” in the two biggest markets for BEV cars, with sales in Germany falling 68.8%, and France by 33.1%.

Sales of plug-in hybrid cars, which contain an electric battery charged from the mains and an internal combustion engine, fell by 22.3%.

Sales of hybrid-electric vehicles – which charge their battery through regenerative braking – rose 6.6% and were the only vehicle type that saw growth in August, up 6.6%.

Petrol car sales dropped by 17.1%, while diesel car market saw a decline of 26.4%.

Overall, new EU car registrations fell by 18.3% year-on-year in August, with double-digit losses in Germany (-27.8%), France (-24.3%), and Italy (-13.4%).

Shares have opened higher in London this morning, as investors welcome last night’s cut in US interest rates.

The blue-chip FTSE 100 share index has jumped by 71 points, or 0.85%, to 8,325 points, close to a two-week high.

Next’s shares have surged 5.5% to a new alltime high of £109.10, after it lifted its profit forecasts this morning. Other retailers are also rallying.

Mining stocks are also higher.

UK retailer Next have hiked profit forecasts again, helped by strong overseas sales.

Next now expects to make £995m of profits this financial year, a £15m increase on its previous guidance.

It says:

We are upgrading the profit guidance we issued on 1 August by +£15m to £995m. This is as a result of the strength of our full price sales over the last six weeks. We now estimate that full price sales in the second half will be up +3.7% (against our previous estimate of +2.5%).

This represents an increase of £30m of full price sales which, after accounting for other anticipated changes in our cost base, is expected to deliver an additional £15m of profit.

Next says its overseas business did “exceptionally well” in the first half of the financial year, with sales growth up +23%.

The UK business, though, only grew by +1.0%, which Next blames on “tough comparisons with last year’s exceptionally warm Q2”.

The Next brand was down -0.9% in the UK, which it calls “potentially worrying and warrants further analysis”.

But, it’s probably due to the poor weather this summer – and Next point out that sales have recovered sharply in the last six weeks (when the weather have been better than a year ago).

Wall Street closed slightly lower last night, after the Fed delivered its half-point cut to US interest rates.

The S&P 500 shares index dipped by 0.3% by the end of trading, down 16 points at 5,618 points.

Asia-Pacific markets, though, are rallying today. Japan’s Nikkei has gained 2.1%, Hong Kong’s Hang Seng index is 1.9% higher, and China’s CSI300 index is up 0.8%.

Stephen Innes, managing partner at SPI Asset Management, says investors are hopeful that other central banks might follow the Fed’s lead and cut interest rates:

Asia’s markets are riding high, as the ripple effect from the Fed’s jumbo rate cut suggests it’ll be much easier for central banks across the region to cut rates, potentially fueling growth and boosting equity market valuations.

With the Fed taking the plunge, these more cautious central banks may finally feel encouraged to join the rate-cut party.

Last night, Fed chair Jerome Powell insisted that the Fed’s large rate cut had nothing to do with the US election.

As we blogged last night, he told reporters:

“This is my fourth presidential election at the Fed and it’s always the same. We’re going into this meeting in particular and asking what the right thing to do for the people we serve. And we do that and we make a decision as a group and then we announce it.

That’s always what it is, it is never about anything else.”

But one presidential candidate doesn’t sound convinced. Donald Trump argued that the scale of the cut – a full half percent – showed the US economy was either “very bad” or the central bank was “playing politics.”

He told reporters:

“To cut it by that much, assuming they’re not just playing politics, the economy would be very bad.”

Trump nominated Powell to be Fed chair in 2017, but then swiftly fell out with him, claiming the Fed was hiking interest rates to harm the economy during his term in office.

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

After a hefty interest rate cut in the US last night, it’s the turn of the Bank of England to set monetary policy – but we’re not expecting as many fireworks.

The Bank of England is widely expected to leave UK interest rates on hold today, at 5%, having cut them from 5.25% back in August.

The betting in the City is that just two policymakers will vote for a cut, and be outvoted by the other seven members of the Bank’s Monetary Policy Committee.

According to the money markets this morning, there’s an 80% chance of ‘No Change’ at noon today from the Bank, and just a 20% prospect of a cut in rates to 4.75%.

Yesterday, the MPC learned that UK inflation remained over their 2% target, running at 2.2% in August, while both core inflation and services inflation accelerated. That’s probably going to encourage some caution at Threadneedle Street, even though the economy has stagnated for the last two months.

Professor Andrew Angus at Cranfield School of Management explains:

“With economic growth and inflation having hit a plateau, I’m expecting the Bank of England to play it safe and hold interest rates.

“The economy had a good start to the year but businesses are now waiting for clarity on the government’s plans in next month’s all-important budget. This has cooled the economy and, combined with falling wage growth and unemployment levels, signals that a hold will be seen as the prudent choice for now. But, come November, the heat will be back on to cut rates.”

The Federal Reserve didn’t show much caution last night, though. It slashed US interest rates by half a percentage point, in its first interest rate cut since 2020, and a bigger cut than some investors expected.

It lowered its benchmark federal funds rate to between 4.75% and 5% – a significant turning point in its battle against inflation.

Chair Jerome Powell insisted the Fed was ‘recalibrating’ its policy to be more neutral, rather than panicking that the US was being dragged into recession by high interest rates.

He told reporters:

“I don’t see anything in the economy right now that suggests that the likelihood of a recession — sorry, of a downturn — is elevated.

You see growth at a solid rate, you see inflation coming down, and you see a labor market that’s still at very solid levels, so I don’t really see that.”

The Bank of England could also adjust the pace of its bond-buying programme, known as quantitative tightening (QT) – under which it is selling securities bought during its stimulus programmes.

Some economists reckon it will speed up the pace of its active bond sales, even though it crystallises losses sustained by the BoE, because more of its bonds will mature this year (meaning it would need fewer active bond sales to hits its sales target).

We should also get interest rate decisions in Norway and South Africa today.

The agenda

• 9am BST: Norway’s Norges Bank sets interest rates

• Noon BST: Bank of England sets interest rates

• 1.30pm BST: US weekly jobless claims report

• 2pm BST: South Africa’s central bank sets interest rates