Andrew Bailey has insisted he won’t quit as pressure mounts on the Bank of England over its response to surging inflation.
Mr Bailey said he will see out his term as Governor, which runs until 2028, but added that he was open to discussing with the Government how the bank should operate.
The comments come amid fierce criticism of the Bank of England over its efforts to tackle inflation, which is now forecast to peak above 13pc later in the year.
Attorney General Suella Braverman this week accused the Bank of acting too slowly and said Liz Truss would review its mandate if she becomes prime minister.
But Mr Bailey defended his approach to tightening monetary policy, saying acting too soon would have derailed the UK’s post-pandemic recovery.
The Bank Governor pointed to warnings of a sharp rise in unemployment as the furlough scheme ended.
He told BBC Radio 4: “That would have been a very different scenario if we had raised interest rates.” Asked if such a move would have harmed the economy, he responded: “Yes.”
He added: “We don’t make policy with the benefit of hindsight. I would challenge anybody to have been sitting here a year, two years ago to say: ‘There’s going to be a war in Ukraine and it’s going to have this effect on inflation’.”
It comes a day after the Bank’s Monetary Policy Committee raised interest rates by 50 basis points to 1.75pc – the biggest increase in 27 years.
Pets at Home sales grow as lockdown boom keeps going
Pets At Home has reported a rise in revenues over the first quarter as it continued to cash in on the pandemic pet boom.
The pet specialist said its total revenue grew 7.1pc to £404.7m in the 16 weeks to July 21, while revenue for its vet arm increased by 11pc.
The company gained 1.1m new customers last year as the lockdown-driven boom in pet ownership created new opportunities for animal retailers.
Sign-ups to its puppy and kitten club – a subscription service for pet owners – averaged 25,000 a week, three times higher than before Covid.
It also reported a record number of loyalty club members, growing 10.7pc year on year to total 7.4m people paying for the service.
Earlier this year the outgoing chief executive of Pets at Home said cash-strapped households would rather cut back on eating out and buying a new car before spending less on their beloved pets.
Pendragon shares jump on failed takeover bid
Shares in Pendragon jumped this morning after the car dealer revealed it approved a takeover offer but talks ended as a major shareholder didn’t engage.
The takeover offer was 29p per share, representing a 35pc premium to yesterday’s closing price.
But the offer was contingent on support from the top five shareholders, and only four backed the deal, Pendragon said.
Shares jumped as much as 12pc in early trading, giving Pendragon a market value of £335m.
WPP slides as outlook falls short of rivals
WPP is the biggest FTSE faller this morning even after it upgraded its forecasts for the full year.
The advertising giant raised its sales outlook and beat estimates for organic growth. But analysts at Goldman Sachs said the figures “could be seen by the market as a slight disappointment”.
Rivals Publicis and Omnicom both raised their guidance recently as large advertising agencies have proved resilient to inflation.
WPP said demand was still robust, particularly from clients in the tech and healthcare sectors, with the exception of China, where lockdowns have hurt sales.
Shares in WPP dropped 7.4pc to the bottom of the FTSE 100.
FTSE risers and fallers
The FTSE 100 has edged lower in early trading a day after the Bank of England delivered its biggest interest rate rise in 27 years.
The blue-chip index dipped 0.2pc, dragged lower by energy stocks.
Oil giants BP and Shell both fell more than 1pc each, weighing the most on the index. British Gas owner Centrica also fell into the red.
WPP was the biggest faller, tumbling more than 7pc after its upgrade to forecasts fell short of expectations.
London Stock Exchange Group bucked the trend, gaining 3.9pc after it announced a £750m share buyback.
The domestically-focused FTSE 250 was trading flat.
Bailey: High pay rises will make inflation worse
There’s a warning from Andrew Bailey on the impact of raising wages and prices to counteract inflation:
If everybody tries to beat inflation, it doesn’t come down, it gets worse, that’s the problem.
There’s a second problem. I put this in terms of high pay rises and high price increases, because in that world it’s the people who are least well off who are worst affected, because they don’t have the bargaining power. I think that is something that broadly we all have to be very conscious of.
There are a lot of people out there who are very badly affected by this inflation… It’s particularly bad because it’s concentrated in energy and food – those are the staples, those are the essentials.
Bailey: Inflation mustn’t become embedded
Aside from the external factors, though, the Governor says it’s vital that inflation doesn’t set in.
The second thing is the more important thing, which is what happens domestically.
The risk that we’re responding to is that inflation becomes embedded and it doesn’t come down in the way we would otherwise expect.
My key point is: If inflation becomes embedded and persistent it gets worse and the effects get worse and that’s why we have to raise rates.
Bailey: We don’t know what Putin will do next
Andrew Bailey points out the uncertainties around Russia and the war in Europe, saying the “vast majority” of inflation in the UK is externally driven.
The point of raising interest rates is what comes next. We have to get inflation back down to target – that’s our job.
We don’t know what Vladimir Putin will do next. He’s severely restricting the supply of gas to Europe and that is having a huge effect.
Andrew Bailey defends Bank’s decisions
Andrew Bailey has launched a staunch defence of the Bank of England’s approach to tackling inflation, pinning the blame for surging prices on external factors.
He told BBC Radio 4: “There has been a series of very big supply side shocks, most of which are coming from outside.”
He also took aim at critics who’ve said the Bank should have acted sooner to raise rates.
“We don’t make policy with the benefit of hindsight,” he said. “I would challenge anybody to have been sitting here a year ago to say: ‘There’s going to be a war in Ukraine and it’s going to have this effect on inflation’.”
“If you go back two years, given the situation we were facing at that point in the context of Covid, in the context of the labour market, the idea that at that point we would have tightened monetary policy… I don’t remember there were many people saying that at that time.”
London Stock Exchange launched £750m share buyback
The London Stock Exchange Group will hand £750m to shareholders over the next year after posting a surge in profits.
The financial markets and data group will return the cash to investors through a share buyback after reporting a 73pc jump in pre-tax profits to £803m over the first half of the year.
It said it was boosted by stronger revenue growth and cost management as it highlighted “good momentum” going into the second half of the year.
LSEG said profitability was also solid as it stayed on track with costs and savings targets from the almost £20bn takeover of Refinitiv it sealed in 2020.
David Schwimmer, chief executive officer of LSEG said:
LSEG has delivered a strong first-half performance with continued revenue growth across our businesses.
We are managing costs well and we continue to make progress on achievement of synergies.
Our cash generation is allowing us to actively deploy capital across organic and inorganic investments, grow our dividend and commence a share buy-back programme, driving further value for our shareholders.
We are successfully executing on our strategy, have good momentum going into the second half and our targets remain unchanged.
FTSE 100 opens flat
The FTSE 100 has opened flat after the Bank of England unveiled its biggest interest rate rise in 27 years.
The blue-chip index slipped marginally into the red to 7,445 points.
More reaction: Further house price falls to come
Tom Bill, head of UK residential research at Knight Frank, says the fall in house prices will deepen.
Negligible monthly declines in house price growth will get steeper. Mortgages have become noticeably more expensive in recent months, which will dampen demand as cheaper offers made earlier this year expire and people roll off fixed-rate deals.
At the same time, supply has built as the distortions of the pandemic and stamp duty holiday fade, which will put downwards pressure on prices.
The Bank of England’s latest set of economic predictions will impact sentiment, as they did in May, but the fundamentals of the property and labour market are strong and we would expect double-digit annual growth to become single-digit growth by the end of the year.
Reaction: Cheap debt is disappearing fast
Nicky Stevenson, managing director of estate agent group Fine & Country, warns of a ‘dampening effect’ as borrowing costs rise.
The supply crunch which underpinned the housing market boom has begun to ease in recent months and the pace of price growth has softened slightly as a result.
Meanwhile cheap debt is fast disappearing and against this backdrop, we can expect to see a dampening effect as purchasing power continues to be eroded.
While the housing market and broader economy do not always move in tandem, the recession predicted by the Bank of England is bound to have an effect on growth and consumer confidence.
Mitigating this will be a continued supply-demand imbalance and a loosening of affordability tests which will make thousands of buyers eligible for bigger loans.
The outlook for the market as a whole will depend in large part on the pace of monetary tightening in the months ahead.
Where have house prices risen fastest?
While house prices have finally turned negative, they’re still much higher than a year ago. What’s more, the Halifax figures show the disparity in price growth across the UK.
Wales has moved back to the top of the table for annual house price inflation, up by 14.7pc, with an average property price of £222,639.
It’s closely followed by the south west of England, which also continues to record a strong rate of annual growth, up by 14.3pc, with an average property cost of £310,846.
The rate of annual growth in Northern Ireland eased back slightly to 14.0pc, with a typical home now costing £187,102.
Scotland too saw a slight slowdown in the rate of annual house price inflation, to 9.6pc from 9.9pc. A Scottish home now costs an average of £203,677, another record high for the nation.
While London continues to record slower annual house price inflation than the other UK regions, the rate of 7.9pc is the highest in almost five years.
With an average property now costing £551,777 the capital’s already record average house price continues to push higher, up by £40,361 over the last year. It’s still by far the most expensive place in the country to buy a home.
Reaction: Will the new PM try to rally the market?
Tomer Aboody, director of property lender MT Finance, asks if the new prime minister will step in to rally the housing market.
With the first price fall in over 12 months, the slowdown which was expected is seemingly coming to fruition.
Higher mortgage rates, increasing inflation and higher cost of development is affecting buyer demand. They are still there but at a more conservative level.
Although there is a monthly price fall, this is marginal and house prices are still at record levels, running away from buyers.
With fewer sellers and buyers, a continued slowdown is expected. Will the government try to rally the market again with a re structure of stamp duty or other measures, this could be an initiative for any new incoming prime minister?
Halifax: House prices to slow further
Russell Galley, managing director at Halifax, says house prices are likely to come under more pressure.
Following a year of exceptionally strong growth, UK house prices fell last month for the first time since June 2021, albeit marginally. This left the average house price at £293,221, down £365 from the previous month’s record high.
The rate of annual inflation eased slightly, although it’s important to note that house prices remain more than £30,000 higher than this time last year.
While we shouldn’t read too much into any single month, especially as the fall is only fractional, a slowdown in annual house price growth has been expected for some time.
Leading indicators of the housing market have shown a softening of activity, while rising borrowing costs are adding to the squeeze on household budgets against a backdrop of exceptionally high house price-to-income ratios.
That said, some of the drivers of the buoyant market we’ve seen over recent years – such as extra funds saved during the pandemic, fundamental changes in how people use their homes, and investment demand, still remain evident.
The extremely short supply of homes for sale is also a significant long-term challenge but serves to underpin high property prices.
Looking ahead, house prices are likely to come under more pressure as those market tailwinds fade further and the headwinds of rising interest rates and increased living costs take a firmer hold. Therefore a slowing of annual house price inflation still seems the most likely scenario.
House prices fall for first time in a year
After months of relentless growth, house prices have finally fallen.
The latest figures from Halifax show prices dipped 0.1pc in July – the first decline since June 2021. The average value of a home stood at £293,221, which is still 11.8pc higher than a year ago.
The fall reflects the impact of a deepening cost-of-living crisis, as inflation soars and the economy heads towards a recession.
It also comes amid rising borrowing costs, with the Bank of England delivering its biggest interest rate rise for 27 years yesterday as it warned inflation will top 13pc later in the year.
5 things to start your day
1) Runaway inflation raises doubts over Bank’s power to rescue the economy Andrew Bailey risks collision with Downing Street as recovery is nowhere in sight
2) West bolsters grain storage across Ukraine border as war threatens harvest Neighbouring countries aim to stop vital supplies rotting amid Russia blockade
3) Gordon Ramsay’s restaurants slash 300 jobs after lockdowns push losses to £7m Celebrity chef’s company saw losses climb as revenues dropped in 2021
4) Taxpayer takes stake in helium airship maker backed by Iron Maiden singer Hybrid Air Vehicles is said to have received £900,000 from the Future Fund
5) Three charts that show the economic disaster facing Britain Here are the factors behind the UK’s bleak outlook as recession beckons
What happened overnight
Tokyo stocks traded higher this morning. The benchmark Nikkei 225 index opened flat, however it then climbed 0.2pc, while the broader Topix index was up 0.3pc.
Hong Kong stocks extended gains into a third day, with the Hang Seng Index adding 0.5pc.
The Shanghai Composite Index edged up 0.2pc, while the Shenzhen Composite Index on China’s second exchange rose 0.3pc.
Coming up today
Corporate: Hargreaves Lansdown (full-year results); London Stock Exchange, WPP (interims); Pets at Home (trading update)
Economics: Halifax house price index (UK), nonfarm payrolls (US), unemployment rate (US), average hourly earnings (US)