That’s all for today.
Here are our main stories, starting with the Bank of England’s latest interest rate rise, and warning that the UK’s economy has probably shrunk over the last six months:
Britain’s industrial unrest:
And in other news..
Andrew Sparrow’s Politics Live blog has all the build-up to tomorrow’s mini-budget:
The half-point increase in UK interest rates will push up the cost of variable-rate mortgages, credit cards and loans.
And while it will lift savings rates, it won’t make up for the impact of inflation.
My colleague Rupert Jones has all the details:
Financial markets have headed lower this afternoon, amid anxiety that rising interest rates will push major economies into recession.
Europe’s Stoxx 600 index dropped below 400 points, for the first time since February 2021, down 1.8% today.
The FTSE 100 index has lost 1.1%, or 78 points, as Wall Street adds to yesterday’s losses after last night’s US rate hike.
The pound has now lost its earlier gains, and dropped back below $1.13 – its weakest point in 37 years.
Fiona Cincotta of City Index says.
With [Bank of England governor] Andrew Bailey abandoning the race to the top, the outlook for sterling is bleak.
In the past, a slowing economy – let alone one already going backwards – would be the signal for lower borrowing costs, our economics editor Larry Elliott points out:
Yet the Bank is stepping up its action. The MPC has now tightened policy at seven meetings in a row, and having been content with quarter-point increases earlier this year has now plumped for back-to-back half-point jumps.
It is also clear the committee thinks rates will need to go still higher in the coming months. The Bank is assuming the chancellor Kwasi Kwarteng’s mini-budget on Friday will add to inflationary pressure and will make a “full assessment” of its implications before the next meeting of the MPC in November.
There was nothing in the minutes to suggest the MPC was ready to pause its tightening cycle. “The labour market is tight and domestic cost and price pressures remain elevated,” it said.
So with the economy struggling to grow this year, and heading into recession, the Bank could soon be accused of overkill, Larry warns.
Here’s his analysis:
Here’s a round-up of expert reaction to the half-point rise in UK interest rates today, to a 14-year high of 2.25%.
Kitty Ussher, Chief Economist of the Institute of Directors, warns that expectations of future inflation are still not where the Bank of England would like them to be.
Many of our members think that the peak will come next year, and so may price accordingly, running the risk that inflationary expectations become self-fulfilling.
“Combined with imminent announcements of a government stimulus package, plus some remaining – albeit smaller – upward pressure on CPI from household energy prices next month, the Bank of England has made the judgement that interest rates need to continue rising.
Sanjay Raja, chief UK economist at Deutsche Bank, predicts the BoE could raise rates by 75 basis points in November:
Despite the three-way split in voting, we see today’s decision as slightly hawkish, with three members (Deputy Governor Ramsden, Catherine Mann, and Jonathan Haskel) pushing for an even more forceful response to recent economic news.
The Bank has opened the door for a bigger rate hike in November. The MPC made clear today that should the risk of persistence in inflationary pressures increase, after taking into account any fiscal announcements, the MPC will act to offset it.
The MPC acknowledged that despite slowing underlying growth momentum, domestic cost pressures have strengthened, with the labour market tightening further. Moreover, the scale of fiscal loosening expected over the coming months/quarters should raise medium-term inflation, all else equal.
Modupe Adegbembo, G7 Economist at AXA Investment Managers, says the Bank doesn’t seem to be concerned about the pound’s weakness.
Notably, the MPC made little reference to the impact of sterling on their rate decision.
With the pound trading around 40-year lows against the dollar, we had expected the BoE to consider the impact of a weak pound on inflation, but at present this appears not to be a prominent part of the MPC’s current considerations.
Tim Drayson, Head of Economics at Legal & General Investment Management (LGIM), says the Bank missed market expectations by only hiking rates by 50bp
The cost of this delay was to put upward pressure on long-term interest rates as markets believe the MPC will now have to keep rates higher for longer to maintain its inflation fighting credentials.
“However, the MPC hinted at a faster pace of tightening in November when it will have had time to fully assess the impact of the Government’s fiscal announcements which are expected to add to inflationary pressure in the medium term.”
Over in the eurozone, consumer confidence has plunged to a record low as the energy crisis pushed Europe towards recession.
The UK government is taking an ‘economic gamble’ by reversing its national insurance rate rise, warns Shaun Moore, tax and financial planning expert at Quilter.
Axing the additional 1.25 percentage points of NI contributions will boost consumers, but leave a “gaping hole” in Treasury funding plans for social care, Moore explains:
[Chancellor Kwasi] Kwarteng says overall funding for health and social care services will be maintained at the same level as if the Levy were in place and come from general taxation.
This sounds like wishful thinking and is effectively taking a gamble with social care funding in the hope the tax takes increases due to greater economic activity. Let’s hope tomorrow’s ‘mini budget’ reveals more about how the Chancellor plans to raise the much-needed funds for social care.
The UK government has pointed out that it’s not the only country facing slow growth.
A government spokesman has responded to the Bank of England’s forecast that GDP will fall 0.1% this quarter (meaning a technical recession) saying:
“The UK is not alone in facing slow growth, with Putin’s illegal invasion of Ukraine and weaponisation of energy presenting a global challenge for economies across the world.
“While several one-off factors have also impacted on the domestic outlook, we have recognised the need to take action.
“We will support households and businesses with high energy bills and have committed to an unashamedly pro-growth agenda, which the Chancellor will detail in the Growth Plan tomorrow.”
The US economy has already racked up two quarters of negative growth, while Germany’s economy is expected to fall into recession due to soaring energy prices.
Banks and building societies had already begun putting up mortgage interest payments before the Bank of England announced its latest base rate hike to 2.25%, piling more pressure on homebuyers and owners.
For some, the increased charges could add thousands of pounds to their total home loan costs over the next couple of years.
Santander, NatWest and HSBC are among the lenders that have this week increased their mortgage rates for new borrowers – in some cases by as much as 0.8 percentage points.
Other banks and building societies are expected to quickly follow suit and reprice their deals upwards now that the Bank has raised interest rates by 0.5 percentage points – the seventh increase since December.
The 1.25 percentage point rise in National Insurance will be reversed from 6 November, the Chancellor Kwasi Kwarteng has announced, ahead of tomorrow’s mini-budget.
The Treasury says that the reversal will deliver on prime minister Liz Truss’s pledge to slash taxes to drive growth.
Scrapping the rise, which began in April, will reduce tax for 920,000 businesses by nearly £10,000 on average next year, the government says, as they will no longer pay a higher level of employer National Insurance.
It also means almost 28 million people will keep an extra £330 of their money on average next year, they say.
The NI increase was brought in to fund extra spending on health and social care.
But the Health and Social Care Levy, expected to raise around £13bn per year, is instead being cancelled, the government says, through a Bill being introduced today.
Instead, chancellor Kwasi Kwarteng says funding for health and social care services will be maintained at the same level as if the Levy was in place – implying extra government borrowing?
“Taxing our way to prosperity has never worked. To raise living standards for all, we need to be unapologetic about growing our economy.
“Cutting tax is crucial to this – and whether businesses reinvest freed-up cash into new machinery, lower prices on shop floors or increased staff wages, the reversal of the Levy will help them grow, whilst also allowing the British public to keep more of what they earn.”
Politics Live has more details and reaction:
Britain’s economy is now in recession, the Bank of England has said, as it raised interest rates to tackle the worst bout of inflation for 40 years.
A majority of the Bank’s nine-member monetary policy committee (MPC) voted to increase the key base rate by 0.5 percentage points to 2.25% – its highest level since 2008 – judging that the risks of inflationary pressures becoming entrenched outweighed the short-term dangers to the economy.
With soaring energy bills and the rising cost of a weekly shop forcing households to rein in their spending, Threadneedle Street said the economy was heading for a second consecutive quarter of falling output.
After a 0.1% drop in gross domestic product in the three months to June as the economy slumped into reverse, the Bank said a further 0.1% decline could now be expected in the third quarter amid a slump in consumer spending and weaker activity for manufacturing and construction.
It said the fall also reflected a smaller-than-expected bounce back from the additional bank holiday for the Queen’s platinum jubilee, as well as the impact from businesses closing their doors in a mark of respect for the state funeral this week.
Three members of the MPC voted for an increase of 0.75 percentage points, five backed a half-point rise and one pushed for a more limited quarter-point move.
Newsnight’s Ben Chu shows how high interest rates are expected to rise by next summer: