City braces for sharp hike in UK interest rates; German factory inflation rockets – business live | Business

Strike News 1: A group of British trades unions are starting legal action against the UK government over its new law allowing employers to hire agency workers to replace striking staff.

The TUC and Unison are bringing separate cases following widespread anger over the change in the law, which was announced earlier in the summer following industrial action on the railways.

The TUC is taking action on behalf of 11 unions representing train drivers, prison officers, railway staff, civil servants, journalists, shop workers and others, representing millions of workers.

They arguing that the regulations are unlawful because the then secretary of state for business, Kwasi Kwarteng, failed to consult unions as required by the Employment Agencies Act 1973.

The TUC also says the regulations violate fundamental trade union rights protected by Article 11 of the European Convention on Human Rights.

The TUC warns the new law will worsen industrial disputes, undermine the fundamental right to strike and could endanger public safety if agency staff are required to fill safety critical roles but have not been fully trained.

TUC general secretary Frances O’Grady said:

“The right to strike is a fundamental British liberty but the Government is attacking it in broad daylight.

“Threatening this right tilts the balance of power too far towards employers. It means workers can’t stand up for decent services and safety at work or defend their jobs and pay.

“Ministers failed to consult with unions, as the law requires, and restricting the freedom to strike is a breach of international law. That’s why unions are coming together to challenge this change in the courts.

“Workers need stronger legal protections and more power in the workplace to defend their living standards – not less.”

UNISON general secretary Christina McAnea has warned the government’s changes are a risk to safety.

“The government appears hell-bent on stripping ordinary working people of their historic rights and seems prepared to do anything to achieve that.

“Employees striking for better wages during a cost-of-living crisis is not the problem. Ministers should be rolling up their sleeves and helping solve disputes, not risking everyone’s safety by allowing the use of inexperienced agency workers.

“Changing the law in such a hostile and unpleasant way makes it much harder for workers to stand up to dodgy employers. It also risks limiting the impact of any legal strike.”

Sterling’s tumble to its lowest level since 1985 last week has added to the pressure on the Bank of England to hike UK interest rates.

Victoria Scholar, head of investment at Interactive Investor, explains:

Central bank interest rate decisions are front and centre this week for markets,

After the pound slumped to a 37-year low the market is pricing in an aggressive 75 basis point hike from the Bank of England as it looks to get a grip in near 10% inflation.

Pressure from sharp central bank rate increases around the world are encouraging the Bank of England to keep up. The central bank may also be feeling the pressure to act more forcefully in light of the recent slump in the pound.

UK government bond yields have jumped this morning as the City braces for a sharp rise in interest rates on Thursday, and further hikes before the end of the year.

The money markets are indicating there is a 75% chance that the Bank of England increases Bank rate to 2.5% this week, up from 1.75% at present.

That would be the BoE’s biggest rate hike since 1989, when inflation was climbing rapidly, follwing six rises already this year:

Today, inflation is five times above its target, at 10.1%. That has led some traders to bet on an outsized rate hike by the Monetary Policy Committee meeting this week (delayed by a week due to the Queen’s death).

The markets are also predicting that rates could reach 3.75% by the end of the year. That implies we could see a second 75bp hike in December, as well as a 50bp rise at the Bank’s meeting in November.

This has pushed up the yield, or interest rate, on five-year UK gilts to 3.24% this morning.

That’s its highest level since late 2008, before the financial crisis caused a global recession, showing that investors are demanding a higher rate of return on UK debt.

The surge in inflation, and prime minister Liz Truss’s pledge of tax cuts to spur growth, have both piled pressures on the Bank of England to speed up its monetary tightening…..

…as have sharp interest rate rises by the European Central Bank and the US Federal Reserve (which could raise its benchmark rates by another 75bp tomorrow).

The one percentage point increase in Sweden’s interest rates this morning has confirmed that central bankers are prepared to hike borrowing costs dramatically, even if it slows growth and hits mortage holders and those relying on credit.

Martin Beck, chief economic advisor to the EY ITEM Club, says the UK government’s move to cap energy bills has shifted the backdrop to this week’s MPC meeting:

The cap means inflation is likely to come in well below current forecasts in the near term and could dampen inflation expectations.

“The EY ITEM Club now expects CPI inflation to peak below 11% in October. Had the cap not been introduced, inflation was likely headed for 14%-15% early next year. A much lower peak – which may dampen inflation expectations among the public – could also reassure the MPC.

On the other hand, lower-than-expected energy bills would support disposable incomes and spending, implying that inflation may be higher in the medium term because of the cap. So, the net effect on the committee’s view on inflation appears ambiguous.

City analysts are warning that a cost-of-living storm is whipping around retailers such as B&Q owner Kingfisher, knocking its profits down by a third (see opening post).

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, explains:

The number of amateur builders, painters and carpenters hanging up their tool kits is growing as homeowners scramble around for savings, intently focused on finding ways to cut their energy bills.

Although the purchase of outdoor bigger ticket items have remained resilient, it’s a far cry from the boom last year when people spent lockdown savings doing up their homes and gardens.

Adam Vettese, analyst at social investing network eToro, predicts customers will cut back on home improvement projects until the financial pressures ease.

“If Kingfisher’s results are anything to go by, the pandemic-fuelled DIY boom is well and truly over. While CEO Thierry Garnier talks about ‘resilient’ performance, the reality is that most investors will be focused on the fact that many of its key metrics are considerably lower than they were this time last year.

“The trouble for all retailers, including Kingfisher, is that they are not only getting clobbered by the higher cost of goods, but so too are their customers, meaning they are likely to spend less until the economic situation improves.

AJ Bell investment director Russ Mould says the DIY sector benefited from keeping their stores open during the pandemic, at a time when locked-down consumers were keen to improve their homes or refresh tired décor:

“Arguably both of those positive tailwinds have disappeared while at the same time the powerful headwind of a cost-of-living crisis has made it extremely difficult for Kingfisher to make any headway.

“CEO Thierry Garnier may be right when he describes the results as resilient, but the message that ‘last year was a tough ask to follow’ isn’t really one investors want to hear, no matter how reasonable an excuse it might be.”

Sweden’s central bank has surprised the markets by raising interest rates by a full percentage point this morning.

The Riksbank has hiked its benchmark rate to 1.75%, from 0.75%, as the world’s central banks continue to lift borrowing costs sharply in an attempt to rein in inflation.

The Riksbank had been expected to raise rates by 75bp, as the European Central Bank did earlier this month.

But the jump in Swedish inflation to 9.0% in August, the highest level since 1991, prompted it to tighten even more aggressively.

The Riksbank states bluntly that “Inflation is too high”, adding:

It is undermining households’ purchasing power and making it more difficult for both companies and households to plan their finances.

Monetary policy now needs to be tightened further to bring inflation back to the target.

The Riksbank blames soaring inflation on the disruption in the energy markets due to the Ukraine war, rising commmody prices following Russia’s invasion, and the supply chain disruptions caused by the pandemic, as well as relatively strong Swedish economic activity.

The Riksbank adds that it expects to keep raising interest rates, to prevent inflation rising higher.