Bank of England expected to leave interest rates on hold today – business live

Spain’s BBVA goes hostile with $13bn bid for TSB-owner Sabadell

Kalyeena Makortoff

Investors are watching drama unfold in Spain’s banking sector.

A €12.2bn euro (£10.5bn) bid by BBVA for rival and TSB-owner Sabadell has turned hostile, in a rare move for the European banking industry, where M&A strategies tend to be less…well… aggressive.

It comes after Sabadell rejected BBVA’s original all-share offer on Monday, saying it significantly undervalued the bank and its “standalone prospects”.

BBVA said it had no room to up its offer – which would bring together the third and fourth largest Spanish banks in the market, creating a new enlarged entity that would have the largest domestic balance sheet in the Spanish market (but it would still sit behind Santander, which has a more global portfolio and would remain the country’s largest banking group).

But BBVA is now trying to circumvent the board by taking the same offer (an exchange of one newly issued BBVA share for every 4.83 of Banco Sabadell) straight to Sabadell investors. That represents a 30% premium against the closing prices of both banks on April 29th; and a 50% premium over the weighted average prices of the past three months.

If approved, Banco Sabadell shareholders would hold a 16% stake in the new group, though it’s unclear what that might mean for UK high street bank TSB, as the combined leadership assess the future direction of a new, larger Spanish lender.

BBVA chair Carlos Torres Vila said:

“The transaction will also benefit all remaining stakeholders…the creation of a stronger, more profitable institution will also result in more financing for companies and families and a greater contribution via taxes. All of this will translate into greater economic and social progress.”

In a worrying signal from the UK housing market, the number of properties being repossessed has jumped by a third at the start of this year.

Trade body UK Finance has reported that 870 homeowner-mortgaged properties were repossessed in the first quarter of 2024. That is 36% higher than in the previous quarter and 9% higher than in Q1 2023.

In addition, 600 buy-to-let mortgaged properties were taken into possession in the first quarter of 2024, 20% more than in the previous quarter.

UK Finance says the increase is largely due to historic arrears cases now working through the court system, adding that possessions numbers remain very low compared to historic norms.

More borrowers have fallen into arrears on the their mortgages too, squeezed by higher interest rates.

There were 96,580 homeowner mortgages in arrears of at least 2.5% of the outstanding balance in the first quarter of 2024, 3% more than in the previous quarter and 26% more than a year ago.

Also, 13,57 buy-to-let mortgages-holders were in arrears – a 93% jumped on last year.

Charles Roe, director of mortgages at UK Finance, says:

“The number of mortgages in arrears, while still low, continues to rise as households remain under pressure from the cost of living and higher interest rates.

“Lenders offer a range of support to anyone worried about their finances, with teams of trained experts ready to help. If you are struggling, please reach out to your lender as soon as possible to discuss the support options available.”

Tax rises inevitable after UK election unless fiscal rules are ripped up, says thinktank

Larry Elliott

The next government will be forced to hit voters with post-election tax rises and delay net zero investment unless it is prepared to rip up Treasury rules for managing the state finances, a leading thinktank has said today.

The National Institute for Economic and Social Research (Niesr) called for a radical overhaul of the self-imposed constraints imposed on government borrowing and debt as it warned that persistently weak growth and lower inflation would make hitting the rules more difficult.

In its quarterly health check, the thinktank said the economy had emerged from recession but the “not-fit-for-purpose” fiscal rules meant there was no scope for Jeremy Hunt to offer fresh tax cuts before polling day.

After the general election, Niesr said a future chancellor would be faced with a choice: raise taxes to maintain the existing provision of public services or rewrite the rules so that they served the UK’s medium- and long-term needs and objectives – including raising the growth rate, levelling up the regions and greening the economy.

More here.

Trading is calm in the City this morning, as investors await the Bank of England interest rate decision at noon.

The FTSE 100 share index is currently up just 1 point, or 0.02%, at 8355 points – yesterday it hit a new intraday high of 8365 points.

Traders have been cheered by encouraging trade data from China early today, which showed both exports and imports returned to growth year-on-year in April.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, says investors are hoping for fresh signals from the Bank of England about a summer interest rate cut.

The FTSE 100 hasn’t been knocked off its course with positive winds still largely blowing around the index.

Although there will be a certain amount of treading water ahead of the interest rate decision from the Bank of England, upbeat trade data from China is keeping optimism flowing. Exports grew by more than expected in April, increasing by 1.5% as customers in key markets around the world demonstrated more appetite for Chinese made goods.

This has not only sparked fresh hopes of a steadier recovery for China’s economy, but also may be seen as a measure of more confidence in other economies where interest rate cuts are eyed on the horizon.

Katharine Neiss, chief European economist at PGIM Fixed Income, argues that it is “not beyond the realm of possibilities” that the Bank could cut interest rates today.

Neiss gives five reasons why this week’s meeting is “likely more finely balanced” than the market expect”:

1. First, the Monetary Policy Committee (MPC) does not mind surprising markets. We saw this back in November 2021, when the market was expecting the Bank to hike when ultimately it chose to keep rates unchanged. It subsequently raised rates at its December meeting. The point is, the Bank doesn’t feel the need to precision-steer markets to the timing of rate changes.

2. Second, the BoE was raising rates much earlier than either the Federal Reserve or European Central Bank in the latest hiking cycle. That means that, other things equal, they can cut earlier too.

3. Third, some of the last interest rate rises put through by the Bank were on the back of the mini-budget fallout in the autumn of 2022. Now that some distance has been put between that episode and today, those insurance hikes could be taken out while still keeping rates in restrictive territory.

4. Fourth, inflation in April could well be at or just below the Bank’s 2% inflation target due to strong energy-related base effects. It could look odd for the Bank to remain on hold against a backdrop of inflation back at target, and risks the MPC being tagged as too late on the way down as well as on the way up.

5. Finally, May is a forecast month. Though MPC members, including the Governor, have been at pains to stress that ‘all meetings are live’, a forecast publication month does allow more space for the Bank to communicate its views and outlook. Market rates are now expected to be high for longer on the back of a resilient US economy, putting inflation and activity lower over the MPC’s forecast horizon and offering yet another signal that cuts are on their way.

Surveyors: high mortgage rates are deterring house buyers

Hilary Osborne

The number of homes for sale in the UK rose in April, but recent rises in mortgage rates started to deter would-be buyers, according to the latest report from surveyors.

The Royal Institution of Chartered Surveyors (Rics) said more of its agents had reported a rise in new instructions by sellers than at any point since September 2020, when the post-Covid bounce was still in effect.

It said this boost in listings suggested people were feeling more comfortable about entering the market.

However, at the same time, recent increases in mortgage rates have slowed buyer demand.

Although the start of the year saw a flurry of mortgage rate cuts, costs have been edging up in recent weeks.

Rightmove’s latest weekly snapshot of the mortgage market showed that the average interest rate on a five-year fixed-rate mortgage had gone above 5% for the first time since January, and that, at 5.02%, the cost was higher than the 4.56% recorded a year ago.

Two-year fixed rates are also typically more expensive than in May 2023, with the average up from 4.84% to 5.41% this week.

Simon Rubinsohn, chief economist at Rics, said:

“Feedback to the latest Rics survey demonstrates the sensitivity of the sales market to interest rates at the present time, given the continuing challenge around affordability.

“A modest back up in mortgage pricing has contributed to the flatlining in the buyer enquiries metric over the past month, as well as the slightly more cautious signals around near-term expectations.”

Rics said reports were mixed around the country, and that “a notable loss of momentum” was mainly being seen in London and parts of the south of England.

These are the parts of the country where prices are highest, and small increases in mortgage rates will be felt most by buyers.

The Bank’s policymakers do appear split on when to cut rates, judging by their recent comments.

Last month, deputy governor Dave Ramsden declared that he has become “more confident” that domestic inflation pressures are receding. Ramsden argued that UK inflation could hold around the Bank of England’s 2% target for the next three years, rather than rising at the end of this year as the Bank had expected.

Governor Andrew Bailey predicted “quite a strong drop” in the next inflation reading.

But other policymakers have sounded more cautious.

Huw Pill, chief economist, argued in April that “the time for cutting bank rate remains some way off.”

And external policymaker Megan Greene has said that the UK wage growth and services inflation “just aren’t consistent” with keeping inflation sustainably at the 2% target.

Reuters has more details here.

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

Britain’s central bank could inch closer to its first cut in interest rates since the start of the pandemic today.

The Bank of England is widely expected to leave interest rates on hold at its latest monetary policy committee (MPC) meeting. But the MPC may also give hints about how soon it will start to lower rates from their current 16-year high of 5.25%.

As inflation dropped to 3.2% in March, nearer the Bank’s 2% target, policymakers can have some hope that price pressures are easing; headline inflation is expected to soon fall below 2%.

But wage growth – last clocked at 6% year-on-year – appears to be too high for the Bank’s comfort.

The BoE will release its latest economic forecasts at noon, alongside the interest rate decision, followed by a press conference 30 minutes later.

This morning, the money markets suggest there’s just a 5% chance of an interest rate cut today, with a 95% likelihood that the MPC leaves rates on hold.

But today’s decision may not be unanimous. At the last meeting, in March, the MPC voted by a majority of 8–1 to maintain Bank Rate at 5.25%; could a second dove join policymaker Swati Dhingra and vote for a cut?

Karen Ward, chief market strategist for EMEA at J.P. Morgan Asset Management, argues that the Bank should look through short-term dip in inflation and not cut rates today.

Ward explains:

“With real wages returning to positive growth, the economy appears to be gaining momentum. That means the current dip in inflation we’re seeing is likely temporary, with a possible resurgence on the cards for the second half of the year.

“By late summer, the Bank of England may have more evidence of easing underlying pressures. However, for now, I think it should communicate that its target is medium-term and, just as it looked through 10% headline inflation, it should also look through a short-term dip in inflation.”

Looking further ahead, the money markets currently expect the Bank’s first cut to come by August, with a second likely in November or December.

But some City economists believe the Bank could cut rates as soon as June.

Kathleen Brooks, research director at XTB, says:

The market is expecting the first rate cut from the BOE between June and August. If the BOE does intend to cut rates next month, then we would expect to get a clear indication from the Bank on Thursday that this could happen.

Conversely, if the Bank pours cold water on a June rate cut, the market could be disappointed, sterling may rally, and UK Gilt yields could rise, Brooks adds.

The agenda

• 11am BST: Ireland’s inflation data for April

• Noon BST: Bank of England interest rate decision

• 12.30pm BST: Bank of England press conference

• 1.30pm BST: US weekly jobless claims

• 5.15pm BST: Virtual Q&A with Bank of England chief economist Huw Pill