UK interest rate cuts should be ‘a way off’ says Bank of England’s Greene, as US inflation worries markets – business live

Estate agents and surveyors are predicting the property market will bounce back over the coming months.

The latest survey by the Royal Institution of Chartered Surveyors (Rics), released this morning, shows that buyer demand rose again last month, to its highest level in two years.

With property listings also rising, surveyors expect house prices across the UK to return to growth within the next 12 months.

Falls in mortgage rates since last summer have helped the market, as investors have anticipated cuts from the Bank of England this year….

More here:

There’s takeover drama in the self-storage world this morning, as another UK company falls to a foreign buyer.

Europe’s Shurgard has agreed a deal to buy London-listed Lok’nStore, in a deal worth £378m.

Shurgard says the deal will accelerate its growth strategy; Lok’nStore has 32 properties in the South East of England, and five more under development, plus five in Manchester and another three on the way.

Shares in Lok’nStore have jumped 17% to a record high of £11.25, slightly above Shurgard’s offer of £11.10 per share.

Lok’nStore chair Andrew Jacobs said the offer represented “significant value” for shareholders, and recognises “the quality of Lok’nStore’s real estate portfolio and operational strength.”

But it’s another example of a UK firm being snapped up by an overseas buyer, at a time of growing concern that the London market is not valuing companies properly.

Just yesterday, UK-based biotechnology group e-Therapeutics PLC announced it was leaving the London Stock Exchange’s junior Alternative Investments Market, blaming a lack of support from U.K. institutional investors.

CEO Ali Mortazavi said the UK markets were “completely broken and closed”

Oil giant Shell has added to the pressure, with Wael Sawan saying it is undervalued in London and dropping some hints that it could shift to New York….

AstraZeneca has announced plans to lift its annual dividend for 2024 by 7% to $3.10 per share, up from $2.90.

The UK pharmaceuticals giant says the move underlines its “confidence in its performance and cash generation”.

The news comes just hours before AZ holds its AGM, where investors will vote on whether to approve CEO Pascal Soriot’s £17m pay packet (see opening post).

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, suggests it might dampen some opposition to Soriot’s bumper deal:

Shareholders won’t be blind to the fact that this is a barely disguised sweetener, but it may quell appetites enough to get the divisive package through.

The bigger picture for Astra still centres on the work it does on rarer and more complex treatments – dominating this area of the market takes very deep pockets, and that doesn’t appear to be under threat.

Heathrow is calling on the government to scrap a new £10 charge for overseas travellers who use UK airports to connect to other flights, warning that it puts UK airports at a competitive disadvantage compared with other European rivals.

The Electronic Travel Authorisation (ETA) was introduced in November for non-UK residents travelling to the UK from Qatar, and now also covers travellers from Bahrain, Kuwait, Oman, the United Arab Emirates, Saudi Arabia and Jordan.

Heathrow says it supports the overall rationale behind the ETA, but argues that transiting passengers needed to be exempted as this was hitting passenger numbers. More here.

Heathrow also reported that nearly seven million passengers passed through in March,

Victoria Scholar, head of investment at interactive investor, explains:

Heathrow enjoyed a boost in March thanks to the earlier-than-normal Easter weekend and school holidays with many families taking the opportunity to go on holiday abroad.

It was the busiest Easter weekend ever for Heathrow, and Good Friday was the busiest ever direct departure day with 118,000 travellers passing through. Despite pressures from inflation and a weak economic backdrop, individuals and families clearly continue to prioritise their travel plans at the expense of other spending.

Plus with cost-of-living pressure easing and wage growth still strong, the economic dynamics in the UK have been improving at the start of 2024 following last year’s recession, encouraging greater spending in the economy, including on air travel.”

The latest money market pricing shows that the first cut in UK interest rates is fully priced in by August.

That’s earlier than for the US. After yesterday’s US inflation report, financial markets pushed back their expectations for the first rate cut to September from June, according to CME’s FedWatch Tool.

That’s concerning Megan Greene, who argued in her piece today that “the markets are moving rate cut bets in the wrong direction:.

A Bank of England policymaker says UK interest rate cuts should be ‘a way off’, a blow to borrowers hoping for cheaper credit soon.

Megan Greene, an external member of the Bank’s monetary policy committee, argues that there is a greater threat of inflation persistence in the UK than in the US (where we know prices are rising faster than expected).

And she fears that market pricing for UK interest rates does not reflect this persistence.

Writing in the Financial Times this morning, after yesterday’s US inflation shock, Greene says the UK economy has faced a “double whammy” of a very tight labour market and a terms of trade shock from energy prices.

Green writes that macroeconomic fundamentals and inflation dynamics differ in the UK and US, and that the markets aren’t fully reflecting this:

She explains:

There has been encouraging news on UK wage growth and services inflation in recent months. The risk of inflation persistence is diminishing as these indicators come down in line with the MPC’s forecast. But they remain higher than in other advanced economies, particularly the US.

Momentum in the markets has been towards pricing in later rate cuts by the Fed as economic growth remains robust. In my view, rate cuts in the UK should still be a way off as well.

More here:

Traders have cut their forecasts for UK interest rate cut this year, after Wednesday’s US inflation data. They expect at least just two quarter-point cuts this year.

UK Bank rate is now seen falling to around 4.75% by the end of 2023, down from 5.25% today, having previously been expected to drop to 4.5% by December.

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

Investors are growing nervous that central banks will not cut interest rates as soon as they had hoped this year, with inflation remaining suprisingly sticky.

Traders have slashed their bets on Federal Reserve interest rate cuts after US inflation rose by more than expected in March.

They now expect just one or two cuts to US interest rates (which are currently 5.25%-5.5% range) this year, down from three earlier this week – and six at the start of the year.

Yesterday’s CPI data showed US prices rose by 3.5% per year in March, higher than expected, up from 3.2% in February.

The report will be a big disappointment for the Federal Reserve, says Matthew Weller, global head of research at FOREX.com and City Index, addding:

Traders are souring on the potential for a June rate cut from the Fed, with the September/November timeframe now looking more likely.

The data prompted US president Joe Biden to press grocery retailers to lower prices, admitting that “prices are still too high for housing and groceries”.

There’s even some chatter that the Fed’s next move could be another hike, rather than the long-expected cut.

Former Treasury Secretary Lawrence Summers told Bloomberg TV yesterday:

“You have to take seriously the possibility that the next rate move will be upwards rather than downwards.”

Such a likelihood is somewhere in the 15% to 25% range, Summers indicated.

Also coming up today

European monetary policy will be in focus this afternoon, when the European Central Bank sets interest rates for across the eurozone.

The ECB is expected to leave borrowing costs unchanged, but ECB president Christine Lagarde may be pressed about how close her governing council is to cutting interest rates, as eurozone inflation has now dropped to 2.4%

No change in interest rates is anticipated, yet Lagarde will be called upon to clarify what “little more” we have actually learned about inflation and the rate outlook, and whether she will finally hint at a June rate cut.

AstraZeneca shareholders will vote on its CEO’s controversial £1.8m pay rise, which would take Pascal Soriot’s maximum package to £18.7m this year.

The agenda

• 7am BST: Norway’s GDP report for February

• 9.30am BST: Latest UK economic activity and social change data

• 1.15pm BST: European Central Bank interest rate decision

• 1.30pm BST: US Producer Price Index (PPI) index

• 1.30pm BST: US weekly jobless claims

• 1.45pm BST: European Central Bank press conference