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Bank of England wrong-foots markets, keeps rates on hold

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November 4, 2021

By William Schomberg, David Milliken and Andy Bruce

LONDON (Reuters) -The Bank of England kept interest rates on hold on Thursday, dashing investors’ expectations for a hike that would have made it the first of the world’s big central banks to raise borrowing costs after the COVID-19 pandemic.

The BoE kept alive the prospect of a move soon, saying it would probably have to raise Bank Rate from its all-time low of 0.1% “over coming months” if the economy performed as expected.

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But seven of its nine policymakers voted to leave rates unchanged for now so they can see how many people are unemployed after the recent end of the government’s job furlough scheme.

Governor Andrew Bailey said two scheduled labour market data releases between now and the BoE’s next interest rate decision on Dec. 16 could clear up that uncertainty.

“But let me caution that by (saying) please do not therefore assume that I’m giving you a strong clue about anything,” he told a news conference.

Investors responded to the BoE’s announcement by putting a roughly 60% chance on a rate hike in December, much less than the 100% chance they had put on a hike at November’s meeting.

Only two Monetary Policy Committee members – Deputy Governor Dave Ramsden and Michael Saunders – voted for an immediate 15 basis-point rate hike.

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Sterling fell against the U.S. dollar by the most in more than six weeks and British government bond prices leapt as investors were wrong-footed by the BoE’s announcement.

Markets had been convinced that a rate hike was coming in November after Bailey spoke last month of the need to act to contain inflation expectations.

“The question is why has the governor sounded so hawkish over the last couple of months when in speech after speech he has clearly nudged market expectations higher,” Paul O’Connor, head of the multi-asset team at Janus Henderson, said.

Bailey said he had never committed to action.

“It was a very clear warning and statement – but a conditional one – on what we had to do in that conditional world,” he said, referring to comments he made on Oct. 17.

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Thursday’s announcement had been “a very close call,” Bailey said.

The BoE’s cautious approach comes a day after the U.S. Federal Reserve said on Wednesday it would start scaling back its bond-buying programme this month, a precursor to its first rate increase which investors expect in mid-2022.

The European Central Bank has been more explicit about its determination to keep the stimulus flowing. Its President Christine Lagarde said on Wednesday that the ECB was very unlikely to raise rates next year.

On Thursday, the BoE said the MPC voted 6-3 to let its government bond-buying programme reach its full size of 875 billion pounds. Catherine Mann joined Ramsden and Saunders to scale back that part of the bank’s stimulus programme.

Including its 20 billion pounds of corporate bond holdings – which this month will start to be reinvested in greener debt – the total asset purchase target remained at 895 billion pounds.

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“VALUE IN WAITING”

The BoE said most MPC members still thought “there was value in waiting” for data on the labour market.

Earlier on Thursday, Britain’s statistics office said survey evidence showed most workers who were still on the furlough programme when it closed at the end of September had returned to their employers on the same hours.

The MPC members who voted against a rate hike also noted a recent slowdown in consumer demand.

A Reuters poll last week showed economists had mostly expected a 6-3 vote in favour of keeping Bank Rate on hold.

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The BoE’s new forecasts showed slower economic growth as bottlenecks in global supply chains continued in the near term.

The world’s fifth-biggest economy was seen regaining its pre-pandemic size in the first quarter of 2022, three months later than previously thought.

Growth in 2021 was trimmed to 7% and the forecast for 2022 was cut to 5% from a previous 6% before slowing sharply to 1.5% in 2023 and 1% in 2024.

Inflation was seen jumping to around 5% in April, driven mostly by surging global energy prices, before falling back to just below the BoE’s 2% target in three years’ time.

That projection was based on the BoE’s usual practice of assuming that six-month energy futures prices stay unchanged for the rest of its three-year forecast period.

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However, the BoE drew attention to an alternative scenario, which included a drop-off in prices in the second half of 2022 that has been factored into energy markets.

That scenario showed inflation was likely to be “materially lower” than its 2% target in 2023 and 2024, if interest rates also rose as fast as markets expect.

The inflation forecasts sent a signal to investors that they have been pricing in too many BoE rate hikes.

The rate pricing used by the bank showed Bank Rate hitting 1% by the end of 2022.

Bailey told investors not to count on rates rising as high as they have expected.

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(Additional reporting by Sujata Rao; Editing by Hugh Lawson)

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UK firms struggle to find staff, see higher inflation – BoE survey

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December 2, 2021

LONDON (Reuters) – British companies are struggling to find the staff they need and expect higher inflation in the year ahead, according to a survey published on Thursday by the Bank of England which is weighing up whether to raise interest rates this month.

The BoE’s monthly Decision Maker Panel survey showed 85% of respondent firms were finding it harder to recruit new employees compared to normal, with 58% reporting it to be much harder.

The survey also showed year-ahead annual price inflation was expected to be 4.2%, up from 3.9% in the October survey.

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(Writing by William Schomberg, editing by Andy Bruce)

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Sustainable investors look for profits in fuzzy data

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December 2, 2021

By Ross Kerber and Simon Jessop

(Reuters) – Sustainability-focused investors believe a little effort can go a long way toward finding profitable opportunities buried in incomplete corporate environmental or social impact filings.

That is according to several speakers on a panel at  the  Reuters Next conference, who described how they choose sustainable investments and work with executives at a time when there are few standard requirements for how major U.S. and European companies should detail carbon emissions disclosures or workforce demographics.

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Eoin Murray, head of investment at Federated Hermes, said the disparate reports from many companies give portfolio managers the chance to dig deeper.

“As an active manager, there’s a part of me which doesn’t mind that some of the data doesn’t entirely line up, because it means the rewards go to those that do their homework properly and unearth the real gems,” Murray said.

Mary Jane McQuillen, a managing director for ClearBridge Investments, said while some companies are eager to become more sustainable, others are defensive and don’t want to be burdened by yet another topic of investor interest.

A third group, McQuillen said, admits there is much about sustainable reporting they don’t know, and is seeking input from their shareholders.

“They say, ‘we really don’t know what the issues are. If you can help us as an owner, and with your years of experience as an investor in understanding how these issues may apply to my industry, as well as to my particular company, that would be super helpful,” she said.

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U.S. regulators are in the process of developing guidance for how companies should spell out things like emissions, and rules in Europe are just coming into place.

At the U.N. climate change conference in Glasgow, Scotland, in November, global leaders agreed to do more to curb carbon emissions and took other steps toward setting up global carbon markets and an international body to set sustainability reporting standards.

Julie Gorte, senior vice president at Impax Asset Management, said absent complete corporate reporting, investors can still learn a great deal about companies’ environmental, social or governance impact through government filings.

“For companies the watchword is, look, people are going to find out stuff about you, whether you tell them or not. If you want them to know what the truth is, tell them,” Gorte said.

To watch the Reuters Next conference please register here https://reutersevents.com/events/next/

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(Reporting by Ross Kerber and by Simon Jessop; Editing by Sonya Hepinstall)

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Facebook could be sued by consumer groups, EU court adviser says

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December 2, 2021

By Foo Yun Chee

BRUSSELS (Reuters) – Facebook could be sued by consumer groups for privacy violations, an adviser to Europe’s top court said on Thursday, in a German online gaming case that could pave the way for similar action across the EU.

The case started in 2012 and is one of several privacy and antitrust headaches facing Facebook in Europe, where regulators have introduced legislation to curb the power of so-called tech giants and ensure more transparency.

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“Member states may allow consumer protection associations to bring representative actions against infringements of the protection of personal data,” Richard de la Tour, advocate general at the Luxembourg-based Court of Justice of the European Union (CJEU), said in an opinion.

Such actions must be based on infringements of rights derived directly from GDPR, he added, referring to the landmark EU privacy rules adopted three years ago.

“We’ll analyse the Advocate General’s opinion. Legal clarity on scope and process of GDPR is important and we’re glad the Court of Justice of the European Union is considering the questions raised in this case.” said a spokesperson Meta Platforms Inc.

GDPR stipulates that any requests to collect personal data should be subject to clear and informed consent.

De la Tour said consumer bodies that defend the collective interests of consumers are particularly suited to GDPR’s objective of establishing a high level of personal data protection.

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Facebook found itself in the dock after the Federation of German Consumer Organisations filed a lawsuit alleging that the social network had allowed operators of online games to improperly collect the personal data of gamers.

The games were offered on Facebook’s App Center in 2012. By playing the games, users automatically agreed to share personal data including email addresses. At the end of the game, they would receive a message saying that the app could post their status, photos and other information.

A German lower court had ruled in favour of the German federation, leading Facebook to appeal to a higher court, which subsequently sought advice from the CJEU.

Facebook has since revamped its privacy settings.

(Reporting by Foo Yun Chee; Editing by David Goodman)

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