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Gradual? Try ‘glacial’ for Bank of England rate hikes

By Reuters
Published: 11:35 EDT, 1 November 2017 | Updated: 11:35 EDT, 1 November 2017
By Andy Br..



By Reuters

Published: 11:35 EDT, 1 November 2017 | Updated: 11:35 EDT, 1 November 2017

By Andy Bruce and Saikat Chatterjee

LONDON, Nov 1 (Reuters) – The Bank of England has a problem.

It is poised to raise interest rates for the first time in a decade on Thursday, with the hike expected to be from 0.25 to 0.5 percent. But many investors in British assets and economists are sceptical this will mark the start of a cycle of "limited and gradual" rises, as the BoE has been signalling since 2014.

They are instead betting the uncertainties surrounding Britain's exit from the European Union and fundamental weaknesses in the British economy will hinder any plan to pursue a cycle of rate rises, no matter how gradual.

Marc Ostwald, market strategist at ADM Investor Services, said the market expectations for rate rises was best summed up as "one and done". He added the bank and its Governor Mark Carney had put themselves under undue pressure with their own recent guidance on rates.

"The BoE has painted itself into a corner," he said.

Carney thinks leaving the EU will reduce the speed limit on how fast the economy can grow without pushing up inflation, which has hit a five-year high of 3 percent, above the BoE's 2 percent target.

In other words, higher rates will be needed even if growth is weak, although they are unlikely to return to pre-financial crisis rates of around 5 percent for the foreseeable future.

While many investors accept his logic in principle, they say it is impossible to look beyond the hard data available now which shows a lacklustre economy and the likelihood of more turbulence from Brexit negotiations.

"We think the UK economy is in a structurally weak place … and as such further rate hikes after this week look very difficult," said Nick D'Onofrio, managing partner at North Asset Management, a hedge fund in London with around $500 million under management.

He cited Britain's current account deficit – the largest among major advanced economies last year – as a vulnerability.

"We would look to sell sterling into any post BoE-rate hike bounce," D'Onofrio said.


Financial market expectations for interest rates, measured by overnight index swaps, assign an almost 90 percent chance of a 25 basis-point hike on Thursday.

But after that, the chance of a further 25 basis-point increase stood on Tuesday between 30 and 38 percent for 2018, Ostwald said.

He thinks Carney has left himself a tough task to explain the BoE's future intentions for rates.

If the BoE does hike this week, the governor faces a precarious balancing act: he will want to reassure the public that borrowing costs are not set to rise sharply, without encouraging complacency in markets that rates will stay super-low.

Investors were surprised in September by a marked escalation in tone from the BoE's Monetary Policy Committee (MPC), most of whose members felt a hike would probably be needed "over the coming months" if the economy and price pressures continued to grow.

Markets had not been expecting a rate rise before 2019 but shifted fast to focus on November. A change in tone from the BoE on Thursday could cause further shifts.

Almost all economists polled by Reuters last week expect the BoE to raise rates on Thursday. But most do not expect another one next year: the poll's consensus shows the rate is likely to be stuck at 0.5 percent until mid-2019. Seventy percent said even one rate rise now would be a mistake.

The latter view is common in markets, too.

Carney may struggle to get his message about future rate hikes through to investors who are worried about the progress of Brexit talks above all else.

"We are about to see the largest economic adjustment the country has seen in decades and the BoE is tightening policy into that," said Russell Silbertson, head of Multi-Asset Absolute Return at Investec Asset Management in London.

He has trimmed his sterling positions after the pound's recent rally.

"Given that households are leveraged up and the economy is weak, we remain sceptical about (the BoE's) optimism," he said.


The BoE has long been criticised for its efforts to steer market expectations for interest rates, a policy called forward guidance introduced in 2013.

Under Carney the BoE has made a habit of signalling higher rates and then being unable to deliver them.

"It does look as if people have not received the Bank's attempts (at forward guidance)," said former BoE deputy governor Rachel Lomax, speaking at a monetary policy discussion organised by economic research firm Fathom Consulting on Tuesday.

Lomax, an MPC member for five years until 2008, recalled debates about the merits of forward guidance.

"People who were against it always said no-one will ever understand that it's conditional, we will just look like fools and so on," Lomax said. "Maybe the naysayers were right. But I give Mark basically credit for trying."

Other economists are less forgiving.

Erik Britton, Fathom Consulting's managing director, said Carney faced a no-win scenario on Thursday.

"I think there's a high likelihood that they're going to trip over their own forward guidance," he said.

"Either way, he's going to look a bit silly. Because even if they (hike rates), people will judge it unnecessary. Or if they don't do it, people will say 'what on earth was that forward guidance about?'"

(Writing by Andy Bruce; Graphic by Michael Ovaska; Editing by William Schomberg and Pravin Char)

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Sydney seaplane crash: Exhaust fumes affected pilot, report confirms




The pilot of a seaplane that crashed into an Australian river, killing all on board, had been left confused and disorientated by leaking exhaust fumes, investigators have confirmed.

The Canadian pilot and five members of a British family died in the crash north of Sydney in December 2017.

All were found to have higher than normal levels of carbon monoxide in their blood, a final report has found.

It recommended the mandatory fitting of gas detectors in all such planes.

British businessman Richard Cousins, 58, died alongside his 48-year-old fiancée, magazine editor Emma Bowden, her 11-year-old daughter Heather and his sons, Edward, 23, and William, 25, and pilot Gareth Morgan, 44. Mr Cousins was the chief executive of catering giant Compass.

The family had been on a sightseeing flight in the de Havilland DHC-2 Beaver plane when it nose-dived into the Hawkesbury River at Jerusalem Bay, about 50km (30 miles) from the city centre.

The final report by the Australian Transport Safety Bureau (ATSB) confirmed the findings of an interim report published in 2020.

It said pre-existing cracks in the exhaust collector ring were believed to have released exhaust gas into the engine bay. Holes left by missing bolts in a firewall then allowed the fumes to enter the cabin.

“As a result, the pilot would have almost certainly experienced effects such as confusion, visual disturbance and disorientation,” the report said.

“Consequently, it was likely that this significantly degraded the pilot’s ability to safely operate the aircraft.”

The ATSB recommended the Civil Aviation Safety Authority consider mandating the fitting of carbon monoxide detectors in piston-engine aircraft that carry passengers.

It previously issued safety advisory notices to owners and operators of such aircraft that they install detectors “with an active warning” to pilots”. Operators and maintainers of planes were also advised to carry out detailed inspections of exhaust systems and firewalls.

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Australia unlikely to fully reopen border in 2021, says top official




Australia is unlikely to fully open its borders in 2021 even if most of its population gets vaccinated this year as planned, says a senior health official.

The comments dampen hopes raised by airlines that travel to and from the country could resume as early as July.

Department of Health Secretary Brendan Murphy made the prediction after being asked about the coronavirus’ escalation in other nations.

Dr Murphy spearheaded Australia’s early action to close its borders last March.

“I think that we’ll go most of this year with still substantial border restrictions,” he told the Australian Broadcasting Corporation on Monday.

“Even if we have a lot of the population vaccinated, we don’t know whether that will prevent transmission of the virus,” he said, adding that he believed quarantine requirements for travellers would continue “for some time”.

Citizens, permanent residents and those with exemptions are allowed to enter Australia if they complete a 14-day hotel quarantine at their own expense.

Qantas – Australia’s national carrier – reopened bookings earlier this month, after saying it expected international travel to “begin to restart from July 2021.”

However, it added this depended on the Australian government’s deciding to reopen borders.

Australia’s tight restrictions

The country opened a travel bubble with neighbouring New Zealand late last year, but currently it only operates one-way with inbound flights to Australia.

Australia has also discussed the option of travel bubbles with other low-risk places such as Taiwan, Japan and Singapore.

A vaccination scheme is due to begin in Australia in late February. Local authorities have resisted calls to speed up the process, giving more time for regulatory approvals.

Australia has so far reported 909 deaths and about 22,000 cases, far fewer than many nations. It reported zero locally transmitted infections on Monday.

Experts have attributed much of Australia’s success to its swift border lockdown – which affected travellers from China as early as February – and a hotel quarantine system for people entering the country.

Local outbreaks have been caused by hotel quarantine breaches, including a second wave in Melbourne. The city’s residents endured a stringent four-month lockdown last year to successfully suppress the virus.

Other outbreaks – including one in Sydney which has infected about 200 people – prompted internal border closures between states, and other restrictions around Christmas time.

The state of Victoria said on Monday it would again allow entry to Sydney residents outside of designated “hotspots”, following a decline in cases.

While the measures have been praised, many have also criticised them for separating families across state borders and damaging businesses.

Dr Murphy said overall Australia’s virus response had been “pretty good” but he believed the nation could have introduced face masks earlier and improved its protections in aged care homes.

In recent days, Australia has granted entry to about 1,200 tennis players, staff and officials for the Australian Open. The contingent – which has recorded at least nine infections – is under quarantine.

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Covid: Brisbane to enter three-day lockdown over single infection




The Australian city of Brisbane has begun a snap three-day lockdown after a cleaner in its hotel quarantine system became infected with coronavirus.

Health officials said the cleaner had the highly transmissible UK variant and they were afraid it could spread.

Brisbane has seen very few cases of the virus beyond quarantined travellers since Australia’s first wave last year.

It is the first known instance of this variant entering the Australian community outside of hotel quarantine.

The lockdown is for five populous council areas in Queensland’s state capital.

Premier Annastacia Palaszczuk announced the measure on Friday morning local time, about 16 hours after the woman tested positive.

Ms Palaszczuk said the lockdown aimed to halt the virus as rapidly as possible, adding: “Doing three days now could avoid doing 30 days in the future.”

“I think everybody in Queensland… knows what we are seeing in the UK and other places around the world is high rates of infection from this particular strain,” she said.

“And we do not want to see that happening here in our great state.”

Australia has reported 28,500 coronavirus infections and 909 deaths since the pandemic began. By contrast, the US, which is the hardest-hit country, has recorded more than 21 million infections while nearly 362,000 people have died of the disease.The lockdown will begin at 18:00 on Friday (08:00 GMT) in the Brisbane city, Logan and the Ipswich, Moreton and Redlands local government areas.

Residents will only be allowed to leave home for certain reasons, such as buying essential items and seeking medical care.

For the first time, residents in those areas will also be required to wear masks outside of their homes.

Australia has faced sporadic outbreaks over the past year, with the most severe one in Melbourne triggering a lockdown for almost four months.

A pre-Christmas outbreak in Sydney caused fresh alarm, but aggressive testing and contact-tracing has kept infection numbers low. The city recorded four local cases on Friday.

Prime Minister Scott Morrison’s government has pledged to start mass vaccinations in February instead of March as was planned.

Lockdown interrupts ‘near normal’ life in Brisbane

Simon Atkinson, BBC News in Brisbane

At 8:00 today I popped to the local supermarket for some bread, milk – and because it’s summer here – a mango. I was pretty much the only customer.

When I went past the same shop a couple of hours later it was a different story – 50 people standing in the drizzle – queuing to get inside as others emerged with bulging shopping bags. “Heaps busier than Christmas,” a cheery trolley attendant told me. “It’s off the scale”.

Despite the “don’t panic” messages from authorities, pictures on social media show it’s a pattern being repeated across the city.

While shutdowns are common around the world, the tough and sudden stay-at-home order for Brisbane has caught people on the hop here after months of near normality.

But while such a rapid, hard lockdown off the back of just a single case of Covid-19 will seem crazy in some parts of the world, I’ve not come across too many people complaining.

And I don’t think that’s just because Aussies love to follow a rule. This is the first time the UK variant of the virus has been detected in the community in Australia.

And nobody here wants Brisbane to go through what Melbourne suffered last year. Even if it means going without mangoes.

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