According to the latest figures from job search platform Adzuna, the average advertised salary hit £42,278 in April 2025, a rise of 8.9% year-on-year, marking the steepest annual increase since June 2022. Every month, salaries rose by 0.75%, further complicating the central bank’s efforts to justify additional interest rate cuts.

The Monetary Policy Committee (MPC) of the Bank of England is now witnessing its key members, including the Bank’s chief economist Huw Pill, expressing concern about elevated wage growth, warning that loosening monetary policy too quickly could reignite inflationary pressures.

According to Adzuna, vacancies rose slightly by 1% year-on-year to 862,876, but were down 0.95% compared to March, suggesting a mixed picture for hiring momentum.

What’s going on?

Sectors seeing the strongest demand for workers included healthcare, which hit its highest vacancy level since January 2023, as well as hospitality, logistics, teaching, and retail. The construction and trade sectors recorded a sharp 15.2% decline in vacancies, reflecting cooling activity in those industries.

The BoE had been hoping for a clearer signal that inflationary pressures were easing before committing to a series of rate cuts in the second half of 2025. However, April’s inflation surprise, which saw the consumer price index jump to 3.5%, up from 2.6% in March, has prompted fresh caution.

Although the ONS reported a slight slowdown in overall wage growth, down to 5.6% in Q1 from 5.9% in Q4, starting salary trends suggest that employer competition for skilled staff remains high, particularly in regions with labour shortages. The MPC has a dilemma: to stay with rate reductions to stimulate growth, or pause to prevent an inflationary rebound.

A Chartered Institute of Personnel and Development (CIPD) study paints a different yet painful picture.

The report, titled “Labour Market Outlook – Spring 2025,” found employer confidence declining again this quarter, with the net employment balance falling to +8 — the lowest level recorded outside of the pandemic. Hiring intentions have softened, and one in four employers now plan redundancies, rising to 27% in the private sector.

Rising employment costs, including increases in National Insurance and the National Living Wage, are forcing many organisations to scale back recruitment, limit training investment, and consider price increases. Uncertainty around the Employment Rights Bill and global events adds to employers’ caution.

“The further softening in employment in April suggests businesses continued to respond to the rise in business taxes and the minimum wage by reducing headcount,” said Ruth Gregory, deputy chief UK economist at Capital Economics.

She also stated that despite a deceleration in wage growth, it remained relatively strong, meaning the Bank of England will remain cautious over future interest rate cuts.

For BoE, the key concern is that if earnings grow quickly, firms will seek to push up prices, thereby putting up the inflation rate.

As per Gregory, sticky wage growth (a situation where wages do not immediately adjust up or down in response to changes in labour market conditions) may mean the bank remains uneasy about inflationary pressures in the near term.

Wage hike: A new battlefield?

The Bank of England has noted that wages have quietly continued to rise, raising concerns that this could indicate a seismic and more long-lasting shift in the relationship between workers and employers. In May, the European country announced its public sector pay awards, which were higher than ministers had previously said they could afford and outstripped higher-than-expected inflation.

Still, it failed to please the disgruntled doctors. In fact, the latter threatened to protest against the new pay structure. After teachers were awarded a 4% increase, teaching unions also responded angrily to the Keir Starmer government’s refusal to fully fund the deal and warned that it would damage the quality of education that pupils received. The largest union plans to take the first step towards possible industrial action.

The decision to award 1.4 million NHS staff, including nurses, midwives and ambulance workers, a smaller rise (3.6%) also met with anger. The Royal College of Nursing (RCN) said it was “grotesque” to hand doctors a bigger increase than nurses who earned less than them.

Wes Streeting, the health secretary, and Bridget Phillipson, the education secretary, sought to defend the rises by highlighting that they represented the second time public sector personnel had received above inflation pay rises since Labour took power in 2024.

Are we seeing a 2022 scenario being played out all over again? Back then, inflation not only rocketed, it led to a situation where, in a desperate scramble to keep pace with rising prices to protect their incomes, British private and public sector workers took widescale industrial action in a way that brought back memories of the 1970s. What followed was a series of pay deals thrashed out between bosses and employees, with unions often arguing they had been due pay increases for years.

When considering the British private sector, relations between bosses and the rank and file have already been redefined by a shift towards remote working caused by the COVID-19 pandemic, and then companies’ increasing insistence on more regular attendance at work. Despite the volatile background, Threadneedle Street policymakers now ask whether the wage increases indicate that the power balance has moved back in the direction of workers, allowing them to protect their finances. Data from the Office for National Statistics (ONS) has gone some way to justifying the BoE view.

According to payroll data from the ONS, wages in the hospitality sector rose sharply, with hotels and restaurants increasing staff pay by 8.5% in the year to April, well above the 3.5% inflation rate. Retail workers also saw gains, with median pay rising by 6.9% over the same period. Across the economy, average wage growth reached 6.4%.

Recently, BoE chief economist Huw Pill said the UK’s labour market was becoming less flexible, suggesting employers were no longer able to freely hire and fire as they once could. Businesses, charities and public sector organisations have been laying off staff and freezing job adverts, but those staff who stay behind are well rewarded.

Ben Caswell, an economist at the National Institute of Economic and Social Research (NIESR), said, “Wages adjusted for inflation have returned to where they were before the cost of living crisis began in 2021. And the share of overall national income that is secured by workers rather than firms has also recovered to 2021 levels. While the average pay figures disguise many winners and losers, the aggregate figure showed most workers had benefited from inflation-busting pay rises to recover lost ground.”

He also focused on a slightly less up-to-date measure of pay based on employees’ average regular earnings over a rolling three-month period. This showed a rise in Great Britain that was still well above inflation at 5.6% in January to March 2025, though not as much as the PAYE data shows.

Caswell sees a series of minimum wage increases, closing the gap with the average wage, which is likely to fuel further pay rises as companies attempt to maintain a significant difference between the salaries of those on the bottom rung and the semi-skilled workers and middle managers above them.

What to expect next?

James Smith, research director at the Resolution Foundation, said that the weakening economic outlook worked against a prolonged recovery in pay.

He noted, “If we believe that wages consistent with the Bank of England’s 2% target would be about 3.5%, then we are well above that level at the moment. And that would give the Bank good reason to be cautious about cutting interest rates. However, other pay surveys are showing earnings rising at a much slower rate, so the official figures might be a bit like Wile E Coyote and about to be brought down to earth.”

Emphasising the likely short-term nature of the current bumper pay rises, the bank’s regional agents say employers are limiting pay rises to between 3% and 4% by the end of 2025. The Starmer government is not planning to pay more than 4% to public sector workers on average, and more departmental budget squeezes may be coming up.

Talking about other industries, take the hospitality sector, for example, which is known to employ a high proportion of minimum wage workers, and the same applies to the retail industry, boosting pay in 2025.

Senior journalist Phillip Inman claimed that most likely not next year or the year after, the legal minimum salaries will start rising more slowly.

Seemanti Ghosh, principal economist at the Institute for Employment Studies, sees the significant return to office-related demands from the companies as direct evidence of worker power reaching its limits. There has also been a gold rush for digital skills, which will result in another paradigm shift in the labour market.

Employers had to pay higher wages this time around, as they needed to retain skilled staff and pay them more while they embarked on a search for workers who were more adaptable in an ever-changing work environment.

“If wage increases are not driven by negotiations with unions, then they are due to employers wanting to hang on to skilled staff. This matters for all companies that increasingly rely on soft skills for things like project management and tech skills in other areas. We also see it in the green sector, where there is a shortage of people with the skills the industry needs,” Seemanti remarked.

How much of this dislocation is systemic and will keep wages higher for longer will be a subject of debate for the rest of the year. Pill advocated for keeping interest rates elevated while the trends become clearer, believing there is less damage from higher rates than letting inflation run away again.

Other MPC members disagree, arguing that businesses cannot invest in skills training while borrowing costs are prohibitively high.

It reflects a starkly different view of the labour market, one that emphasises the lasting damage caused by rising job losses and prolonged economic stagnation.

Swati Dhingra and Alan Taylor want rates to come down quickly. Who wins the argument inside the central bank could dictate whether workers or bosses have the whip hand in the great tussle over pay.

The post UK wage hikes: Who dictates terms? appeared first on International Finance.

British businesses will bear the brunt of Reeves’ 40-billion-pound total tax rise. It means more than half of the tax rises in the Budget will be paid for by employers, with the increase in the amount they pay in National Insurance on workers’ wages expected to generate 25 billion pounds a year.

“There are two significant increases around NI that employers will have to consider, both of which are due to apply from 6 April 2025: Employer NIC will increase from the current rate of 13.8% to 15%, and the per-employee threshold at which employers become liable to pay NI will be reduced from GBP 9,100 per year to GBP 5,000 per year,” stated an analysis from insurance brokerage major Lockton Companies.

The increase in employers’ social security contributions has put many business owners on edge. The largest tax increase package in thirty years was part of Reeves’ first budget, which she characterised as a “once-in-a-generation” move to modernise the economy and invest in public services.

Although there were some exemptions or relief for the smallest firms, the increase in National Insurance will have major cost implications for established businesses, as they will have to pay higher minimum wages, higher business rates, and bear the cost of adapting to new workers’ rights under new laws. Firms have warned that such extra costs could ultimately impact the Keir Starmer government’s goal of growing the UK economy. However, according to Reeves, the “only way” to drive growth is through investment, warning that “there are no shortcuts.”

“The rate that employers pay in contributions will rise from 13.8% to 15% on a worker’s earnings above 175 pounds from April. The threshold at which employers start paying the tax on each employee’s salary will be reduced from 9,100 pounds per year to 5,000 pounds. However, the Chancellor said she would extend the Employers Allowance—the amount employers can claim back from their National Insurance bill—from 5,000 pounds to 10,500 pounds,” stated a BBC report back in October 2024, when the “Autumn Budget” had just been passed by the British Parliament.

From April 2025, the minimum wage for 21-year-olds, known officially as the National Living Wage, will rise from 11.44 pounds to 12.21 pounds. For 18 to 20-year-olds, the minimum wage will rise from 8.60 pounds to 10 pounds.

Apprentices will see their pay jump from 6.40 pounds to 7.55 pounds an hour. The current 75% discount to rates, due to expire in April 2025, will be replaced by a discount of 40%, up to a maximum of 110,000 pounds. It still means that many businesses will see their business rates more than double. Also, plans to upgrade workers’ rights will cost businesses up to 5 billion pounds a year to implement, according to the Keir Starmer government’s own analysis.

Tough Times For Companies Ahead

There are concerns that the rise in taxes will end up hitting workers and consumers. In some cases, companies could pass on the increased costs they face through higher prices; however, employee wage rises could be restricted as employers look for savings. Other tax revenues could also be hit if firms make smaller profits and people receive smaller pay packets.

The Office for Budget Responsibility, the UK’s official economic forecaster, said it assumed “most” of the increased National Insurance cost would be passed on to workers and consumers from employers through lower wages and higher prices. Leading business groups, however, said as soon as the “Autumn Budget” was released in October 2024 that the policy document was a “tough” one for ventures, pointing to the National Insurance hike as a blow to the ability of firms to invest.

“At first blush, there is precious little in the government’s first Budget which offers anything other than short-term pain,” said Roger Barker, director of policy at the Institute of Directors. Rain Newton-Smith, chief executive of the CBI (Confederation of British Industry), which claims to represent 170,000 firms, said the burden on business would make it “more expensive to hire people or give pay rises.”

The Keir Starmer government is pledging to be both “pro-business” and “pro-worker” in its policy decisions, and Reeves, during the past year, confirmed Income Tax, National Insurance for employees, and VAT would not be increased.

She also offered some relief to small firms by uplifting the amount they can claim back off their National Insurance bill. However, Reeves also said the 75% relief on business rates, which are charged on most non-domestic properties such as shops, offices, pubs, and factories, and were due to expire this April, would be replaced by a 40% discount for retail, hospitality, and leisure companies.

According to commercial real estate intelligence firm Altus Group, the average shop’s business rates will jump from 3,589 pounds to 8,613 pounds in April 2025, while pub costs will increase from 3,938 pounds to 9,451 pounds. Restaurants’ average business rates bills will rise from 5,051 pounds to 12,122 pounds.

Hiring Affected

The so-called “tax wedge,” or the gap between employers’ labour costs and workers’ take-home pay, is smaller in Britain than in its European counterparts due to decades of government policy that prioritises hiring. However, a push to reduce that gap would not be easy.

While some businesses intend to increase automation—for example, retailer Currys has announced that it will switch from paper price labels to electronic labelling—the majority of employers are thinking about reducing hiring and delaying wage increases in response to Reeves’ budget.

According to Steve Hardeman, owner of Clevedon Fasteners, a company that manufactures parts for engineering and construction companies, the social security and minimum wage increases would be the equivalent of hiring two more employees for his current staff of 28.

Rory O’Keefe, commercial director of Europlaz, a company that makes medical devices, told Reuters that his company would take three students on temporary placements rather than hiring graduates and had hired two employees on fixed-term rather than permanent contracts.

The impact of the budget changes is being closely watched by the Bank of England (BoE). After three gradual interest rate cuts since August 2024—fewer than in the US and the Eurozone—Governor Andrew Bailey and his colleagues say they anticipate continuing to lower rates.

“The BoE emphasised the uncertainty looming over the economy. A worldwide trade war is one of them, and it might lead to a slowdown and lower inflation. However, according to DotBoE surveys of British businesses, the most common responses to Reeves’ budget are higher prices and an attempt to absorb the hit to profit margins. That risk increased when US President Donald Trump announced a sharp increase in tariffs on imports from around the world,” Reuters noted.

“The central bank ran the risk of underestimating the price impact of the changes,” according to former BoE economist Rob Wood.

These changes were expected to add half a percentage point to an inflation rate that was already being pressured by other one-time costs and could even push it above 4% later in 2025, up from just under 3% at the moment. Although it would more than double the BoE’s 2% target, it would still be far lower than the inflation rate of 11% in 2022.

The post IF Insights: British businesses remain jittery as tax hit looms appeared first on International Finance.

Will it help the incumbent Rishi Sunak government to win the general elections later this year? This copy won’t discuss about the political fallouts of the UK inflation, as all the eyes will be upon the Bank of England. Will the apex bank cut down the interest rates?

Falling energy prices, which are out of the BoE’s control, are contributing to the decline in headline consumer price inflation, which peaked at 11.1% a year and a half ago. Inflation, as measured by the consumer prices index (CPI), has now fallen to 2.3% in the year to April 2024, down from 3.2% in March. The April figure is the lowest level since July 2021, when the global economy was handcuffed by the COVID-19 pandemic.

The price pressures created by the British economy are of greater importance to its policymakers, particularly given the country’s tight labour market and the high rate at which many companies are raising wages, which might end up fueling inflation yet again.

According to BoE Governor Andrew Bailey, depending on the facts, the first rate cut might occur as early as June 2024. However, as per a section of the analysts, despite the sharp decline, the latest inflation gauge may have dashed market expectations of a deeper slowdown to 2.1%. So the BoE may likely wait till July to study the May data and figure out whether things are actually touching the 2% mark, a non-negotiable condition imposed by the BoE for their monetary policy relaxations.

However, there are chances that after the publication of the latest CPI data, BoE’s nine-member rate-setting panel may give in to the market pressure of cutting interest rates from the current 16-year high of 5.25%.

Where Are Things Standing Now?

Compared to other large, wealthy economies, Britain’s inflation rate peaked higher. A combination of the spike in energy prices and a labour scarcity to fill positions, a problem already present in other nations but made worse in Britain by Brexit, made it an anomaly among the Group of Seven (G7) for a while.

Inflation in Britain was 3.2% in the year ending in March 2024, which was greater than that of Germany, France, and Italy. However, it was less than 3.5% in the United States.

However, the latest CPI data might have dashed the economists’ hope of witnessing a sharper drop in inflation after a 12% drop in regulated household energy tariffs that took effect in April 2024.

According to Reuters polled economists, they were expecting headline inflation to abruptly fall to 2.1%, before starting the probable ascent again in the latter half of 2024. Even BoE expects the inflation to pick up speed once again, reaching about 2.6% by year-end.

“This is only one month’s data, but it is enough of a surprise to suggest that the inflation process is not tracking as the BoE had expected,” Allan Monks, chief UK economist at JPMorgan, said, while interacting with the Daily Sabah.

“There is still another labour market and CPI report to come before the June meeting, but it is difficult for us to see what that could realistically do to leave most members feeling confident about cutting in June specifically,” Monks added further.

Services inflation inched down to 5.9% from 6% in March 2024. The BoE’s forecasts had pointed to a reading of 5.5%.

Market Pressures For Labour

Wages account for a larger portion of costs for services firms than for other businesses. Because there is a greater need for workers to fill positions than in many other economies, Britain has had an annual pay growth rate of 6%, which has increased prices in the industry.

There are some indications lately that the fever in the labour market is dissipating. The gap between the number of open positions and the unemployment rate—a crucial indicator of the Bank of England—is at its tightest point since the COVID-19 epidemic.

Companies Struggle To Raise Prices

The potential for businesses to pass on increased expenses to customers in the form of higher pricing is another item the BoE is keeping a careful eye on. Regional agents for the BoE predict that this year will be more difficult than 2024.

One of the nine members of the Monetary Policy Committee, Megan Greene, cited comparable indicators from the recent purchasing manager index reports, indicating that prices paid by businesses have increased more rapidly than the prices they charge.

Will The Rate Cut Happen?

June 11 is the official labour market data release, June 19 is the publication of May’s inflation data, and June 20 is the next scheduled policy announcement by the BoE. The BoE will be keeping a closer eye on alternative market indicators than normal due to issues with the official jobs statistics, such as the PMI surveys.

Rate futures are priced with an approximately 56% probability of the Bank of England reducing the Bank Rate to 5% from 5.25% in the upcoming days, and an almost 100% possibility of a reduction by the meeting in August 2024.

The date of the BoE’s first move was also a topic of debate among the 71 economists surveyed by Reuters recently. However, a slim majority of them anticipated it to happen later than investors do: 38 predicted a first cut in August, while 31 suggested June. September is when two people expected it to arrive.

However, analysts at RBC Capital gave a pessimistic view, stating that the overshoot in services inflation did not appear to be driven by one-off factors, suggesting that the much-anticipated rate cut may take some more time.

“Certainly, this morning takes June off the table,” Cathal Kennedy, senior UK economist at RBC Capital Markets, said, while adding, “We’ve been saying for some time that we thought services inflation would be a lot harder to get down than perhaps some other people out there thought, particularly with the backdrop of the U.K. labour market, which has loosened but is still very, very tight.”

“Core inflation, which includes goods but not energy, food and tobacco, also reflected persistent price pressures, with the annual rate falling only to 3.9% from 4.2% in March 2024,” Daily Sabah reported further.

The next rate meeting is on June 20, and economists are a divided lot on what will happen on that day. Some think that the apex bank will cut borrowing costs. However, others believe that the ongoing concerns over the scale of price rises in the crucial services sector, along with the pace of wage increases, will make the rate cut a likely phenomenon from August 2024.

Also, lower inflation doesn’t mean that the cost of living crisis (the worst in around 40 years) is finally over. Things only show that the prices are rising more slowly than they were before.

“Consumers are still living with far higher prices and how you take today’s inflation data will depend on whether your glass is half full or half empty,” said James Smith, research director at the Resolution Foundation.

“While it’s clearly good news headline inflation is back to normal levels, it is disappointing that price pressures haven’t fallen further and that measures of services inflation are proving more stubborn than expected,” he concluded.

The post IF Insights: Will BoE react to plummeting UK inflation with rate cuts? appeared first on International Finance.

According to the estimates, the BoE will continue to unwind its portfolio of government bonds at the current rate of 100 billion pounds (USD 125 billion) annually.

The QE programme is expected to result in a net loss of 85 billion pounds by 2034, as opposed to an estimate of 80 billion pounds in February 2024, based on the market path for interest rates as of late March.

The loss would be 45 billion pounds, as opposed to the previous estimate of 50 billion pounds, if interest rates were to return to the BoE’s 2018 estimate of the non-inflationary equilibrium rate of around 2%.

“The figure, a small increase on the 80 billion pound in the BOE’s last quarterly report, underscores the burden QE poses for the public finances as losses mount on the £895 billion of asset purchases made between 2009 to 2021 to support the economy through the global financial crisis and pandemic,” commented a Bloomberg report.

“Until late 2022, profits from the programme reduced the Treasury’s budget deficit and helped pay for public services, but high interest rates and asset sales have reversed the effect. The portfolio is being unwound, with 704 billion pound remaining on the books,” it added further.

Why It Matters

Since the British taxpayers are bearing the brunt of losses incurred during the QE programme at a time when government resources are becoming more and more limited, these losses have become a contentious political issue.

Unadjusted for inflation, QE will lose around 20 billion pounds on a yearly basis until the early 2030s, a sum equivalent to a third of today’s British defence budget, the BoE estimated. Under a guarantee provided by the state in 2009, the taxpayer picks up that bill.

Around 48 Conservative Party lawmakers, who control the majority, demanded weeks back that the Treasury look into ways to deduct its own costs from these payments to the Bank of England.

Finance Minister Jeremy Hunt stressed the importance of keeping monetary and fiscal policy decisions apart in a letter to BoE Governor Andrew Bailey.

The QE programme’s profits, which peaked in 2022 at 124 billion pounds, were distributed to the government during the 2010s when interest rates were low.

These financial flows have reverted, with the Rishi Sunak government now covering the BoE’s losses as it pays higher interest on bank reserves it issues for its quantitative easing programme.

The earlier profits are factored into the projected net loss.

The Bank of England’s gilt purchases currently total 704 billion pounds, having peaked at 875 billion pounds following the COVID-19 pandemic.

Between 2009 and late 2022, QE raised 124 billion pounds, which was fully spent. After that, the British government transferred some 50 billion pounds to the BoE to cover its losses with more to come.

Unadjusted for inflation, the net loss over the program’s lifetime is expected to be around 115 billion pounds, the BoE showed. Assuming rates fall back to an “equilibrium” level chosen by the apex bank, the unadjusted lifetime losses are about 65 billion pounds.

On the BoE’s preferred “net present value,” lifetime losses would range between 45-85 billion pounds, it said. Three months ago, the BoE estimated the range at 50 billion pounds to 80 billion pounds.

The figures are likely to change at the next quarterly update as losses are determined by the path of interest rates. Rates are now expected to remain higher for longer, potentially increasing the losses.

Banks Report 135% Income Increase From BoE Reserves

Meanwhile, new data published by the Treasury Committee shows NatWest, Barclays, Lloyds and Santander received over 9 billion pound in interest on Bank of England reserves in 2023, a 135% increase on the previous year.

“Under quantitative easing, the Bank of England created 895 billion pound of new money in the form of central bank reserves held by commercial banks, of which around 700 billion pound remains in circulation. The Bank pays interest on those reserves at Bank Rate, currently 5.25%. This has generated considerable income for banks as a result of the sharp increase in interest rates since 2021. The Treasury is ultimately liable for these payments as it indemnifies the QE programme,” the committee remarked further.

“During the Treasury Committee enquiry into the Bank’s quantitative tightening programme, some evidence submitted to MPs suggested changing the rules on how bank reserves generate interest in order to reduce the amount paid out by the Bank of England. MPs on the cross-party Committee concluded they did not support this measure as they believe taxes on banks should be set through Parliament in a Finance Bill,” it added further.

During the Treasury Committee’s fact-finding stage, bank bosses listed out the steps they’ve taken to pass through better savings rates for customers. The listed measures include a significant uptick in the amount NatWest and Santander are paying customers in interest.

The communications from the banks also contain data on the lenders’ mortgage repossession rates and their criteria for closing branches.

The Treasury Committee has concluded gathering evidence as part of its enquiry into whether small and medium-sized businesses (SMEs) have adequate access to financing. The report will likely be published this year.

The post BoE tweaks lifetime loss estimate for QE programme at 85 billion pounds appeared first on International Finance.

Even though the majority of the paper £20 and £50 banknotes in use have been replaced with new polymer versions, there are still more than £6 billion of paper £20 notes featuring economist Adam Smith, and more than £8 billion of paper £50 banknotes featuring entrepreneur Matthew Boulton and engineer James Watt, in circulation. The total value is over 300 million individual £20 banknotes, and 160 million paper £50 banknotes. The £50 banknote completed the bank’s ‘family’ of polymer notes. Now all the notes below £50 are printed as polymer and not as paper.

Like the £20 note, which entered into circulation in 2019, the new £50 note incorporates two windows and a two-colour foil that designers say will make it very difficult to counterfeit. There is also a hologram image that changes between the words ‘Fifty’ and ‘Pounds’ when the note is tilted from side to side.

Alan Turing was selected as the new face of the £50 note in 2019, recognition for his pivotal role in breaking the Enigma code in World War II that historians say may have helped shorten the conflict by at least two years, saving millions of lives.

Bank of England Governor Andrew Bailey said, “There is something of the character of a nation in its money, and we are right to consider and celebrate the people on our bank notes.”

“Turing is best known for his code-breaking work at Bletchley Park, which helped end the Second World War. However, in addition, he was a leading mathematician, developmental biologist, and pioneer in the field of computer science. He was also gay, and was treated appallingly as a result.”

During World War II Turing worked at the secret Bletchley Park code-breaking center, where he helped crack Nazi Germany’s secret codes by creating the “Turing bombe,” a forerunner of modern computers. He also developed the “Turing Test” to measure artificial intelligence.

After the war, he was prosecuted for homosexuality, which was then illegal, and forcibly treated with female hormones. He died at the age 41 in 1954 after eating an apple laced with cyanide. Turing received a posthumous apology from the British government in 2009, and a royal pardon in 2013.

Meanwhile, according to Sarah John, the head cashier at the Bank of England, switching from paper to polymer in recent years has been a significant breakthrough since it makes banknotes more durable and difficult to counterfeit.

“The majority of paper banknotes have now been taken out of circulation, but a significant number remain in the economy, so we are asking you to check if you have any at home, he said. “For the next 100 days, these can still be used or deposited at your bank in the normal way”, he added.

John said there are various concerns regarding the old £20 note among people, like what happens if one passes the deadline for exchanging the note and how to exchange the old currency. On this, John said that many banks and some post offices will accept the old £20 notes as a deposit into a bank account even after the deadline. The Bank of England will always exchange the old paper notes, so people who missed the deadline won’t be left out of pocket. He also said to exchange old bank notes after the deadline; an individual can send them to the Bank of England by post.

However, the Bank of England warns that people should be aware that banknotes are sent at their own risk, and encourages people to take appropriate measures to insurers against loss or theft. The Bank said in order to send them by post, people have to fill out a postal exchange form and have to provide photocopies of ID and proof of address.

Switching to polymer can prevent forgery?
The UK’s new polymer bank notes are cost-effective to produce, incredibly durable, and contain advanced security features that could never have been implemented using traditional cotton-based currency. But the question being asked by law enforcement and document examination professionals is whether switching to polymer prevents criminal gangs and counterfeiters from producing fake currency worth millions?

According to figures collated by the Bank of England, approximately 347,000 individual counterfeit notes were taken out of circulation in 2016, with the vast majority of those being discovered by the banking system during the process of counting and sorting notes for re-circulation. Notably, of the huge quantity of notes seized, £5 and £10 notes (the first two denominations to switch to polymer) only accounted for 6.9%. The vast majority of fakes identified and seized were counterfeit £20 notes (297,000 notes with a face value of £5.9mn), a note that is not scheduled to be ‘upgraded’ to polymer until 2020.

The end of counterfeits?
When the Bank of Canada launched polymer banknotes in 2012, a reduction in fake notes was recorded immediately – 28 notes per million in circulation, down from 34 notes per million the previous year.

In Australia, where plastic notes were introduced more than 20 years ago, the switch to polymer was equally successful. However, more recently the number of counterfeits in circulation has begun to rise. In 2016 there were reports that Australia was being flooded with fake $50AUD banknotes ‘so good they fool the banks’.

Need for innovation
Given enough time, criminal gangs will always find the resources necessary to produce fake currency. The once state-of-the-art security features used in the design of Australian polymer banknotes are now under threat. During the 20 years that the Reserve Bank of Australia has been producing polymer currency, there have been significant advances in digital imaging and printing technology that have allowed the counterfeiters to catch up.

In Australia, the quality of counterfeit $50AUD notes is such that they pass all of the bank’s checks. In this situation, the only option is to withdraw the aging notes, introduce new security features, and once again upgrade the security of bank notes.

Cycle of innovation
According to John, innovation is the key to keeping forgery under control. “What keeps counterfeiters at bay is not the substrate that currency is printed on but the cycle of innovation that keeps security printers one step ahead of the criminals that produce forgeries. In order to achieve this, there must be a constant development of new security features and an advancement of the technology used to detect and examine counterfeits,” John said.

History of polymer note
The world’s first polymer banknote was the $10 commemorative note issued in January 1988 to commemorate the Australian Bicentenary. It was developed by the Reserve Bank of Australia (RBA), Commonwealth Scientific and Industrial Research Organisation (CSIRO), and The University of Melbourne.

Made from the polymer, biaxially-oriented polypropylene (BOPP), these notes incorporate security features difficult to include in paper bank notes. They are also more durable, harder to tear, more resistant to folding, more resistant to soil, waterproof and washing machine proof, easier to process by machine, and are shreddable and recyclable at the end of their useful lives, which are 4-5 times longer than paper banknotes.

“The traditional printed security features applied on paper can also be applied on polymers. These features include intaglio, offset and letterpress printing, latent images, micro-printing and intricate background patterns. Polymer notes can be different colours on the obverse and reverse sides. Like paper currency, polymer banknotes can incorporate a watermark (an optically variable ‘shadow image’) in the polymer substrate. Shadow images can be created by the application of Optically Variable Ink (OVI) enhancing its fidelity and colour shift characteristics. Security threads can also be embedded in the polymer note, they may be magnetic, fluorescent, phosphorescent, microprinted, clear text, as well as windowed. Like paper, the polymer can also be embossed.

Polymer notes also enabled new security features unavailable at the time (1988) on paper, such as transparent windows, and diffraction grating. Since 2006 however the development of the paper transparent window technologies by De La Rue (Optiks) and G&D (Verify) have reduced that advantage.

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Holly Mackay

August 5, 2016: The Bank of England has decided to take on the role of a supportive friend following Brexit with a 0.25% rate cut and some more quantitative easing. That’s basically when the Government prints money and flushes it into the economy, trying to give it a double espresso. What does this mean for the rest of us?

Savers
It’s another nail in the coffin for savings rates. Any saver who had hoped that we might revert to a time when you actually got paid some meaningful interest for holding money in a savings account will be sadly disappointed. Santander’s 123 account is still probably your best bet for cash balances of £3,000 – £20,000 in an easy access account. They have a £5 monthly account fee so check the interest outweighs the charges. Nationwide pay 5% on balances of up to £2500. But do keep an eye on things over the next week as we’d expect to see changes. More recently NatWest has told business customers that it might charge them for the privilege of holding their cash – welcome to negative interest rate discussions which feel counter-intuitive to the world order we know!  Watch this space….

Investors
Stock markets have generally liked interest rate cuts. Why? Well the basic thinking is that it’s cheaper to borrow for businesses, so companies large it up and hire more, build more and make more. And customers are more likely to go on spending sprees.

To all those cheesed-off savers: although the stock market bounces around, you can still get about 3% – 4% in income every year from some funds and stocks in the UK. This income is what we call a yield. And as well as the income (not guaranteed or fixed rates) you also have exposure to the investments themselves. Which can go up and down.

Around 25% of Brits stick in cash and are suspicious of the stock market, but interest rates are at 300 year lows!!!

So is it time for a Plan B!? We think that for those of you in this suspicious camp with savings horizons of five years plus (Junior ISAs, pensions, ISAs earmarked for goals at least five years off…) – well, it could be time to take a deep breath and to stick a toe in the investment waters.

If you don’t understand markets and don’t want to understand them, that’s cool. Here’s how you can sort this quickly and painlessly without getting ripped off. Welcome to the investment ready-meal. A fund. Let someone else choose and blend the ingredients for you.

Homeowners
The cut may mean slightly lower mortgage rates, but in practice, they are so low anyway that it is not likely to make the marginal difference for the actual housing market. In practice, the housing market is much more likely to be influenced by consumer confidence (which is very weak), stamp duty rates (which are very high) and employment levels, which are reasonably stable for the time being (though there may be some nerves over job prospects in the wake of Brexit). The housing market is slowing and this is likely to continue.

Borrowers
If you’re in the market for a mortgage, do have a look at some of the fixed rate deals out there. Debt is cheap. It’s never been so cheap. So make sure any new mortgage OR your existing one is properly cheap!!!

Nevertheless, the usual rules apply. Loans still have to be paid back, and not all debt is created equal – credit card and overdraft debt is still very expensive, for example. You still need to check your rates and make sure you’re getting a good deal.

There is a valid question over whether all this tinkering by the Bank of England will work. Interest rates are already cheap, and may not significantly alter the behaviour of consumers or companies when we’re all scratching our heads over Brexit and wondering how the flipping hell this is all going to play out. Equally, it could be said to send a bad message. Are we supposed to believe everything is normal when these emergency measures are still in place? Time will tell…..

Holly Mackay, Founder and MD of Boring Money, offers advice to savers and borrows on what this means for them and what their next move should be

The post What does the rate cut mean for you? appeared first on International Finance.

IFM Correspondent

July 15, 2016: In a move that has surprised many, Bank of England (BoE) has kept interest rates unchanged, despite widespread expectations that it was going to cut its benchmark rate in the wake of a June vote in the UK to leave the European Union.

At 0.5%, the rates are at the same level as the past seven years. The rates were last cut in March 2009. The Bank also refused to expand its £375bn quantitative easing scheme by an 8-1 vote.  However, it put households on notice that a rate cut is certain if the economic situation failed to improve over the next month. The Monetary Policy Committee (MPC) said that without a return to more normal conditions, “most members of the committee expect monetary policy to be loosened in August”. BOE also expects a fall in commercial property prices in the coming months.

Sterling rose against the dollar immediately after the news of the unchanged rate.

Earlier Mark Carney, governor BOE, had signalled that a rate cut was almost certain. He had also warned of job losses, banks and companies leaving the country, a plummet in the pound, and even a potential descent into recession. Some of those have happened.

The post BOE keeps rates unchanged appeared first on International Finance.

IFM Correspondent

July 11, 2016: In order to provide a fillip to the economy post-Brexit, the Bank of England (BoE) is expected to cut interest rates to new historic lows on Thursday. Though a slowdown post-Brexit was more or less predicted, the bank may decide to take some measures to boost the economy.

“The economic outlook has deteriorated and some monetary policy easing will probably be required over the summer,” Mark Carney, the Bank of England governor, had said earlier.

Financial markets have already factored in a 75 per cent chance of interest rates being cut from 0.5 per cent to 0.25 per cent this week — the first rate cut in more than seven years. Rates are not expected to return to their current level for five years.

Carney laid the groundwork for a rate cut a week after the Brexit vote. The pound tumbled to a 31-year low while shares in banks nosedived.

Rate cut by the bank will mark a complete turnaround from the pre-referendum pattern. The rates have been consistent at 0.5% for more than seven years now. Official borrowing costs were last cut in March 2009 when the UK was in recession.

The post Post-Brexit, BoE may cut interest rate appeared first on International Finance.

August 21, 2014: The minutes of the Bank of England monetary policy meeting on August 6-7 showed that the committee voted 7-2 in favour of keeping Bank Rate at 0.5% with Martin Weale and Ian McCafferty voting for a 25bp interest rate rise. This is the first time that there wasn’t a unanimous decision in just over three years. The committee voted 9-0 in favour of leaving QE at £375bn.

The two dissenters argued that “the degree of spare capacity had diminished sufficiently” and that a tightening labour market “created a prospect that wage growth would pick up”. They also noted that wages were a lagging indicator and “it was desirable to anticipate labour market pressures by raising Bank Rate in advance of them”. Even after a 25bp rate rise, they argued that “monetary policy would remain extremely supportive”. It would also help facilitate the MPCs “aspiration that the rises in Bank Rate should only be gradual”.

However, the majority still need a fair bit of convincing. The minutes stated that “for most members, there remained insufficient evidence of inflationary pressures to justify an immediate increase in Bank Rate”. They felt that the rate of growth would moderate while inflation was expected to “reach the 2% target only at the end of the three-year forecast period”. They also cited weak wages and the possibility of labour market slack may have been greater than previously thought. By delaying rate hikes, it would “allow the expansion to become more entrenched”. Indeed, raising rates too early in the absence of wage rises could increase “the vulnerability of highly indebted households”, while also adding to upward pressure on sterling.

We suspect that Weale and McCafferty will remain in the minority for a while yet. The low inflation numbers, the lack of wage growth and concerns about Eurozone growth – the UK’s largest trade partner – suggest that in the absence of upside activity data shocks, the majority will continue to opt for status quo in the next few months. Indeed, it currently looks more likely to be February when we see the first rate rise than our current published forecast of November.

Nonetheless, we think that the market is being too cautious in terms of potential policy tightening. The MPC-dated Sterling Overnight Interbank Average Rate (SONIA) forward is currently pricing in around 19bp of tightening by the February MPC meeting and just 38bp by June. We would suspect the BoE would likely be raising rates by 25bp a quarter which would put June at 50bp. As such, we remain upbeat on the prospects for sterling, particularly against the euro, given little prospect of ECB policy tightening within the next 18 months. We look for EURGBP to fall to 0.78 by year end.

ING

The post Differences at Bank of England appeared first on International Finance.

2nd September 2013

Quantitative Easing is a form of open market operations that Federal Reserve uses to achieve its policy targets, literally speaking it is printing of money by the central banks, but rather than printing money Central banks use a more complicated process of injecting funds into their economies. The Federal Reserve in the U.S., Bank of Japan and the Bank of England are three central banks that have spent trillions on Q.E.

How does Q.E work?

The  Fed adds credit to the banks reserve accounts in exchange for MBS and Treasuries, the reserve account is the minimum balance to be carried forward by banks after their business closure on each working day. When the fed adds credit by buying the assets of the bank including mortgage securities, bonds, treasury notes etc, banks will have more money than they need in the reserves and can lend to other banks and customers, in this process of unloading their extra reserves, they drop the interest rate. Thus, it increases the money supply because lower rates allow banks to make more loans and stimulate business and provide more employment opportunities.

Why is it used?

This is used as a last resort as the Central Bank has run out of other options including keeping the interest rates to near zero. It works in two ways, it injects more money to the banks allowing them to lend more and it lowers interest rates and gives access to companies for cheaper credit which can be used for their expansion, diversification and to upgrade their technology, which  in turn will lead to creation of more job opportunities.

Current Status

Federal Reserve Chairman Ben S Bernanke has provided enough hints that he will probably reduce the central bank’s $ 85 billion in bond purchases, market analysts opine that the first step may be small with monthly purchases being tapered by $ 10 billion to $ 75 billion. The Fed will end the buying by mid 2014.

How does Q.E impact equity prices?

The Fed (or any other central bank) buys government bonds, Gilts and other government securities, as demand for these assets go up, the prices for these will also go up and the yield for these securities will come down ( due to an inverse relationship). People who would have invested in debts such as government securities will earn lesser rate of interest and would naturally look to diversify their investment for earning a better rate of return, thus they will chose Equity, this is called as “Portfolio Re-balancing Effect”, since investments in equities generate higher returns people would start investing m or in equities- as demand rises so does the price.

Q.E increases demand for bonds

↓

Yields go down

↓

People diversify by investing into riskier investments

↓

Demand for Equity will rise

 ↓

Prices of Equity will rise 

Impact of Q.E Tapering on Emerging Markets

The central banks of U.S., BoE, European Union and The Japan Central bank have all undertaken quantitative easing, as explained in the earlier part of the article the central banks of these developed economies resort to large scale asset purchases by their central banks, such as corporate bonds or mortgage backed securities to pump more money into the system. Since interest rates in these economies remain at zero and their economies remain stagnant, it is inevitable that there will be large capital outflows to emerging economies in order to seek a better return on their investments, most of the capital inflows are in the nature of portfolio investments, which are prone to sudden and volatile movement and puts emerging economies at greater risk.

There has been considerable criticism of the G4’s unconventional monetary policies from the emerging economies, including the BRICS (Brazil, Russia, India, China and South Africa). The magnitude of Q.E has had unintended consequences beyond the borders of these developed countries because their currencies are not only convertible but constitute the pillars of the global financial system. The U.S. Dollar, U.K. Pound and the Japanese Yen together constitute the basket of international currencies that the IMF uses to value its Special Drawing Rights. Thus the nature of these currencies and their domination on the international financial market ensures that the stimulus easing undertaken by them has a global impact on economies across our globalized and interconnected world.

Currency devaluation

Countries such as Brazil, India, Indonesia and Turkey are experiencing a steady depreciation of their currencies, investors are pulling out of the markets and the countries are experience a huge current account deficit (CAD). Foreign currencies, dollars in particular are needed by these countries to pay their hugely inflated oil bills and other imports including gold and electronic goods. The Brazilian real has lost 20 percent; Indian rupee has lost around 20 percent and the Turkish Lira is down by 10 percent, this situation re-ignites the possibility of another Asian crisis akin to the one which happened in 1997-98 which forced Thailand to turn to IMF as its currency plunged, while the 97-98 crisis was plagued by the Q.E easing by Japan, the present crisis could be attributed to U.S. Fed which will start “tapering” its bond  buying programme and end it completely by mid 2014.

However, there are enough reasons to be optimistic that we are not heading for a repeat of the Asian crisis as most of the countries have enough foreign exchange reserves to meet their demands at least in the shorter run.

International Finance Magazine believes that there need to be a co-ordinated and careful handling of Q.E easing considering the threats to emerging and developing economies, the threat here is not only for the stock markets or the companies but for the common man, for example: students in BRIC economies who have taken loans to study abroad, especially in the U.S. or U.K. will be hugely disappointed to see the currency fall which will increase their expenditure enormously. It is imperative that the Asian representatives of the G20 nations bring this on top of the agenda and discuss this with their western counterparts to overcome the counter effects of the Q.E easing by the Fed when they meet at the Constantine Palace in St.Petersburg next month.

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