Bank of England Hold, US Data, and FTX Founder Guilty

Yesterday, the Bank of England met market expectations in holding their benchmark policy rate at 5.25%, marking the second consecutive hold. This second hold came as six members of the MPC meeting voted to maintain the status quo, while three members opted to raise rates 25bps. The decision to hold follows fourteen consecutive rate hikes seen since the Bank of England started their latest tightening cycle in Q4 2021, which brought interest rates to their highest level since the GFC.

With inflation remaining well above the Bank’s 2% target rate – having remained unchanged at 6.7% in September – the Bank of England maintained that that only about half of the impact on GDP has been felt to date following these consecutive hikes.

Regarding growth, the Bank of England downwardly revised output projections over Q3, and also estimating that the size of the UK economy will expand by just 0.1% over Q4.

With monetary conditions being at their tightest level in 15 years, and the full effect of rate hikes yet to permeate through the economy, growth is now being brought sharply back into focus. As we looked at last month, the IMF’s recently released a statement suggesting that the country is set to have weakest growth among G7 over 2024. The IMF downwardly revised their 2024 growth forecasts for the UK economy from 1% to 0.6% citing monetary conditions, while organisation also projected growth over 2023 to be the second weakest, after Germany. Here, the IMF stated that “the decline in growth reflects tighter monetary policies to curb still-high inflation and lingering impacts of the terms-of-trade shock from high energy prices”.

At 12:30 this afternoon, markets will turn their focus to the string of US labour market data in order to gauge further insight into the health of the world’s largest economy. Chief amongst the data points will be Nonfarm, unemployment rate, labour force participation rate and wage data. Markets are today projecting a Nonfarms payroll print of 180,000, down considerably from last month’s figure of 336,000 – which represented the strongest jobs number in eight months. Last month included the leisure and hospitality industry sector adding 96,000 jobs in September, government employment increasing by 73,000 and health care adding 41,000 jobs.

While a print of this figure would be the weakest since June (which was downwardly revised to 105,00), many economists have suggested that the payrolls number would need to ease to some 100,000 to remain in line with population growth while not overly feeding into inflationary pressures. Hence, even a relatively softer-than-expected print could still be indicative of a US labour market which remains resilient in light of tighter monetary conditions.

Elsewhere, US unemployment is projected to remain unchanged at 3.8%, which marks the highest level since February 2022. US unemployment levels are presently around 6.3m with the labour force participation rate at 62.8%, the highest level since 2020. On the wage front, the data showed that average hourly earnings rose by 7 cents, or 0.2 percent, to $33.88 as average hourly earnings have increased by 4.2%.

Yesterday evening, the founder of FTX and Alameda Research Sam Bankman-Fried was found guilty of seven counts of fraud and money laundering in the highest profile crypto trial of its kind. Bankman-Fried is yet to be sentenced (something expected around March), though he still could face a further trial on allegations of bribing foreign officials and violating campaign finance laws. The trial comes a year after FTX collapsed following their announcement of a liquidity crisis and the discovery of a $8bn hole in their balance sheet which saw them prevent customers from withdrawing funds. As Reuters notes “Prosecutors argued during the trial that Bankman-Fried siphoned money from FTX to his crypto-focused hedge fund, Alameda Research”. The jury’s decision follows 15 days of testimony and attention now turns to sentencing expected sometime in March.