August 2, 2018 / 7:24 AM / in 13 days

Daily Briefing: Time to tighten - BoE seen acting

LONDON (Reuters) - Investors are putting almost a 90 percent chance on the Bank of England announcing a hike in its Bank Rate to 0.75 percent from 0.50 percent at 1100 GMT today, market prices suggest, taking their cue from BoE chief Mark Carney's warnings about overheating risks.

A tour bus passes the Bank of England in London, August 1, 2018

There are also plenty of economists out there who challenge the logic for a hike, pointing to the considerable uncertainties over Brexit and arguing that Britons' wages are still not growing solidly enough to sustain a healthy rate of inflation.

Still, assuming the Bank goes ahead with the move, most interest will be focused on clues about when it hikes next: for example, how many of its policymakers back a hike this time (seven out of nine is the forecast); any change to its current forecast of inflation easing to its two percent target in two years’ time; and a new estimate by the BoE of what it considers to be the “neutral” interest rate for the UK economy.

Carney’s news conference is scheduled for 1130 GMT after the rate announcement.

The trade conflict between the United States and China is already hitting German companies doing business in both countries, a survey by the DIHK Chambers of Industry and Commerce shows.

DIHK said a survey of its members doing business in China showed that 41 percent were already affected by higher tariffs when exporting to the United States while 46 percent reported higher costs when importing from the United States.

Among the German companies doing business in the United States, 57 percent said they already faced negative effects when exporting to China while 75 percent reported disadvantages such as higher costs when importing from China.

MARKETS AT 0655 GMT

Another escalation of the U.S.-China trade war and anxiety about tightening central bank policy have been enough to knock world markets back again overnight and outweighed still largely upbeat corporate earnings and economic activity readings.

U.S. President Donald Trump acknowledges the crowd during the Make America Great Again rally at the Florida State Fairgrounds in Tampa, July 31, 2018

The White House late on Wednesday confirmed reports it's considering more than doubling its proposed tariffs on $200 billion of Chinese goods to 25 percent from 10 percent after a public consultation period ends on Sept 5.

The news hit Chinese and regional Asian stock markets, with Shanghai and Hong Kong stocks down more than 2 percent and Tokyo and Seoul benchmarks off more than 1 percent. European and U.S. stock futures were pointing lower too. The trade tensions added to worries about rising central bank interest rates and climbing government bond yields.

The U.S. Federal Reserve left rates unchanged late on Wednesday, but its positive economic assessment encouraged markets to bet on two more interest rate rises this year, starting next month.

That view coupled with a quarterly refunding statement from the U.S. Treasury that surprised markets with a higher borrowing for the next three months sent 10-year Treasury yields above 3 percent briefly for the first time in six weeks.

The Bank of England is expected to lift interest rates by a quarter of a percentage point on Thursday when it also releases its quarter inflation report.

Despite uncertainty over the impact of a messy Brexit process on the domestic economy, the BoE has been flagging another rate rise for months as it attempts to gradually normalise monetary policy after a decade of super-loose credit and keep inflation in check.

After a number of false signals on lifting interest rates over the past year or more, analysts expect the Bank will want to follow through on its guidance this time around to bolster its credibility if nothing else.

Sterling was steady against a broadly firmer dollar in early trading. Central bank concerns also remained to the fore in Japan as 10-year government bond yields hit a 1-1/2 year high over speculation the Bank of Japan is willing to allow greater movement of yields from its prior zero percent target and after a poor 10-year debt auction on Thursday.

Turkey’s lira dropped to record lows and bond yields there climbed after the United States imposed sanctions on two of President Tayyip Erdogan's ministers over the trial of an American pastor accused of backing a 2016 coup attempt.

The news added to investor concerns, stoked all year by rising inflation and concerns about political pressure on the central bank to keep interest rates low.

— A look at the day ahead from European Economics and Politics Editor Mark John and EMEA markets editor Mike Dolan. The views expressed are their own —

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