Bank of England issue bleak warning over UK economy

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6th July 2022

Bite-sized business news from the UK and beyond

Good morning What an eventful 12 hours it's been in the world of politics! This morning the UK is waking up to a new Chancellor and Health Secretary. Here's a breakdown of who could come next if Boris Johnson's time has run out as PM.

Today's stories

Bank of England issue bleak warning over UK economy
Church of England set to make bond market debut

ECONOMY
Bank of England issue bleak warning over UK economy

What happened?
Yesterday the Bank of England released a grim report on the UK’s financial health. The central bank said that “the economic outlook for the UK…has deteriorated materially” due to soaring inflation adding pressure to household wallets.

A perfect storm of headwinds are making
Twice a year the Bank of England assesses the health of the UK’s financial system and the world has changed markedly since the last report in December.

UK inflation is at a 40-year-high of 9% and expected to climb to 11% before the end of the year.
The war in Ukraine has added further inflationary pressure driving up energy and food prices.
Central banks worldwide have started pushing up interest rates from their pandemic levels to cool prices by slamming the brakes on the economy.

The Bank of England said it expects this will mean households and businesses become “more stretched” over coming months, leaving the outlook for the UK economy uncertain.

The Bank is warning banks not to make matters worse
When times are tough lenders usually reign in on issuing loans in order to protect themselves from defaults. But the Bank of England has cautioned the industry against excessive cuts in loans to households and businesses that could aggravate an economic downturn.

It also warned banks to brace themselves for an incoming “economic storm” by increasing their capital reserves to weather a prolonged period of economic difficulty.

Zooming out: Yesterday’s resignation of the Health Secretary – during a pandemic - and Chancellor – when the economic outlook is shaky – puts Boris Johnson’s premiership into serious question. This political uncertainty will add more uncertainty to the economic mood. This is likely to weigh on investor sentiment on the UK stock market today and on the pound which is already trading at its lowest level against the dollar since March 2020.

Other stories to keep you in the loop

Sunak's resignation letter reveals tensions over economy trouble
British Airways cancels 1,500 more flights
UK new car sales slump to worst June in 26 years as manufacturers struggle with supply problems
Sainsbury’s boss warns UK living costs squeeze will ‘only intensify’
Revolut moves into stores with physical card readers
Whiskas and Pedigree pet food manufacturer suspends supply to Tesco in fresh price row
Supermarkets add security tags to Lurpak as price soars to £9 a tub
UBS sublets London office ‘grey space’ as more staff work from home
Euro hits 20-year low against US dollar over recession fears

RELIGION
Church of England set to make bond market debut

The collection plate is making its way to an unusual place. For the first time, the administrative body of the Church of England which has 85m members worldwide, is tapping the bond market to raise funds, according to to Bloomberg.

The Church Commissioners for England oversees a $10bn investment portfolio on behalf of the church and plans to raise funds on the public debt market.

The money raised will be used for general church activities as well as funding environmental and social projects.

Church representatives began to gauge interest from markets this week with investor meetings arranged by Wall Street banks.

It’s expected that the Church will be considered a safe issuer, but it comes amid a difficult financial backdrop:

Corporate bond sales denominated in pounds are being issued this year at half the pace they were in 2021, according to Bloomberg data. Many firms have scrapped debt sales or put plans on hold to wait out market volatility.

Borrowing costs in the UK are trending higher — the Bank of England has hiked its main interest rate five times this year, and further hikes to the current 1.25% rate are expected.

Zooming out: Although a bond issuance will be a first for the Church of England’s main body, other parts of the Church have raised funds in the market before. Its Pensions Board has two bonds outstanding worth £150m.

Stat of the day

Today national insurance starting thresholds will increase to £12,570, from £9,880 a change the government said will benefit 30m UK workers

Interesting links from around the web

Why now is a good time to ask for a raise
3 simple ways to deal with a bad boss
The surprising reason supermarkets sell flowers

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bond market debut Bitesized business news

Bank of England issue bleak warning over UK economy

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