By David Milliken

LONDON (Reuters) - The Bank of England's first interest rate cut since 2020 hangs in the balance next week, with greater uncertainty than usual as key policymakers have not spoken publicly for more than two months due to rules in the run-up to July 4's election.

Investors are left guessing whether recent higher-than-expected services prices are enough to prevent the central bank cutting rates from their 16-year high of 5.25%.

Interest rate futures show a 50% chance of a quarter-point rate cut on Aug. 1. And while most economists in a Reuters poll still expect a cut, many would not be too surprised if the BoE instead waited until its following meeting on Sept. 19.

"We've run out of ways to describe how close the decision next week will be," RBC Capital Markets global macro strategist Peter Schaffrik and senior UK economist Cathal Kennedy wrote in a note to clients on Thursday.

Last month, the BoE's Monetary Policy Committee voted 7-2 to keep rates on hold, but minutes of the decision recorded that it had been a "finely balanced" decision for some of the policymakers who had not voted for a cut.

Governor Andrew Bailey, in a written statement alongside June's decision, said policymakers "need to be sure that inflation will stay low" before cutting rates.

Financial markets see only gradual loosening, with two quarter-point cuts expected this year and a further three or four cuts in 2025, reducing rates to 4% or just under.

Consumer price inflation has been at the BoE's 2% target in May and June, down from 6.7% when the BoE last raised rates in August 2023 and lower than in the United States or the euro zone, where the European Central Bank cut rates in June.

But in the short term this may be as good as it gets for the BoE. Both it and most external economists expect inflation to rise in the coming months as the downward pull of sharp falls in energy prices last year drops out of the annual price index.

UNDERLYING PRICE PRESSURES

The BoE has said its rate cut decision will be focused on underlying measures of inflation pressure: chiefly wage growth, labour market tightness and services prices.

Since June's rate decision, the job market has eased, with fewer vacancies and slightly higher unemployment.

Wage growth has also slowed - though at 5.7% in the three months to May it was still roughly double the rate the BoE views as compatible with 2% inflation, and on track to be just above the BoE's expectation for the second quarter.

But the big outlier is service price inflation, which at 5.7% in June was well above the BoE's 5.1% forecast.

Much of this overshoot was due to unusually high hotel prices, possibly related to concert tours that month.

But the extent to which MPC members will discount this reading is unclear.

Of the four who have spoken publicly since the BoE lifted its self-imposed election campaign restrictions, only Chief Economist Huw Pill is regarded as a swing voter.

Pill said an August rate cut was "an open question". Wage inflation and services prices showed "uncomfortable strength" but even so, inflation pressures might be beginning their path back to tolerable levels, he said.

Particular uncertainty surrounds the views of deputy governors Clare Lombardelli and Sarah Breeden. Lombardelli joined the BoE this month after spending most of her career at the finance ministry and Breeden's last substantive comments on monetary policy were in February.

Unexpectedly strong economic growth in the first five months of 2024 might reduce any urgency felt by the MPC to cut rates.

RBC expects the BoE next week to revise up its 2024 growth forecast to 1% from May's prediction of 0.4%, which followed an expansion of just 0.1% in 2023 as Britain struggled with a surge in energy costs after Russia's full-scale invasion of Ukraine.

However, James Smith, developed markets economist at ING, said it would be risky for the MPC to seek too much certainty that inflation pressures were buried.

"Decent growth for the rest of 2024 relies, in part, on those cuts being delivered, a fact that won't have been lost on BoE officials," he said.

BANGKOK (Reuters) - Thailand's economy is expected to grow 2.7% in 2024, the Finance Ministry said Friday, up from a previous forecast of 2.4% due to higher foreign tourist arrivals and exports.

"We see positive signs from exports due to improving economic growth from trading partners," Deputy Finance Minister Paopoom Rojanasakul said, adding the growth could hit 3% this year on due to policies still to be implemented.

"It's a good number, but we have to do better."The growth forecast did not factor in the 450 billion baht ($12.5 billion) cash handout scheme to be rolled out in the fourth quarter, Paopoom said, adding that would contribute 1.2 to 1.8 percentage points to growth.

Exports were seen rising 2.7% in 2024, stronger than an earlier forecast of 2.4%.

Tourism is a key driver of Southeast Asia's second-largest economy and the ministry now expects 36 million foreign arrivals, who are expected to stay longer and spend an estimated 1.69 trillion baht more due to relaxed visa requirements, said Paopoom.

The previous forecast expected 35.7 million foreign arrivals with projected spending of 1.59 trillion baht.

The Thai economy expanded 1.9% last year, slower than expected and less than 2.5% growth in 2022.

The ministry saw the baht trading at an average of 36.2 baht per dollar, slightly weaker than the 36 baht seen in April, due to capital outflows in the first half of the year.

($1 = 36.1300 baht)

Investing.com -The latest economic indicators point to a moderation in consumer price inflation since its peak in June 2022.

Analysts from the Economic Policy Institute (EPI) noted on Thursday that prices for several key goods have actually declined over the past few years, bringing some relief to consumers.

According to underlying commodity data from the Bureau of Labor Statistics, major improvements have been observed in energy prices. Families preparing for winter can expect to pay 36% less for heating fuel compared to mid-2022. Similarly, gasoline prices have declined by 29%, and heating and cooking gas is 15% cheaper.

In the realm of household goods, prices for washers and dryers are currently 10% lower than they were two years ago. Grocery shopping has also become slightly more affordable, with apples now costing 8% less and both milk and bacon seeing a 3% price reduction. Tomatoes have experienced a more modest decrease, with prices falling by 1%. Additionally, clothing prices for boys' and girls' shoes are down by 2%.

While the overall Consumer Price Index (CPI) growth remains above the Federal Reserve's 2% target for inflation, the trend indicates a downward shift. Since June 2022, inflation has decelerated by nearly six percentage points. Notably, prices for several household staples, such as chicken, bananas, eggs, and car tires, are increasing at rates that are slower than the Fed’s inflation target.

Perhaps most encouraging is the positive outlook for wages. Over the past two years, wages have grown 1.2 percentage points faster than prices. This accelerated wage growth, combined with the declining prices in key sectors, is beneficial for consumers' purchasing power. Looking ahead, there is hope that this favorable trend in wages and prices will persist, providing continued economic relief.

RIO DE JANEIRO (Reuters) -Japan has warned of the need to be increasingly vigilant to excessive foreign exchange fluctuations driven by speculation at a Group of 20 meeting, top currency diplomat Masato Kanda said on Thursday.

"Japan has said we must respond appropriately based on G20 comittments that excessive currency volatility has a negative impact on the economy and financial stability," Kanda said.

He made the comments during a press conference at the G20 finance ministers and central bank governors meeting in Rio de Janeiro, Brazil.

The Japanese yen rallied for a fourth session against the dollar on Thursday, hitting the highest in more than two months, as investors unwound their long-running bets against the currency ahead of a Bank of Japan meeting next week.

RIO DE JANEIRO (Reuters) - Brazilian Finance Minister Fernando Haddad said on Thursday that G20 finance leaders were poised to endorse a joint declaration on international tax cooperation addressing issues such as the taxation of super-rich individuals.

"I like to see the declaration not as the end of a journey, but as a starting point," said Haddad in his public remarks opening a discussion of taxation with his counterparts. He also called on the group to "advance towards a coordinated global minimum tax on billionaires" - a proposal Brazil has pushed with its presidency of the Group of 20 major economies this year.

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. economic growth likely picked up in the second quarter, spurred by solid consumer spending and inventory building, but the pace of expansion should still leave expectations of a September interest rate cut from the Federal Reserve intact.

The Commerce Department's advance report on second-quarter gross domestic product on Thursday is also expected to show inflation slowing considerably last quarter, with sub-3% readings on all measures, welcome news for U.S. central bank officials ahead of their two-day policy meeting next week.

The economy, which continues to outperform its global peers despite hefty rate hikes from the Fed in 2022 and 2023, remains supported by a resilient labor market even as the unemployment rate has risen to a 2-1/2-year high of 4.1%.

"The economic expansion is tracking the Goldilocks outlook, which is slower growth and a lower rate of inflation," said Brian Bethune, an economics professor at Boston College. "Consumer spending is keeping things in motion."

Gross domestic product likely increased at a 2.0% annualized rate last quarter, according to a Reuters survey of economists. It would be just above the 1.8% pace that Fed officials regard as the non-inflationary growth rate. Estimates ranged from a 1.1% rate to a 3.4% pace.

The survey was, however, conducted before Wednesday's advance indicators data, which showed the goods trade deficit narrowing in June and retail and wholesale inventories increasing. The data prompted the Atlanta Fed to trim its second-quarter GDP estimate to a 2.6% rate from a 2.7% pace.

The economy grew at a 1.4% rate in the first quarter. Still, growth would remain considerably slower than the 4.2% pace logged in the second half of last year.

Consumer spending, which accounts for more than two-thirds of the economy, is forecast to have increased at around a 2.0% rate after slowing to a 1.5% pace in the January-March quarter. Much of the increase in spending was in June.

Businesses accumulated more inventory, which economists estimated could add at least a full percentage point to GDP growth, after being a drag for two straight quarters. Despite the anticipated boost from inventories, economists expected growth in domestic demand at around a 2.4% pace.

The anticipated rise in GDP growth bodes well for an acceleration in productivity, which would slow the pace of increase in labor costs and ultimately price pressures. The personal consumption expenditures price index, excluding the volatile food and energy components, is forecast increasing at a 2.7% rate after surging at a 3.7% pace in the first quarter.

The so-called core PCE is one of the inflation measures tracked by the Fed for its 2% target. The government's broadest gauge of prices in the economy, the gross domestic purchases price index, is seen rising at a 2.6% pace after jumping at a 3.1% rate in the January-March quarter.

DRAG FROM TRADE

"Inflation may well turn out to be a bigger story than the actual growth numbers," said Dan North, senior economist at Allianz (ETR:ALVG) Trade North America.

The Fed has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range for the past year.

It has hiked its policy rate by 525 basis points since 2022, and a moderation in inflation, combined with a cooling labor market would boost financial market expectations for three rate cuts this year, starting in September.

Business spending on equipment is forecast to have accelerated after tepid growth in the first quarter. Government spending is also expected to have contributed to growth. But trade likely subtracted from growth as exports softened amid slower global demand and a strong dollar.

Pantheon Macroeconomics estimated that the trade deficit subtracted as much as 1.4 percentage points from GDP growth, which would be the biggest drag in more than two years. The hit on GDP was likely to be more than offset by the rise in inventories. A surge in mortgage rates in the spring probably undermined the housing market recovery.

Residential investment, which includes homebuilding and sales, is expected to have contracted after posting double-digit growth in the first quarter.

Despite the anticipated pick-up in economic growth, the outlook for the second half of the year is hazy. The labor market is slowing, which will impact wage gains.

The saving rate is well below its pre-pandemic average and economists estimate that the bulk of the Fed's rate hikes is still to be felt. State and local government revenues are also slowing, which could erode spending. There are also worries about new tariffs, which could see businesses front-loading imports if former President Donald Trump is returned to the White House in November's presidential election.
 

Nonetheless, a recession is not expected, with monetary policy easing anticipated this year.

"Changes in corporate borrowing costs for small and medium-sized businesses have historically taken about two years to dampen GDP growth, suggesting the bulk of the impact of the Fed's hiking cycle, which ended only 12 months ago, lies ahead," said Ian Shepherdson, chief economist at Pantheon Macroeconomics. "We expect growth in GDP to slow to a 1.0% to 1.5% range in the second half."

(Reuters) - China surprised financial markets with an off-cycle cut to bank funding costs on Thursday. Stocks fell and bonds rallied after the announcement of a 20 basis point reduction in the one-year medium-term lending facility (MLF).

Here are reactions from market analysts:

LEMON ZHANG, FX & EM MACRO STRATEGIST, BARCLAYS, SINGAPORE

"The fact that scale is bigger than 10 basis points suggests there's more to come in terms of benchmark rate cuts.

"I would think it helps on the margin. But after all, you still have a very subdued growth momentum."

MARCO SUN, CHIEF FINANCIAL MARKET ANALYST, MUFG BANK (CHINA), SHANGHAI

"The risk of another slowdown in China's economic growth is on the rise. China's GDP growth slowed in the second quarter ... and a cut in the policy rate could reduce the cost of financing and release liquidity to maintain the momentum of the economic recovery. A large amount of MLF loans are coming due, and it could be another reason explaining the MLF operation."

GARY NG, ASIA-PACIFIC SENIOR ECONOMIST, NATIXIS, HONG KONG

"It shows the PBOC wants to be more accommodating to banks in lowering their medium-term funding costs ... cutting the MLF rate at a larger scale can help shield the net interest margin.

"The yuan may still be under pressure if investors continue to expect lower interest rates in China. If confidence improves ... the yuan may not necessarily depreciate as net capital inflows may return."

FRANCES CHEUNG, HEAD OF FX AND RATES STRATEGY, OCBC BANK, SINGAPORE

"The MLF was done when there is no near-term maturity, showing that PBOC intends to send an easing signal. The cut in the MLF rate is of a bigger magnitude than the cut in 7-day reverse repo rate, primarily because the MLF rate was at an elevated level compared to other sources of funds."

KHOON GOH, HEAD OF ASIA RESEARCH, ANZ, SINGAPORE

"In terms of the challenges facing the Chinese economy, rate cuts by themselves, particularly of this magnitude, is not really going to be that material.

"Issues facing the property sector (and) the lack of confidence that is holding back consumer spending ... need more concrete fiscal support or other type of policy measures to address."

By Stella Qiu and Wayne Cole

SYDNEY (Reuters) - Asian shares were hammered on Thursday as a slump in global tech stocks sent investors fleeing into less risky assets, including short-dated bonds, the yen and Swiss franc.

Chinese stocks were given little support after the country's central bank sprang a surprise cut in longer-term rates, adding to a recent rush of stimulus measures.

The sell-off in stocks saw investors ramp up bets on rate cuts globally, with futures implying a 100% chance of a Federal Reserve easing in September. A spike in market volatility fuelled a vicious squeeze on carry trades which saw the dollar sink another 0.6% to 152.85 yen on Thursday.

MSCI's broadest index of Asia-Pacific shares outside Japan lost 0.7%, while Japan's Nikkei tumbled 2.9% and South Korea's KOSPI dropped 2%. Taiwan's markets were closed for a second day due to a typhoon.

Chinese blue-chips pared earlier losses to be down 0.1%, although the Shanghai Composite index was still off 0.3%, hitting five-month lows.

Hong Kong's Hang Seng dropped 0.6%, finding little support from Beijing's latest easing step.

On Wall Street, the Nasdaq lost almost 4% - the worst one-day fall since 2022 - as lacklustre Alphabet (NASDAQ:GOOGL) and Tesla (NASDAQ:TSLA) earnings undermined investor confidence in the already lofty valuations of the "Magnificent Seven" stocks. [.N]

That added to recent market volatility, with Wall Street's fear gauge jumping to a three-month high. Investors looked for the safety of cash and super-liquid short term debt, with U.S. two-year yields hitting their lowest in almost six months on Wednesday.
 

In early Asian trade, Nasdaq futures rebounded 0.4% and S&P 500 stock futures rose 0.3%.

"Traders have played outright defence, as the saturated and well-owned tech position continues to be unwound," said Chris Weston, head of research at Pepperstone.

"We can also add an ongoing unease around China's growth trajectory, very poor PMIs in Europe and a bearish opinion piece from ex-New York Fed member Bill Dudley, and investors and traders derisked and de-grossed portfolios."

The other big mover in Asia was the safe-haven yen, up 0.6% to the strongest in 2-1/2 months. It surged 1.1% overnight, with the upward momentum intact ahead of the Bank of Japan's meeting next week where policymakers will debate whether or not to raise interest rates.

The Swiss franc also rose 0.7% overnight.

Short-dated bonds rallied overnight, supported by comments from Bill Dudley, a former president at the New York Fed that the central bank should cut rates, preferably at its policy meeting next week.

The yield on two-year Treasuries fell 4 basis points overnight and was last steady at 4.4121%.

Markets are fully pricing in a quarter-point rate cut from the Fed in September, with even some risk for a 50 basis point cut. For all of 2024, a total easing of 65 basis points has been priced in.

"The rate cut expectations are getting very elevated the same way as they were last year," said Andrew Lilley, chief rates strategist at Barreyjoey in Sydney.

"My worry is that the market is getting ahead of the economic data because we have seen previously that these short-term dips in inflation haven't been sustained."

Indeed, advance U.S. gross domestic product data is due later on Thursday and is forecast to show growth picking up to an annualised 2% in the second quarter. The closely watched Atlanta Fed GDPNow indicator points to growth of 2.6%, suggesting some risk to the upside.

In commodity markets, gold fell 0.9% to $2,375.92 an ounce. [GOL/]

Oil prices ticked lower and held near six-week lows on worries about a slowing Chinese economy crimping demand. [O/R]

Brent futures fell 0.4% to $81.81 a barrel, while U.S. West Texas Intermediate (WTI) crude also dropped 0.3% to $77.33.

By Emma Farge

GENEVA (Reuters) - Countries and environmental groups voiced concern and disappointment on Tuesday after a draft treaty to cut fishing subsidies failed to pass, with China calling for major changes in how countries negotiate at the World Trade Organization.

The talks, seen as critical to helping over-fished stocks recover, have been going on for more than 20 years at the WTO with an initial package approved in 2022.

The second phase tackling some of the toughest remaining issues had been drafted for approval at a WTO meeting this week but was blocked by India which criticised what it called the treaty's "significant shortcomings" while seeking deeper carve-outs for developing countries.

As a result, the talks were downgraded from being up for adoption to merely being "discussed" by the WTO's 166 members, any one of which can block a deal under the body's rules.

"We are deeply concerned for our future work here in the WTO on these negotiations," said U.S. Ambassador Maria Pagan. On India's proposals, she said: "We find it difficult to understand the objectives of these papers when they re-introduce topics that have been debated and discussed repeatedly...," she said.

China, a major subsidiser, voiced deep disappointment that it had not been adopted. "The fish and this planet cannot wait any longer," said Ambassador Li Chenggang, who did not name India but referred to multiple failures of these talks "due to the same or similar reasons".

"We need to think about how to get out of this dilemma ... Let's change. No reform, no success," he said.

Environmental groups also expressed regret.

"The longer we wait, the more fishers are hurt by damaging subsidies that deplete the fish populations that coastal communities depend on," said The Pew Charitable Trusts's Ernesto Fernández Monge.

By Marcela Ayres and David Lawder

RIO DE JANEIRO (Reuters) - G20 finance leaders meeting in Brazil are preparing a joint statement for Thursday in support of progressive taxation that will stop short of endorsing the hosts' proposal for a global "billionaire tax," two G20 officials told Reuters.

Brazil's presidency of the Group of 20 major economies this year has drummed up initial support from some countries for a joint effort to tax ultra-high-net-worth individuals, although debate has been preliminary.

France, Spain, Colombia, Belgium and the African Union have backed the idea, along with South Africa, which will assume the G20 presidency next year. However, the idea has hit high-profile resistance, including from U.S. Treasury Secretary Janet Yellen.

Sources at the German finance ministry, which came out against the idea in April, said that a tax on the super-rich was off the table at this week's G20 meetings. Tax discussions would focus on other ideas, such as combating tax avoidance and wealth concealment, the sources said.

One of the G20 officials familiar with talks, who requested anonymity to discuss ongoing negotiations, said Thursday's joint statement is expected to include a call for cooperation to reduce tax evasion by the super-rich through greater exchange of information and best practices.

A broader G20 joint communique is expected on Friday, when finance ministers and central bankers conclude this week's meetings in Rio de Janeiro.

Despite skepticism, the G20 discussions of a global billionaire tax have garnered praise from former world leaders including 19 members of the Club de Madrid, a forum of more than 100 former presidents and prime ministers.

At a seminar in Brasilia last month, officials discussed the proposal from the independent EU Tax Observatory to levy a 2% wealth tax on fortunes over $1 billion, raising estimated revenue of up to $250 billion annually from 3,000 individuals.