By David Milliken, Andy Bruce and Suban Abdulla

LONDON (Reuters) - The Bank of England raised its key interest rate by a quarter of a percentage point to a 15-year peak of 5.25% on Thursday, its 14th back-to-back increase, and warned that borrowing costs were likely to stay high for some time.

While the U.S. Federal Reserve and the European Central Bank signalled that their rate hikes were nearing an end when they both raised borrowing costs by a quarter-point last week, the BoE's Monetary Policy Committee (MPC) gave no such suggestion it was about to pause as it continues to battle high inflation.

"The MPC will ensure that Bank Rate is sufficiently restrictive for sufficiently long to return inflation to the 2% target," the BoE said in fresh guidance.

Governor Andrew Bailey stressed that message, even as the BoE saw the economy growing only minimally in the coming years.

"I don't think it is time to declare it's all over," he told a press conference, adding it was "far too soon" to speculate about the timing of any rate cuts. Bailey also said "we might need to raise interest rates again but that's not certain".

British inflation hit a 41-year high of 11.1% last October and has fallen more slowly than elsewhere, standing at 7.9% in June, the highest of any major economy.

Deputy Governor Ben Broadbent said keeping relatively high rates over an extended period was key for cutting inflation.

Despite the BoE's message, financial markets - which had seen a more than one in three chance of a half-point rate rise to 5.5% - focused on how the BoE had for the first time described its policy stance as "restrictive".

Investors moved to price in slightly less BoE tightening, with rates seen peaking at 5.75% and two-year bond yields down, although investors still saw a two-in-three chance that rates would rise to 5.5% next month. Sterling was little changed on the day.

Analysts at NatWest cut their forecast for peak Bank Rate to 5.5% from a previous estimate of 6%.

"The Bank of England today acknowledged for the first time in the current tightening cycle that its monetary policy is tight," Kallum Pickering, senior economist at Berenberg, said.

"Although policymakers kept open the prospect of further hikes ... this supports our call that the BoE is close to peak rates."

The BoE has been criticised for sounding too relaxed about inflation in the past. Now the BoE is alarmed that inflation's rise is becoming a long-term problem for the economy.

Bailey said the pace of pay growth was "materially above" the BoE's previous forecasts.

Wage rises had been a bigger driver of high inflation than companies' profit margins, the BoE said.

THREE-WAY SPLIT

Policymakers voted 6-3 for the increase, but were split three ways on the decision for the first time this year. Two MPC members - Catherine Mann and Jonathan Haskel - voted for a bigger, half-point increase, while Swati Dhingra again voted for no change, warning of the risk of smothering the economy.

New MPC member Megan Greene voted in line with the majority after she replaced Silvana Tenreyro, one of the MPC's doves.

The BoE forecast inflation would fall to 4.9% by the end of this year - a faster decline than it had predicted in May.

This will be a relief for Prime Minister Rishi Sunak, who pledged in January to halve inflation this year, a goal which had looked challenging.

"If we stick to the plan, the Bank forecasts inflation will be below 3% in a year's time without the economy falling into a recession," finance minister Jeremy Hunt said after the BoE's announcement.

Not everyone backs the BoE's approach. A small number of protesters from campaign group Positive Money gathered outside the central bank on Thursday.

"What we need are better tools for dealing with inflation than blunt instruments like interest rates, and a windfall tax on bank profits to redress the harm done to workers and families by rate hikes," Positive Money campaigner Hannah Dewhirst said.

Mortgage costs have hit their highest since 2008, weighing on house-building. The BoE forecast housing investment would fall 5.75% this year and 6.25% in 2024.

The jobless rate is predicted to rise by more than before, reaching 4.8% in late 2025 from 4.0% now.

Overall, the BoE noted the economy's recent "surprising resilience" but barely changed its growth forecasts from three months ago, with the economy due to expand a meagre 0.5% in 2023 and 2024, and just 0.25% in 2025.

Inflation is not expected to return to its 2% target until the second quarter of 2025, three months later than May's forecast. Services price inflation - which the BoE said offered a longer-term price signal - was projected to stay high.

Wage growth at the end of this year was expected to be 6%, up from May's forecast of 5%, as pay demands had not fallen in line with lower prospects for inflation.

"Some of the risks of more persistent inflationary pressures may have begun to crystallise," the BoE said.

BERLIN (Reuters) - German exports stagnated in June, with a smaller than expected rise of 0.1% over the previous month, data from the federal statistics office showed on Thursday.

A Reuters poll had predicted a month-on-month increase of 0.3%.

"Trade is no longer the strong resilient growth driver of the German economy that it used to be, but rather a drag," said Carsten Brzeski, global head of macroeconomics at ING.

Supply chain frictions, a more fragmented global economy and China increasingly being able to produce goods it previously bought from Germany were all factors weighing on exports in June, Brzeki added.

Imports fell 3.4% on the month, the statistics office data showed.

The foreign trade balance showed a surplus of 18.7 billion euros ($20.45 billion) in June, up from a slightly revised 14.6 billion euros the previous month.

Exports to European Union countries were up 1.3% on the month, while exports to the United States fell by 0.2% and exports to China and Russia were 5.9% and 2.3% lower, respectively, the office said.

"Since the end of the pandemic, global export volumes have been treading water," said Thomas Gitzel, chief economist at VP Bank Group, adding that the steep drop in exports to China in particular should be seen as a warning sign for the global economy.

Sentiment in the German export industry deteriorated slightly in July, a survey by the Ifo Institute showed last week.

"Demand from abroad is developing rather weakly," said Klaus Wohlrabe, head of surveys at Ifo. "This is also the result of restrictive monetary policy in the U.S. and Europe, the effects of which are gradually being felt."

The statistics office publishes more detailed economic data on its website.

($1 = 0.9146 euros)

BEIJING (Reuters) - China's cyberspace regulator issued on Thursday draft rules requiring service providers that hold data on more than 1 million people to undergo at least one compliance audit a year, another step in efforts to control data and information.

Infrastructure information providers or services that process data of more than one million users must undergo a security review conducted by an agency appointed by the regulator if they are supplying data overseas, the Cyberspace Administration of China (CAC) said in its draft.

The appointed compliance agency must also evaluate services that own the data of more than 100,000 users, or those with sensitive data of more than 10,000 users, the CAC said.

Services that hold data of fewer than 1 million users must undergo a personal information compliance check at least once every two years, the CAC said.

China has in recent years tightened controls on data and information, especially data and information that flows abroad.

Legislators in April passed a wide-ranging update to anti-espionage legislation, banning the transfer of information related to national security and broadening the definition of spying.

The CAC last year required platform companies with data on more than 1 million users to undergo a security review before listing their shares overseas.

By Svea Herbst-Bayliss

NEW YORK (Reuters) - Billionaire investor William Ackman on Wednesday said his hedge fund Pershing Square Capital Management has placed a bet against U.S. 30-year Treasuries, calling it both a hedge on the impact of higher long-term rates on stocks and a good standalone bet.

"We are short in size the 30-year T," Ackman wrote on messaging platform X, formerly known as Twitter. He argued that if long-term inflation is 3% not 2%, the 30-year Treasury yield could rise to 5.5%, adding "and it can happen soon." On Wednesday, the yield on the 30-year Treasurys climbed to 4.16%, the highest close of the year.

"We implement these hedges by purchasing options rather than shorting bonds outright," Ackman wrote.

Ackman said higher defense costs, energy transition and the greater bargaining power of workers all point toward higher inflation. The Federal Reserve has raised interest rates aggressively to curb inflation and signaled last month that it is keeping its options open after having raised rates by a quarter point to their highest level since 2001.

Ackman, once one of Wall Street's most voluble investors who cemented his reputation as an activist investor by pushing for changes at companies ranging from Chipotle Mexican Grill (NYSE:CMG) to railroad Canadian Pacific (NYSE:CP), has recently used the social media platform to opine on economic policy and presidential politics.

On Wednesday, he wrote: "There are few macro investments that still offer reasonably probable asymmetric payoffs and this is one of them."

In 2020 Ackman was among a small number of investors to call the COVID-19 crisis early and put on a hedge that earned his fund proceeds of $2.6 billion early in the year.

"The best hedges are the ones you would invest in anyway even if you didn't need the hedge," Ackman wrote. "This fits that bill, and also I think we need the hedge."

He remarks on X were made after rating agency Fitch on Tuesday downgraded the U.S. government's top credit rating, a move that drew an angry response from the White House and surprised investors, coming despite the resolution of the debt ceiling crisis two months ago. Ackman didn't address the Fitch move in his posting.

A spokesman for Ackman didn't respond to a Reuters request for additional comment.

Traders' immediate response to the Fitch downgrade was to embark on a safe-haven push out of stocks and into government bonds and the dollar.

By Davide Barbuscia

(Reuters) - Rating agency Fitch on Tuesday downgraded the U.S. government's top credit rating, a move that drew an angry response from the White House and surprised investors, coming despite the resolution of the debt ceiling crisis two months ago.

Traders' immediate response was to embark on a safe-haven push out of stocks and into government bonds and the dollar.

Fitch downgraded the United States to AA+ from AAA, citing fiscal deterioration over the next three years and repeated down-the-wire debt ceiling negotiations that threaten the government’s ability to pay its bills.

Fitch had first flagged the possibility of a downgrade in May, then maintained that position in June after the debt ceiling crisis was resolved, saying it intended to finalize the review in the third quarter of this year.

With the downgrade, it becomes the second major rating agency after Standard & Poor’s to strip the United States of its triple-A rating.

Fitch's move came two months after Democratic President Joe Biden and the Republican-controlled House of Representatives reached a debt ceiling agreement that lifted the government's $31.4 trillion borrowing limit, ending months of political brinkmanship.

"In Fitch's view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025," the rating agency said in a statement.

U.S. Treasury Secretary Janet Yellen disagreed with Fitch's downgrade, in a statement that called it "arbitrary and based on outdated data."

The White House had a similar view, saying it "strongly disagrees with this decision".

"It defies reality to downgrade the United States at a moment when President Biden has delivered the strongest recovery of any major economy in the world," said White House press secretary Karine Jean-Pierre.

REPUTATIONAL DENT

Analysts said the move shows the depth of harm caused to the United States by repeated rounds of contentious debate over the debt ceiling, which pushed the nation to the brink of default in May.

"This basically tells you the U.S. government’s spending is a problem," said Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA.

Fitch said repeated political standoffs and last-minute resolutions over the debt limit have eroded confidence in fiscal management.

Michael Schulman, chief investment officer at Running Point Capital Advisors said the "U.S. overall will be seen as strong but I think it’s a little chink in our armor."

"It is a dent against the U.S. reputation and standing," said Schulman.

Others expressed surprise at the timing, even though Fitch had flagged the possibility.

"I don't understand how they (Fitch) have worse information now than before the debt ceiling crisis was resolved," said Wendy Edelberg, director of The Hamilton Project At The Brookings Institution in Washington D.C.

U.S. stock futures dropped in European trading, suggesting the benchmark indices could open sharply lower later on.

The yield on the benchmark U.S. Treasury note fell 2 basis points on the day to 4.03%, while the cost of insuring U.S. sovereign debt against default held largely unchanged on the day, reflecting a sense of calm among investors about the longer-term impact of the downgrade.

"I don't think you are going to see too many investors, especially those with a long-term investment strategy saying I should sell stocks because Fitch took us from AAA to AA+," said Jason Ware, chief investment officer at Albion Financial Group.

Investors use credit ratings to assess the risk profile of companies and governments when they raise financing in debt capital markets. Generally, the lower a borrower's rating, the higher its financing costs.

"This was unexpected, kind of came from left field," said Keith Lerner, co-chief investment officer at Truist Advisory Services in Atlanta. "As far as the market impact, it's uncertain right now. The market is at a point where it's somewhat vulnerable to bad news."

LIMITED IMPACT

In a previous debt ceiling crisis in 2011, Standard & Poor's cut the top "AAA" rating by one notch a few days after a debt ceiling deal, citing political polarization and insufficient steps to right the nation's fiscal outlook. Its rating is still "AA-plus" - its second highest.

After that downgrade, U.S. stocks tumbled and the impact of the rating cut was felt across global stock markets, which were in the throes of the euro zone financial meltdown.

In May, Fitch had placed its "AAA" rating of U.S. sovereign debt on watch for a possible downgrade, citing downside risks, including political brinkmanship and a growing debt burden.

A Moody's (NYSE:MCO) Analytics report from May said a downgrade of Treasury debt would set off a cascade of credit implications and downgrades on the debt of many other institutions.

Other analysts had pointed to risks that another downgrade by a major rating agency could affect investment portfolios that hold top-rated securities.

Raymond James analyst Ed Mills, however, said on Tuesday he did not anticipate markets to react significantly to the news.

"My understanding has been that after the S&P downgrade a lot of these contracts were reworked to say 'triple-A' or 'government-guaranteed', and so the government guarantee is more important than the Fitch rating," he said.

Others echoed that view.

"Overall, this announcement is much more likely to be dismissed than have a lasting disruptive impact on the U.S. economy and markets," Mohamed El-Erian, President at Queens' College, said in a LinkedIn post.

By David Milliken

LONDON (Reuters) - The Bank of England is expected to raise interest rates to a 15-year high of 5.25% from 5% on Thursday, though there is a risk of a repeat of June's surprise half-point increase as inflation remains the highest of the world's major economies.

The U.S. Federal Reserve and the European Central Bank increased rates by a quarter of a percentage point last week, but unlike the BoE, markets think they are at or near the end of their rate-tightening cycle.

Bets on how high the BoE will go have swung in recent weeks as investors try to work out if Britain has a uniquely deep-rooted inflation problem.

Market expectations for peak Bank Rate reached 6.5% on July 11 after data showed record wage growth before falling back to 5.75% after a sharp decline in consumer price inflation.

But at 7.9% in June, annual price growth is nearly four times the BoE's 2% target and more than double the U.S. rate.

Prime Minister Rishi Sunak pledged in January to halve inflation this year, a goal which now looks challenging.

Mortgage costs have hit their highest since 2008, weighing on house-building. A survey last week showed private-sector growth across the economy fell to a six-month low in July.

Investors see a two-in-three chance of the BoE raising Bank Rate to 5.25% on Thursday but for most economists polled by Reuters the BoE's decision is finely balanced.

ING economist James Smith said the BoE was "doing a bit of soul-searching" after missing last year's inflation surge.

"That's partly why all the central banks are erring on the side of over-tightening rather than under-, because they don't want to be the ones remembered for inflation staying high on their watch," Smith said.

The BoE began raising rates in December 2021, before other major central banks. A hike on Thursday would be its 14th in a row.

SEEING THE JOB THROUGH

Governor Andrew Bailey has said it is "crucial we see the job through". Deputy Governor Dave Ramsden said even after recent falls, inflation remained "much too high" and there had not been much softening in longer-term pressures.

The picture from Britain's job market is mixed. Wage growth excluding bonuses held at an annual rate of 7.3% in the three months to May, the joint highest since records began in 2001. However, unemployment rose unexpectedly to a 16-month high of 4%, and employers advertised fewer job vacancies.

Swati Dhingra is likely to be the only Monetary Policy Committee member to vote for a pause in rate hikes, pointing to weak producer price inflation which fell to 0.1% in June, its lowest since December 2020 and down from nearly 20% last July.

Silvana Tenreyro, who also voted to keep rates on hold this year, has been replaced by former Kroll Institute chief economist Megan Greene, who has said it would be "a mistake" to assume inflation would automatically return to target.

However, some BoE critics argue it risks causing an unnecessary downturn, and that higher rates are a poor tool to tackle inflation caused by higher food and energy prices.

"The main winners are banks, whose profits have flourished thanks to higher rates," said Fran Boait, co-executive director of campaign group Positive Money.

The BoE is likely to lower its growth and inflation forecasts due to higher market interest rate expectations, an important part of the forecasts.

Last week the International Monetary Fund forecast Britain's economy would grow 0.4% this year - the second slowest in the Group of Seven advanced economies, after Germany.

Normally, how far the BoE's forecast for inflation in two years' time deviates from its 2% target is read as a signal of how much it agrees with market rate bets.

However, in recent months the BoE has focused more on the risks of persistent inflation.

"I think we'll get the same forward guidance, which is vague enough to keep their options open," ING's Smith said.

BEIJING (Reuters) - China's finance ministry on Wednesday unveiled a package of tax relief measures to support small businesses and rural households, as the world's second-largest economy struggles with a post-COVID recovery.

Amid weak demand both at home and abroad, China's economic recovery has lost steam since April, adding pressure on policymakers to revive the economy as some small firms are particularly struggling with fewer orders, financing difficulties and shrinking profits.

The finance ministry said it would extend a value-added tax (VAT) cut for small taxpayers for an additional four years until the end of 2027, according to a statement.

The ministry would exempt value-added tax for small taxpayers with less than 100,000 yuan ($13,921.95) in monthly sales and cut the rate on taxable sales revenues to 1% for those normally eligible for a 3% rate, the statement said.

Those offering guarantees of borrowings or bond issues by rural households, small firms and individual businesses would also be exempted from paying the VAT on revenue generated from the guarantees, the ministry said.

Interest income deriving from financial institutions' micro-lending to small and micro-sized firms and individual businesses would also be exempted from VAT until the end of 2027, said the ministry in a separate statement.

Micro loans entitled to the exemption refer to lending to businesses of those types with no more than 10 million yuan in credit lines.

The ministry also announced an extension until end-2027 of preferential tax terms applying to technology start-ups with no more than 300 employees with gross assets and annual sales revenue both not exceeding 50 million yuan.

On Tuesday, multiple ministries, regulators and the central bank pledged more financing support to small businesses as policymakers are pressured to urgently revive the private sector amid a flagging economic recovery.

China had used tax cuts to shore up small firms last year when stringent anti-virus measures squeezed them hard.

($1 = 7.1796 Chinese yuan renminbi)

By Lucy Craymer

WELLINGTON (Reuters) -The New Zealand jobless rate hit a two-year high in the June quarter as strong demand for labour was met by a jump in the number of people looking for work, helping keep a lid on wage pressures and thus interest rates.

Data released by Statistics New Zealand on Wednesday highlighted that the country's labour market remains tight but there are signs that is easing with the unemployment rate climbing to 3.6% from 3.4% in the prior quarter.

At the same time, the underutilisation rate increased with part-timers looking for more hours.

Economists expect the Reserve Bank of New Zealand (RBNZ) to leave its official cash rate (OCR) unchanged later this month at 5.5% and say signs of a little loosening in the drum-tight labour market should provide some comfort for the central bank.

"Developments in both the unemployment rate and wages will likely leave the Bank comfortable with the broad story underpinning the projections in the May Monetary Policy Statement," said Westpac senior economist Darren Gibbs.

With the economy in a technical recession, the RBNZ signalled in May it was done with hiking rates for the foreseeable future as it expected employment pressures and inflation to ease.

However, the central bank will likely remain concerned about the potential for wage inflation, tracking at 4.3% in the second quarter, to become entrenched, economists say.

Statistics New Zealand said the labour force participation rate at 72.4% and the employment rate at 69.8% were both the highest rates recorded since the survey began.

New Zealand has experienced strong migration in the past 12 months after reopening its borders following COVID-19, but Statistics New Zealand said recently most of the growth in the working age population had come from those within New Zealand.

Following the release of the data there was little market reaction with the two-year swaps [NZDSM3NB2Y=] down 4 basis points at 5.44%, and the New Zealand dollar off slightly at $0.6141.

By Xie Yu

HONG KONG (Reuters) - Asian stocks traded lower while U.S. Treasury yields declined on Wednesday, after ratings agency Fitch unexpectedly downgraded the United States' top-tier sovereign credit rating.

MSCI's broadest index of Asia-Pacific shares fell 0.5%. Japan's Nikkei slid by 1.2%, while Australian shares edged down 0.5%.

China's mainland benchmark and Hong Kong's fell by 0.3% and 0.5%, respectively.

Asian stocks were also weighed by declines on Wall Street overnight. U.S. stock futures, the S&P 500 e-minis, pointed 0.2% lower on Wednesday.

Fitch cut the United States by one notch to AA+ from AAA, citing fiscal deterioration, a decision announced after the Wall Street close on Tuesday.

U.S. 10-year Treasury yields declined by about 2 basis points to 4.025% in Tokyo. [US/]

"Most of the Asia turmoil this morning and the Treasury yields move is triggered by the Fitch decision," said Manishi Raychaudhuri, head of Asia Pacific equity research at BNP Paribas (OTC:BNPQY).

"It's kind of a short-term knee-jerk reaction, so we will have to wait and watch for how this pans out."

Investors counterintuitively fled to the relatively safety of sovereign debt from riskier equity markets. Treasuries, whose yields fall when prices rise, were also bought when Standard & Poor's cut the U.S. top "AAA" rating by one notch to "AA-plus" in 2011.

The U.S. dollar moved lower against a basket of major currencies immediately after the announcement, but was up 0.1% as of the Asian morning.

While the investor reaction to the downgrade was relatively contained, it has injected some uncertainty into financial markets.

"This basically tells you is the U.S. government’s spending is a problem. It's an unsustainable budget situation because the economy can't even grow its way out of this problem going forward," said Steven Ricchiuto, U.S. chief economist, Mizuho Securities. "Therefore, they're going to have to either tackle it or accept the consequences of potential further additional downgrades."

Looking beyond the Fitch downgrade, the main area of focus will still be central banks, corporate earnings and, in China specifically, stimulus prospects the geopolitical issues, he said.

The United States publishes fresh data on jobless claims and unemployment later this week.

Oil prices gained on Wednesday, trading near their highest since April, after industry data showed a much steeper-than-expected draw last week in {{8849|U.S. crcrude oil inventories.

West Texas Intermediate crude futures ticked up 1% to $82.18 while Brent crude rose to $85.73 per barrel.

Gold was slightly higher, trading at $1,949.69 per ounce.

By Jamie McGeever

(Reuters) - A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.

A double dose of the U.S. Treasuries and dollar 'pain trade' looks set to put Asian markets on the defensive on Wednesday, with investors also bracing for South Korean inflation figures and an expected interest rate hike from the Bank of Thailand.

The slump in U.S. bonds on Tuesday pushed the 10-year yield above 4.0%, and the 30-year yield above 4.10% for the first time since November, lifting the dollar and sapping any risk appetite investors might have had on the first day of the new month.

Several indicators, from big Wall Street banks' client surveys to futures market positioning data, show investors are not positioned for that. They are heavily 'long' Treasuries and 'short' dollars - moves like Tuesday's will hurt.

They will also add to the volatility and uncertainty evident in some key Asia and Pacific markets, notably Japanese assets following the Bank of Japan's policy tweak, and the Australian dollar after the country's central bank kept rates on hold at 4.10%.

The Aussie dollar's 1.6% slide against the greenback on Tuesday was its biggest fall since the U.S. regional banking shock in early March. The yen has fallen nearly 4% since the BOJ tweaked its seven-year 'yield curve control' policy on Friday.

U.S. investors bringing money back home? If so, Asian and emerging markets will likely come under more selling pressure.

The U.S. earnings season reaches a peak this week with more than 100 companies reporting, including mega tech firms Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) on Thursday. Tuesday's results were a mixed bag, allowing direction to be led by macro factors.

The Asian economic and policy calendar on Wednesday will be dominated by the Bank of Thailand's expected 25-basis-point interest rate increase to 2.25%, which is likely to mark the end of the tightening cycle.

But analysts don't expect the first rate cut until 2025 - although inflation has eased to 0.23%, below the central bank's target range of 1%-3%, policymakers anticipate a pick up in prices again later this year.

Annual inflation in South Korea, meanwhile, is expected to have slowed to 2.40% in July from 2.70% the month before. If so, that would mark the slowest pace since June 2021 and a significant deceleration from the 6.30% peak a year ago.

Here are key developments that could provide more direction to markets on Wednesday:

- Thailand interest rate decision

- South Korea CPI inflation (July)

- Singapore manufacturing PMI (July)

(By Jamie McGeever; Editing by Deepa Babington)