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Bank of England holds interest rates, British pound rallies to more than two-year high

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4 months ago

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Commuters cycles past the Bank of England (BOE), left, in the City of London, UK, on Monday, Sept. 16, 2024. The central bank’s Monetary Policy Committee’s interest rate decision is scheduled for release on Sept. 19. 

Bloomberg | Bloomberg | Getty Images

LONDON — The Bank of England on Thursday said it would hold interest rates steady following its initial cut in August, even after the U.S. Federal Reserve opted for a jumbo rate cut the day before.

The Monetary Policy Committee voted by 8 to 1 to hold, with the dissenting member voting for a 0.25 percentage point cut.

A “gradual approach” to monetary easing remained appropriate, with services inflation remaining “elevated,” the committee said. The U.K. economy, which has returned to growth but been sluggish this year, is expected to return to an underlying pace of around 0.3% per quarter in the second half, it added.

The British pound was bolstered by both announcements, trading up 0.72% against the U.S. dollar at $1.3306 at 12:10 p.m. London time Thursday. That was the highest rate since March 2022, according to LSEG data.

Global equity markets meanwhile rallied Thursday, with the pan-European Stoxx 600 index 1.35% higher.

Also being closely-watched Thursday is the BOE’s annual announcement on the pace of quantitative tightening (QT). The central bank voted to reduce its stock of bonds – known as gilts – by £100 billion ($133 billion) over the next twelve months through active sales and the maturation of bonds.

That amount was in-line with the prior period, against the expectation of some for an acceleration of the program.

The BOE sustains losses on its QT program, subsidized by the taxpayer, because they were bought in the past at higher prices than they are being sold for. However, BOE Governor Andrew Bailey argues it needs to conduct QT now to have space to undertake more quantitative easing or other operations in the future.

The committee is assessing a mixed bag of data, with headline inflation consistently coming in near to its 2% target but price rises in services — accounting for around 80% of the U.K. economy — ticking higher to 5.6% in August. Wage growth in the U.K. cooled to a more than two-year low over the three months to July, but remained relatively high at 5.1%.

The BOE confirmed expectations for a hold even after the U.S. Federal Reserve on Wednesday kicked off its own rate cuts in the current cycle with a 50 basis point reduction. Many strategists had expected a smaller 25 basis point cut at the September meeting, despite market pricing through this week pointing to more than 50% probability of the more aggressive option.

Fed Chair Jerome Powell told a news conference the central bank was “trying to achieve a situation where we restore price stability without the kind of painful increase in unemployment that has come sometimes with this inflation.” Recent U.S. labor market data had sparked concerns about the extent of the slowdown in the world’s largest economy.

The British pound was bolstered by the Fed news, trading up 0.5% against the U.S. dollar at $1.327 at 11:15 a.m. London time Thursday. Global equity markets meanwhile rallied, with the pan-European Stoxx 600 index 1.34% higher.

The Bank of England cut its key rate to 5% from 5.25% in August in a tight 5 to 4 vote, and was widely expected to hold them there until its next meeting in November .

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British pound/U.S. dollar

Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, said regarding the QT program that the Bank of England was “stuck between a rock and a hard place and that’s because of the choice they made in the past,” and because it was the only central bank in the world that was recording these types of losses.

The U.K.’s new Labour government is due to deliver its first budget in October. Extending passive and active QT into next year will create “problems for fiscal policy, at least it doesn’t make the government’s job easier,” Ducrozet told CNBC’s “Street Signs Europe” shortly ahead of the decision.

“Or you don’t, and then you look like you’re not really independent from the government, you make more losses and you have to manage that over time,” he said.

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Accounting

Business Transaction Recording For Financial Success

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38 minutes ago

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January 18, 2025

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Business Transaction Recording For Financial Success

In the world of financial management, accurate transaction recording is much more than a routine task—it is the foundation of fiscal integrity, operational transparency, and informed decision-making. By maintaining meticulous records, businesses ensure their financial ecosystem remains robust and reliable. This article explores the essential practices for precise transaction recording and its critical role in driving business success.

The Importance of Detailed Transaction Recording
At the heart of accurate financial management is detailed transaction recording. Each transaction must include not only the monetary amount but also its nature, the parties involved, and the exact date and time. This level of detail creates a comprehensive audit trail that supports financial analysis, regulatory compliance, and future decision-making. Proper documentation also ensures that stakeholders have a clear and trustworthy view of an organization’s financial health.

Establishing a Robust Chart of Accounts
A well-organized chart of accounts is fundamental to accurate transaction recording. This structured framework categorizes financial activities into meaningful groups, enabling businesses to track income, expenses, assets, and liabilities consistently. Regularly reviewing and updating the chart of accounts ensures it stays relevant as the business evolves, allowing for meaningful comparisons and trend analysis over time.

Leveraging Modern Accounting Software
Advanced accounting software has revolutionized how businesses handle transaction recording. These tools automate repetitive tasks like data entry, synchronize transactions in real-time with bank feeds, and perform validation checks to minimize errors. Features such as cloud integration and customizable reports make these platforms invaluable for maintaining accurate, accessible, and up-to-date financial records.

The Power of Double-Entry Bookkeeping
Double-entry bookkeeping remains a cornerstone of precise transaction management. By ensuring every transaction affects at least two accounts, this system inherently checks for errors and maintains balance within the financial records. For example, recording both a debit and a credit ensures that discrepancies are caught early, providing a reliable framework for accurate reporting.

The Role of Timely Documentation
Prompt transaction recording is another critical factor in financial accuracy. Delays in documentation can lead to missing or incorrect entries, which may skew financial reports and complicate decision-making. A culture that prioritizes timely and accurate record-keeping ensures that a company always has real-time insights into its financial position, helping it adapt to changing conditions quickly.

Regular Reconciliation for Financial Integrity
Periodic reconciliations act as a vital checkpoint in transaction recording. Whether conducted daily, weekly, or monthly, these reviews compare recorded transactions with external records, such as bank statements, to identify discrepancies. Early detection of errors ensures that records remain accurate and that the company’s financial statements are trustworthy.

Conclusion
Mastering the art of accurate transaction recording is far more than a compliance requirement—it is a strategic necessity. By implementing detailed recording practices, leveraging advanced technology, and adhering to time-tested principles like double-entry bookkeeping, businesses can ensure financial transparency and operational efficiency. For finance professionals and business leaders, precise transaction recording is the bedrock of informed decision-making, stakeholder confidence, and long-term success.

With these strategies, businesses can build a reliable financial foundation that supports growth, resilience, and the ability to navigate an ever-changing economic landscape.

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Economics

A protest against America’s TikTok ban is mired in contradiction

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7 hours ago

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January 17, 2025

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AS A SHUTDOWN looms, TikTok in America has the air of the last day of school. The Brits are saying goodbye to the Americans. Australians are waiting in the wings to replace banished American influencers. And American users are bidding farewell to their fictional Chinese spies—a joke referencing the American government’s accusation that China is using the app (which is owned by ByteDance, a Chinese tech giant) to surveil American citizens.

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Economics

Home insurance costs soar as climate events surge, Treasury Dept. says

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1 day ago

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January 16, 2025

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Firefighters battle flames during the Eaton Fire in Pasadena, California, U.S., Jan. 7, 2025.

Mario Anzuoni | Reuters

Climate-related natural disasters are driving up insurance costs for homeowners in the most-affected regions, according to a Treasury Department report released Thursday.

In a voluminous study covering 2018-22 and including some data beyond that, the department found that there were 84 disasters costing $1 billion or more, excluding floods, and that they caused a combined $609 billion in damages. Floods are not covered under homeowner policies.

During the period, costs for policies across all categories rose 8.7% faster than the rate of inflation. However, the burden went largely to those living in areas most hit by climate-related events.

For consumers living in the 20% of zip codes with the highest expected annual losses, premiums averaged $2,321, or 82% more than those living in the 20% of lowest-risk zip codes.

“Homeowners insurance is becoming more costly and less accessible for consumers as the costs of climate-related events pose growing challenges to both homeowners and insurers alike,” said Nellie Liang, undersecretary of the Treasury for domestic finance.

The report comes as rescue workers continue to battle raging wildfires in the Los Angeles area. At least 25 people have been killed and 180,000 homeowners have been displaced.

Treasury Secretary Janet Yellen said the costs from the fires are still unknown, but noted that the report reflected an ongoing serious problem. During the period studied, there was nearly double the annual total of disasters declared for climate-related events as in the period of 1960-2010 combined.

“Moreover, this [wildfire disaster] does not stand alone as evidence of this impact, with other climate-related events leading to challenges for Americans in finding affordable insurance coverage – from severe storms in the Great Plans to hurricanes in the Southeast,” Yellen said in a statement. “This report identifies alarming trends of rising costs of insurance, all of which threaten the long-term prosperity of American families.”

Both homeowners and insurers in the most-affected areas were paying in other ways as well.

Nonrenewal rates in the highest-risk areas were about 80% higher than those in less-risky areas, while insurers paid average claims of $24,000 in higher-risk areas compared to $19,000 in lowest-risk regions.

In the Southeast, which includes states such as Florida and Louisiana that frequently are slammed by hurricanes, the claim frequency was 20% higher than the national average.

In the Southwest, which includes California, wildfires tore through 3.3 million acres during the time period, with five events causing more than $100 million in damages. The average loss claim was nearly $27,000, or nearly 50% higher than the national average. Nonrenewal rates for insurance were 23.5% higher than the national average.

The Treasury Department released its findings with just three days left in the current administration. Treasury officials said they hope the administration under President-elect Donald Trump uses the report as a springboard for action.

“We certainly are hopeful that our successors stay focused on this issue and continue to produce important research on this issue and think about important and creative ways to address it,” an official said.

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