This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at https://www.theguardian.com/business/live/2016/jul/05/mark-carney-to-outline-bank-of-englands-brexit-stability-moves-business-live

The article has changed 19 times. There is an RSS feed of changes available.

Version 6 Version 7
Brexit crisis: Aviva suspends property trust as Carney warns of 'crystallising' risks - business live Brexit crisis: Aviva suspends property trust as Carney warns of 'crystallising' risks - business live
(35 minutes later)
2.45pm BST
14:45
According to investment site Trustnet, the Aviva Property Trust holds commercial property assets across the UK.
Roughly a third of its assets were in London and the South East (as of 31 May), including offices in the centre of the capital.
It also owns shopping centres in Edinburgh, Manchester and Exeter, and offices in Birmingham.
It will also have invested in shares of UK property companies, which have fallen sharply since the referendum.
2.20pm BST
14:20
Here’s our news story about Aviva locking down its UK property fund to prevent investors selling up, after the Brexit vote.
Related: Aviva halts trading in its property fund
2.16pm BST
14:16
Other property funds will probably come under pressure to follow Aviva and Standard Life’s lead, if their customers decide to pull money out.
Emma Bewley, head of funds at Connection Capital in London, told Bloomberg that:
The potential impact of a high-profile liquid fund suspending redemptions shouldn’t be underestimated, particularly given the uncertain environment.
While asset managers will seek to avoid suspending redemptions, they may have to use additional liquidity facilities.
2.12pm BST2.12pm BST
14:1214:12
Why UK property slowdown could really hurt the economyWhy UK property slowdown could really hurt the economy
Jill TreanorJill Treanor
Aviva has suspended redemptions from its property fund just three hours after the Bank of England spelt out the potential implications of such funds to the overall market.Aviva has suspended redemptions from its property fund just three hours after the Bank of England spelt out the potential implications of such funds to the overall market.
In its half-yearly assessment of risks to the financial markets, the Bank flagged up that:In its half-yearly assessment of risks to the financial markets, the Bank flagged up that:
“Since the referendum, share prices of UK real estate investment trust have fallen sharply, highlighting the risk of future adjustments in commercial retail estate prices.“Since the referendum, share prices of UK real estate investment trust have fallen sharply, highlighting the risk of future adjustments in commercial retail estate prices.
It then warned that:It then warned that:
“Any adjustment in commercial real estate markets could be amplified by the behaviour of leveraged investors and investors in open-ended commercial property funds. Any such amplification of market adjustments could affect economic activity by reducing the ability of companies that use commercial real state as collateral to access finance”“Any adjustment in commercial real estate markets could be amplified by the behaviour of leveraged investors and investors in open-ended commercial property funds. Any such amplification of market adjustments could affect economic activity by reducing the ability of companies that use commercial real state as collateral to access finance”
These funds account for 7% - or around £35bn - of the investment in commercial property, and had already experienced significant outflows before the referendum.These funds account for 7% - or around £35bn - of the investment in commercial property, and had already experienced significant outflows before the referendum.
Commercial property prices matter because around 55% of their core capital bases are aligned to the loans in the sector and 75% of small businesses use commercial property as collateral for loans.Commercial property prices matter because around 55% of their core capital bases are aligned to the loans in the sector and 75% of small businesses use commercial property as collateral for loans.
It is the smaller banks which have greater exposure, the Bank said, after the major players reduced their exposure after the 2008 crisis. The Bank pointed out it had conducted stress tests in 2014 and 2015 on the major lenders to assume a 30% fall in property prices. Its own staff have calculated that for every 10% fall in commercial property prices there is a 1% fall in wider economic investment.It is the smaller banks which have greater exposure, the Bank said, after the major players reduced their exposure after the 2008 crisis. The Bank pointed out it had conducted stress tests in 2014 and 2015 on the major lenders to assume a 30% fall in property prices. Its own staff have calculated that for every 10% fall in commercial property prices there is a 1% fall in wider economic investment.
1.58pm BST1.58pm BST
13:5813:58
The Financial Times has some good early reaction to Aviva’s move:The Financial Times has some good early reaction to Aviva’s move:
Mike Prew, analyst at Jefferies, the investment bank, said it was “inevitable” that further funds would halt redemptions in a “vicious circle of value destruction” that would also affect listed real estate investment trusts.Mike Prew, analyst at Jefferies, the investment bank, said it was “inevitable” that further funds would halt redemptions in a “vicious circle of value destruction” that would also affect listed real estate investment trusts.
A fund manager who monitors flows across the market said that outflows since the vote had been driven by discretionary wealth managers moving large chunks of investors’ money into other asset classes.A fund manager who monitors flows across the market said that outflows since the vote had been driven by discretionary wealth managers moving large chunks of investors’ money into other asset classes.
More here: Aviva becomes second UK property fund to halt redemptionsMore here: Aviva becomes second UK property fund to halt redemptions
1.53pm BST1.53pm BST
13:5313:53
Aviva and Standard Life are trying to protect the interests of all investors in their property funds by refusing to allow clients to take money out.Aviva and Standard Life are trying to protect the interests of all investors in their property funds by refusing to allow clients to take money out.
Otherwise, they would be forced to sell property assets at firesale prices to fund redemption requests. That would drive down the value of the fund, encouraging more investors to cash out, creating a vicious circle.Otherwise, they would be forced to sell property assets at firesale prices to fund redemption requests. That would drive down the value of the fund, encouraging more investors to cash out, creating a vicious circle.
Instead, people with money in these funds must now sit and wait.Instead, people with money in these funds must now sit and wait.
1.45pm BST1.45pm BST
13:4513:45
The pound hasn’t been this weak since September 1985:The pound hasn’t been this weak since September 1985:
It has shed almost 2 cents today.It has shed almost 2 cents today.
Global traders are baulking at the news that two UK property trusts (so far) are now refusing to allow investors to pull their money out:Global traders are baulking at the news that two UK property trusts (so far) are now refusing to allow investors to pull their money out:
Difficult to see the pound forming the Dying Elephant pattern as good news pic.twitter.com/aVx5DqVTaDDifficult to see the pound forming the Dying Elephant pattern as good news pic.twitter.com/aVx5DqVTaD
Hat-tip to Giles Wilkes of the FT for the chart skills.Hat-tip to Giles Wilkes of the FT for the chart skills.
UpdatedUpdated
at 2.09pm BSTat 2.09pm BST
1.23pm BST1.23pm BST
13:2313:23
Correction... the pound has actually fallen through $1.31 (so i’ve updated that last entry).Correction... the pound has actually fallen through $1.31 (so i’ve updated that last entry).
Sterling slips below $1.31 for first time since 1985 https://t.co/GPJmKhJUTaSterling slips below $1.31 for first time since 1985 https://t.co/GPJmKhJUTa
1.17pm BST1.17pm BST
13:1713:17
Aviva’s decision to suspend its property trust has sent the pound reeling to a new 31-year low.Aviva’s decision to suspend its property trust has sent the pound reeling to a new 31-year low.
Sterling slumped to $1.3098 against the US dollar, down 1.8 cents, to a level not seen since 1985.Sterling slumped to $1.3098 against the US dollar, down 1.8 cents, to a level not seen since 1985.
UpdatedUpdated
at 1.21pm BSTat 1.21pm BST
1.14pm BST1.14pm BST
13:1413:14
Aviva suspends property fund redemptions after Brexit voteAviva suspends property fund redemptions after Brexit vote
NEWSFLASH: Aviva, the savings and investment group, has suspended redemptions from its £1.8bn property fund.NEWSFLASH: Aviva, the savings and investment group, has suspended redemptions from its £1.8bn property fund.
It took the decision following the Brexit vote, which triggered a surge of requests from investors to pull their money out of its UK Property Trust.It took the decision following the Brexit vote, which triggered a surge of requests from investors to pull their money out of its UK Property Trust.
That’s because the EU referendum could hurt the property sector, driving down the value of office blocks, supermarkets and factories.That’s because the EU referendum could hurt the property sector, driving down the value of office blocks, supermarkets and factories.
Aviva blamed “extraordinary market circumstances”, a day after Standard Life became the first firm to freeze its property fund.Aviva blamed “extraordinary market circumstances”, a day after Standard Life became the first firm to freeze its property fund.
"Extraordinary market circumstances" - @avivainvestors suspends £1.7bn UK property fund. Some investors clear feel it's not worth that now."Extraordinary market circumstances" - @avivainvestors suspends £1.7bn UK property fund. Some investors clear feel it's not worth that now.
An Aviva spokesperson said:An Aviva spokesperson said:
“We have acted to safeguard the interests of all our investors by suspending dealing in the fund with immediate effect.“We have acted to safeguard the interests of all our investors by suspending dealing in the fund with immediate effect.
“Suspension of dealing will give Aviva Investors greater control in managing cashflows and conducting orderly asset sales in order to meet our obligations to investors wishing to redeem their holdings.”“Suspension of dealing will give Aviva Investors greater control in managing cashflows and conducting orderly asset sales in order to meet our obligations to investors wishing to redeem their holdings.”
Breaking: Aviva becomes second firm to suspend UK property fund, citing "extraordinary market circumstances" https://t.co/OU8xL4ykoOBreaking: Aviva becomes second firm to suspend UK property fund, citing "extraordinary market circumstances" https://t.co/OU8xL4ykoO
Laith Khalaf, senior analyst at City firm Hargreaves Lansdown, reckons more investment firms will freeze redemptions soon.Laith Khalaf, senior analyst at City firm Hargreaves Lansdown, reckons more investment firms will freeze redemptions soon.
‘The dominos are starting to fall in the UK commercial property market, as yet another fund locks its doors on the back of outflows precipitated by the Brexit vote. It’s probably only a matter of time before we see other funds follow suit.‘The dominos are starting to fall in the UK commercial property market, as yet another fund locks its doors on the back of outflows precipitated by the Brexit vote. It’s probably only a matter of time before we see other funds follow suit.
UpdatedUpdated
at 1.18pm BSTat 1.18pm BST
1.11pm BST1.11pm BST
13:1113:11
George Osborne has repeated his support for Mark Carney’s decision to ease the funding rules, allowing banks to lend more.George Osborne has repeated his support for Mark Carney’s decision to ease the funding rules, allowing banks to lend more.
He’s told Sky News that the government’s financial reforms, making the banks ‘part of the solution in the UK economy, not part of the problem’ are paying off.He’s told Sky News that the government’s financial reforms, making the banks ‘part of the solution in the UK economy, not part of the problem’ are paying off.
1.04pm BST
13:04
Economics professor David Blanchflower, a former Bank of England policymaker, has given Mark Carney full marks for today’s performance:
most impressed by Mark Carney's performance post Brexit vote been on top of things an adult in room while politicians play children's games
12.55pm BST
12:55
Snap Summary: Mark Carney tackles the Brexit crisis
Resigning from high office (or not-so-high office) is in fashion this summer. So it’s nice to see one senior official actually knuckling down and doing his job.
Today’s press conference had one key message – Britain’s economy is suffering from the Brexit vote (as predicted), and its central bankers are on the case.
1) Bank of England governor Mark Carney has warned that the risks posed by the UK’s referendum on EU membership have “begun to crystallise”, and posing new dangers to the economy.
Presenting the BoE’s latest financial stability report, Carney said:
The UK has entered a period of uncertainty and significant economic adjustment.
The efforts of the Bank of England will not be able fully and immediately to offset the market and economic volatility that can be expected while this adjustment proceeds.”
2) The BoE isn’t sitting on its hands. Slashing the ‘counter-cyclical capital reserves’ will help banks to pump £150bn of extra lending into the economy.
But Carney also warned that this will only work if businesses and individuals actually want to borrow. And despite the slide in the pound (which could help exporters), there are clear signs that the the economy is slowing.
3) Prudence used to be a Gordon Brown favourite, before the former chancellor and PM was engulfed by the financial crisis of 2007-08.
But she has a new friend today. Asked for his advice to the UK, Carney declared that people must remain prudent:
If you are taking out a mortgage, at some stage, during the life of that mortgage, conditions will be difficult.
So you want to be sure, as a household or an individual, that you can repay that mortgage - you don’t want to lose your house or flat.
4) The bank is watching closely for signs that Britain’s most indebted households are struggling post-Brexit vote.
There could be casualties out there...
We have been concerned for some time about these issues,the interplay between high levels of household indebtedness and the housing market and the possibility that there will be more vulnerable households.”
Corrected. UK household debt is 132% of disposable income, from BoE's Stability Report pic.twitter.com/oAhxBl4gV5
5) Carney reiterated that Britain’s financial sector is in much better shape than before the financial crisis, so we should avoid another credit crunch.
The core of this system is very strong, we may see some volatility, we may see things move around, but the system is going to be there for someone who wants to buy a house or a business person with a viable plan.”
6) ....but the same can’t be said of the current account deficit, which has widened to record levels.
Carney warned that a weaker pound won’t magically solve Britain’s balance of payments woes (the fact we import more than we export). The danger is that overseas investors now shun the UK.
In the governor’s words:
In and of itself, the movement in sterling should be beneficial for the current account.
But... the pace of investment will also be quite important in terms of where the balance is going over time.
7) Carney has little time for those who point to the recovery in the FTSE 100 index (now above its pre-vote levels).
It’s better to look at the index of smaller firms, the FTSE 250 index, he says:
“In terms of the equity markets I would focus a little bit more on the domestically-focused stock, the FTSE 250 or the component of FTSE 100 that is principally serving this economy.
8) Politics is for politicians.
Carney was long rumoured to fancy a shift to Canadian politics, before a certain Justin Trudeau took the Liberal party to victory.
Today he faces criticism from Leave campaigners, who will have their hands on (or at least near) the levers of power in the UK.
But the governor brushed them aside, saying the Bank will keep doing its job and work with whoever is in power.
Updated
at 1.00pm BST
12.08pm BST
12:08
Carney: We'll work with Brexiters
Last question goes to my colleague Nils Pratley.
He asks Mark Carney about the criticism piled on the Bank from Leave campaigners such as Andrea Leadsom (now in the running to become prime minister).
Carney replies that “we’re not asking people to make our lives easier”
This is a technocratic institution. We’ll work with whoever is in government.
In short, the Bank will keep sticking to its remit, publishing the reports expected under its remit. And that includes flagging up threats to the UK economy.
Carney on conflicts with MPs: We're not asking people to make our lives easier...it's our job to call it as we see it
That’s the end of the press conference.
12.02pm BST
12:02
Q: Could the Bank of England really ease monetary policy much lower - some economists suggest new quantitative easing (buying bonds with new money) wouldn’t have much impact?
Carney declines to comment on monetary policy – as today’s meeting is about financial stability.
I think Carney should get some brightly coloured hats, so ppl know when he has his FPC vs MPC hat on. ie stop asking about interest rates!
12.00pm BST
12:00
Q: Is the Bank of England worried about the prospect of Scotland breaking away from the UK?
That’s a double hypothetical, Carney says - there’s no 2nd referendum yet, let alone a decision.
Carney says Scotland vote is hypothetical; there's no planned referendum, and we don't know regulatory environment that would be applicable
11.58am BST
11:58
Back to the Bank of England press conference:
Q: What discussions have you had with other central banks about the referendum?
We have had close contact with them, Carney replies, especially in the run-up to the vote. This was effective in building mutual understanding of the risks posed by Brexit, he says.
He points to the ‘currency swaps’ which allows central banks to share dollars, euros, pounds, yen etc with each other.
And the global economy faces ‘notable’ spillovers, he adds.
11.53am BST
11:53
Government meeting with major banks about Brexit risks today
UK chancellor George Osborne has welcomed the BoE’s decision to ease bank capital rules.
Important move by @bankofengland using tools I gave them to reduce banks' capital requirements to boost lending capacity by up to £150bn
He also reveals that major bank bosses are heading to his offices this morning, to discuss the crisis
Meeting major banks in Downing Street shortly to discuss response to referendum result. We need great national effort to steer UK through
11.51am BST
11:51
The decision to cut the counter-cyclical capital buffers is one of several Brexit u-turns, tweets The Sun’s political editor:
So; banks' capital reserves to be spent, deficit to go back up, AAA credit rating lost. Six years of economics reversed in 12 days #Brexit
Hang on, though, didn’t The Sun back Brexit??!!
Updated
at 11.52am BST
11.48am BST
11:48
Structure of property investment funds may need to be reconsidered following Standard Life suspension says FCA head Andrew Bailey
11.43am BST
11:43
Some key points from Mark Carney’s briefing:
Carney quite rightly focussing on liquidity support to underline confidence. Correctly anticipating further pressure
Carney says 2014 stress tests shows banks are resilient: system is there for anyone who wants to buy a house
Carney advises consumers to be prudent post Brexit - just as he would if the UK was in the 10th year of a boom
#Carney: the law is the law, the rules are the rules, the system is the system. ie keep on keepin' on.