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Pound hits 31-year low against US dollar, but shares soar – Business Live Pound hits 31-year low, as FTSE fails to hit record high - business live
(35 minutes later)
4.53pm BST
16:53
#Breaking The FTSE 100 Index closed up 90.82 points to 7074.34, just short of the record closing price of 7104. pic.twitter.com/2aiMbJHROt
4.44pm BST
16:44
FTSE 100 fails to hit record high
A groan ripples around City trading floors, as the FTSE 100 fails to hit a new record closing high.
The blue-chip index closed up 90 points, or 1.3%, at 7074. That is a new 17-month closing high, but not the record.
It was still a good day for shares, with some internationally focused firms like Rolls-Royce and Pearson leading the rally.
But the temptation to take profits took the wind out of the markets’ sails at the end.
It was quite a dramatic day, as Joshua Mahony, market analyst at IG, explains:
Today’s incredible rise in the FTSE 100 has been one of the biggest risk on moves of the year, with investors seeing in Q4 with a bang.
Fears over the economic implications of a Brexit have been brushed aside in favour of a focus on the benefits a weak pound and loose monetary policy would bring to stocks. As Phillip Hammond said, we are in for a roller coaster, yet on initial evidence, markets like the idea.
Updated
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4.31pm BST
16:31
The stock market has gone into its closing auction!.... And we’re about to find out if the FTSE 100 has hit a new record closing high....
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4.26pm BST
16:26
BoE policymaker: Brexit won't be too bad
Michael Saunders, the newest member of the Bank of England’s monetary policy committee, has fired a broadside at his colleagues for being too pessimistic over Brexit.
In a speech just released (due to be given tomorrow), Saunders says that the EU will probably cause rather less damage than policymakers had feared.
He cites Britain’s “considerable supply-side advantages”, from its flexible labour market and openness to foreign investment, to the current “low-ish” tax rates and strong position in high-tech manufacturing and knowledge-intensive services.
So Saunders (who was a top economist at Citigroup until he joined the BoE rate-setting this summer), reckons growth in 2017 will be stronger than expected.
After a good lunch, Saunders will tell the Institute of Directors in Manchester tomorrow that:
The process of EU exit may be lengthy and bumpy. It is certainly possible that anticipation of EU exit will have a greater near-term adverse effect on the economy than the MPC expect, especially if EU nationals currently working in the UK decide to leave or business investment weakens really markedly. But, unless Brexit-related uncertainties rise sharply and/or global conditions disappoint markedly, I suspect that the UK economy will be not too bad in the year ahead, with growth in 2017 more likely to be clearly above 1% rather than (as the consensus expects) below 1%.
Hence, especially if productivity growth remains modest, there may be little or no rise in unemployment in the UK over the coming year, although the current degree of slack would remain unless growth is strong enough to cut unemployment further.
You can see the speech here (lunch, alas, not included)
The economic outlook - speech by Michael Saunders
4.15pm BST4.15pm BST
16:1516:15
Some investors who bought shares after the Brexit vote will be cashing in theirSome investors who bought shares after the Brexit vote will be cashing in their
hard-earned gainshard-earned gains
winnings this afternoon. winnings this afternoon.
So says Michelle McGrade, chief investment officer at online dealing group TD Direct Investing.So says Michelle McGrade, chief investment officer at online dealing group TD Direct Investing.
“With the FTSE peaking 7,100 this afternoon, our customers are predominantly selling today - demonstrating their savviness. Experienced investors have been buying up since Brexit and seemingly now enjoying the profits. The important thing for the markets is that it holds 7,000 overnight – this will be impacted by how the S&P 500 behaves.“With the FTSE peaking 7,100 this afternoon, our customers are predominantly selling today - demonstrating their savviness. Experienced investors have been buying up since Brexit and seemingly now enjoying the profits. The important thing for the markets is that it holds 7,000 overnight – this will be impacted by how the S&P 500 behaves.
She also urges small investors to be cautious...She also urges small investors to be cautious...
“From a broader perspective, we hope that those less experienced investors aren’t getting too excited by the excitement and piling in, for the first time, while it’s high – this isn’t the best investment strategy and they will lose their confidence yet again.”“From a broader perspective, we hope that those less experienced investors aren’t getting too excited by the excitement and piling in, for the first time, while it’s high – this isn’t the best investment strategy and they will lose their confidence yet again.”
4.08pm BST4.08pm BST
16:0816:08
Ben Chu, the economics editor of the Independent, has done a nice piece about the causes of the pound’s weakness.Ben Chu, the economics editor of the Independent, has done a nice piece about the causes of the pound’s weakness.
He says:He says:
This week’s renewed downward lurch has coincided with Theresa May saying she will trigger Article 50 before next March and making it clear that she will not compromise on curbing EU immigration to the UK, something that strongly implies Britain will be out of the single market by 2019.This week’s renewed downward lurch has coincided with Theresa May saying she will trigger Article 50 before next March and making it clear that she will not compromise on curbing EU immigration to the UK, something that strongly implies Britain will be out of the single market by 2019.
The fundamental reason for sterling’s descent is that traders believe there will be lower demand for sterling assets as a result of Brexit – that we will ultimately do less trade with the rest of the world and that we will be poorer as a result. Argue the markets are wrong if you want to – but recognise what they are saying.The fundamental reason for sterling’s descent is that traders believe there will be lower demand for sterling assets as a result of Brexit – that we will ultimately do less trade with the rest of the world and that we will be poorer as a result. Argue the markets are wrong if you want to – but recognise what they are saying.
The economic reasons the pound is falling. My @IndyVoices column: https://t.co/17GAnZ6Y8C pic.twitter.com/nZGw7SnmTiThe economic reasons the pound is falling. My @IndyVoices column: https://t.co/17GAnZ6Y8C pic.twitter.com/nZGw7SnmTi
3.57pm BST3.57pm BST
15:5715:57
Financial reporters are squinting at their terminals, desperate to see if the Footsie hits a record high today (we’re easily amused, to be honest)Financial reporters are squinting at their terminals, desperate to see if the Footsie hits a record high today (we’re easily amused, to be honest)
Nerves kicking in as #FTSE100 stands 2 points away from all-time high. pic.twitter.com/YBBI8g5HmDNerves kicking in as #FTSE100 stands 2 points away from all-time high. pic.twitter.com/YBBI8g5HmD
3.52pm BST3.52pm BST
15:5215:52
Ooooh the FTSE 100 is pushing even higher as the clock ticks down to 4.30pm.Ooooh the FTSE 100 is pushing even higher as the clock ticks down to 4.30pm.
It just hit 7121 points, a whisker away from the record intraday high of 7122 (set in April 2015).It just hit 7121 points, a whisker away from the record intraday high of 7122 (set in April 2015).
Oh, and I made a mistake before. The all-time record closing high is 7104. And that record is ON....Oh, and I made a mistake before. The all-time record closing high is 7104. And that record is ON....
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at 3.52pm BSTat 3.52pm BST
3.41pm BST3.41pm BST
15:4115:41
With one hour to go, the FTSE 100 index is just three points away from its record closing high, at 7009 points.With one hour to go, the FTSE 100 index is just three points away from its record closing high, at 7009 points.
Richard Stone, chief executive at The Share Centre, explains why the weak pound has pushed shares up:Richard Stone, chief executive at The Share Centre, explains why the weak pound has pushed shares up:
For companies in the FTSE100, some three quarters of their revenues are not earned in Sterling so are now worth more in Sterling terms. This makes their profits higher in Sterling and therefore their value in Sterling terms also increases.For companies in the FTSE100, some three quarters of their revenues are not earned in Sterling so are now worth more in Sterling terms. This makes their profits higher in Sterling and therefore their value in Sterling terms also increases.
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3.40pm BST3.40pm BST
15:4015:40
The IMF’s new report hasn’t helped the pound; it’s still wallowing at the 31-year low of $1.275.The IMF’s new report hasn’t helped the pound; it’s still wallowing at the 31-year low of $1.275.
Betway, the gambling firm, are offering odds on it falling further, and even hitting parity, before the end of the year.Betway, the gambling firm, are offering odds on it falling further, and even hitting parity, before the end of the year.
Lowest GBP/USD rate in 2016:Lowest GBP/USD rate in 2016:
3.15pm BST
15:15
This won’t please Donald Trump. The IMF thinks the US Federal Reserve was right not to raise interest rates last month.
Maurice Obstfeld has told reporters that there’s no sign that the American economy needs to be reined in.
He says:
At the moment, inflation is below their target levels,wage pressures are moderate, and so there doesn’t seem to be a great danger of overheating.
Trump has accused the Fed of keeping rates too low, to help Hillary Clinton win the presidential election.
2.58pm BST
14:58
Quite a lively press conference....
Asked about the effect of a Trump presidency, IMF chief economist says policy uncertainty not great for investors, employment
Guardian's Larry Elliot asks IMF chief economist on Brexit: "if you're wrong on the short term, why should we trust you on the long run"?
IMF defends Brexit warnings, says UK heading for ‘soft landing’ https://t.co/TamOU3QR0v
2.57pm BST
14:57
IMF chief economist Maurice Obstfeld has defended the Fund’s bleak predictions about Brexit.
Quizzed by journalists in Washington, Obstfeld says Britain is enjoying a “soft landing”.
This, he claims, was:
“one of our scenarios, and the one we are happier to have seen than the alternative worst scenarios”.
Obstfeld says the weaker pound has provided some support to the economy, by helping exporters.
He also credits the Bank of England with acting quickly to shore up confidence after the referendum result came in.
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at 3.06pm BST
2.55pm BST
14:55
If the IMF are right, Britain’s economy is going to slow pretty sharply next year:
Britain will be fastest growing G7 economy this year but good news may not last, says IMF https://t.co/hGkH1t0bJL pic.twitter.com/EfQJWiEDlO
2.52pm BST
14:52
Chancellor Philip Hammond has opined:
Here’s my reaction to the IMF World Economic Outlook, published today. pic.twitter.com/ZT461SzyOU
2.45pm BST
14:45
Today’s forecasts show that the IMF should be embarrassed about its hand-wringing before June’s referendum, writes Larry Elliott from Washington.
Everybody makes duff forecasts. Everybody gets it wrong from time to time. Only the inveterate fence sitters are spared having egg on their face.
The International Monetary Fund certainly knows what it is like to make a mistake. In the run-up to the EU referendum, the IMF made a series of interventions warning voters of the dire consequences that would follow a vote to leave.
At first, the IMF stuck to long-term forecasts, saying investment and trade would eventually be weaker if the UK divorced from the other 27 members of the EU. But as the referendum neared and the vote was on a knife-edge, the warnings became more lurid. The UK would immediately start sliding into recession. House prices would crumble. Shares would crash.
So what do you do if your forecasts turn out to be a little wide of the mark? Either you put your hands up and admit you were wrong. Or you brazen it out. You say that it is too early to say. You say that eventually you will come right.
No prizes for guessing which option the IMF has taken. Its half-yearly world economic outlook (WEO) report says the UK will do fine in 2016 but is going to find the going a lot tougher in 2017.
This is a perfectly respectable view, and one held by a host of academic, business and City economists. Had the IMF stuck to this sort of assessment throughout the referendum campaign, it would have saved itself embarrassment now. As it is, it will get some stick from those who thought the Washington-based fund had overstepped the mark in its support for the remain camp.
2.21pm BST
14:21
The IMF singles out the UK’s referendum as a key factor hurting global growth, saying:
“There is a more subdued outlook for advanced economies following the June U.K. vote in favour of leaving the European Union (Brexit) and weaker-than-expected growth in the United States.
These developments have put further downward pressure on global interest rates, as monetary policy is now expected to remain accommodative for longer.
It also cites China’s economic rebalancing, and a general slowdown in trade growth since 2012. It blames a “waning pace of trade liberalization and the recent uptick in protectionism”.
The full report is online here.
2.14pm BST
14:14
Our news story about the IMF’s latest forecasts is here:
2.13pm BST
14:13
The IMF has left its overall global growth forecasts unchanged (compared to July), at 3.1% this year and 3.4% in 2017.
That’s pretty lacklustre in historic terms.
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2.10pm BST
14:10
The IMF has also taken the scalpel to its forecast for US economic growth.
It now expects the world’s largest economy to only expand by 1.6% the year, down from 2.2% back in July.
Real story from IMF WEO not so much Brexit as the cut in US growth forecast. I *think* that 0.6% might be the biggest single cut since 2008