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Pound hits 31-year low against US dollar, but shares soar – Business Live Pound hits 31-year low against US dollar, but shares soar – Business Live
(35 minutes later)
3.41pm BST
15:41
With one hour to go, the FTSE 100 index is just three points away from its record closing high, at 7111 points.
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.
3.40pm BST
15:40
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.
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 BST2.58pm BST
14:5814:58
Quite a lively press conference....Quite a lively press conference....
Asked about the effect of a Trump presidency, IMF chief economist says policy uncertainty not great for investors, employmentAsked 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"?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/TamOU3QR0vIMF defends Brexit warnings, says UK heading for ‘soft landing’ https://t.co/TamOU3QR0v
2.57pm BST2.57pm BST
14:5714:57
IMF chief economist Maurice Obstfeld has defended the Fund’s bleak predictions about Brexit.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”.Quizzed by journalists in Washington, Obstfeld says Britain is enjoying a “soft landing”.
This, he claims, was:This, he claims, was:
“one of our scenarios, and the one we are happier to have seen than the alternative worst scenarios”.“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.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.He also credits the Bank of England with acting quickly to shore up confidence after the referendum result came in.
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2.55pm BST2.55pm BST
14:5514:55
If the IMF are right, Britain’s economy is going to slow pretty sharply next year: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/EfQJWiEDlOBritain 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 BST2.52pm BST
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Chancellor Philip Hammond has opined:Chancellor Philip Hammond has opined:
Here’s my reaction to the IMF World Economic Outlook, published today. pic.twitter.com/ZT461SzyOUHere’s my reaction to the IMF World Economic Outlook, published today. pic.twitter.com/ZT461SzyOU
2.45pm BST2.45pm BST
14:4514:45
Today’s forecasts show that the IMF should be embarrassed about its hand-wringing before June’s referendum, writes Larry Elliott from Washington.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.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.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.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.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.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.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 BST2.21pm BST
14:2114:21
The IMF singles out the UK’s referendum as a key factor hurting global growth, saying: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.“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.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”.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.The full report is online here.
2.14pm BST2.14pm BST
14:1414:14
Our news story about the IMF’s latest forecasts is here:Our news story about the IMF’s latest forecasts is here:
2.13pm BST2.13pm BST
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The IMF has left its overall global growth forecasts unchanged (compared to July), at 3.1% this year and 3.4% in 2017.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.That’s pretty lacklustre in historic terms.
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2.10pm BST2.10pm BST
14:1014:10
The IMF has also taken the scalpel to its forecast for US economic growth.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.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 2008Real 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
2.03pm BST
14:03
IMF: UK to be fastest growing G7 economy in 2016
Newsflash! The IMF has announced that Britain will be the fastest growing major economy in 2016, despite the uncertainty caused by the Brexit vote.
In its new report, the Fund predicts UK GDP will grow by 1.8% this year, ahead of the US, Germany, Japan and the other members of the G7.
That’s quite a pronouncement, given the Fund has led the chorus of warnings against a Brexit.
It does also forecast a sharp slowdown in 2017 – but not a full-blown recession.
*IMF CUTS UK 2017 GROWTH FORECAST TO 1.1% FROM 1.3%
From Washington, our economics editor Larry Elliott reports:
The International Monetary has predicted that the UK will be the fastest growing of the G7 leading industrial nations this year and accepted that its prediction of a post-Brexit financial crash has proved overly pessimistic.
But while the Washington-based IMF said Britain would comfortably avoid recession with growth of 1.8% in 2016, it stuck to its view that the economy would eventually suffer from the shock referendum result and said expansion next year would be just 1.1% - lower than it expected in the immediate aftermath of the Brexit vote.
The Fund used its half-yearly world economic outlook to warn not just about the impact of the Brexit vote on the UK and the wider euro zone economies but about the weak growth and uneven division of the fruits of growth that caused 52% of those who voted on 23 June to end Britain’s 43-year membership of the EU.
Maurice Obstfeld, the IMF’s economic counsellor, said: “Taken as a whole, the world economy has moved sideways. Without determined policy action to support economic activity over the short and longer terms, sub-par growth at recent levels risks perpetuating itself—through the negative economic and political forces it is unleashing.
And here are the latest forecasts:
Updated
at 2.04pm BST
1.46pm BST
13:46
Heads-up: In 15 minutes, the International Monetary Fund will release its latest assessment of the global economy.
The World Economic Outlook will contain new forecasts, which will surely include the impact of the Brexit vote...
1.28pm BST
13:28
Sky News’s Ed Conway has created a nice chart of the pound’s value over the centuries (click here to see a larger version).
I've updated my annotated history of the pound sterling 1791-2016 to reflect the latest fall. Still above 1985 lows. But getting weaker pic.twitter.com/suw14OtX7n
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1.19pm BST
13:19
There’s absolutely no love for the pound today.
As US traders arrive at work in New York, sterling is still at a 31-year low against the US dollar at just $1.275, down 1 cent or 0.7%.
This is a historically bad moment for the pound -- it’s only been weaker in 1985.
The unexpected good news that Britain’s construction sector surged in September (details here) hasn’t brought any relief. Investors are focusing on Brexit, and the prospect of a divorce between Britain and the EU by March 2019.
FXTM research analyst Lukman Otunuga says sterling is suffering from a “horrible combination” of Brexit anxieties and a resurgent Dollar, prompting traders into waves of selling.
It seems Theresa May’s sanguine attitude to leaving the European Union while focusing on immigration may have sparked concerns of a potential hard Brexit consequently leaving the Sterling vulnerable to steep losses.
Although investors were provided some clarity when March 2017 was the date set to invoking the article 50, the uncertainty over how the Brexit negotiations will take place in the period after continues to haunt investor attraction towards the pound.
And there could be worse to come....
It should be kept in mind that the persistent Brexit fears have always had a firm grip on the Sterling with explosive levels of volatility expected in the coming months as anxiety mounts ahead of the article 50 invoke date.
1.05pm BST
13:05
George Osborne hasn’t had a lot to cheer about recently, what with being sacked by Theresa May and seeing the central pillar of his economic plan trashed by the new chancellor, Philip Hammond.
But there’s one piece of good news for the member for Tatton; his family firm is going to benefit from the slump in the pound.
My colleague Simon Bowers has the details:
Osborne & Little, the luxury wallpaper chain owned by the family of former chancellor George Osborne, says it expects to benefit from the fall in the value of the pound triggered by the Brexit vote.
The company said there would be “limited impact” in the short term from Britain’s decision to leave the European Union, but if sterling remained weak, it would bring a “material benefit” to the business next year.
In the company’s latest accounts, they say that:
“In the short term there will be limited impact resulting from the UK leaving the EU, but if exchange rates stay as they are, in particular, the exchange rate between sterling and the US dollar, then there will be a material benefit in the year ending 31 March 2018.”
What a stroke of luck....
12.48pm BST
12:48
Remember the wild hours of 24 June, after Britain voted to leave the European Union?
Of course you do. How could anyone forget the prime minister resigning, the pound plunging, and the stock market taking an almighty bath when trading began?
But, anyone who had the foresight to buy shares at that moment is sitting on some huge gains. The FTSE 100 is now 20% higher than its worst point on that Friday morning.
UK stocks in a bull market, the FTSE 100 now +20% from the low on June 24, the day after the Brexit referendum pic.twitter.com/E7bFHqOUpk
12.31pm BST
12:31
Higher still and higher goes the FTSE 100.
Britain’s blue-chip stock index is now above than its record close, 7103.98, recorded in April 2015.
It’s now up 126 points, or 1.8%, at 7110, with almost every shares up.
LATEST: FTSE 100 surpasses previous record high in intraday trading https://t.co/qrNbOhqfQl pic.twitter.com/un9wIdJG4b
But, at the risk of banging on... this is partly due to the slump in the pound (which makes internationally focused companies more valuable in sterling terms).
I did a 'splainer pic.twitter.com/qsm8hPtu7X
Updated
at 12.34pm BST
12.14pm BST
12:14
Umunna blames Brexiteers for sterling slide
Chuka Umunna MP, Chair of Vote Leave Watch, has seized on the slump in the pound to berate the leaders of the Brexit campaign.
In a resounding blast, Umunna says:
“Leave campaigners promised that the economy would be unaffected by a vote to leave the EU. They dismissed every economic warning as ‘scaremongering’ or ‘Project Fear’.
“Today we see how hollow their assertions were. This collapse in the value of the pound means ordinary British workers will be worse off, as prices in the shops soar and the pound in everyone’s pocket is worth less.
“The Tory conference in Birmingham reveals three cabinet members responsible for Brexit – Davis, Fox and Johnson – blind to the damage Brexit is already doing to Britain. Instead of rushing to pull out of the Single Market, they should focus on limiting the damage to our economy and maintaining as many of the current benefits we enjoy as possible.”
Umunna is absolutely right that the weak pound is pushing up the cost of imports; both finished goods and raw materials.
Some technology companies began hiking prices immediately after the referendum. Consumer goods group Unilever warned in August that prices will be pushed higher; it makes Dove Soap, icecream, biscuits and Flora.
Even bacon from China could become more expensive too.
But other companies say they hope to ‘absorb’ these costs, rather than pushing up prices. For example, baking firm Greggs said today it will do its “absolute utmost” to avoid price rises.
11.53am BST
11:53
Ireland trims growth forecasts on Brexit fears
The uncertainty swirling around the Brexit issue has forced the Irish government to cut its growth forecasts.
Reuters has the story:
Ireland on Tuesday cut its gross domestic product forecast for 2017 on concerns about the fall-out from Britain’s vote to leave the European Union and said risks were centered “firmly to the downside.”
The finance ministry cut its 2016 GDP forecast to 4.2 percent from 4.9 percent and for 2017 to 3.5% from 3.9% and said there was considerable uncertainty to the outlook for next year with the impact of Brexit still unfolding.
“We have reduced next year’s forecast by around half a percentage point to take into account the uncertainty associated with Brexit,” John McCarthy, the finance ministry’s chief economist, told a parliamentary committee.
Around 40% of Ireland’s food and drink exports are sold to the UK, in an example of the close trade links between the two countries.
Dublin is particularly anxious about the prospect of the UK leaving the EU customs union without any new trade agreement. The future of the border between Northern Ireland and the Republic is another obvious issue -- leading to calls today for a new agreement to prevent a ‘hard border’ being established.
11.36am BST
11:36
Time for some history: a market report from the last time the pound was worth just $1.27.
A forex report by @dsmitheconomics in the Times, June 15 1985 - about the last time GBP was this weak @TimesArchive pic.twitter.com/6oCsHe7q7f
Health worries about a senior US politician? An Argentinian debt crisis? Concern about the oil price? Plus ça change, plus c’est la même chose....
Updated
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