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/oct/05/brexit-fears-pound-lows-dollar-euro-service-sector-imf-business-live

The article has changed 17 times. There is an RSS feed of changes available.

Version 8 Version 9
Brexit recession fears fade as UK service sector beats forecasts – Business Live Brexit recession fears fade as UK service sector beats forecasts – Business Live
(35 minutes later)
2.24pm BST
14:24
US jobs data disappoints
Ahead of more key US data - services surveys later and the non-farm payrolls on Friday - came the monthly private sector jobs figures, and they have proved disappointing.
According to payrolls processor ADP, US private employers added 154,000 jobs in September, below the 166,000 figure expected by economists. This was the smallest increase since April. August’s number was revised down from a 177,000 increase to 175,000.
But previewing the ADP numbers Michael Hewson, chief market analyst at CMC Markets, suggested they were no real guide to the non-farm numbers:
In the US the warm up act for Friday’s non-farm payrolls report is the ADP Payrolls report for September. Sadly this report has given little indication in recent months of being any sort of bellwether to its bigger brother, being remarkably stable in and around the 175k level for the last 4 months [before September].
2.16pm BST
14:16
Utility shares have been weak all day on reports that Theresa May might hit out at the charges the companies make on consumers, and sure enough she said:
Where companies are exploiting the failures of the market in which they operate, where consumer choice is inhibited by deliberately complex pricing structures, we must set the market right...
It’s just not right that two thirds of energy customers are stuck on the most expensive tariffs.
So SSE is down 1.5%, National Grid is nearly 2% lower and water companies United Utilities, Severn Trent and Pennon are down between 2% and 3% (although a downbeat note from RBC Capital is not helping the last three).
2.07pm BST
14:07
By attacking ultra-loose monetary policy, Theresa May might actually have put a floor under the pound.
Sterling is still hovering around $1.272, up from this morning’s 31-year lows. Investors may have concluded that it’s a little harder for the Bank of England to ease monetary policy again in November. Especially when the economic data is still better than feared.
Kathleen Brooks, research director at City Index, explains:
May certainly doesn’t mince her words, and since she spoke we have seen a slight uptick in the pound versus both the dollar and the euro.
The FTSE 100 is also off of its lows of the day, although it still remains comfortably above 7,000. This may seem counter-intuitive, but ultra low interest rates are not great for the banking sector, so May’s words could boost this sector and thus the pound and the FTSE 100 at the same time.
Of course, the BOE is independent, so May’s government should not be able to change policy. But her words could be enough to ease some of the downward pressure that has been building on the pound and could be enough to trigger a mini rally, potentially back above 1.28 in GBP/USD.
1.56pm BST
13:56
Theresa May’s speech, and her criticism of the Bank of England’s monetary policy, has gone down rather badly with that beacon of free market ideology, the Adam Smith Institute.
Director Sam Bowman sounds like a man whose eyebrows got a thorough workout during the PM’s speech, saying:
[There isn’t] any evidence that clamping down on EU immigration will help British workers, but we will have to borrow more if immigration falls because they pay in more than they cost. Or that quantitative easing has made us worse off – the evidence suggests that without it the post-crisis recession would have been deeper and longer.
“Mrs May’s speech was the opposite of pragmatic. We call on the Prime Minister to abandon her ideological attachment to interventionist economic policies, look at the evidence, and accept that it tells us that markets, not the state, are the solution to our problems.”
1.47pm BST1.47pm BST
13:4713:47
IMF sounds alarm over ultra-low interest ratesIMF sounds alarm over ultra-low interest rates
Newsflash: The International Monetary Fund has warned that pension funds and insurance groups could be wiped out by the current era of ultra-low interest rates.Newsflash: The International Monetary Fund has warned that pension funds and insurance groups could be wiped out by the current era of ultra-low interest rates.
From Washington, our economics editor Larry Elliott reports:From Washington, our economics editor Larry Elliott reports:
Insurance companies and pension funds are at risk of becoming insolvent if ultra-low interest rates persist for a prolonged period, the International Monetary Fund has warned.Insurance companies and pension funds are at risk of becoming insolvent if ultra-low interest rates persist for a prolonged period, the International Monetary Fund has warned.
After almost eight years in which central banks have kept borrowing costs at record lows in an attempt to boost growth, the IMF said an over-reliance on monetary policy could have unwanted side-effects.After almost eight years in which central banks have kept borrowing costs at record lows in an attempt to boost growth, the IMF said an over-reliance on monetary policy could have unwanted side-effects.
It used its half-yearly health check of the global financial system to advise that the calmer-than-expected conditions since the Brexit vote might not last.It used its half-yearly health check of the global financial system to advise that the calmer-than-expected conditions since the Brexit vote might not last.
While short-term risks had abated over the past six months, the IMF said big challenges remained – including the impact of record-low interest rates on pension funds and insurance companies, the fragility of banks, rapid credit growth in China and the heavy indebtedness of the corporate sector in emerging countries.While short-term risks had abated over the past six months, the IMF said big challenges remained – including the impact of record-low interest rates on pension funds and insurance companies, the fragility of banks, rapid credit growth in China and the heavy indebtedness of the corporate sector in emerging countries.
“The solvency of many life insurance companies and pension funds is threatened by a prolonged period of low interest rates,” the IMF said in its global financial stability report (GFSR).“The solvency of many life insurance companies and pension funds is threatened by a prolonged period of low interest rates,” the IMF said in its global financial stability report (GFSR).
Here’s Larry’s piece:Here’s Larry’s piece:
This makes Theresa May’s intervention on monetary policy even more intriguing....This makes Theresa May’s intervention on monetary policy even more intriguing....
1.10pm BST1.10pm BST
13:1013:10
Theresa May will have pleased many older Brits by attacking the Bank of England’s stimulus programme.Theresa May will have pleased many older Brits by attacking the Bank of England’s stimulus programme.
She’s absolutely right that QE has driven up assets prices; the whole idea is that central banks mop up ‘safe’ assets such as government bonds, and encourage investors to move money into risky things.She’s absolutely right that QE has driven up assets prices; the whole idea is that central banks mop up ‘safe’ assets such as government bonds, and encourage investors to move money into risky things.
Great if you own a house, a trust fund or a Canaletto... less good if you’re relying on the income from savings.Great if you own a house, a trust fund or a Canaletto... less good if you’re relying on the income from savings.
But.... central banks have been driven into ever-deeper stimulus efforts by the failure of the global economy to bounce back from the 2008 crisis. And governments must take some blame.But.... central banks have been driven into ever-deeper stimulus efforts by the failure of the global economy to bounce back from the 2008 crisis. And governments must take some blame.
In the UK, George Osborne’s austerity budgets relied heavily on the Bank of England propping up demand with record low interest rates.In the UK, George Osborne’s austerity budgets relied heavily on the Bank of England propping up demand with record low interest rates.
European central bankers have been dropping heavy hints for months that fiscal policy needs to do more work, and that they’re running short of ammo.European central bankers have been dropping heavy hints for months that fiscal policy needs to do more work, and that they’re running short of ammo.
Perhaps May has got the message.....Perhaps May has got the message.....
May on monetary policy interesting - a political economy shift. Previous preferred macro mix of tight fiscal/easy money being dropped.May on monetary policy interesting - a political economy shift. Previous preferred macro mix of tight fiscal/easy money being dropped.
UpdatedUpdated
at 1.12pm BSTat 1.12pm BST
12.45pm BST12.45pm BST
12:4512:45
May: Monetary policy must changeMay: Monetary policy must change
Wowzers.... Theresa May has just fired a broadside at the Bank of England over its stimulus programme.Wowzers.... Theresa May has just fired a broadside at the Bank of England over its stimulus programme.
She’s addressing the Tory faithful in Birmingham now, and (in between outlining her Brexit vision and promising a clampdown on tax dodgers), she blasted the era of ultra-low interest rates and bond-buying.She’s addressing the Tory faithful in Birmingham now, and (in between outlining her Brexit vision and promising a clampdown on tax dodgers), she blasted the era of ultra-low interest rates and bond-buying.
May declared:May declared:
While monetary policy with super low rates and quantitative easing have provided emergency medicine, we have to acknowledge some of the bad side effects. People with assets have got richer, while people without have not…While monetary policy with super low rates and quantitative easing have provided emergency medicine, we have to acknowledge some of the bad side effects. People with assets have got richer, while people without have not…
A change has got to come, and we are going to deliver it because that’s what a Conservative government can do.A change has got to come, and we are going to deliver it because that’s what a Conservative government can do.
That sounds like a serious intervention into monetary policy, frankly, aimed at governor Mark Carney (who, as a Canadian, may already be concerned about the Tory’s attacks on firms who hire foreign workers)That sounds like a serious intervention into monetary policy, frankly, aimed at governor Mark Carney (who, as a Canadian, may already be concerned about the Tory’s attacks on firms who hire foreign workers)
Our Politics Liveblog has all the details:Our Politics Liveblog has all the details:
UpdatedUpdated
at 1.14pm BSTat 1.14pm BST
12.38pm BST12.38pm BST
12:3812:38
Over in Greece, air traffic control workers have called a strike in protest at proposals to reform their industry.Over in Greece, air traffic control workers have called a strike in protest at proposals to reform their industry.
The shake-up is part of the country’s bailout programme, and due to be debated by MPs later this week.The shake-up is part of the country’s bailout programme, and due to be debated by MPs later this week.
Reuters has the details:Reuters has the details:
Greek air traffic controllers plan to walk off the job over four days from October 9th, grounding flights in protest at changes to their job descriptions under reforms pursued by the country’s foreign creditors.Greek air traffic controllers plan to walk off the job over four days from October 9th, grounding flights in protest at changes to their job descriptions under reforms pursued by the country’s foreign creditors.
Their union said on Wednesday they would stage 24-hour strikes on October 9th and 10th, and October 12th-13th inclusive. All but emergency and search-and-rescue flights along with flights through the Athens Flight Information region would be suspended.Their union said on Wednesday they would stage 24-hour strikes on October 9th and 10th, and October 12th-13th inclusive. All but emergency and search-and-rescue flights along with flights through the Athens Flight Information region would be suspended.
Walkouts by Greek air traffic controllers, a department considered an essential service, have in the past been deemed illegal by Greek courts and been cancelled. The announcement on industrial action coincided with the submission of draft legislation to parliament on Tuesday evening seeking to introduce changes to the structure of the civil aviation department.Walkouts by Greek air traffic controllers, a department considered an essential service, have in the past been deemed illegal by Greek courts and been cancelled. The announcement on industrial action coincided with the submission of draft legislation to parliament on Tuesday evening seeking to introduce changes to the structure of the civil aviation department.
So any Brits who can still afford to fly to Greece following the pound’s tumble may have a problem (unless the courts step in...).So any Brits who can still afford to fly to Greece following the pound’s tumble may have a problem (unless the courts step in...).
12.13pm BST12.13pm BST
12:1312:13
How low could the pound go, as Britain rattles towards triggering article 50 next March (or earlier).How low could the pound go, as Britain rattles towards triggering article 50 next March (or earlier).
Koon How Heng, a senior foreign-exchange strategist at Credit Suisse, believes sterling could easily hit $1.25, or lower...Koon How Heng, a senior foreign-exchange strategist at Credit Suisse, believes sterling could easily hit $1.25, or lower...
He told CNBC that he still has “a very negative view on sterling”.He told CNBC that he still has “a very negative view on sterling”.
“Officially, our forecast for sterling dollar is at 1.25.“Officially, our forecast for sterling dollar is at 1.25.
“We would think it’s going to head lower. It’s probably going to go down the tubes.”“We would think it’s going to head lower. It’s probably going to go down the tubes.”
"Down the tubes" https://t.co/Pxu7nE7XcN"Down the tubes" https://t.co/Pxu7nE7XcN
11.55am BST11.55am BST
11:5511:55
There’s a subdued feeling on City trading floor today, after the FTSE 100 failed (just) to hit a new alltime high yesterday.There’s a subdued feeling on City trading floor today, after the FTSE 100 failed (just) to hit a new alltime high yesterday.
The blue-chip index has shed almost 0.6%, or 40 points, to 7034 - despite Tesco soaring higher after impressing investors with its financial results today.The blue-chip index has shed almost 0.6%, or 40 points, to 7034 - despite Tesco soaring higher after impressing investors with its financial results today.
And the smaller FTSE 250, which did hit a record high last night, has lost 0.7%.And the smaller FTSE 250, which did hit a record high last night, has lost 0.7%.
European stock markets are also in the red, today, following reports that the European Central Bank might wind back its bond-buying stimulus programme.European stock markets are also in the red, today, following reports that the European Central Bank might wind back its bond-buying stimulus programme.
Currently, the ECB is creating €80bn of new money each month to buy new bonds. Bloomberg says that policymakers have considered tapering it -- steadily trimming the monthly purchases.Currently, the ECB is creating €80bn of new money each month to buy new bonds. Bloomberg says that policymakers have considered tapering it -- steadily trimming the monthly purchases.
Although the ECB denies discussing tapering, the prospect of the easy money tap being turned down has depressed the markets.Although the ECB denies discussing tapering, the prospect of the easy money tap being turned down has depressed the markets.
Joshua Mahony, market analyst at IG, explains:Joshua Mahony, market analyst at IG, explains:
The bullish sentiment that drove yesterday’s sensational rise in the FTSE has been dampened today, with markets largely responding to the fears that perhaps the seemingly unlimited ECB QE could be limited after all. Rumours of exit plans being drawn up at the ECB highlight the growing feeling that Draghi & co are facing up to a exhaustion of monetary policy policies and effectiveness.The bullish sentiment that drove yesterday’s sensational rise in the FTSE has been dampened today, with markets largely responding to the fears that perhaps the seemingly unlimited ECB QE could be limited after all. Rumours of exit plans being drawn up at the ECB highlight the growing feeling that Draghi & co are facing up to a exhaustion of monetary policy policies and effectiveness.
11.04am BST
11:04
Bank of England deputy governor on the Brexit vote
Bank of England deputy governor Ben Broadbent has weighed in on the Brexit issue, saying June’s vote has caused rather less economic damage than feared.
In a speech this morning, Broadbent says:
There’s little doubt that the economy has performed better than surveys suggested immediately after the referendum and, although we aimed off those significantly, somewhat more strongly than our near-term forecasts as well.
Why? Broadbent suggests the UK economy had more ‘underlying momentum than expected’. Second, the housing market may hold be better than feared.
And there’s also the possibility that the weak pound is supporting the economy.
Broadbent says:
The foreign exchange market attempts to price long-run risk and, to my mind, the currency fell after the referendum for fear of what the result might ultimately mean for the UK’s access to global markets.
But if that is a risk for the longer term, once the UK’s new trading arrangements come into force, those arrangements are for the time being unchanged. Against that backdrop, the fall in the exchange rate will help to support activity, cushioning the impact of greater uncertainty. While that was expected, the effect could be coming through faster than we’d anticipated.
The speech also takes a good look at the impact, and causes, of record low bond yields (a massive headache for pension funds), and the wider issue of economic uncertainty. It’s online here.
Really good speech by @bankofengland Ben Broadbent https://t.co/5Tibyb4COl
10.25am BST
10:25
This isn’t how Theresa May would like her first conference as Tory leader to be remembered.
But it appears that the slump in the pound vs the euro this week means Britain has fallen to sixth place in the list of the world’s biggest economies, behind our old friends France.
The FT’s Chris Giles has crunched the numbers, and explains:
International Monetary Fund estimates of the size of economies in 2016 puts the UK at £1,932bn with France weighing in at €2,228bn, putting the UK ahead so long as a pound buys more than €1.153.
At the start of the week, the prime minister, chancellor, foreign secretary and Brexit secretary all boasted that Britain would get a good deal in EU talks because Britain was the fifth-largest economy in the world. At that stage their words could be justified with sterling worth €1.16 at the end of last week.
The paradox of the tough talk — with suggestions that Britain will leave the single market and clamp down heavily on immigration — has been to pull the rug from under sterling, leaving it at a post-Brexit low of €1.14 on Wednesday and below the point at which it is the fifth-largest economy.
£ fall vs euro, during Conservative conference, relegates UK to worlds 6th biggest economy behind France, calcs @FT https://t.co/Pl4DF6LtsY
The pound is currently hovering around €1.134, having hit a five-year low this morning.
10.13am BST
10:13
The encouraging service sector PMI has given the poor old pound a bit of relief.
Sterling has now struggled back from its early morning selloff, and is now back around $1.2740 against the US dollar.
10.06am BST
10:06
We’ve now had three months worth of PMI data, since the UK referendum.
And they suggest that the economy did deteriorate in July, before bouncing back in August and September.
UK PMIs for Q3. Given the hard data for services for July showed growth, this picture could turn out to be a slight underestimate of reality pic.twitter.com/s6i8agBbdC
10.01am BST
10:01
David Noble, CEO at the Chartered Institute of Procurement & Supply, is also encouraged by September’s service sector report.
Policymakers were offered much-needed positive news for September after the recent Brexit upheaval, as the service sector reported the fastest increase in new business since February this year. Though the overall activity index still remained below its long-term average and had dipped slightly compared to August, it reflected a modest revival of fortunes for services businesses.
But although firms took on more workers in September, “disquiet” around Brexit still remains, Noble says:
The sector concentrated on stabilising rather than forging ahead with confidence, as optimism stayed below the long- term average.”
9.50am BST
09:50
Fears that Britain could be falling into recession have faded, following today’s service sector data.
Chris Williamson, chief business economist at IHS Markit, believes the UK has regained “modest growth momentum”
“Across the three sectors [Services, Construction and Manufacturing] the pace of economic growth signalled was the strongest since January, fuelling greater job creation as companies shrugged off short-term Brexit worries and enjoyed the benefits of a weaker currency.
“The improvement suggests the economy has regained a growth rate of approximately 0.3% after recovering from the initial shock of the EU referendum in late-June. If July’s low is included, the PMI surveys point to a mere 0.1% expansion of GDP in the third quarter, but this probably overstates the weakening in the rate of growth.
9.38am BST
09:38
UK Services sector beats forecasts
Breaking: Britain’s services sector grew faster than expected last month, as firms shake off the shock of June’s Eu referendum.
The Service Sector PMI, produced by data firm Markit, has come in at 52.6.
That shows slightly slower growth than August (52.9), but comfortably ahead of estimates.
Markit reports that:
Service sector firms reported that new business rose at the fastest pace since February, as customer enquiries picked up and confidence recovered.
There was also “rising demand from overseas clients” linked to the weak pound.
However, there are also worries that the slump in sterling is driving up import costs.
Markit says:
The UK service sector continued to recover from July’s EU referendum-induced shock,
However, future expectations remained very low by historical standards and the survey recorded the sharpest increase in service sector input prices in over three-and-a-half years.
More to follow....
Updated
at 9.39am BST
9.29am BST
09:29
Britain’s car industry seems to have ridden out the Brexit storm, so far anyway.
New car registrations in the UK rose 1.6% in September to hit a new record, according to new data from the Society of Motor Manufacturers and Traders.
But SMMT chief executive Mike Hawes warns that the industry could yet be damaged:
“The ability of the market to maintain this record level of demand will depend on the ability of government to overcome political uncertainty and safeguard the conditions that underpin consumer appetite”
9.17am BST
09:17
Report: Hard Brexit could cost 70,000 City jobs
How bad would a ‘Hard Brexit’ be?
Well, according to a new report, 70,000 financial services jobs could be lost if the UK leaves the single market. Up to £10bn of tax revenue could be wiped out too -- if British firms lost the ability to sell services across the European single market.
The key is whether Britain retains its ‘passporting’ rights, which currently allow City firms to operate in every EU country without separate licences or offices on the ground.
The report, by consultancy group Oliver Wyman for TheCityUK lobby group, says that Britain would only suffer a ‘modest reduction’ in activity, if it retained access to the single market.
In this scenario, revenues are predicted to decline by up to £2BN (2% of total wholesale and international business), 4,000 jobs would be at risk, and tax revenues would fall by less than £0.5BN per annum.
However, losing access to the single market would be much more serious ...
Under conditions where the UK moves to a third country arrangement with the EU, without any regulatory equivalence and its relationship with the EU is defined by terms set out under the World Trade Organization, up to 50% of EU-related activity (£20BN in revenue) and an estimated 35,000 jobs could be at risk, along with £5BN of tax revenues per annum.
When taking into consideration the knock-on impact to the whole financial services ecosystem – the possibility of shifting of entire business units, or the closure of lines of business due to increased costs it could almost double the effect of Brexit.
The Conservatives are promising a hard line on immigration -- so it’s hard to see how they can restrict the movement of people into the UK, while retaining the movement of capital out of it...
Wednesday's i front page:'British jobs for British workers'#tomorrowspaperstoday #bbcpapers pic.twitter.com/CUkC6b82MB
9.08am BST
09:08
Eurozone private sector growth hits 20-month low
Just in: growth in the eurozone’s private sector slowed in September, suggesting Europe’s economy may have hit a soft patch.
The monthly Eurozone Service sector PMI, from Markit, has dropped to 52.2, from 52.8 in August. That shows the slowest growth in activity since December 2014.
And the wider ‘composite’ measure, including manufacturing, shows growth slowed to its weakest since January 2015.
Growth picked up in France (hurrah!), but dipped in Germany, Ireland and Spain (boo)