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Version 3 Version 4
Sterling rebounds as government agrees to Brexit debate – business live Sterling rebounds as government agrees to Brexit debate – business live
(35 minutes later)
10.50am BST
10:50
Cunliffe: City jobs could move to New York after Brexit
City jobs are more likely to move to New York than to Europe, if Britain loses access to the single market, Sir Jon Cunliffe argues.
The Bank of England’s deputy governor tells the House of Lords committee that it’s not plausible that London banks would move their operations to other European capitals.
The current system is simply too complex, and reliant on other industries, so can’t simply be copied.:
I can’t see London’s financial ecosystem being replicated elsewhere in the foreseeable future, in one place in the European Union.
It takes an awful lot of time, human capital, it’s based around the interaction of financial services and other services.
The idea that this ecosystem can be transplanted to Europe in the foreseeable future is highly unlikely.
Cunliffe then cites research showing that a quarter of the value of a ‘transaction chain’ comes from other financial firms who take part in the transaction, and another quarter comes from non-financial companies such as lawyer.
You need those things to be able to work together seamlessly.
And in New York, that already happens. So some services could shift over the Atlantic, Cunliffe suggests.
10.39am BST
10:39
Cunliffe: Brexit could force up cost of finance
Cunliffe warns that both sides could lose out if Britain’s financial services sector loses the right to offer services across the EU, as it can today.
He says:
If barriers are put up between London and Europe, forcing banks to hold more capital...then that will put up the cost of finance, and financial services , on both sides of the Channel.
10.35am BST
10:35
Q: Is there scope for an early deal that would allow the City to keep these ‘financial passports’, or some similar service?
Cunliffe says there are currently 350,000 passports in operation (I think he means in the City) and most are outbound from the UK (for example, a London firm could offer insurance across the EU).
He cites a recent report that found £50bn to £60bn of UK revenue was related to EU services, some of which would be lost without passporting rights.
So it’s a significant issue.
Cunliffe repeats that those passports can’t continue if Britain isn’t in the single market, but the system could potentially be replicated.
Updated
at 10.37am BST
10.30am BST10.30am BST
10:3010:30
The committee ask Cunliffe for his views on the terms of Brexit, and whether a ‘bespoke’ deal would help the financial services industry.The committee ask Cunliffe for his views on the terms of Brexit, and whether a ‘bespoke’ deal would help the financial services industry.
Cunliffe says that the single market currently allows UK financial firms to offer services ‘relatively frictionlessly’ across the EU, by using the passport.Cunliffe says that the single market currently allows UK financial firms to offer services ‘relatively frictionlessly’ across the EU, by using the passport.
That will be lost, if Britain isn’t a member of the single market,and sharing laws with other Eu coutries. That will be lost, if Britain isn’t a member of the single market, and sharing laws with other EU countries.
If we’re not in the single market, that means the current way that that relatively frictionless interactions take place, won’t continue. If we’re not in the single market, that means the current way that that relatively frictionless interactions take place won’t continue.
That doesn’t mean it cannot continue, but it will need arranging in a new way.That doesn’t mean it cannot continue, but it will need arranging in a new way.
Currently, retail banking services don’t rely on the EU single market, but ‘wholesale services’ do.Currently, retail banking services don’t rely on the EU single market, but ‘wholesale services’ do.
So any ‘bespoke deal’ to protect the City would have to understand how those passporting permissions are used, and by who.So any ‘bespoke deal’ to protect the City would have to understand how those passporting permissions are used, and by who.
Updated
at 10.35am BST
10.23am BST10.23am BST
10:2310:23
Cunliffe: Markets struggle to cope with political uncertaintyCunliffe: Markets struggle to cope with political uncertainty
Q: What’s the impact of the plunge in sterling?Q: What’s the impact of the plunge in sterling?
Cunliffe: There’s no numerical relationship between the fall in a currency and a rise in inflation.Cunliffe: There’s no numerical relationship between the fall in a currency and a rise in inflation.
The important issue is why the exchange rate is changing. If it’s moving because of uncertainty over the UK’s future trading relationship with Europe, that could suggest that economic demand could be weakening.The important issue is why the exchange rate is changing. If it’s moving because of uncertainty over the UK’s future trading relationship with Europe, that could suggest that economic demand could be weakening.
But he won’t give a more detailed answer...But he won’t give a more detailed answer...
Q: Has sterling over-reacted, or is it the right response?Q: Has sterling over-reacted, or is it the right response?
Cunliffe won’t give a view on whether the markets are right, or wrong. They are processing news about the outcome.Cunliffe won’t give a view on whether the markets are right, or wrong. They are processing news about the outcome.
Then, he warns that global investors are disconcerted by Brexit, because it is a political issue which can’t be easily fitted into their economic models.Then, he warns that global investors are disconcerted by Brexit, because it is a political issue which can’t be easily fitted into their economic models.
Markets find political uncertainty very difficult....And the UK’s exit from the European Union will be the product of political processes here and in other countries.Markets find political uncertainty very difficult....And the UK’s exit from the European Union will be the product of political processes here and in other countries.
10.18am BST10.18am BST
10:1810:18
Sir Jon Cunliffe says there is “great uncertainty” over the extent to which companies will leave the City, because of Britain’s exit from the EU.Sir Jon Cunliffe says there is “great uncertainty” over the extent to which companies will leave the City, because of Britain’s exit from the EU.
Recent economic data has been more encouraging than feared before the referendum. But uncertainty over the UK’s future trade links will weigh on business investment, he cautions.Recent economic data has been more encouraging than feared before the referendum. But uncertainty over the UK’s future trade links will weigh on business investment, he cautions.
10.18am BST10.18am BST
10:1810:18
Cunliffe says he’s not a great fan of terms like ‘hard’ or ‘soft’ Brexit - you need to dig down into the details to see exactly what it means for, say, financial service firms in London (who can offer services across the EU today).Cunliffe says he’s not a great fan of terms like ‘hard’ or ‘soft’ Brexit - you need to dig down into the details to see exactly what it means for, say, financial service firms in London (who can offer services across the EU today).
And it’s important that Brexit doesn’t distract company management from wider financial stability issues.And it’s important that Brexit doesn’t distract company management from wider financial stability issues.
Cunliffe also says it’s important that companies have enough time to adjust to the UK’s new relationship with the EU.Cunliffe also says it’s important that companies have enough time to adjust to the UK’s new relationship with the EU.
10.12am BST10.12am BST
10:1210:12
BoE's Cunliffe: Brexit could cause more market volatilityBoE's Cunliffe: Brexit could cause more market volatility
Sir Jon Cunliffe, deputy governor of the Bank of England, is testifying to the House of Lords EU Financial Affairs Sub-Committee, about Brexit’s impact to financial services.Sir Jon Cunliffe, deputy governor of the Bank of England, is testifying to the House of Lords EU Financial Affairs Sub-Committee, about Brexit’s impact to financial services.
It’s being streamed live here.It’s being streamed live here.
Cunliffe is explaining about how the Brexit vote was a shock, but one which the financial markets absorbed without disaster.Cunliffe is explaining about how the Brexit vote was a shock, but one which the financial markets absorbed without disaster.
The financial system is more robust to the shocks from market news, and the like. But there is still great uncertainty over the timing of Britain’s exit from the EU, and the details, Cunliffe continues.The financial system is more robust to the shocks from market news, and the like. But there is still great uncertainty over the timing of Britain’s exit from the EU, and the details, Cunliffe continues.
And the deputy governor then warns that we could see more more ‘market induced financial events’ as Brexit negotiations get underway.And the deputy governor then warns that we could see more more ‘market induced financial events’ as Brexit negotiations get underway.
And he cites last week’s sterling ‘Flash Crash’ as an example, adding.And he cites last week’s sterling ‘Flash Crash’ as an example, adding.
I wouldn’t rule out.... as more news comes in, that there is potentially stress in markets.I wouldn’t rule out.... as more news comes in, that there is potentially stress in markets.
Q: So are you making more preparations ready for article 50 to be triggered in March 2017?Q: So are you making more preparations ready for article 50 to be triggered in March 2017?
Cunliffe says the BoE did a lot of contingency work before the referendum, and that work is still being used.Cunliffe says the BoE did a lot of contingency work before the referendum, and that work is still being used.
Of course, we’re in dialogue with other central banks, he adds.Of course, we’re in dialogue with other central banks, he adds.
10.04am BST10.04am BST
10:0410:04
Sterling just had a little wobble, after the newswires flashed up that Theresa May’s spokeswoman has said MPs won’t get a vote on whether to trigger article 50.Sterling just had a little wobble, after the newswires flashed up that Theresa May’s spokeswoman has said MPs won’t get a vote on whether to trigger article 50.
That’s not a surprise, of course. But it shows how edgy the markets are right now.That’s not a surprise, of course. But it shows how edgy the markets are right now.
The pound is now hovering around $1.227, up 1.5 cents today.The pound is now hovering around $1.227, up 1.5 cents today.
9.47am BST9.47am BST
09:4709:47
City traders are hoping that today’s Opposition Day debate about Brexit scrutiny will provide some colour about the government’s strategy.City traders are hoping that today’s Opposition Day debate about Brexit scrutiny will provide some colour about the government’s strategy.
Peter O’Flanagan, head of trading at Clear Treasury, says the markets are currently pricing in the “worst case scenario” for Brexit.Peter O’Flanagan, head of trading at Clear Treasury, says the markets are currently pricing in the “worst case scenario” for Brexit.
The pound is still the worst performing currency across the globe this year and liquidity in the pound remains weak, but any talk around Brexit that might be deemed slightly positive provides scope for a relief rally.The pound is still the worst performing currency across the globe this year and liquidity in the pound remains weak, but any talk around Brexit that might be deemed slightly positive provides scope for a relief rally.
9.32am BST9.32am BST
09:3209:32
Full story: Theresa May's debate u-turnFull story: Theresa May's debate u-turn
Here’s our latest news story, explaining how Theresa May has agreed to allow MPs “full and transparent” scrutiny of the process to exit the European Union.Here’s our latest news story, explaining how Theresa May has agreed to allow MPs “full and transparent” scrutiny of the process to exit the European Union.
It’s by Rowena Mason and Heather Stewart, who explain why the PM changed course (sending the pound leaping overnight).It’s by Rowena Mason and Heather Stewart, who explain why the PM changed course (sending the pound leaping overnight).
May had been facing her first government defeat over the motion on Wednesday, as a number of Conservatives indicated they were prepared to vote with Labour to demand greater public debate over the Brexit negotiating strategy.May had been facing her first government defeat over the motion on Wednesday, as a number of Conservatives indicated they were prepared to vote with Labour to demand greater public debate over the Brexit negotiating strategy.
The concession does not go as far as specifying that MPs should get a formal vote on article 50 or any Brexit deal and slightly amends Labour’s version to say the government’s negotiating position must not be undermined.The concession does not go as far as specifying that MPs should get a formal vote on article 50 or any Brexit deal and slightly amends Labour’s version to say the government’s negotiating position must not be undermined.
However, it does mean there will have to be a substantive parliamentary debate on No 10’s strategy at a later date before the UK embarks on Brexit. One Tory MP said this means the Commons will have to broadly approve the negotiating position before article 50 is invoked.However, it does mean there will have to be a substantive parliamentary debate on No 10’s strategy at a later date before the UK embarks on Brexit. One Tory MP said this means the Commons will have to broadly approve the negotiating position before article 50 is invoked.
Emily Thornberry, the shadow foreign secretary, said it was a significant U-turn and Labour would force the government to be accountable over Brexit.Emily Thornberry, the shadow foreign secretary, said it was a significant U-turn and Labour would force the government to be accountable over Brexit.
She told BBC Radio 4’s Today programme that the opposition would not let ministers “go into a locked room and come out with some plan that they want to keep secret”.She told BBC Radio 4’s Today programme that the opposition would not let ministers “go into a locked room and come out with some plan that they want to keep secret”.
UpdatedUpdated
at 9.57am BSTat 9.57am BST
9.29am BST
09:29
Morgan Stanley: Pound could suffer further losses
Morgan Stanley’s head of currency strategy, Hans Redeker, welcomes the news that Theresa May will allow a debate on Brexit strategy.
He says:
After weeks of tough rhetoric pushing sterling into a trading environment closer to an emerging market currency, the government may aim to stabilise markets, with its rhetoric and suggestions now possibly shifting in tone,”
However, Redeker also questions whether MPs will really be given proper scrutiny.
There is a fine line to walk as May’s Conservative Party wants a clean split from Europe.
In addition, giving in too much, even before Article 50 negotiations have started,shifts the negotiation advantage towards the EU. Hence, the pound’s rebound should be limited and followed by a decline.”
9.17am BST
09:17
Despite jumping by almost two cents this morning, the pound is still worth less than first thing yesterday morning.
That’s because sterling was duffed up in the foreign exchange markets last night, plummeting through the $1.21 mark.
The pound then soared back overnight, following reports that Theresa May would allow MPs more Brexit scrutiny.
Mike Bird of the Wall Street Journal has the details:
pic.twitter.com/hFA3eJFbkA
Updated
at 9.18am BST
9.07am BST
09:07
Despite today’s rally, the pound is still around 5% weaker than before the Conservative Party conference, where Theresa May promised to trigger article 50 within six months.
The penny drops! #Fundamentals alone could push #sterling lower. Further #isolationist rhetoric can only hasten that https://t.co/x1USYuZ36B pic.twitter.com/QsQrf0e5rU
The recent slide in sterling, and the alarming ‘flash crash’ last Friday, must have caused some concern in Downing Street (even though a weaker pound should help the economy rebalance).
The Financial Times reports today that some senior Tories have admitted privately that the weak pound could create serious political headaches.
Mrs May said last week that the fundamentals in the British economy were strong and that the economy had grown more strongly than many had expected after the June 23 Brexit vote. “We see sterling moving in different ways at different times,” she said.
But some Tory MPs warn that “imported” inflation will erode living standards and undermine Mrs May’s attempts to help the “ordinary working-class” Britons who saw the Brexit vote as a cry for help.
The rising cost of fuel, food and foreign holidays are already being felt by families described by Mrs May as those who are “just getting by”. Labour has called for pro-Brexit ministers to apologise.
8.59am BST
08:59
This chart, from Capital Economics, suggests the pound has been ‘oversold’ recently, compared to what you’d expect based on likely interest rate moves.
#GBP/USD recently fallen below level implied by UK/US interest rate expectations. Rebound ahead if hard #Brexit worries ease? pic.twitter.com/GRgesArXPO
8.45am BST
08:45
Today’s sterling rally may not last, according to Neil Wilson, analyst at City firm ETX Capital.
He reckons the pound will suffer more volatility, as the political drama around Brexit continues to play out.
Theresa May’s decision last night to allow the House of Commons a debate on the government’s Brexit plans before triggering Article 50 seems to have allayed some of the concerns about a ‘hard Brexit’ that had dominated since her speech at the Conservative Party conference. Bank of England policymakers had also appeared to talk the currency lower.
But if traders think the mood is turning bullish for the pound, they’re mistaken. The bears are still very much in control and this relief rally looks like a dead cat bounce
8.39am BST
08:39
London’s stock market has dipped in early trading, sending the FTSE 100 index down by 21 points (or -0.3%) to 7049.
That’s partly due to this morning’s sterling rally. A stronger pound isn’t great news for internationally-focused companies, who earn most of their earnings in foreign currencies.
Oh in other words:
I did a 'splainer pic.twitter.com/qsm8hPtu7X
8.28am BST
08:28
The pound is also enjoying a good morning against the euro, up over 1% at €1.108.
So respite for sterling in early trading , Euro v £ down from 91.4 p to 90 p
Updated
at 8.42am BST
8.21am BST
08:21
Asa Bennett of the Daily Telegraph has a good explanation of how MPs are being allowed more scrutiny of the government’s Brexit plans.
This is from his morning email:
The Government may not want to give a “running commentary” on its Brexit strategy, but MPs are very keen for Parliament to have its say. Some Tory MPs are among them, with Stephen Phillips warning ministers that they would be acting like a “tyranny” to negotiate Brexit without consulting Parliament. “That really is a democratic deficit,” writes Philip Johnston in today’s paper. “Actually, let’s not mince words. That’s dictatorship.” Brexit means Brexit, James Kirkup adds, “but Parliament is Parliament”.
Labour is hoping to exploit this concern by pushing an Opposition Day motion today calling for Parliament to be able to scrutinise the government’s Brexit plan before Article 50 is triggered, and offering 170 questions for ministers to answer. It looks like the Opposition has scored a direct hit, as the Government moved last night to table a surprise amendment offering MPs extra Parliamentary scrutiny of the Brexit process in order to prevent Tory MPs from rebelling, which Labour has trumpeted as “one hell of a climbdown”.
Today's briefing - "Parliament means Parliament" is out now, and you can read it here: https://t.co/eb1U69CxFw pic.twitter.com/8KBSR67oNs
Paul Donovan of Swiss bank UBS confirms that this ‘surprise amendment’ has help the pound to rally.
He writes:
The UK government indicated that Parliament may have a say on its negotiation stance ahead of the exit discussions with the EU.
The change in the nuance of the government’s position has halted the seemingly inexorable decline of sterling. Markets are once again the idle playthings of politicians’ whims.
Updated
at 8.24am BST
8.09am BST
08:09
Pound bounces back as May agrees to Brexit debate
The pound is rallying hard this morning, following signs that the government will allow MPs more scrutiny of its plans to leave the European Union.
Sterling has gained more than 1.5 cents this morning, popping back over the $1.23 mark as traders give the pound new vote of confidence.
Last night, it fell as low as $1.208, on fears that a ‘hard Brexit’ would hurt the UK economy.
So what’s changed?
Well, overnight, Theresa May’s government has accepted that MPs should be allowed a “full and transparent debate on the government’s plans to leave the EU”.
This proposals comes from the opposition Labour party, which is demanding “proper scrutiny” of May’s plans in Parliament before Article 50 is triggered, in March 2017.
Labour’s proposal will be debated in parliament today, and May has already signalled that she will allow such a debate
But she’s also added an amendment, insisting that such scrutiny shouldn’t “undermine the negotiating position of the government”. Effectively she doesn’t want her hands tied during the Brexit negotiations by MPs back in London.
She’s also NOT allowing MPs a formal vote on whether to trigger article 50.
But still....Labour MP Keir Starmer says this is a victory for MPs who have been demanding proper parliamentary scrutiny of the government’s plans for Brexit.
Govt accepts Labours demand for proper scrutiny of Brexit plans. Welcome victory ahead of Commons debate tomorrow: democratic grip essential https://t.co/XwM4g4x6wx
This real victory for Parliament will help ensure there is proper democratic grip of Brexit process - @Keir_Starmer https://t.co/IjIsOPqY2I
The prospect of MPs giving the Brexit plan more scrutiny has reassured investors, as it could limit the prospects of a damaging ‘hard Brexit’ which would see the UK banished from the single market.
Kathleen Brooks of City Index says it’s quite a turnaround for the pound, after four days of chunky losses:
What a difference a day makes, the pound is the top performer in the G10 on Wednesday, rising by more than 1.3% versus the euro, and 1% versus the US dollar. The trigger was a surprise announcement from Prime Minister Theresa May that she will allow Parliament to vote on her plan to take the EU out of the European Union.
This will allow the UK’s elected representatives to scrutinize Theresa May’s plans for Brexit. It has triggered a relief rally in the pound on Wednesday, as it could potentially limit the prospect of a “hard Brexit” taking the UK out of the single market, which has been a major concern for some investors and the business community in recent days.
Pop in the pound...on May's agreement Parliament should be allowed vote on Brexit plan (tho' can't block Brexit or "undermine" negotiation) pic.twitter.com/VNKfhx0AaD
Updated
at 8.17am BST
7.45am BST
07:45
Introduction
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
We’ll be watching the pound closely again, after last night’s heavy losses sent sterling down below the $1.21 mark last night.
Overnight, a government advisor has warned that leaving the EU customs union would have a significant negative impact on the UK economy, in the long term.
That’s added to concerns that Britain’s financial sector will suffer badly from Brexit, if banks start to shift jobs out of the City.
Bank of England deputy governor Sir Jon Cunliffe should give his views this morning; he’s testifying to the House of Lords from 10am on Brexit’s impact on the UK financial services business.
And airline group Monarch is just announcing a new £165m funding deal that should keep it running. More on that shortly....
Updated
at 7.46am BST