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Pound bounces back from all-time low as government agrees to Brexit debate – business live Pound bounces back from all-time low as government agrees to debate Brexit – Business live
(35 minutes later)
12.45pm BST
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The EU referendum vote has forced international investors to get up to speed on the intricacies of the UK parliament, the EU single market, the untested article 50, and scrutinise every Brexit-related headline out of London and Brussels.
The Financial Times columnist Janan Ganesh suggests markets should calm down....
Markets foolish to parse govt statements for clues. There's no plan. Each panic-inducing remark gets toned down. May as well ask your cat.
12.43pm BST
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An important point:
May refuses to promise MPs a vote on Brexit before article 50 is invoked - Only promising debate - V big differnc - https://t.co/T9HYpxKWrf
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The pound has kicked on a little, back towards $1.23, after prime minister Theresa May told MPs she will aim for “maximum access” to the EU single market.
May says she is determined to achieve the “right deal for the UK.....operating in and trading with” the European market.
Labour leader Jeremy Corbyn, though, criticised the government for lacking a clear Brexit plan.
Our Politics Live blog has full coverage of Prime Minister’s Questions:
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This chart confirms that the pound plunged to a record low last night:This chart confirms that the pound plunged to a record low last night:
Trade-weighted sterling hit a record low on Tuesday pic.twitter.com/kiMSLJbCI2Trade-weighted sterling hit a record low on Tuesday pic.twitter.com/kiMSLJbCI2
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Sterling hit lowest ever level yesterdaySterling hit lowest ever level yesterday
Newsflash: Yesterday’s brutal selloff drove the pound down to its lowest ever level against a basket of other currencies.Newsflash: Yesterday’s brutal selloff drove the pound down to its lowest ever level against a basket of other currencies.
New data from the Bank of England shows that trade-weighted sterling crashed through its previous seven-year low during last night’s trading, to depths not seen before.New data from the Bank of England shows that trade-weighted sterling crashed through its previous seven-year low during last night’s trading, to depths not seen before.
This index values the pound against a group of other currencies including the US dollar, yen, and euro.This index values the pound against a group of other currencies including the US dollar, yen, and euro.
And it hit 73.383, on the Bank’s index, tipping through the 73.495 plumbed in December 2008 as Britain crashed into recession and several banks were bailed out.And it hit 73.383, on the Bank’s index, tipping through the 73.495 plumbed in December 2008 as Britain crashed into recession and several banks were bailed out.
This morning’s rally means the pound has now pulled back from this nadir, but it’s still a serious warning about the impact that Brexit has had on the pound.This morning’s rally means the pound has now pulled back from this nadir, but it’s still a serious warning about the impact that Brexit has had on the pound.
It’s still close to a near-31 year low against the US dollar, and close to a six-year low against the euro today.It’s still close to a near-31 year low against the US dollar, and close to a six-year low against the euro today.
Mike Bird of the Wall Street Journal has a good take:Mike Bird of the Wall Street Journal has a good take:
The Bank of England’s broad effective exchange rate index for the pound shows that the currency is now worth less than it was at the height of the 2008-09 financial crisis, or in the aftermath of Black Wednesday, when sterling left the European Exchange Rate Mechanism.The Bank of England’s broad effective exchange rate index for the pound shows that the currency is now worth less than it was at the height of the 2008-09 financial crisis, or in the aftermath of Black Wednesday, when sterling left the European Exchange Rate Mechanism.
Given the pound has declined from its once strong position throughout the last century, the current level means it has never traded lower against its trading partners.Given the pound has declined from its once strong position throughout the last century, the current level means it has never traded lower against its trading partners.
Her majesty's bitcoin, the north Atlantic peso, now at its lowest level ever (like, ever ever) https://t.co/37rK7xClM0 pic.twitter.com/Pub3CCCBoIHer majesty's bitcoin, the north Atlantic peso, now at its lowest level ever (like, ever ever) https://t.co/37rK7xClM0 pic.twitter.com/Pub3CCCBoI
Reuters has more details too:Reuters has more details too:
Trade-weighted sterling index hits record low on Tuesday- BoETrade-weighted sterling index hits record low on Tuesday- BoE
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at 11.57am BSTat 11.57am BST
11.45am BST11.45am BST
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While I was watching Jon Cunliffe, Lloyds Banking Group announced it is cutting more than 1,300 jobs.While I was watching Jon Cunliffe, Lloyds Banking Group announced it is cutting more than 1,300 jobs.
Lloyds Banking Group is cutting 1,340 jobs according to unionsLloyds Banking Group is cutting 1,340 jobs according to unions
11.44am BST11.44am BST
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Sir Jon Cunliffe’s session at the House of Lords has now ended.Sir Jon Cunliffe’s session at the House of Lords has now ended.
Here are the key points from the Bank of England deputy governor:Here are the key points from the Bank of England deputy governor:
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Q: What are the prospects of the UK continuing to have influence over the regulation of financial services in the EU, and globally, after Brexit?Q: What are the prospects of the UK continuing to have influence over the regulation of financial services in the EU, and globally, after Brexit?
Sir Jon Cunliffe says the UK won’t have influence from inside on the making of EU regulation, once it has left.Sir Jon Cunliffe says the UK won’t have influence from inside on the making of EU regulation, once it has left.
We will necessarily lose influence, if you’re not an EU member you can’t be inside the machinery making EU law.We will necessarily lose influence, if you’re not an EU member you can’t be inside the machinery making EU law.
But he expects the EU to maintain its commitment to international standards.But he expects the EU to maintain its commitment to international standards.
I hope, presume, and will devote considerable effort to ensure Britain still influence those global standards, Cunliffe adds.I hope, presume, and will devote considerable effort to ensure Britain still influence those global standards, Cunliffe adds.
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Q: Would the Bank of England ever ‘mark the card’ of ministers over Brexit?Q: Would the Bank of England ever ‘mark the card’ of ministers over Brexit?
Cunliffe says the Bank doesn’t have that power, but it has a responsibility to monitor the UK financial system and make its views known.Cunliffe says the Bank doesn’t have that power, but it has a responsibility to monitor the UK financial system and make its views known.
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Onto the Brexit buzzword - uncertainty.Onto the Brexit buzzword - uncertainty.
Q: How will the Bank respond if politicians make pronouncements in the run-up to Brexit?Q: How will the Bank respond if politicians make pronouncements in the run-up to Brexit?
Cunliffe repeats that markets have a general problem with political uncertainty, and there will be a lot of political noise around Brexit.Cunliffe repeats that markets have a general problem with political uncertainty, and there will be a lot of political noise around Brexit.
The Bank’s Financial Policy Committee is assessing the financial stability implications of Brexit, and will report on them through its regular publications, in the usual way. Ditto for the Monetary Policy Committee.The Bank’s Financial Policy Committee is assessing the financial stability implications of Brexit, and will report on them through its regular publications, in the usual way. Ditto for the Monetary Policy Committee.
Q: Is there a contradiction that banks want certainty, but they also want Brexit resolved quickly?Q: Is there a contradiction that banks want certainty, but they also want Brexit resolved quickly?
Cunliffe says that:Cunliffe says that:
No matter how it’s arranged, we just need a smooth and orderly progression from where we are to where we’re going, wherever that is, so firms can plan and execute those plans.No matter how it’s arranged, we just need a smooth and orderly progression from where we are to where we’re going, wherever that is, so firms can plan and execute those plans.
There are lots of ways we could proceed, but they are political choices.There are lots of ways we could proceed, but they are political choices.
Q: But take Nissan. They won’t wait three years before taking an investment decision....Q: But take Nissan. They won’t wait three years before taking an investment decision....
That’s true of financial firms as well, Cunliffe says. They have have shareholders... and if there’s not certainty they may need to execute plans and prepare for the future anyway.That’s true of financial firms as well, Cunliffe says. They have have shareholders... and if there’s not certainty they may need to execute plans and prepare for the future anyway.
You could reach a tipping point, and go ahead before you know the full details of Brexit.You could reach a tipping point, and go ahead before you know the full details of Brexit.
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Cunliffe warns of problems if London loses euro clearingCunliffe warns of problems if London loses euro clearing
Q: Is there a serious risk that the euro clearing market could move out of London?Q: Is there a serious risk that the euro clearing market could move out of London?
Sir Jon Cunliffe says he’s spent most of his career on this subject, and apologies for giving a long answer (don’t worry, Sir Jon, this stuff matters....)Sir Jon Cunliffe says he’s spent most of his career on this subject, and apologies for giving a long answer (don’t worry, Sir Jon, this stuff matters....)
He says it’s unusual to see heads of state talking about something as technical as ‘euro clearing’. So there’s a political significance to this, which may determine the outcome.He says it’s unusual to see heads of state talking about something as technical as ‘euro clearing’. So there’s a political significance to this, which may determine the outcome.
[Background: French president Francois Hollande said in June that the UK won’t be able to keep its euro clearing business after Brexit].[Background: French president Francois Hollande said in June that the UK won’t be able to keep its euro clearing business after Brexit].
But on the technical issue -- euro clearing relates to the process by which banks clear complex derivative contracts priced in euros.But on the technical issue -- euro clearing relates to the process by which banks clear complex derivative contracts priced in euros.
He explains that after the 2008 financial crisis, regulators insisted that derivatives contracts are cleared centrally, so that they could see the state of play, and if any firms are getting in trouble.He explains that after the 2008 financial crisis, regulators insisted that derivatives contracts are cleared centrally, so that they could see the state of play, and if any firms are getting in trouble.
You avoid what happened in the financial crisis, where as the prices of assets move quickly, counter-parties make margin calls on other counter-parties, and the situation deteriorates quickly.You avoid what happened in the financial crisis, where as the prices of assets move quickly, counter-parties make margin calls on other counter-parties, and the situation deteriorates quickly.
Cunliffe says he was at the G20 meeting in Pittsburg when regulators decided to do this, and it was the right thing.Cunliffe says he was at the G20 meeting in Pittsburg when regulators decided to do this, and it was the right thing.
But it needs central clearing, so you can net the risks.But it needs central clearing, so you can net the risks.
In other words, financial firms can ‘net’ off their margin calls, balancing contracts where are up, or down, and only post the balance. That reduces the stress in the system, meaning firms won’t have to post as much capital or buy as much insurance.In other words, financial firms can ‘net’ off their margin calls, balancing contracts where are up, or down, and only post the balance. That reduces the stress in the system, meaning firms won’t have to post as much capital or buy as much insurance.
Cunliffe then, politely, rubbishes the idea that derivative contracts need to be cleared in the jurisdiction of the currency that they are issued in.Cunliffe then, politely, rubbishes the idea that derivative contracts need to be cleared in the jurisdiction of the currency that they are issued in.
Currently, London clears contracts priced in euros, dollars, and yen (for example).Currently, London clears contracts priced in euros, dollars, and yen (for example).
It you make multi-currency infrastructure impossible, then the cost of clearing derivatives will go up.It you make multi-currency infrastructure impossible, then the cost of clearing derivatives will go up.
And fragmenting the system could create financial stability risks, if the current set-up in London is replaced by several smaller operations.And fragmenting the system could create financial stability risks, if the current set-up in London is replaced by several smaller operations.
He says:He says:
I can understand the politics around this, but we’re taking technically about multi-currency infrastructure.I can understand the politics around this, but we’re taking technically about multi-currency infrastructure.
If we’re talking about going to a world where you have to clear in the jurisdiction of issue, then the costs are going to go up in a pretty big way.If we’re talking about going to a world where you have to clear in the jurisdiction of issue, then the costs are going to go up in a pretty big way.
Q: So are you saying that it’s unlikely that euro clearing will move out of London to the EU, if it was a rational decision?Q: So are you saying that it’s unlikely that euro clearing will move out of London to the EU, if it was a rational decision?
I think the system works well now, Cunliffe replies diplomatically.I think the system works well now, Cunliffe replies diplomatically.
UpdatedUpdated
at 11.24am BSTat 11.24am BST
10.50am BST10.50am BST
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Cunliffe: City jobs could move to New York after BrexitCunliffe: 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.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 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.: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.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.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.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.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.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.And in New York, that already happens. So some services could shift over the Atlantic, Cunliffe suggests.
10.39am BST
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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
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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
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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.
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.
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.
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
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Cunliffe: Markets struggle to cope with political uncertainty
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.
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...
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.
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.
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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.
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10:18
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).
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.
10.12am BST
10:12
BoE'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.
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.
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 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.
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.
Of course, we’re in dialogue with other central banks, he adds.
10.04am BST
10:04
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.
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.
9.47am BST
09:47
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.
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 BST
09:32
Full 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.
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.
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.
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”.
Updated
at 9.57am BST