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You can find the current article at its original source at https://www.theguardian.com/business/live/2017/jun/27/bank-of-england-financial-stability-draghi-ecb-google-fine-europe-janet-yellen-business-live
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| IMF cuts US growth forecast, as Bank of England tells banks to raise more capital - business live | IMF cuts US growth forecast, as Bank of England tells banks to raise more capital - business live |
| (35 minutes later) | |
| 2.50pm BST | |
| 14:50 | |
| Howard Archer, Chief Economic Advisor to the EY ITEM Club, is struck by the Bank of England’s decision to bring forwards its consumer credit stress tests by a couple of months: | |
| “The risk to financial stability coming from the recent rapid growth in consumer credit would undoubtedly be magnified if there is a near-term interest rate hike. While any interest rate hike would be small with further increases some way off, even small increases could cause problems for some consumers given their high borrowing levels. | |
| “It is notable that the Bank of England is bringing forward its testing of banks’ ability to cope with major losses on consumer loans to September from November. Additionally, regulators will in July publish their expectations for lenders in the consumer credit market.” | |
| 2.36pm BST | |
| 14:36 | |
| Wall Street has opened lower, with the IMF’s downgraded growth forecasts dampening the mood in New York. | |
| The main indices are all in the red, with shares in Alphabet (Google) shedding more than 1.2% after it was slapped with a €2.4bn fine by Brussels today. | |
| 2.26pm BST | |
| 14:26 | |
| The news that the IMF has downgraded its US growth forecasts and criticised Trump’s budget plans, has sent a ripple through the financial markets. | |
| Here’s some snap reaction: | |
| .@realDonaldTrump wants four per cent US GDP growth. IMF says it ain't gonna happenhttps://t.co/MPjzegnjjp | |
| IMF Cuts U.S. Outlook, Calls Trump's Growth Target Unrealistic https://t.co/diU2QMfypr via @business | |
| Anyone going to comment on the irony of the IMF calling someone else's growth target unrealistic? | |
| Populism doesn't deliver, IMF implies as it cuts US growth forecast https://t.co/0yZ2gQ9u9e via @FT | |
| Trump's budget cuts will hit the poor & middle class hardest, IMF says: https://t.co/FgiqBfA82h pic.twitter.com/eBMkxF9CuU | |
| 2.21pm BST | |
| 14:21 | |
| Here’s more reaction to the Bank of England’s financial stability report, from Hannah Maundrell, Editor in Chief of money.co.uk: | |
| “The Bank of England is right to flag our debt binge as a big concern. Rock bottom interest rates have made borrowing cheap and we’ve definitely been making the most of it. The harsh reality is many households would struggle to pay back what they owe if interest rates went up. | |
| Many are just about managing now and have little in savings to fall back on. Banks need to be prepared for this worst case scenario so they aren’t on shaky ground if rates go up.” | |
| 2.17pm BST | |
| 14:17 | |
| IMF cuts US growth forecasts | |
| Newsflash: The International Monetary Fund has cut its US growth forecasts, and concluded that Donald Trump won’t boost economic activity after all. | |
| The IMF now expects US GDP to rise by 2.1% in 2017, down from 2.3% back in April. | |
| For 2018, it also sees growth of 2.1%, down from 2.5% three months ago. | |
| The IMF had hoped that Trump’s pledge to boost fiscal spending, and cut taxes, would deliver a economic boost. But having seen the president in action, the Fund has had a rethink. | |
| Importantly, it criticises Trump’s recent budget proposals, warning that they benefit the richest Americans more than the rest. | |
| Reuters explains: | |
| The IMF said the Trump administration’s latest budget plans would place a disproportionate share of spending cuts onto low-and middle-income households, adding “this would appear counter to the budget’s goals of promoting safety and prosperity for all Americans.” | |
| Instead, the Fund suggested a tax policy that would improve the federal revenue-to-GDP ratio, more balanced cuts that strengthen the social safety net’s efficiency, and efforts to contain healthcare cost inflation. | |
| IMF cuts US GDP f/c - cites lack of detail in Trump budget, as cuts hit low/mid-income households disproportionately https://t.co/QtPSQG9DWP | |
| This is pretty sharp IMF criticism of Trump's economic policy package, though still couched in diplomatic language: https://t.co/FgiqBfA82h pic.twitter.com/XIue7sNJAs | |
| 2.15pm BST | 2.15pm BST |
| 14:15 | 14:15 |
| Helena Smith | Helena Smith |
| It’s been an eventful couple of days in Greece, where prime minister Alexis Tsipras has held emergency talks with striking municipal rubbish collectors over demands for expiring short-term contracts to be replaced with permanent jobs. | It’s been an eventful couple of days in Greece, where prime minister Alexis Tsipras has held emergency talks with striking municipal rubbish collectors over demands for expiring short-term contracts to be replaced with permanent jobs. |
| With the sweltering heat fuelling mounting concerns that mounds of uncollected rubbish could soon become a public health risk, Tsipras invited unionists representing the workers to his office for talks last night. | With the sweltering heat fuelling mounting concerns that mounds of uncollected rubbish could soon become a public health risk, Tsipras invited unionists representing the workers to his office for talks last night. |
| In a statement his office said the invitation was addressed to unionists “to find a solution to the claims of the refuge workers and to avoid the dangers to public heath” posed by the prolonged strike” and very high temperatures that are expected in the coming days.” Earlier today, scuffles broke out between unionists and security guards outside the building housing the prime minister’s quarters when attempts were made to unfold banners emblazoned with slogans and demands. | In a statement his office said the invitation was addressed to unionists “to find a solution to the claims of the refuge workers and to avoid the dangers to public heath” posed by the prolonged strike” and very high temperatures that are expected in the coming days.” Earlier today, scuffles broke out between unionists and security guards outside the building housing the prime minister’s quarters when attempts were made to unfold banners emblazoned with slogans and demands. |
| The meeting is being described as critical by insiders who say given the heat wave now gripping Greece - and the arrival of hundreds of thousands of tourists in the capital alone - the strike has become a major political issue. | The meeting is being described as critical by insiders who say given the heat wave now gripping Greece - and the arrival of hundreds of thousands of tourists in the capital alone - the strike has become a major political issue. |
| How Tsipras will be able to negotiate his way out of the crisis - and keep labour reform demanding international creditors on board - is anyone’s guess. | How Tsipras will be able to negotiate his way out of the crisis - and keep labour reform demanding international creditors on board - is anyone’s guess. |
| 2.02pm BST | 2.02pm BST |
| 14:02 | 14:02 |
| Alex Buttle, director of car buying website Motorway.co.uk, argues that Mark Carney is right to worry about the boom in car loans. | Alex Buttle, director of car buying website Motorway.co.uk, argues that Mark Carney is right to worry about the boom in car loans. |
| Here’s why: | Here’s why: |
| “The growth of Personal Contract Plans over the past few years has been astronomical, and the level of consumer debt this is causing is getting out of hand. | “The growth of Personal Contract Plans over the past few years has been astronomical, and the level of consumer debt this is causing is getting out of hand. |
| “Despite the many hidden costs, it’s hard to resist the temptation of owning a new luxury car without having to find tens of thousands of pounds upfront to pay for it. | “Despite the many hidden costs, it’s hard to resist the temptation of owning a new luxury car without having to find tens of thousands of pounds upfront to pay for it. |
| “The problem is that household finances are starting to get stretched and many people are probably living beyond their means because of readily available credit, including car loans. | “The problem is that household finances are starting to get stretched and many people are probably living beyond their means because of readily available credit, including car loans. |
| “If people really do start to struggle financially, then the priority will be keeping a roof over their heads, and they are far more likely to default on a car loan than a mortgage. | “If people really do start to struggle financially, then the priority will be keeping a roof over their heads, and they are far more likely to default on a car loan than a mortgage. |
| “We could well see a spike in people defaulting on their car loans in favour of losing their home if the economic climate takes a turn for the worst.” | “We could well see a spike in people defaulting on their car loans in favour of losing their home if the economic climate takes a turn for the worst.” |
| 2.01pm BST | 2.01pm BST |
| 14:01 | 14:01 |
| The pound has inched higher against the US dollar through the day, and is currently 0.3% higher at $1.2764. | The pound has inched higher against the US dollar through the day, and is currently 0.3% higher at $1.2764. |
| However, it is still down 0.5% against the euro at €1.1314, after ECB chief Mario Draghi gave an optimistic view of the eurozone economy. | However, it is still down 0.5% against the euro at €1.1314, after ECB chief Mario Draghi gave an optimistic view of the eurozone economy. |
| Connor Campbell of SpreadEx says that the “barrage of information” in the Bank of England’s financial stability review didn’t actually move the markets that much. | Connor Campbell of SpreadEx says that the “barrage of information” in the Bank of England’s financial stability review didn’t actually move the markets that much. |
| He says: | He says: |
| The FTSE maintained its 15 point drop, the gains in the commodity and banking sectors – the former benefiting from a Brent Crude bounce, the latter from yesterday’s Italian bank bailout – failing to counteract the effects of the drop in consumer confidence revealed by YouGov. As for the pound, while it suffered some serious losses against the euro, it still managed to climb 0.2% against the dollar. | The FTSE maintained its 15 point drop, the gains in the commodity and banking sectors – the former benefiting from a Brent Crude bounce, the latter from yesterday’s Italian bank bailout – failing to counteract the effects of the drop in consumer confidence revealed by YouGov. As for the pound, while it suffered some serious losses against the euro, it still managed to climb 0.2% against the dollar. |
| 1.16pm BST | 1.16pm BST |
| 13:16 | 13:16 |
| Bank of England: The key points | Bank of England: The key points |
| That wasn’t the most illuminating press conference with Mark Carney, but here’s what we learned. | That wasn’t the most illuminating press conference with Mark Carney, but here’s what we learned. |
| The Bank of England is pushing the UK financial sector to prepare for a downturn, by making them hold an extra £11bn of capital. But.... Carney says this won’t be a problem, as banks already hold more capital than required, since the rule were relaxed after the Brexit vote. | The Bank of England is pushing the UK financial sector to prepare for a downturn, by making them hold an extra £11bn of capital. But.... Carney says this won’t be a problem, as banks already hold more capital than required, since the rule were relaxed after the Brexit vote. |
| As Carney puts it: | As Carney puts it: |
| We want to move the levels of capital back up to the level they should be -- any time you move into more benign credit conditions there have been fewer defaults. | We want to move the levels of capital back up to the level they should be -- any time you move into more benign credit conditions there have been fewer defaults. |
| The BoE is concerned that some lenders are becoming too reckless, saying that: | The BoE is concerned that some lenders are becoming too reckless, saying that: |
| “Consumer credit has increased rapidly. Lending conditions in the mortgage market are becoming easier. Lenders may be placing undue weight on the recent performance of loans in benign conditions.” | “Consumer credit has increased rapidly. Lending conditions in the mortgage market are becoming easier. Lenders may be placing undue weight on the recent performance of loans in benign conditions.” |
| Carney warns banks to "learn lessons of past" - what happens if underwriting standards on consumer lending weaken. Some evidence they are | Carney warns banks to "learn lessons of past" - what happens if underwriting standards on consumer lending weaken. Some evidence they are |
| The Bank’s key target appears to be complacency, as it scrambles to bring its consumer credit stress tests forward by three months to September. | The Bank’s key target appears to be complacency, as it scrambles to bring its consumer credit stress tests forward by three months to September. |
| It is particularly interested in the car market, following the boom in “Personal Contract Purchase” deals. These allow customers to pay a monthly fee for a new car, and then either pay a hefty ‘balloon payment’ to actually own it, or switch to a new deal with a new vehicle. The fear is that customers could be left high and dry if financial conditions tighten. | It is particularly interested in the car market, following the boom in “Personal Contract Purchase” deals. These allow customers to pay a monthly fee for a new car, and then either pay a hefty ‘balloon payment’ to actually own it, or switch to a new deal with a new vehicle. The fear is that customers could be left high and dry if financial conditions tighten. |
| Carney: much of UK pick up in debt related to car loans | Carney: much of UK pick up in debt related to car loans |
| However (and this is where the confusion starts) the Bank doesn’t want consumers to cut up their credit cards and stop trying to shimmy up the housing ladder. Instead, it wants them to be sensible when borrowing, and trust that the Bank is keeping the financial system strong. | However (and this is where the confusion starts) the Bank doesn’t want consumers to cut up their credit cards and stop trying to shimmy up the housing ladder. Instead, it wants them to be sensible when borrowing, and trust that the Bank is keeping the financial system strong. |
| Those families who are most over-extended, and wouldn’t cope with higher borrowing costs, are a concern, though: | Those families who are most over-extended, and wouldn’t cope with higher borrowing costs, are a concern, though: |
| Mark Carney says that that the Bank is concerned about highly indebted households and how they will fare if economic circumstances change. | Mark Carney says that that the Bank is concerned about highly indebted households and how they will fare if economic circumstances change. |
| On Brexit, Carney repeatedly said the Bank’s contingency planning is focusing on the most disruptive scenario, in which Britain crashes out of the EU without a deal. But that doesn’t mean the BoE expects such a cliff-edge exit..... | On Brexit, Carney repeatedly said the Bank’s contingency planning is focusing on the most disruptive scenario, in which Britain crashes out of the EU without a deal. But that doesn’t mean the BoE expects such a cliff-edge exit..... |
| BoE’s Carney: Brexit Contingency Plans Unchanged On UK Election Results | BoE’s Carney: Brexit Contingency Plans Unchanged On UK Election Results |
| 12.35pm BST | 12.35pm BST |
| 12:35 | 12:35 |
| If you’re just tuning in, here’s Jill Treanor’s story about the Bank of England’s financial stability report: | If you’re just tuning in, here’s Jill Treanor’s story about the Bank of England’s financial stability report: |
| 12.24pm BST | 12.24pm BST |
| 12:24 | 12:24 |
| Final question: | Final question: |
| Q: You say you expect to raise the counter-cyclical buffer to 1% in November, but could Brexit force a cut back from 0.5% to 0% (reversing today’s move) | Q: You say you expect to raise the counter-cyclical buffer to 1% in November, but could Brexit force a cut back from 0.5% to 0% (reversing today’s move) |
| Mark Carney says the BoE thinks the buffer should be around 1% in stable times. The BoE had started the process of raising the buffer last year, before the Brexit vote, which led it to be cut back to 0% to take worries about lending ‘off the table’. | Mark Carney says the BoE thinks the buffer should be around 1% in stable times. The BoE had started the process of raising the buffer last year, before the Brexit vote, which led it to be cut back to 0% to take worries about lending ‘off the table’. |
| So.... we could have decided to hike the buffer to 1% today, but it was more sensible to allow a ‘gradual build’ (to 0.5% today, and 1% in November) | So.... we could have decided to hike the buffer to 1% today, but it was more sensible to allow a ‘gradual build’ (to 0.5% today, and 1% in November) |
| On Brexit, we want the system to be as resilient as possible to prepare for any outcome in 640 days time, he concludes. | On Brexit, we want the system to be as resilient as possible to prepare for any outcome in 640 days time, he concludes. |
| I think that means the BoE want the banking sector to be well capitalised, in case of any Brexit shock in March 2019, when Britain leaves the EU. | I think that means the BoE want the banking sector to be well capitalised, in case of any Brexit shock in March 2019, when Britain leaves the EU. |
| Updated | Updated |
| at 12.31pm BST | at 12.31pm BST |
| 12.17pm BST | 12.17pm BST |
| 12:17 | 12:17 |
| Q: You say that West End asset prices are ‘unsustainable’; when might they return to reality, and what impact would that happen? | Q: You say that West End asset prices are ‘unsustainable’; when might they return to reality, and what impact would that happen? |
| Carney reiterates his earlier point that Britain currently have “Very low risk-free rates, and high valuation levels”. So either those rates should rise, or asset prices should fall. | Carney reiterates his earlier point that Britain currently have “Very low risk-free rates, and high valuation levels”. So either those rates should rise, or asset prices should fall. |
| It would be foolish to put a timescale on it - prices can stay unsustainable for a long time, and then correct quickly, he warns. | It would be foolish to put a timescale on it - prices can stay unsustainable for a long time, and then correct quickly, he warns. |
| 12.15pm BST | 12.15pm BST |
| 12:15 | 12:15 |
| Carney: We've had very productive discussions with US regulators | Carney: We've had very productive discussions with US regulators |
| Q: The report talks about the need for ‘consistent implementation’ of international standards; are you particularly worried about the Trump administration? | Q: The report talks about the need for ‘consistent implementation’ of international standards; are you particularly worried about the Trump administration? |
| Carney says it is important to have open global standards, and even more important that they are implemented, to avoid another financial crisis. | Carney says it is important to have open global standards, and even more important that they are implemented, to avoid another financial crisis. |
| You also need supervisory co-operation between regulators...and we want to reinforce that where possible. | You also need supervisory co-operation between regulators...and we want to reinforce that where possible. |
| On the US, we have had “very productive discussions” with regulators about it. | On the US, we have had “very productive discussions” with regulators about it. |
| Carney explains how many countries have some unique rules (such as America’s Volcker rule, or bank ring-fencing in the UK), which they can change without affecting other nations. But there needs to be more co-ordination when it comes to global standards, if there are areas of ‘inconsistency’ that need to be addressed. | Carney explains how many countries have some unique rules (such as America’s Volcker rule, or bank ring-fencing in the UK), which they can change without affecting other nations. But there needs to be more co-ordination when it comes to global standards, if there are areas of ‘inconsistency’ that need to be addressed. |
| [Explainer: Donald Trump has vowed to cut regulations in the financial sector, such as the Volcker rule which is meant to prevent banks taking dangerous trading risks. | [Explainer: Donald Trump has vowed to cut regulations in the financial sector, such as the Volcker rule which is meant to prevent banks taking dangerous trading risks. |
| Trump is also keen to repeal Dodd-Frank, which was brought in after the financial crisis. ] | Trump is also keen to repeal Dodd-Frank, which was brought in after the financial crisis. ] |
| 12.02pm BST | 12.02pm BST |
| 12:02 | 12:02 |
| Q: You point out that commercial real estate assets are overvalued, and could unwind if people try to sell them in a rush. That happened after the Brexit vote - has anything changed since? | Q: You point out that commercial real estate assets are overvalued, and could unwind if people try to sell them in a rush. That happened after the Brexit vote - has anything changed since? |
| [explainer: several property funds froze redemptions after the EU referendum, to stop investors cashing out, exposing the dangers of investing in ‘illiquid assets’ such as shopping centres] | [explainer: several property funds froze redemptions after the EU referendum, to stop investors cashing out, exposing the dangers of investing in ‘illiquid assets’ such as shopping centres] |
| Carney says there is a disconnect between the market expectations for future growth, and the value of commercial buildings. | Carney says there is a disconnect between the market expectations for future growth, and the value of commercial buildings. |
| So either those expectations will rise, or commercial asset values will fall. | So either those expectations will rise, or commercial asset values will fall. |
| Carney offering coded warning on the value of commercial real estate. Disconnect between growth expectations and asset values. | Carney offering coded warning on the value of commercial real estate. Disconnect between growth expectations and asset values. |
| 11.55am BST | 11.55am BST |
| 11:55 | 11:55 |
| Q: Isn’t the boom in consumer credit due to you keeping interest rates so low? | Q: Isn’t the boom in consumer credit due to you keeping interest rates so low? |
| Carney insists he’s not to blame, and points to the broader context of a UK economy that has grown solidly over the last 12 months (despite slowing in the first quarter of 2017). | Carney insists he’s not to blame, and points to the broader context of a UK economy that has grown solidly over the last 12 months (despite slowing in the first quarter of 2017). |
| Here’s a chart showing how consumer debt has grown: | Here’s a chart showing how consumer debt has grown: |
| Consumer credit growing much faster than household incomes @bankofengland #Carney #FinancialStabilityReport pic.twitter.com/9wg6T9ueNS | Consumer credit growing much faster than household incomes @bankofengland #Carney #FinancialStabilityReport pic.twitter.com/9wg6T9ueNS |
| 11.52am BST | 11.52am BST |
| 11:52 | 11:52 |
| Carney says the boom in car loans is a major factor behind the pick-up in consumer debt recently, but he remains “sanguine” about the banking sector’s overall exposure to it. | Carney says the boom in car loans is a major factor behind the pick-up in consumer debt recently, but he remains “sanguine” about the banking sector’s overall exposure to it. |
| Carney: much of UK pick up in debt related to car loans | Carney: much of UK pick up in debt related to car loans |
| 11.49am BST | 11.49am BST |
| 11:49 | 11:49 |
| BoE: Now's the time to check consumer credit | BoE: Now's the time to check consumer credit |
| Q: Your charts show that consumer finance has been growing faster than household income since 2014, so shouldn’t you have issued today’s warning sooner? | Q: Your charts show that consumer finance has been growing faster than household income since 2014, so shouldn’t you have issued today’s warning sooner? |
| Deputy governor Sir John Cunliffe says consumer borrowing actually picked up in 2013, but overall household lending actually grew slower than the UK economy. | Deputy governor Sir John Cunliffe says consumer borrowing actually picked up in 2013, but overall household lending actually grew slower than the UK economy. |
| Consumer borrowing is £200bn, compared to £1.4 trillion in mortgage lending, he explains - so the BoE has to decide when it’s a serious worry. | Consumer borrowing is £200bn, compared to £1.4 trillion in mortgage lending, he explains - so the BoE has to decide when it’s a serious worry. |
| We’ve been watching consumer credit for a while, and now is the time to look at whether underwriting standards are starting to slip, and bring forwards our stress test (by three months, to September) | We’ve been watching consumer credit for a while, and now is the time to look at whether underwriting standards are starting to slip, and bring forwards our stress test (by three months, to September) |
| 11.45am BST | 11.45am BST |
| 11:45 | 11:45 |
| Q: Are banks misbehaving and gaming the system, and is there a cultural problem? | Q: Are banks misbehaving and gaming the system, and is there a cultural problem? |
| They’re not gaming the system, but they’re not learning the lessons of the past, Carney says. | They’re not gaming the system, but they’re not learning the lessons of the past, Carney says. |
| Updated | Updated |
| at 11.54am BST | at 11.54am BST |
| 11.44am BST | 11.44am BST |
| 11:44 | 11:44 |
| Q: Which consumer borrowing are you most worried about? | Q: Which consumer borrowing are you most worried about? |
| Carney cites the sharp build up in car financing – both in volume, and the move towards ‘personal contract purchasing’ deals (where buyers pay monthly repayments, and then face a large balloon payment to actually own their car) | Carney cites the sharp build up in car financing – both in volume, and the move towards ‘personal contract purchasing’ deals (where buyers pay monthly repayments, and then face a large balloon payment to actually own their car) |
| Q: How confident are you that banks can raise the extra capital you are demanding? | Q: How confident are you that banks can raise the extra capital you are demanding? |
| They all have this capital on their books at present, Carney replies. It’s a question of reallocating capital from other areas (and perhaps choosing to raise more capital) | They all have this capital on their books at present, Carney replies. It’s a question of reallocating capital from other areas (and perhaps choosing to raise more capital) |
| The extra capital buffer will mean UK banks must meet a 4% leverage ratio, Carney explains, but the current leverage ratio is actually 5.25%. | The extra capital buffer will mean UK banks must meet a 4% leverage ratio, Carney explains, but the current leverage ratio is actually 5.25%. |
| In other words, Banks shouldn’t face a massive challenge meeting the BoE’s demands. | In other words, Banks shouldn’t face a massive challenge meeting the BoE’s demands. |
| Carney: at most including extra capital buffer demanded takes demands on UK banks to 4% leverage ratio. Less than current. (ie did nothing!) | Carney: at most including extra capital buffer demanded takes demands on UK banks to 4% leverage ratio. Less than current. (ie did nothing!) |
| Updated | Updated |
| at 11.54am BST | at 11.54am BST |