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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 boost capital - as it happened
(about 2 hours later)
5.09pm BST
17:09
And finally (probably), European stock markets have ended the day in the red.
In London the FTSE100 lost 12 points to 7434, despite mining shares rallying, and there were deeper losses in Europe.
#FTSE100 biggest risers: Glencore (+3.61%), Anglo American (+3.34%), Rio Tinto (+3.22%) and Antofagasta Holdings (+3.20%)
#FTSE100 biggest fallers: GKN (-4.39%), Centrica (-2.25%), Admiral Group (-2.25%) and Ashtead Group (-2.17%)
Currency moves are to blame; the euro strengthened after ECB president Mario Draghi spoke about reflation returning to the Eurozone as its recovery picked up.
The pound gained against the US dollar after the IMF cut its growth forecasts. Political developments in Scotland also nudged sterling up, as Josh Mahony of IG explains:
News that the SNP have formally abandoned their plan for a second referendum before the completion of Brexit has helped the pound’s ascent, with GBPUSD hitting the highest level in a week.
The IMF cut their outlook for the US economy today, which when considering the negative path of core PCE inflation, makes a September rate hike increasingly unlikely.
3.22pm BST3.22pm BST
15:2215:22
US consumer confidence strengthensUS consumer confidence strengthens
Newsflash: American consumer morale has jumped this month, despite the IMF’s concerns about the US economy.Newsflash: American consumer morale has jumped this month, despite the IMF’s concerns about the US economy.
The Conference Board’s consumer confidence index rose in June to 118.9, defying expectations that it would fall to 116.0 this month.The Conference Board’s consumer confidence index rose in June to 118.9, defying expectations that it would fall to 116.0 this month.
Significant upside beat on Consumer Confidence Index (118.9, f/c 116.0) as job market perceptions led to a 5.7-pt rise in current conditionsSignificant upside beat on Consumer Confidence Index (118.9, f/c 116.0) as job market perceptions led to a 5.7-pt rise in current conditions
Optimism is close to a 16-year high, says Lynn Franco of the The Conference Board:Optimism is close to a 16-year high, says Lynn Franco of the The Conference Board:
“Expectations for the short-term have eased somewhat, but are still upbeat. Overall, consumers anticipate the economy will continue expanding in the months ahead, but they do not foresee the pace of growth accelerating.”“Expectations for the short-term have eased somewhat, but are still upbeat. Overall, consumers anticipate the economy will continue expanding in the months ahead, but they do not foresee the pace of growth accelerating.”
2.50pm BST2.50pm BST
14:5014:50
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: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.“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.”“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 BST2.36pm BST
14:3614:36
Wall Street has opened lower, with the IMF’s downgraded growth forecasts dampening the mood in New York.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.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 BST2.26pm BST
14:2614:26
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.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:Here’s some snap reaction:
.@realDonaldTrump wants four per cent US GDP growth. IMF says it ain't gonna happenhttps://t.co/MPjzegnjjp.@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 @businessIMF 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?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 @FTPopulism 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/eBMkxF9CuUTrump's budget cuts will hit the poor & middle class hardest, IMF says: https://t.co/FgiqBfA82h pic.twitter.com/eBMkxF9CuU
2.21pm BST2.21pm BST
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Here’s more reaction to the Bank of England’s financial stability report, from Hannah Maundrell, Editor in Chief of money.co.uk: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.“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.”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 BST2.17pm BST
14:1714:17
IMF cuts US growth forecastsIMF 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.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.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.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.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.Importantly, it criticises Trump’s recent budget proposals, warning that they benefit the richest Americans more than the rest.
Reuters explains: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.”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.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/QtPSQG9DWPIMF 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/XIue7sNJAsThis 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 BST2.15pm BST
14:1514:15
Helena SmithHelena 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 BST2.02pm BST
14:0214:02
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 BST2.01pm BST
14:0114:01
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 BST1.16pm BST
13:1613:16
Bank of England: The key pointsBank 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 areCarney 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 loansCarney: 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 ResultsBoE’s Carney: Brexit Contingency Plans Unchanged On UK Election Results