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Pound jumps as Mark Carney says rate hike debate is building - business live Pound jumps as Mark Carney says rate hike debate is building - business live
(35 minutes later)
5.19pm BST5.19pm BST
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FTSE 100 dragged down by strong pound
The jump in sterling has hit the share prices of multinational firms on the London stock market.The jump in sterling has hit the share prices of multinational firms on the London stock market.
Fashion chain Burberry led the FTSE 100 fallers at the close of trading, shedding 3.4%, followed by pharmaceuticals firm Shire, which lose 2.5%.Fashion chain Burberry led the FTSE 100 fallers at the close of trading, shedding 3.4%, followed by pharmaceuticals firm Shire, which lose 2.5%.
A stronger pound makes exporters a little less competitive, and also erodes the value of their overseas earnings.A stronger pound makes exporters a little less competitive, and also erodes the value of their overseas earnings.
European stock markets had a better day, after European Central Bank sources went on maneuvers to crush talk that it might unwind its stimulus soon. That send the euro down from its one-year high against the dollar.European stock markets had a better day, after European Central Bank sources went on maneuvers to crush talk that it might unwind its stimulus soon. That send the euro down from its one-year high against the dollar.
Marchel Alexandrovich, senior European economist at Jefferies International, says the central banks have confused the markets in recent days.Marchel Alexandrovich, senior European economist at Jefferies International, says the central banks have confused the markets in recent days.
Mario Draghi’s speech yesterday, and the ‘correction’ which followed from ECB officials today, received the most attention, but it was arguably the BoE Chief Economist Andy Haldane’s speech the week before – which touched on many of the same themes and effectively reached the same conclusion – that is a better guide to how central bank thinking continues to evolve.Mario Draghi’s speech yesterday, and the ‘correction’ which followed from ECB officials today, received the most attention, but it was arguably the BoE Chief Economist Andy Haldane’s speech the week before – which touched on many of the same themes and effectively reached the same conclusion – that is a better guide to how central bank thinking continues to evolve.
The BoE remains puzzled as to why wage growth had consistently disappointed expectations despite robustness in employment growth (even though there are a number of plausible contributing factors in play). However, and this is perhaps the key take away, the BoE does not consider a change in the relationship between unemployment and wage growth (a flattening of the Phillips curve) the same thing as a breakdown of this relationship altogether. Indeed, if/when that relationship reasserts itself, the snap-back in wage growth could lead an overshoot of the inflation.The BoE remains puzzled as to why wage growth had consistently disappointed expectations despite robustness in employment growth (even though there are a number of plausible contributing factors in play). However, and this is perhaps the key take away, the BoE does not consider a change in the relationship between unemployment and wage growth (a flattening of the Phillips curve) the same thing as a breakdown of this relationship altogether. Indeed, if/when that relationship reasserts itself, the snap-back in wage growth could lead an overshoot of the inflation.
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5.01pm BST5.01pm BST
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The markets have got carried away with Mark Carney’s speech, argues Ranko Berich, head of market analysis at Monex Europe.The markets have got carried away with Mark Carney’s speech, argues Ranko Berich, head of market analysis at Monex Europe.
He reckons that Carney was describing the challenge facing the MPC, rather than hinting at a policy shift.He reckons that Carney was describing the challenge facing the MPC, rather than hinting at a policy shift.
“We already know there is robust debate within the MPC on the merits of ultra-low rates, and today’s speech confirms that Carney himself is not ideologically attached to either side of the argument, hawkish or otherwise.“We already know there is robust debate within the MPC on the merits of ultra-low rates, and today’s speech confirms that Carney himself is not ideologically attached to either side of the argument, hawkish or otherwise.
As Carney said, once again in very plain terms, the MPC is looking to balance the current inflation overshoot against the cost of containing it through tighter monetary policy. The amount of spare capacity in the economy – a difficult thing to measure even for the BoE – is crucial for this decision, as is the outlook for how quickly growth will erode this slack.As Carney said, once again in very plain terms, the MPC is looking to balance the current inflation overshoot against the cost of containing it through tighter monetary policy. The amount of spare capacity in the economy – a difficult thing to measure even for the BoE – is crucial for this decision, as is the outlook for how quickly growth will erode this slack.
4.41pm BST4.41pm BST
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Thanks to Mark Carney’s comments, the pound has now racked up six days of gains against the US dollar.Thanks to Mark Carney’s comments, the pound has now racked up six days of gains against the US dollar.
Today’s rally is the strongest move since Theresa May called the general election two months ago.Today’s rally is the strongest move since Theresa May called the general election two months ago.
Carney makes his Mark. Sterling rises vs dollar for 6th day in a row, its best run since March last year. pic.twitter.com/lmZVnm1ZHQCarney makes his Mark. Sterling rises vs dollar for 6th day in a row, its best run since March last year. pic.twitter.com/lmZVnm1ZHQ
Sterling +1% today on a trade-weighted basis, its biggest rise since April 18 ... the day Theresa May called the UK election.Sterling +1% today on a trade-weighted basis, its biggest rise since April 18 ... the day Theresa May called the UK election.
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4.36pm BST4.36pm BST
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Howard Archer, chief economic advisor to the EY ITEM Club, reckons that Mark Carney isn’t actually in a rush to raise interest rates.Howard Archer, chief economic advisor to the EY ITEM Club, reckons that Mark Carney isn’t actually in a rush to raise interest rates.
He suspects that the Bank of England wants to wait until we have a clearer picture of how Brexit will play out.He suspects that the Bank of England wants to wait until we have a clearer picture of how Brexit will play out.
Archer writes:Archer writes:
“At first glance, the latest remarks from the Bank of England Governor come across as less dovish than his Mansion House speech which gave the impression that he is in no hurry to raise interest rates. The markets have also interpreted the Governor’s latest remarks as less dovish with sterling immediately spiking up following the speech.“At first glance, the latest remarks from the Bank of England Governor come across as less dovish than his Mansion House speech which gave the impression that he is in no hurry to raise interest rates. The markets have also interpreted the Governor’s latest remarks as less dovish with sterling immediately spiking up following the speech.
“The Governor indicated that the inflation overshoot can only be tolerated by the Bank of England for so long. He indicated that some removal of monetary expansion is likely to become necessary if spare capacity continues to be eroded.“The Governor indicated that the inflation overshoot can only be tolerated by the Bank of England for so long. He indicated that some removal of monetary expansion is likely to become necessary if spare capacity continues to be eroded.
“However, the Governor reiterated his view that it is currently best to leave monetary policy unchanged as it is too early to judge the extent and likely persistence of the UK economic slowdown, while domestic inflationary pressures are still subdued, notably wage growth and unit labour costs.“However, the Governor reiterated his view that it is currently best to leave monetary policy unchanged as it is too early to judge the extent and likely persistence of the UK economic slowdown, while domestic inflationary pressures are still subdued, notably wage growth and unit labour costs.
“For the time being, the Governor still looks to be in ‘wait and see’ mode on interest rates. He is likely to want to see how much other elements of demand, including business investment, offset weaker consumer spending over the coming months, and whether wages and unit costs start to firm up. The Governor may also want to see how the economy reacts as Brexit negotiations develop, and how the negotiations unfold.“For the time being, the Governor still looks to be in ‘wait and see’ mode on interest rates. He is likely to want to see how much other elements of demand, including business investment, offset weaker consumer spending over the coming months, and whether wages and unit costs start to firm up. The Governor may also want to see how the economy reacts as Brexit negotiations develop, and how the negotiations unfold.
3.55pm BST3.55pm BST
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Mark Carney’s comments are the clearest signal yet that the Bank of England is “minded to tighten” monetary policy, says Neil Wilson of ETX Capital.Mark Carney’s comments are the clearest signal yet that the Bank of England is “minded to tighten” monetary policy, says Neil Wilson of ETX Capital.
But they come just hours after deputy governor Jon Cunliffe argued that there was no rush to unwind last autumn’s rate cut, to just 0.25%.But they come just hours after deputy governor Jon Cunliffe argued that there was no rush to unwind last autumn’s rate cut, to just 0.25%.
So there’s quite a lot of head-scratching going on.So there’s quite a lot of head-scratching going on.
Wilson says:Wilson says:
There does appear to be a decided tilt towards a tightening bias, should economic conditions improve. It’s a case of justifying why they shouldn’t tighten rather than why they should, which appears to be a material shift from first few months of the year.There does appear to be a decided tilt towards a tightening bias, should economic conditions improve. It’s a case of justifying why they shouldn’t tighten rather than why they should, which appears to be a material shift from first few months of the year.
But the picture is now pretty muddy. Only last week Mr Carney said ‘now is not the time’ to tighten. Deputy governor John Cunliffe said only today that there is no rush to raise rates. So we are left guessing – the MPC does not seem to know where it’s at and the debate is taking place in public. This ought to play out in more vote splits over the summer before a move to ‘correct’ its policy mis-step perhaps by the autumn, assuming economic growth and wage growth holds.”But the picture is now pretty muddy. Only last week Mr Carney said ‘now is not the time’ to tighten. Deputy governor John Cunliffe said only today that there is no rush to raise rates. So we are left guessing – the MPC does not seem to know where it’s at and the debate is taking place in public. This ought to play out in more vote splits over the summer before a move to ‘correct’ its policy mis-step perhaps by the autumn, assuming economic growth and wage growth holds.”
3.37pm BST3.37pm BST
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Here’s more reaction, from Philip Shaw of Investec...Here’s more reaction, from Philip Shaw of Investec...
BoE's Carney reminds markets MPC actively debating raising rates, though he himself prefers to wait. Lights blue touch paper under sterling… pic.twitter.com/cxEgvTNmYlBoE's Carney reminds markets MPC actively debating raising rates, though he himself prefers to wait. Lights blue touch paper under sterling… pic.twitter.com/cxEgvTNmYl
Economics blogger Jerome Blokland points out that UK government bond yields have jumped too:Economics blogger Jerome Blokland points out that UK government bond yields have jumped too:
It's happening people! Central Banks are heading for the exit! #BoE UK 10-year bond #yield spikes after #Carney comments. pic.twitter.com/O8pqXhQPoJIt's happening people! Central Banks are heading for the exit! #BoE UK 10-year bond #yield spikes after #Carney comments. pic.twitter.com/O8pqXhQPoJ
3.29pm BST3.29pm BST
15:2915:29
This chart shows how the pound bounced as Carney’s comments hit the wires.This chart shows how the pound bounced as Carney’s comments hit the wires.
#Cable soars as #Carney suggests #BankofEngland may need to start removing stimulus joining a hawkish shift among #MPC members #GBP #forex pic.twitter.com/IpCMSwrXQ8#Cable soars as #Carney suggests #BankofEngland may need to start removing stimulus joining a hawkish shift among #MPC members #GBP #forex pic.twitter.com/IpCMSwrXQ8
3.23pm BST3.23pm BST
15:2315:23
The FT’s Chris Giles agrees that Mark Carney’s comments are significant.The FT’s Chris Giles agrees that Mark Carney’s comments are significant.
He writes:He writes:
Mark Carney sought to clarify his position on interest rates on Wednesday, setting out his view that he would vote to tighten monetary policy if business investment begins to rise offsetting weaker consumption.Mark Carney sought to clarify his position on interest rates on Wednesday, setting out his view that he would vote to tighten monetary policy if business investment begins to rise offsetting weaker consumption.
The Bank of England governor has come under pressure to say when he would vote for an increase, having previously said it was “not yet the time” for higher rates and after the close June 5 to 3 vote to keep rates on hold.The Bank of England governor has come under pressure to say when he would vote for an increase, having previously said it was “not yet the time” for higher rates and after the close June 5 to 3 vote to keep rates on hold.
His views are important on the committee because he has never voted with the minority on the MPC, unlike his predecessor, since coming to the bank in 2013.His views are important on the committee because he has never voted with the minority on the MPC, unlike his predecessor, since coming to the bank in 2013.
Speaking at a European Central Bank forum in Sintra, Portugal, Mr Carney reiterated the common view on the MPC that any overshoot of inflation compared with the BoE’s 2 per cent targets “can only be temporary in nature and limited in scope”.Speaking at a European Central Bank forum in Sintra, Portugal, Mr Carney reiterated the common view on the MPC that any overshoot of inflation compared with the BoE’s 2 per cent targets “can only be temporary in nature and limited in scope”.
Breaking news: Mark Carney just said he would consider voting for a rise in UK interest rates https://t.co/MfjR67PuIA pic.twitter.com/lnK7R5xA0NBreaking news: Mark Carney just said he would consider voting for a rise in UK interest rates https://t.co/MfjR67PuIA pic.twitter.com/lnK7R5xA0N
3.18pm BST3.18pm BST
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Connor Campbell, analyst at Spreadex, says Carney’s comments prompted a “serious shift” in currency markets but traders failed to focus on the detail of what he said...Connor Campbell, analyst at Spreadex, says Carney’s comments prompted a “serious shift” in currency markets but traders failed to focus on the detail of what he said...
A caveat-laden statement from Mark Carney – speaking at the ECB Forum in Portugal – caused a super-surge from sterling.A caveat-laden statement from Mark Carney – speaking at the ECB Forum in Portugal – caused a super-surge from sterling.
Investors were uninterested in the nuances of what Carney was actually saying, focusing on the fact that the BoE chief said ‘some removal of monetary stimulus is likely to become necessary’ but ignoring that the central banker made it clear A LOT of things, like UK wage growth and business investment (not to mention Brexit), need to move in the right direction for that to happen.Investors were uninterested in the nuances of what Carney was actually saying, focusing on the fact that the BoE chief said ‘some removal of monetary stimulus is likely to become necessary’ but ignoring that the central banker made it clear A LOT of things, like UK wage growth and business investment (not to mention Brexit), need to move in the right direction for that to happen.
3.17pm BST3.17pm BST
15:1715:17
Here’s some innovative reaction to Mark Carney’s unexpected hint that the Bank of England could raise interest rates in the coming months....Here’s some innovative reaction to Mark Carney’s unexpected hint that the Bank of England could raise interest rates in the coming months....
Carney says some removal of BoE stimulus may be necessary.Stars (read Central Banks) are aligned, synchronized tapering around the corner? pic.twitter.com/259E50A7EmCarney says some removal of BoE stimulus may be necessary.Stars (read Central Banks) are aligned, synchronized tapering around the corner? pic.twitter.com/259E50A7Em
2.44pm BST2.44pm BST
14:4414:44
Carney says that globally, there are signs of a pickup in investment, which should in turn support productivity growth, stronger wages and higher welfare for all.Carney says that globally, there are signs of a pickup in investment, which should in turn support productivity growth, stronger wages and higher welfare for all.
But in the UK, not so much:But in the UK, not so much:
Globally, there are signs that such a rotation may be beginning. Although some UK–specific uncertainties might limit the UK’s participation in that pickup, the Bank of England will make its contribution by pursuing determined policies within well-established frameworks in order to maintain monetary and financial stability.Globally, there are signs that such a rotation may be beginning. Although some UK–specific uncertainties might limit the UK’s participation in that pickup, the Bank of England will make its contribution by pursuing determined policies within well-established frameworks in order to maintain monetary and financial stability.
He points out some of the specific challenges facing the UK (BREXIT):He points out some of the specific challenges facing the UK (BREXIT):
The main issues facing UK companies are uncertainties – about how consumers will adjust to a period of weaker real income growth; about market access post-Brexit; about the potential risks in the transition to new arrangements with the EU and the rest of the world.The main issues facing UK companies are uncertainties – about how consumers will adjust to a period of weaker real income growth; about market access post-Brexit; about the potential risks in the transition to new arrangements with the EU and the rest of the world.
Monetary policy cannot prevent the weaker real income growth likely to accompany the transition to new trading arrangements with the EU. But it can influence how this hit to incomes is distributed between job losses and price rises. And it can support households and businesses as they adjust to such profound change.Monetary policy cannot prevent the weaker real income growth likely to accompany the transition to new trading arrangements with the EU. But it can influence how this hit to incomes is distributed between job losses and price rises. And it can support households and businesses as they adjust to such profound change.
Carney says that while the most productive UK companies have continued to innovate, others have been slower to adopt these innovations.Carney says that while the most productive UK companies have continued to innovate, others have been slower to adopt these innovations.
That has stalled diffusion of productivity gains through the economy. This shortfall in investment could reflect deeper causes such as inadequate competition, barriers to investment in knowledge-based capital and sub-optimal managerial practices.That has stalled diffusion of productivity gains through the economy. This shortfall in investment could reflect deeper causes such as inadequate competition, barriers to investment in knowledge-based capital and sub-optimal managerial practices.
2.41pm BST2.41pm BST
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Carney: removal of monetary stimulus could become necessaryCarney: removal of monetary stimulus could become necessary
Bank of England governor Mark Carney is appearing on a panel in Sintra, Portugal, at the European Central Bank’s annual forum.Bank of England governor Mark Carney is appearing on a panel in Sintra, Portugal, at the European Central Bank’s annual forum.
The pound jumped more than half a cent against the dollar, to $1.2915, after the Bank published his remarks:The pound jumped more than half a cent against the dollar, to $1.2915, after the Bank published his remarks:
When the MPC last met earlier this month, my view was that given the mixed signals on consumer spending and business investment, it was too early to judge with confidence how large and persistent the slowdown in growth would prove. Moreover, with domestic inflationary pressures, particularly wages and unit labour costs, still subdued, it was appropriate to leave the policy stance unchanged at that time.When the MPC last met earlier this month, my view was that given the mixed signals on consumer spending and business investment, it was too early to judge with confidence how large and persistent the slowdown in growth would prove. Moreover, with domestic inflationary pressures, particularly wages and unit labour costs, still subdued, it was appropriate to leave the policy stance unchanged at that time.
Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional.Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional.
The extent to which the trade-off moves in that direction will depend on the extent to which weaker consumption growth is offset by other components of demand including business investment, whether wages and unit labour costs begin to firm, and more generally, how the economy reacts to both tighter financial conditions and the reality of Brexit negotiations. These are some of the issues that the MPC will debate in the coming months.The extent to which the trade-off moves in that direction will depend on the extent to which weaker consumption growth is offset by other components of demand including business investment, whether wages and unit labour costs begin to firm, and more generally, how the economy reacts to both tighter financial conditions and the reality of Brexit negotiations. These are some of the issues that the MPC will debate in the coming months.