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| Mark Carney says Brexit is 'acid test', as world economy slows – as it happened | |
| (2 months later) | |
| Finally, those Brexit worries ‘helped’ the London stock market to underperform vs other exchanges. | Finally, those Brexit worries ‘helped’ the London stock market to underperform vs other exchanges. |
| The FTSE 100 ended the day up 4 points at 7,133, while Germany’s DAX gained 1% and France’s CAC picked up 0.8%. | The FTSE 100 ended the day up 4 points at 7,133, while Germany’s DAX gained 1% and France’s CAC picked up 0.8%. |
| Decent results from tyre maker Michelin helped European car manufacturers. | Decent results from tyre maker Michelin helped European car manufacturers. |
| Over in New York, the relief rally has now pushed the Dow up by 341 points, to 25,395 points. | Over in New York, the relief rally has now pushed the Dow up by 341 points, to 25,395 points. |
| Here’s our economics editor, Larry Elliott, on governor Carney’s speech: | Here’s our economics editor, Larry Elliott, on governor Carney’s speech: |
| Brexit is an acid test of whether it is possible to reshape globalisation in a way that offers the benefits of trade while allaying public fears about the erosion of democracy, the governor of the Bank of England, Mark Carney, has said. | Brexit is an acid test of whether it is possible to reshape globalisation in a way that offers the benefits of trade while allaying public fears about the erosion of democracy, the governor of the Bank of England, Mark Carney, has said. |
| Speaking in London, Carney said the ramifications of the UK’s departure from the EU would be felt around the world and would determine whether it was possible to shrug off rising protectionism in favour of a new era of international cooperation. | Speaking in London, Carney said the ramifications of the UK’s departure from the EU would be felt around the world and would determine whether it was possible to shrug off rising protectionism in favour of a new era of international cooperation. |
| The governor cited trade tensions and the result of the 2016 referendum as examples of fundamental pressures to reorder globalisation. | The governor cited trade tensions and the result of the 2016 referendum as examples of fundamental pressures to reorder globalisation. |
| “It is possible that new rules of the road will be developed for a more inclusive and resilient global economy. At the same time, there is a risk that countries turn inwards, undercutting growth and prosperity for all.” | “It is possible that new rules of the road will be developed for a more inclusive and resilient global economy. At the same time, there is a risk that countries turn inwards, undercutting growth and prosperity for all.” |
| Mark Carney: Brexit is the first test of a new global order | Mark Carney: Brexit is the first test of a new global order |
| The FT’s Kate Allen was also struck by Carney’s comments on Brexit, and the dangers that a trade disruption causes: | The FT’s Kate Allen was also struck by Carney’s comments on Brexit, and the dangers that a trade disruption causes: |
| “We are 45 days before the possibility of [no-deal happening] . . . we should not be under any illusions — no-deal Brexit would be a shock for this economy and send a signal globally about the prospects of refounding globalisation,” he said at the event, which was hosted by the Financial Times. | “We are 45 days before the possibility of [no-deal happening] . . . we should not be under any illusions — no-deal Brexit would be a shock for this economy and send a signal globally about the prospects of refounding globalisation,” he said at the event, which was hosted by the Financial Times. |
| Asked whether Brexit was a canary in the coal mine for the new global order, Mr Carney replied: “The bird may be towards the bottom of the cage, but it is still fluttering.” | Asked whether Brexit was a canary in the coal mine for the new global order, Mr Carney replied: “The bird may be towards the bottom of the cage, but it is still fluttering.” |
| FT: Carney says Brexit offers ‘acid test’ on future of global trade | FT: Carney says Brexit offers ‘acid test’ on future of global trade |
| Sky News’s Ed Conway has mopped up some of the best charts from the speech (it’s not proper central bankers’ speech without a few visual aides) | Sky News’s Ed Conway has mopped up some of the best charts from the speech (it’s not proper central bankers’ speech without a few visual aides) |
| Two striking charts from Mark Carney today illustrating just how much business investment has disappointed since the Brexit referendum vote in 2016 pic.twitter.com/1y06FtTD03 | Two striking charts from Mark Carney today illustrating just how much business investment has disappointed since the Brexit referendum vote in 2016 pic.twitter.com/1y06FtTD03 |
| This credit conditions heat map remains relatively cool, says Mark Carney. I’d go so far as calling it’s positively psychedelic pic.twitter.com/QRZ0pAEgtQ | This credit conditions heat map remains relatively cool, says Mark Carney. I’d go so far as calling it’s positively psychedelic pic.twitter.com/QRZ0pAEgtQ |
| The Telegraph’s Tom Rees has flagged up Carney’s warning that a trade war could cause an economic crunch not seen since the mid-1970s. | The Telegraph’s Tom Rees has flagged up Carney’s warning that a trade war could cause an economic crunch not seen since the mid-1970s. |
| As the governor put it: | As the governor put it: |
| Most fundamentally, the larger and the more permanent the disruption to global trade—the greater the de- globalisation—the greater the reduction in both activity and supply capacity of economies. The latter—a material hit to supply—is something that advanced economies have not experienced since the mid-1970s. | Most fundamentally, the larger and the more permanent the disruption to global trade—the greater the de- globalisation—the greater the reduction in both activity and supply capacity of economies. The latter—a material hit to supply—is something that advanced economies have not experienced since the mid-1970s. |
| In this scenario, the combination of slower growth, smaller surpluses in Asia and higher risk premia could move global interest rates higher, increasing the burden of corporate and household debts and challenging the creditworthiness of some sovereigns. | In this scenario, the combination of slower growth, smaller surpluses in Asia and higher risk premia could move global interest rates higher, increasing the burden of corporate and household debts and challenging the creditworthiness of some sovereigns. |
| Charles Hepworth, Investment Director at asset manager GAM, says the Brexit deadlock is making some UK assets ‘untradable’. | Charles Hepworth, Investment Director at asset manager GAM, says the Brexit deadlock is making some UK assets ‘untradable’. |
| Here’s his take on the situation as we rattle towards Brexit Day with no certainty over the future: | Here’s his take on the situation as we rattle towards Brexit Day with no certainty over the future: |
| “Negotiations are stuck with the EU refusing to concede on any points – the already agreed deal is the final deal as far as they are concerned. And to be honest it’s probably the same view that May is taking – both essentially running down the clock to the final vote date. Thursday sees the start of extended debate in Parliament as to what happens next as they vote on ‘Plan B’ and the rest of the alphabet options. | “Negotiations are stuck with the EU refusing to concede on any points – the already agreed deal is the final deal as far as they are concerned. And to be honest it’s probably the same view that May is taking – both essentially running down the clock to the final vote date. Thursday sees the start of extended debate in Parliament as to what happens next as they vote on ‘Plan B’ and the rest of the alphabet options. |
| “However not much really can come next – all that she hopes will happen is that those who voted overwhelmingly against her in her first attempt to pass the original deal through Parliament may be spooked that with so little time left and with the prospect of no-deal being so disastrous that they will have to switch to support her original deal. This uncertainty would be reflected in increased sterling and market volatility and, cynically, the government could use market turbulence to its advantage to push through a deal. It’s a supremely high stakes game of chicken she is playing with both the EU and the UK parliament. She reaffirmed her promise to allow the final vote on her ‘probably unaltered’ original on the 27th of this month. Einstein’s definition of lunacy was to keep doing the same thing over and over again and expecting a different result. | “However not much really can come next – all that she hopes will happen is that those who voted overwhelmingly against her in her first attempt to pass the original deal through Parliament may be spooked that with so little time left and with the prospect of no-deal being so disastrous that they will have to switch to support her original deal. This uncertainty would be reflected in increased sterling and market volatility and, cynically, the government could use market turbulence to its advantage to push through a deal. It’s a supremely high stakes game of chicken she is playing with both the EU and the UK parliament. She reaffirmed her promise to allow the final vote on her ‘probably unaltered’ original on the 27th of this month. Einstein’s definition of lunacy was to keep doing the same thing over and over again and expecting a different result. |
| “The government’s actions are negative for the UK economy, currency and assets – which don’t look tradable to us at this point. The question remains what happens should the prime minister’s efforts fail again? Delaying the March deadline and trying again wouldn’t be beyond the realms of the lunacy so far we have seen in Parliament. The other avenue is a hard Brexit which has no support at all and so cannot be expected to happen. There is still the faint likelihood of the “People’s vote” option – I’m undecided if that ship has sailed yet. Right now it seems that delaying until her deal is forced through Parliament is the most likely option.” | “The government’s actions are negative for the UK economy, currency and assets – which don’t look tradable to us at this point. The question remains what happens should the prime minister’s efforts fail again? Delaying the March deadline and trying again wouldn’t be beyond the realms of the lunacy so far we have seen in Parliament. The other avenue is a hard Brexit which has no support at all and so cannot be expected to happen. There is still the faint likelihood of the “People’s vote” option – I’m undecided if that ship has sailed yet. Right now it seems that delaying until her deal is forced through Parliament is the most likely option.” |
| Back in the markets, Wall Street has opened higher, on relief that another US government shutdown has probably been averted. | Back in the markets, Wall Street has opened higher, on relief that another US government shutdown has probably been averted. |
| The Dow Jones industrial average has gained around 1%, with the broader S&P 500 and the tech-focused Nasdaq also posting gains. | The Dow Jones industrial average has gained around 1%, with the broader S&P 500 and the tech-focused Nasdaq also posting gains. |
| U.S. markets open higher https://t.co/mthDWhnw5K pic.twitter.com/QJrnsAChX4 | U.S. markets open higher https://t.co/mthDWhnw5K pic.twitter.com/QJrnsAChX4 |
| London’s early rally has fizzled out, though - the FTSE 100 is now flat, after Theresa May continues to run the Brexit clock down. | London’s early rally has fizzled out, though - the FTSE 100 is now flat, after Theresa May continues to run the Brexit clock down. |
| Theresa May asks MPs to hold their nerve on Brexit talks | Theresa May asks MPs to hold their nerve on Brexit talks |
| Back on Brexit, governor Carney is hammering home the need for certainty, warning that the situation could go “quite badly”. | Back on Brexit, governor Carney is hammering home the need for certainty, warning that the situation could go “quite badly”. |
| .@ftlive Mark Carney 'there is a need for certainity in this world,' #FTMarkCarney #Brexit #globaleconomy pic.twitter.com/bJXSPRscsA | .@ftlive Mark Carney 'there is a need for certainity in this world,' #FTMarkCarney #Brexit #globaleconomy pic.twitter.com/bJXSPRscsA |
| “You have to recognise that actually, this could go quite badly” Mark Carney discusses the prospect of a no-deal Brexit at a special event hosted by the FT @ftlive #FTMarkCarney | “You have to recognise that actually, this could go quite badly” Mark Carney discusses the prospect of a no-deal Brexit at a special event hosted by the FT @ftlive #FTMarkCarney |
| But he also agrees that the economy has strengths, such as the state of household and corporate balance sheers, readiness of financial sector for Brexit and the long-established strengths of the economy. | But he also agrees that the economy has strengths, such as the state of household and corporate balance sheers, readiness of financial sector for Brexit and the long-established strengths of the economy. |
| Carney also suggests that global conflicts could be the trigger that ends the global expansion. | Carney also suggests that global conflicts could be the trigger that ends the global expansion. |
| Mark Carney is now taking some questions about his speech (highlights start here). | Mark Carney is now taking some questions about his speech (highlights start here). |
| The FT’s Chris Giles whizzes a fast delivery at the governor: | The FT’s Chris Giles whizzes a fast delivery at the governor: |
| Q: Are you saying that Britain is the canary in the coal mine for the new world order, and it’s not going very well…. | Q: Are you saying that Britain is the canary in the coal mine for the new world order, and it’s not going very well…. |
| Carney is tempted into playing the metaphor, joking that: | Carney is tempted into playing the metaphor, joking that: |
| The bird may be towards the bottom of the cage, but it’s still fluttering. | The bird may be towards the bottom of the cage, but it’s still fluttering. |
| He then explains that Brexit is a leading indicator - but the factors that led to the the Brexit vote are also building in other countries, and will create new challenges there too. | He then explains that Brexit is a leading indicator - but the factors that led to the the Brexit vote are also building in other countries, and will create new challenges there too. |
| So policymakers need to rethink trade rules, and adjust the balance between rules made domestically and beyond. | So policymakers need to rethink trade rules, and adjust the balance between rules made domestically and beyond. |
| As Carney puts it | As Carney puts it |
| The fundamental issue at the heart of the Brexit discussions - …. are ones which the global economy needs to grapple with. | The fundamental issue at the heart of the Brexit discussions - …. are ones which the global economy needs to grapple with. |
| Thus, it will be “a source of deep concern” if the Uk and EU can’t reach an agreement, as it won’t be a good leading indicator of how other countries will cope with similar challenges in the future. | Thus, it will be “a source of deep concern” if the Uk and EU can’t reach an agreement, as it won’t be a good leading indicator of how other countries will cope with similar challenges in the future. |
| This is why the Bank of England is concerned about China’s slowing economy: | This is why the Bank of England is concerned about China’s slowing economy: |
| Carney points to this chart and warns of a Chinese slowdown, adding: “The Bank of England estimates that a 3% drop in Chinese GDP would knock one per cent off global activity, including half a per cent off each of UK, US and euro area GDP” pic.twitter.com/5tOMnuRwtr | Carney points to this chart and warns of a Chinese slowdown, adding: “The Bank of England estimates that a 3% drop in Chinese GDP would knock one per cent off global activity, including half a per cent off each of UK, US and euro area GDP” pic.twitter.com/5tOMnuRwtr |
| During his speech, Mark Carney also cites the idea that globalisation has created an impossible “political trilemma”. Basically, that we can’t have democratic accountability, national sovereignty AND be fully integrated in the global economy. | During his speech, Mark Carney also cites the idea that globalisation has created an impossible “political trilemma”. Basically, that we can’t have democratic accountability, national sovereignty AND be fully integrated in the global economy. |
| Any two is fine, but the hat-trick is impossible (ie - a eurozone country surrenders some sovereignty when it joins the single currency, while any country loses democratic accountability if the IMF imposes bailout conditions). | Any two is fine, but the hat-trick is impossible (ie - a eurozone country surrenders some sovereignty when it joins the single currency, while any country loses democratic accountability if the IMF imposes bailout conditions). |
| It’s an idea created by Harvard academic Dani Rodrik (see here). | It’s an idea created by Harvard academic Dani Rodrik (see here). |
| As Carney puts it: | As Carney puts it: |
| Globalisation leads to imbalances of democracy and sovereignty, leading many to lament a loss of control and to lose trust in the system. As Dani Rodrik has argued, there is a trilemma between economic integration, democracy and sovereignty. | Globalisation leads to imbalances of democracy and sovereignty, leading many to lament a loss of control and to lose trust in the system. As Dani Rodrik has argued, there is a trilemma between economic integration, democracy and sovereignty. |
| Common rules and standards are required for trade in goods, services and capital, but those rules cede or, at best pool, sovereignty. To maintain legitimacy, the process of agreeing those standards needs to be rooted in democratic accountability. | Common rules and standards are required for trade in goods, services and capital, but those rules cede or, at best pool, sovereignty. To maintain legitimacy, the process of agreeing those standards needs to be rooted in democratic accountability. |
| Much will be required to create a more inclusive, sustainable globalisation but part of the solution is a more flexible and open trading system for services and for small and medium enterprises. | Much will be required to create a more inclusive, sustainable globalisation but part of the solution is a more flexible and open trading system for services and for small and medium enterprises. |
| Superb speech by the Governor on the Global Outlook @ftlive @MarkCarney_BOE pic.twitter.com/2oP5924bXg | Superb speech by the Governor on the Global Outlook @ftlive @MarkCarney_BOE pic.twitter.com/2oP5924bXg |