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Manufacturers 'in despair' over Brexit, as pound hits one-week low - business live
Federal Reserve "kowtows to Trump" and predicts no rate hikes in 2019 - business live
(about 2 hours later)
Professor Costas Milas of Liverpool University is concerned that the pound has become a “hostage to political uncertainty”.
Q: Why are your growth forecasts so much gloomier than the White House’s ones?
Rather than reflecting economic fundamentals, sterling’s value has been buffered by events in Westminster and Brussels.
Powell ducks a direct comparison, speaking instead about the need to raise labour force participation across America and boost productivity too.
He tells us:
“There’s no resolution of Brexit, there’s no resolution in the trade talks”, Powell adds, explaining why the Fed sees no reason to move interest rates anytime soon.
Sterling, our most precious measure of international confidence in the UK economy, has sadly become a hostage to Brexit-related policy uncertainty and will continue to be so as we are moving closer to a cliff-edge Brexit scenario.
Q: How are global conditions affecting the US economy, and what impact are tariffs having?
He’s also created this chart, showing the massive negative impact that policy uncertainty (measured by articles in 11 newspapers) has on the pound.
Fed chair Jerome Powell says the global economy was a ‘tailwind’ in 2017, spurring US growth.
Professor Milas explains:
But now the European and Chinese economies have both slowed, meaning weaker global growth is now a headwind’ for the US.
Surges in uncertainty trigger £ falls. Forget what we teach our students in economics. Quite sadly, policy uncertainty has overtaken economic fundamentals (such as monetary policy developments in the UK and abroad) in affecting and indeed driving down investor confidence in £. Quite an achievement for our political establishment...
Powell suggests that Beijing’s deleveraging programme is the main factor behind China’s slowdown, rather than tariffs.
Shares in UK housebuilders have taken a thump, since Theresa May announced she was only seeking a short Brexit extension.
Powell then reveals that the Fed has heard a lot of concern from business contacts about tariffs (caused by Donald Trump’s trade war with China).
Persimmon has slid by 3.6%, with Taylor Wimpey and Berkeley Group both losing 3%.
Fed chair Powell: “tariffs may be a factor” in China’s economic slowdown but not biggest onetariffs “relatively small” in overall US economy but “fair amount of uncertainty. prominent concern” of business
Brexit-sensitive FTSE Housebuilders all LOD amid Brexit confusion
Another important point: The Fed is now planning to unwind its stimulus programme more slowly.
Catherine McGuinness, policy chair at the City of London Corporation, hopes the EU helps the UK avoid the “catastrophic own goal” of a no-deal Brexit.
From May, it will slow the pace of its bond sales (selling assets bought after the financial crisis), and will stop altogether in September.
We urge the EU to agree to an extension. But even if this is granted, it should not simply paper over the cracks as we risk facing another cliff-edge just around the corner.
Financial blogger Frances Coppola says it’s another dovish move.
“More than ever, politicians on both sides of the Channel need to be pragmatic and co-operate in order to find a long-term solution to the current impasse. We cannot continue driving down this road to nowhere.”
Not only are interest rate rises off the agenda until 2020, the Fed is also slowing the pace of QE unwinding. Doves now in full flight.
Andy Scott, associate director at risk management consultancy JCRA, says today’s Brexit developments have spooked some investors:
Growth has slowed notably in Europe and China, Jay Powell says.
Theresa May formally requested an extension to the Brexit process until June 30 and ruled out a longer delay. The EU Commission said that this would be legally and politically difficult, suggesting either a short delay until May 23, or until at least the end of 2019.
He also identifies Brexit, and trade tensions, as other risks.
“This latest differing on views comes at a time where the EU and many UK MPs are increasingly frustrated with Theresa May’s uncompromising approach to Brexit. While her spokesman says this shows the strength of her resolve and determination to deliver Brexit, it increases the risk of the UK crashing out of the EU next week (though still unlikely) and that Theresa May is forced out of Downing Street (growing more likely).
And these factors seems to be hitting the US economy, with retail sales weak over Christmas and business investment slowing.
“The market became very optimistic last week, when hard Brexit risks had all but disappeared after the UK parliament rejected a no-deal outcome. This lead to Sterling reaching its highest level in almost a year. The market may have to reassess the no deal risk as without even short a pier to walk on to, the cliff edge remains a real danger! We expect GBP to remain very volatile in the remaining days until the current deadline of March 29 as the market continues to react to Brexit headlines.”
Fed chair Jerome Powell is speaking to reporters now, explaining today’s decisions.
Here’s Hamish Muress, currency analyst at OFX, on the pound’s wobble (it’s still down a whole cent against the dollar).
He says the US economy is in a good place, with a strong jobs market.
“The pound has continued to tumble today as the conflict between the European Union and Theresa May over the length of the Brexit extension has come to the fore. Reports that the EU are already finding the date of June 30th difficult to swallow has seen investors’ confidence in Theresa May’s current approach plummet.
But there are issues in the global economy that mean the Fed is taking a ‘wait and see’ approach.
How likely is she to get further concessions out of the EU at this stage?
Donald Trump has criticised the Fed repeatedly for raising interest rates in 2018, and (previously) planning more in 2019.
Despite the House of Commons rejecting the notion of a ‘no deal’ Brexit last week, there is still the possibility of the UK accidentally crashing out of the EU next week, which could mean further significant losses for the pound”
He’ll be delighted to see that a growing band of investors now predict the next move will be a CUT.
The pound began falling as some EU sources pushed back against the UK’s request for a three-month Brexit extension.
Futures traders are now pricing in a 47% chance of a rate cut by January 2020, up from a 36% chance ahead of today's 2pm Fed release. pic.twitter.com/5gNFuraCr0
For example, here’s Norbert Röttgen, the head of the German parliament’s foreign affairs committee:
Some reaction to the new, lower, growth forecasts:
#May just asked #EU for short #Brexit extension. But without backing by cabinet and parliament her request is meaningless. @JunckerEU is right: EU leaders should defer decision until #UK presents an approved plan. EU cannot become accomplice of May’s internal tactical manoeuvres.
JP Morgan's David Kelly, asked on @cnbc whether the Fed's 2019 forecast of 2.1% growth or the Trump WH's 3.2% is more accurate: "This has always been a 2% economy"
However, Angela Merkel’s office is more positive.
US Federal Reserve downgrades US GDP growth in 2019 to 2.1% (from 2.3%). Well below 2018’s 3% and White House 2019 boosterism. Fed so concerned about weaker growth it’s indicated no interest rate rises in 2019 + stop rollback of QE in September.
German government spokesman Steffen Seibert has welcomed the request from London, adding that a disorderly Brexit would not be in anyone’s interests.
The Fed has also trimmed its growth forecasts, which helps explain why it no longer expects to raise borrowing costs this year.
But... there are also reports that European Commission president Jean-Claude Juncker wants the extension to only run until mid-May, not the end of June, because of EU parliamentary elections.
2019: 2.1%, down from 2.3% in December
.@JunckerEU thinks it is good that @theresa_may sets out her thoughts ahead of #EUCO; warned her in phone call against including a date for the extension that is after #EUelections2019. #Brexit has to be complete before 23 May - otherwise #EUelections2019 have to be held in UK.
2020: 1.9%, down from 2%
Here’s our news story about the PM’s move:
2021: 1.8% (unchanged)
Theresa May asks EU for Brexit delay until 30 June
FED just now:-Rates unchanged-Dot plot sees no rate increases 2019- 9 members move their dot to zero- Fed says growth ``slowed": forecast lowered to 2.1%, down from 2.3%. Growth forecast for next yr just 1.9%- To stop shrinking balance sheet at Sept-end
The sterling selloff is gathering pace - the pound’s now down over one cent at a one-week low around $1.316.
Economics professor Justin Wolfers points out that the Fed still has an optimistic view of the US economy:
Sterling reaction to May confirming short delay feels like market finally waking up to the fact that the risk of no deal by accident has increased substantially this week. pic.twitter.com/lsUQqUquFo
It's kind of a stunning set of Fed forecasts, and would have seemed almost unthinkable a decade ago, predicting unemployment below 4% for the next 3 years, but no inflationary pressures expected to emerge, even with interest rates staying below 3%.
Here’s my colleague Philip Inman on the slowdown in the UK housing market:
House prices grew at the slowest rate since 2013 in January, according to official figures that signalled the UK was heading later this year for the first fall in property values since the financial crash.
Average house prices in the UK increased by 1.7% in the year to January 2019, down from 2.2% in December 2018 and 5.1% in October 2017, the Office for National Statistics said.
If the trajectory of sliding prices over the past two years continues, the UK is expected to suffer its first fall in prices since the post-crash property slump of 2011 before the end of this year.
House price growth at six-year low and inflation rises to 1.9%
The pound is dropping further, as Theresa May tells MPs that she is seeking to extend Brexit until 30 June.
Sterling has now lost almost three quarters of a cent, dipping below $1.32..
That suggests traders are disappointed the government isn’t seeking a longer extension, and concerned that Britain could yet crash out of the EU.
Here’s the letter which the PM has sent to Donald Tusk.
Theresa May's letter to Donald Tusk #pmqs pic.twitter.com/sN2UZKeDWs
Our Politics Live blog has all the details:
PMQs: May says she doesn't want a long Brexit delay as No 10 releases letter to EU – Politics live
The CBI’s monthly survey of UK factories shows how activity and output has slowed in the last few months.
But as you can see, industry actually held up well after the EU referendum -- partly due to the weaker pound helping exports.
Nicole Sykes of the CBI explains why UK bosses are in despair over Brexit:
Honestly, spare a thought for all those people within businesses having to dial into the weekly global team call, fly out to Germany each month for board meetings or compile fortnightly briefing packs for Japan and having to explain all of this *points at UK politics*
The CBI has also asked UK firms about Brexit -- and many confirmed that they’ve been hoarding raw materials and components.
A quarter of respondents to this month’s industrial trends report reported stockbuilding, with others mentioning depressed investment and demand due to uncertainty, and the difficulty in obtaining export orders.
Tom Crotty, group director of chemicals firm INEOS, says UK factories are suffering from the prolonged Brexit crisis.
“Manufacturers are in despair at the unacceptable failure of politicians to end the Brexit impasse. Every day that goes by without a resolution results in more businesses putting off investment and stockpiling goods in order to soften the blow from a potentially disastrous “no deal” Brexit scenario.
“It is crucial that Brexit uncertainty is lifted as a matter of urgency. Only then can manufacturers begin to move forward and shift our attention on to resolving the long-term challenges facing the sector – such as solving our skills challenge and raising productivity.”
Just in: UK factory growth has hit its lowest rate in almost a year.
Manufacturing output growth in the quarter to March was at its weakest since May 2018, according to the latest monthly CBI Industrial Trends Survey.
Manufacturers reported that order books weakened a little - although exports picked up.
The CBI says:
Output volumes expanded in 11 out of 17 sub-sectors, with growth driven predominantly by the food, drink, & tobacco, chemicals, and metal manufacture sub-sectors. Meanwhile, the mechanical engineering, paper, printing & media, and motor vehicles & transport equipment sub-sectors were the main drags on growth.
