This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at https://www.theguardian.com/business/live/2019/jun/20/us-interest-rate-cut-dollar-pound-bank-of-england-decision-mark-carney-business-live

The article has changed 20 times. There is an RSS feed of changes available.

Version 10 Version 11
Bank of England slashes growth forecast as Brexit risks rise - business live Wall Street hits record high, as Bank of England sounds Brexit warning - business live
(32 minutes later)
Every sector of the US stock markets has risen today, helping to drive the S&P to today’s new all-time peak.
Energy stocks are leading the rally, up 1.8%, followed by technology (+1.34%), miners (+1.2%), healthcare (+1%) and industrial companies (+1%).
As explained in the introduction to today’s blog, investors are bullish today because America’s top central banker has turned more dovish.
Fed chair Jerome Powell told reporters last night that “The case for somewhat more accommodative policy has strengthened,” and that his committee wanted to see more economic data before making their next move.
The Fed also dropped its pledge to be “patient”, replacing it with a promise to take appropriate action to protect the economy (which is being interpreted as protecting the stock market too).
So traders now reckon a July rate cut is hammered down, the only question is whether it’s a small cut or a big one.
The number circled shows the odds of a 50bps cut by the Fed on July 31st. 32% means it's "debatable." Subject to change, of course, based on factors emerging over the next weeks. Odds are 100% for a 25bps cut. pic.twitter.com/nuAdBnJOAU
Boom! Wall Street has hit a new all-time high at the start of trading in New York.
The S&P 500 index has jumped to 2,599 points, it’s highest ever intra-day level.
Investors are piling into shares following yesterday’s Federal Reserve meeting, when America’s central bank dropped loud hints that it will cut interest rates this year -- probably starting next month.
Wall Street has concluded that the Fed will do whatever it takes to maintain the current rally -- focusing on markets, rather than on inflation and unemployment.
That will fuel concerns that we could be in a stock market bubble -- but anyone whose been been holding onto cash this year rather than stocks and bonds has missed out!
Here’s the opening prices:
Dow Jones industrial average: up 253 points or 0.96% at 26,757
S&P 500: up 28 points or 0.99% at 2,955 points.
Nasdaq: up 92 points or 1.16% at 8,079 points.
Having read the Bank of England minutes, Thomas Pugh of Capital Economics reckons the Monetary Policy Committee is more worried that Britain could crash out of the EU without a deal.Having read the Bank of England minutes, Thomas Pugh of Capital Economics reckons the Monetary Policy Committee is more worried that Britain could crash out of the EU without a deal.
He writes:He writes:
Clearly the weaker economic news has played its part in causing the MPC’s dovish shift, but there are also signs that the Committee is becoming more concerned about the possibility of a no deal Brexit.Clearly the weaker economic news has played its part in causing the MPC’s dovish shift, but there are also signs that the Committee is becoming more concerned about the possibility of a no deal Brexit.
Indeed, instead of chastising the market for underestimating how much interest rates might rise as it did in May, the MPC pointed out “the ongoing tension between the MPC’s forecast… of a smooth Brexit and the assumptions about alternative Brexit scenarios that were priced into financial market variables”.Indeed, instead of chastising the market for underestimating how much interest rates might rise as it did in May, the MPC pointed out “the ongoing tension between the MPC’s forecast… of a smooth Brexit and the assumptions about alternative Brexit scenarios that were priced into financial market variables”.
The minutes are online here.The minutes are online here.
Here’s Associated Press’s take on the Bank of England’s interest rate decision:Here’s Associated Press’s take on the Bank of England’s interest rate decision:
The Bank of England kept its main interest rate on hold at 0.75% on Thursday and warned that a combination of Brexit worries and global trade tensions was weighing on growth.The Bank of England kept its main interest rate on hold at 0.75% on Thursday and warned that a combination of Brexit worries and global trade tensions was weighing on growth.
All nine members of the Monetary Policy Committee backed the decision to not change rates. There had been some expectations in the markets that a couple of them could vote for an increase because of concerns that rising wages will push up inflation.All nine members of the Monetary Policy Committee backed the decision to not change rates. There had been some expectations in the markets that a couple of them could vote for an increase because of concerns that rising wages will push up inflation.
However, figures this week showed the annual inflation rate fell to the bank’s target of 2%, easing pressure to raise rates. Also, uncertainty surrounding Britain’s departure from the European Union remains despite a Brexit deadline extension and are keeping a lid on growth. Only around 20% of respondents to a Bank of England survey think Brexit uncertainty will be resolved by the end of this year.However, figures this week showed the annual inflation rate fell to the bank’s target of 2%, easing pressure to raise rates. Also, uncertainty surrounding Britain’s departure from the European Union remains despite a Brexit deadline extension and are keeping a lid on growth. Only around 20% of respondents to a Bank of England survey think Brexit uncertainty will be resolved by the end of this year.
Though Britain’s departure date from the EU has been pushed back to Oct. 31, there is still huge uncertainty as to whether the country will leave then. The Conservative Party contest to replace Prime Minister Theresa May has meant there’s been little progress on Brexit in recent months and concerns are rising that Britain could crash out without a deal on future relations with the EU. The favorite, Boris Johnson, has indicated that he’s prepared to go ahead with a ‘no-deal’ Brexit.Though Britain’s departure date from the EU has been pushed back to Oct. 31, there is still huge uncertainty as to whether the country will leave then. The Conservative Party contest to replace Prime Minister Theresa May has meant there’s been little progress on Brexit in recent months and concerns are rising that Britain could crash out without a deal on future relations with the EU. The favorite, Boris Johnson, has indicated that he’s prepared to go ahead with a ‘no-deal’ Brexit.
Most economists, including those at the Bank of England, think that leaving without a deal will cause huge damage to the British economy as trade with the EU is hit by tariffs and other disruptions.Most economists, including those at the Bank of England, think that leaving without a deal will cause huge damage to the British economy as trade with the EU is hit by tariffs and other disruptions.
“Domestically, the perceived likelihood of a no-deal Brexit has risen,” rate-setters said in the minutes to Thursday’s policy meeting.“Domestically, the perceived likelihood of a no-deal Brexit has risen,” rate-setters said in the minutes to Thursday’s policy meeting.
They also said that trade tensions have intensified and that economic growth is set to stall in the second quarter following a 0.5% pickup in the first three months. In its forecasts last month, the bank had projected growth of 0.2% in the second quarter.They also said that trade tensions have intensified and that economic growth is set to stall in the second quarter following a 0.5% pickup in the first three months. In its forecasts last month, the bank had projected growth of 0.2% in the second quarter.
Monetary policy summary and minutes of the MPC meeting ending on 19 June 2019: https://t.co/LhTDR3G75V pic.twitter.com/BB46VSCRx3Monetary policy summary and minutes of the MPC meeting ending on 19 June 2019: https://t.co/LhTDR3G75V pic.twitter.com/BB46VSCRx3
There is something slightly odd about today’s minutes from the Bank of England, as it leaves interest rates on hold.There is something slightly odd about today’s minutes from the Bank of England, as it leaves interest rates on hold.
On one hand, the Monetary Policy Committee sounds more concerned about Brexit (“the perceived likelihood of a no-deal Brexit has risen”), the economy (no growth is expected in the current quarter) and the balance of risks (“downside risks to growth have increased”).On one hand, the Monetary Policy Committee sounds more concerned about Brexit (“the perceived likelihood of a no-deal Brexit has risen”), the economy (no growth is expected in the current quarter) and the balance of risks (“downside risks to growth have increased”).
And yet... they still expect to raise interest rates at a gradual pace over the next couple of years.And yet... they still expect to raise interest rates at a gradual pace over the next couple of years.
Why hasn’t the Bank’s guidance changed, if the economic picture has darkened? Are they afraid to sound too gloomy, or are they simply hoping that conditions pick up?Why hasn’t the Bank’s guidance changed, if the economic picture has darkened? Are they afraid to sound too gloomy, or are they simply hoping that conditions pick up?
Chris Giles of the Financial Times suggests that any dissenters on the MPC aren’t prepared to break cover yet.Chris Giles of the Financial Times suggests that any dissenters on the MPC aren’t prepared to break cover yet.
The big question for @bankofengland after the June minutes:Why has all guidance remained the same when the outlook for the global and UK economy has deteriorated?Spoiler: there is no answer in the MPC minuteshttps://t.co/pVC13Y2t73The big question for @bankofengland after the June minutes:Why has all guidance remained the same when the outlook for the global and UK economy has deteriorated?Spoiler: there is no answer in the MPC minuteshttps://t.co/pVC13Y2t73
There won't be much defence against being asleep at the wheel, if, so to speak, the wheels come off the economy soon...There won't be much defence against being asleep at the wheel, if, so to speak, the wheels come off the economy soon...
But there was this intriguing passage in the minutes.Unanimity in wanting to leave rates at 0.75%Just a committee view on BoE's forward outlookAre there dissenters too shy to come forward? pic.twitter.com/1ElRtNAuRbBut there was this intriguing passage in the minutes.Unanimity in wanting to leave rates at 0.75%Just a committee view on BoE's forward outlookAre there dissenters too shy to come forward? pic.twitter.com/1ElRtNAuRb
Professor Costas Milas of Liverpool University suspects that the Bank of England could cut interest rates in the coming months, rather than raise them.Professor Costas Milas of Liverpool University suspects that the Bank of England could cut interest rates in the coming months, rather than raise them.
He tells me:He tells me:
MPC members decide on interest rates based on our economic performance as well as financial/economic policy risks.MPC members decide on interest rates based on our economic performance as well as financial/economic policy risks.
On the economic front, monthly GDP data suggests an economy which is at best weak (GDP fell by 0.4% in April) and CPI inflation is equal to the 2% target. Hence, economic front news suggests no need for an interest rate hike any time soon. If anything, economic front news points to an interest rate cut.On the economic front, monthly GDP data suggests an economy which is at best weak (GDP fell by 0.4% in April) and CPI inflation is equal to the 2% target. Hence, economic front news suggests no need for an interest rate hike any time soon. If anything, economic front news points to an interest rate cut.
Developments in financial and economic policy risk are currently cancelling each other. Indeed, UK financial risk (which combines information from the bond, equity, banking and foreign exchange market) remains low but economic policy risk, which largely relates to no-deal Brexit, is slightly on the rise.Developments in financial and economic policy risk are currently cancelling each other. Indeed, UK financial risk (which combines information from the bond, equity, banking and foreign exchange market) remains low but economic policy risk, which largely relates to no-deal Brexit, is slightly on the rise.
As we move towards the October deadline, there is a chance that both risk variables will escalate. Such a scenario will put MPC members under pressure to cut the policy rate....As we move towards the October deadline, there is a chance that both risk variables will escalate. Such a scenario will put MPC members under pressure to cut the policy rate....
Nancy Curtin, Chief Investment Officer at Close Brothers Asset Management, believes there’s no chance of a UK interest rate rise until the next Brexit deadline.Nancy Curtin, Chief Investment Officer at Close Brothers Asset Management, believes there’s no chance of a UK interest rate rise until the next Brexit deadline.
“With Brexit unresolved, it is now practically inconceivable that there will be a rate hike between now and October, despite GDP growth being close to potential. MPC members have been doing the rounds of late, making hawkish comments and it’s easy to see why. The labour market is tight and prices are rising in sectors sensitive to the output gap, but – for now – this is being outweighed by weak goods inflation. With headline CPI on target, that’s a decision for another day.“With Brexit unresolved, it is now practically inconceivable that there will be a rate hike between now and October, despite GDP growth being close to potential. MPC members have been doing the rounds of late, making hawkish comments and it’s easy to see why. The labour market is tight and prices are rising in sectors sensitive to the output gap, but – for now – this is being outweighed by weak goods inflation. With headline CPI on target, that’s a decision for another day.
“UK businesses continue to be haunted by the looming Brexit deadline of October 31st and the spectre of uncertainty is weighing on activity. Even if a No Deal exit is averted for now, the cost of delay will mount if negotiations are extended once again. Consumers may receive some respite; above inflation earnings growth and continued low interest rates mean UK households have a bit more spending power, which is supporting the economy. With the end of Carney’s tenure on the horizon, a rate rise might be an issue for his successor to grapple with.”“UK businesses continue to be haunted by the looming Brexit deadline of October 31st and the spectre of uncertainty is weighing on activity. Even if a No Deal exit is averted for now, the cost of delay will mount if negotiations are extended once again. Consumers may receive some respite; above inflation earnings growth and continued low interest rates mean UK households have a bit more spending power, which is supporting the economy. With the end of Carney’s tenure on the horizon, a rate rise might be an issue for his successor to grapple with.”
With summer holidays looming, the Bank’s gloomy forecasts haven’t helped families planning a trip across the Channel.With summer holidays looming, the Bank’s gloomy forecasts haven’t helped families planning a trip across the Channel.
Sterling has dropped by almost half a euro cent to €1.121, wiping out all yesterday’s rally.Sterling has dropped by almost half a euro cent to €1.121, wiping out all yesterday’s rally.
The pound is also surrendering some of its early gains against the US dollar, and is now back below $1.27.The pound is also surrendering some of its early gains against the US dollar, and is now back below $1.27.
Bad news for workers: the Bank of England’s economists reckon that UK earnings growth “might have levelled off”.Bad news for workers: the Bank of England’s economists reckon that UK earnings growth “might have levelled off”.
Better news: They also predict that inflation (which fell to 2% last month) will fall further in the coming months.Better news: They also predict that inflation (which fell to 2% last month) will fall further in the coming months.
The nine policymakers on the Bank’s Monetary Policy Committee were unanimous this month.
They all agreed to leave interest rates at 0.75%, and still collectively agree that (should Brexit go smoothly) it makes sense to raise interest rates over the next couple of years.
The minutes say:
All members judged at this meeting that the existing stance of monetary policy was appropriate.
The Committee continued to judge that, were the economy to develop broadly in line with its May Inflation Report projections that included an assumption of a smooth Brexit, an ongoing tightening of monetary policy over the forecast period, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target at a conventional horizon.
With Brexit now delayed until (at least) 31 October, the Bank of England fears that businesses will keep sitting on their hands rather than buy new equipment and machinery.
The minutes of today’s meeting state:
The underlying pattern of relatively strong household consumption growth but weak business investment had persisted.
Surveys suggested that companies expected uncertainty to persist at elevated levels, and there were no clear signs that investment growth would pick up ahead of the October Brexit deadline.
The Bank also points to the recent shutdowns in the car industry (as manufacturers braced for a no-deal Brexit that never came).
It hopes that car production will accelerate over the summer:
Weakness in motor vehicle production, related to some car manufacturers’ Brexit contingency plans, was likely to push down on Q2 GDP growth, but push up on Q3 growth
The Bank has cut its growth forecasts due to the damage caused by Brexit worries, the unwinding of stockpiling, and by the trade conflict between the US and China.
In a statement, it says:
Globally, trade tensions have intensified. Domestically, the perceived likelihood of a no-deal Brexit has risen. Trade concerns have contributed to volatility in global equity prices and corporate bond spreads, as well as falls in industrial metals prices. Forward interest rates in major economies have fallen materially further. Increased Brexit uncertainties have put additional downward pressure on UK forward interest rates and led to a decline in the sterling exchange rate.
As expected, recent UK data have been volatile, in large part due to Brexit-related effects on financial markets and businesses. After growing by 0.5% in 2019 Q1, GDP is now expected to be flat in Q2.
That in part reflects an unwind of the positive contribution to GDP in the first quarter from companies in the United Kingdom and the European Union building stocks significantly ahead of recent Brexit deadlines.
Ouch! The Bank of England has also lowered its growth forecast for the second quarter of 2019, to zero.
It had previously forecast 0.2% growth in April-June.
Breaking! The Bank of England has voted to leave UK interest rate on hold at 0.75%.
More to follow...
It’s nearly time for the main news of the day - the Bank of England’s monetary policy decision.
The City is confident that the BoE will leave interest rates on hold today, at 0.75%. It probably won’t make any changes to its quantitative easing programme either (which holds £435bn of mainly UK government bonds).
But investors want to hear the Bank’s views on Brexit, the state of the UK economy, and whether any policymakers are leaning towards an interest rate rise, or even a cut (just as America’s Federal Reserve prepares to start cutting).
Sam Cooper, Vice President of Market Risk Solutions at Silicon Valley Bank, sets the scene:
“Market attention turns to the bank of England in this week’s central bank relay.
Participants will be searching for clues from the MPC as to the future path of monetary policy, with retail sales disappointing and inflation running on target, the case for the Bank of England to follow the lead from its US counterpart is gradually building.
While sterling enjoys some welcome respite after last night’s dovish hold from the Fed, any dissent within the committee in favour of an interest rate cut or reference to more accommodative policy in the statement could see the pound quickly reverse its recent bout of strength against the dollar.”
Iran’s threat of ‘consequences’ against America will fuel fears of military conflict in the Gulf region.
The Strait of Hormuz handles around 20% of the world’s oil (tankers from Qatar, Kuwait, the UAE and Saudi Arabia’s east coast all pass through on their way to the rest of the world)
Economist Alastair Ross suggests markets are taking the drone shooting quite well:
Oil markets seem remarkably unfazed by fireworks in the Gulf, with prices blipping up by just a couple of percent after US drone is downed.ref https://t.co/7xY8CevIDb #oilandgas #iran #geopolitics pic.twitter.com/U7238QkROm
However, that could change if America takes a robust response to this latest incident (Donald Trump hasn’t tweeted yet today....)
Iran’s foreign ministry has now weighed in, criticising America for illegally (it claims) violating its airspace.
Ministry spokesman Abbas Mousavi says:
“Any such violations of Iran’s borders are strongly condemned ... We warn of the consequences of such illegal and provocative measures.”