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.
Bank of England interest rate decision -- business live
Bank of England slashes growth forecast and leaves interest rates unchanged - business live
(31 minutes later)
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.
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).
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).
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:
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.
“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.
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.”
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.
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)
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:
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
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....)
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.
Iran’s foreign ministry has now weighed in, criticising America for illegally (it claims) violating its airspace.
Ministry spokesman Abbas Mousavi says:
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.”
“Any such violations of Iran’s borders are strongly condemned ... We warn of the consequences of such illegal and provocative measures.”
There’s another reason oil is rising -- yesterday a rocket hit an Iraqi compound housing several international oil companies, including the US multinational ExxonMobil.
That has heightened concerns that oil shipments from the Middle East could be disrupted.
Multiple rocket attacks in Iraq on US assets and international oil companies, reports that a US drone was taken out by a surface-to-air missile, meanwhile Yemen’s Houthi rebels vow to strike airports across Saudi Arabia...never a dull moment @cnbcinternational @dan_murphy pic.twitter.com/CZ0x3dyM3p
Crude oil prices have jumped sharply after Iran shot down a US spy drone, further straining relations between the two countries.
US crude oil has surged by around 3% today to $55.53 per barrel, its highest level since the end of May.
Brent crude, sourced from the North Sea, has also rallied, touching $63.88 per barrel for the first time since 10th June.
The rally comes as Iran accused Washington of breaching its national sovereignty, after shooting down an unmanned US drone. According to the Iranian Revolutionary Guard, the drone was flying in Iranian airspace, near Kuhmobarak in the southern province of Hormozgan, when it was shot.
The US military, though, says its drone was in international airspace over the Strait of Hormuz at the time.
This incident comes just a week after the US accused Iran of attacking two tankers in the nearby Gulf of Oman,
Our diplomatic editor Patrick Wintour expains:
Both Washington and Tehran insist they are intent on avoiding a war as tensions build over the consequences of the US withdrawal from the Iran nuclear deal in May 2018, but fears that an accidental chain of events will lead to escalation and finally a military confrontation are growing.
The shooting down of the drone came as the US president, Donald Trump, was briefed on the details of a separate incident: a further missile strike in Saudi Arabia that appeared to come from Iran-backed Houthi rebels in Yemen.
The White House spokeswoman, Sarah Sanders, said on Wednesday in relation to the Saudi missile strike: “We are closely monitoring the situation and continuing to consult with our partners and allies.”
More here:
Iran shoots down US drone
Just in: UK retail sales fell in May, as the poor weather deterred people from buying new clothes.
Shoppers bought 0.5% less stuff in May than in April, the Office for National Statistics reports, with the amount spent dropping by 0.3%.
Britain suffered some rather cold weather last month, with the May Bank Holiday particularly inclement. This appears to have hit clothing sales, which slumped by 4.5% month-on-month, the ninth monthly decline in a row.
The ONS says:
Evidence from retailers suggested that the poor weather may have delayed the sales for summer ranges.
Department stores are also struggling, with sales down again.
Some traders reckon America’s central bank could pull out its bazooka next month, and slash US interest rates by a chunky 50 basis points.
That would be a serious reversal of its recent policy of raising interest rates, and suggest it is worried about growth prospects.
Fed Funds futures are now pricing in a 100% probability of a July 31 US rate cut with a 50 bp cut currently gaining some traction. #FOMC #FedFunds pic.twitter.com/3c4G1CPjKh
Newsflash: Norway’s central bank has defied the prevailing mood by raising interest rates.
The Norges Bank voted to hike borrowing costs from 1% to 1.25%, in response to rising underlying inflation and solid growth.
But.... it also acknowledges that other central banks are moving towards cutting rates.
The upturn in the Norwegian economy appears to be a little stronger the coming year than projected earlier.
On the other hand, there are prospects for weaker external growth and lower foreign interest rates.
#Norway Norges Bank #InterestRate Decison at 1.25% https://t.co/RAO8lhjMAC pic.twitter.com/LNWTvIhxPc
Retail analyst Patrick O’Brien of GlobalData says Dixons Carphone isn’t keeping up with a fast-moving mobile market:
Dixons Carphone results show a heavy deterioration in the mobile business, down 16% in the second half, or 8% on an l-f-l basis. While Alex Baldock acted fast upon arrival, can't help think that the 92 store closure plan was too timid
The move to sim-free phone buying and keeping phones for longer is a trend that's been here a while now, but it seems that Dixons Carphone hasn't been agile enough to adapt, perhaps due to legacy carrier contracts
The FT’s Cat Rutter Pooley says the company has disappointed the City:
Far more galling for investors is the downgrade to expectations for the coming year. While the statutory pre-tax loss for the year to April was £259m, its “headline” pre-tax number was a profit of £298m.
In the new financial year, headline pre-tax profits are set to dip to £210m. Analysts had expected them to hold flat.
Richard Hunter, head of markets at interactive investor, says the mobile phone division is dragging the rest of Dixons Carphone back:
The mobile business in particular is on life support, draining capital and resources prior to its integration with the electricals business. The rapidly evolving nature of this segment has threatened to leave Dixons behind and thus, as a matter of urgency, the company has renegotiated its network contracts, although such benefits will take time to wash through. Elsewhere, tepid group revenue growth, lower free cash flow, higher net debt and a previously slashed dividend are far from being cause for celebration.
There are some glimmers of hope, however. The electricals part of the business, particularly in the UK and Ireland, is holding its own in terms of revenue and is also seeing market share growth.
Ouch! Shares in UK electronics retailer Dixons Carphone have plunged by a quarter in early trading.
Dixons Carphone has shocked the City by warning that its UK mobile business will be “significantly loss making this year”, as it struggles to persuade customers to upgrade their phones.
It also posted a statutory pre-tax loss of £259m for the last financial year, down from a profit of £289m in 2017-18.
Alarmingly for investors, the firm only expects to post profits of around £210m this financial year; analysts had been expecting a figure of about £296m.
Mobile is a major part of the company’s business, but it could take two years before it breaks even!
CEO Alex Baldock warned:
In UK mobile, the market is changing in the way we described in December, but doing so faster. So, we’re moving faster to respond: we’ve renegotiated all our legacy network contracts, we’re developing our new customer offer, and are accelerating the integration of Mobile and Electricals into one business.
This means taking more pain in the coming year, when Mobile will make a significant loss.
Dixons Carphone reveals big losses at mobile phone shops https://t.co/9KeFPamkuR
Stock markets around the globe are also rallying today, thanks to the prospect that America’s interest rates could be cut next month.
In London, the FTSE 100 index has jumped by 30 points, or 0.4%, with European indices also rallying.
That follows a strong session in Asia, where China’s CSI 300 surged by 3% and Japan’s Nikkei gained 0.6%.
Naeem Aslam of Think Markets says the Fed’s dovish twist is driving shares up.
We all know that central banks have been data dependent, but it is only now that they have started to acknowledge the weakness in the economic numbers.
Last night, the Fed lowered its inflation forecast from 1.8% to 1.5% but , there wasn’t any change in the growth forecast. The reason that the event was dovish came from fact that the Fed’s outlook of the economy isn’t positive; they said the global uncertainties are increasing. They feel it is time to shift the needle of the their monetary policy to spur the growth again or at least not letting the global economy go off the rails.
The tantalising scent of a US rate cut is lifting the pound away from the five-month low of $1.2504 struck on Tuesday.
Neil Wilson of Markets.com says it’s “quite a chunky move”, helped by the prospect that UK interest rates could be raised in the coming months:
Maybe the prospect of a more hawkish Bank of England is helping the pound.
At least Mark Carney doesn’t have to deal with a political leader on his case…
Well, not yet anyway. Even so, political uncertainty is still weighing on sterling, Wilson adds:
The prospect of Boris Johnson taking Britain out of the EU come October 31st is a risk. There’s now talk of a possible general election if he gets in – risky, we know what happened to Theresa May.
The prospect of a general election would not do anything to remove uncertainty around UK assets. Zero clarity still.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The US dollar is weakening this morning after America’s central bankers dropped a loud hint that they will cut interest rates soon.
Last night the Federal Reserve left borrowing costs unchanged, but also revealed that almost every policymaker expects at least one rate cut before the end of 2019.
With inflation low, growth slowing, and Donald Trump dropping loud and unsubtle hints, the Fed is now preparing to reverse some of last year’s rate hikes.
It adjusted its guidance to the markets, dropping its promise to be patient. Instead, the Fed will “act as appropriate to sustain the expansion” and to “closely monitor the implications of incoming information for the economic outlook.
Federal Reserve chair Jerome Powell told reporters that his FOMC committee wanted a bit more information before acting.
He told a press conference:
“We’d like to see if these risks continue to weigh on the outlook.
We want to see and we want to react to trends that are sustained, that are genuine.”
The markets now reckon this means the Fed is certain to cut its benchmark rate, currently 2.25%-2.5%, at its next meeting in late July.
Cut Probabilities 100% after the FOMC statement.July is 76% for a 25 bps cut, 24% for a 50 bps cut.If they don't cut 50 in July, the "second" 25 cut in Sept to 1.875% is 87% (67.1% + 19.9%)Cannot find an example of 100% probability and the Fed failed to deliver. pic.twitter.com/37mSu9ta1C
BOOM! The implied probability of a July #FederalReserve rate cut is now 100%. So that means it's now officially priced in! pic.twitter.com/Eqp4Bx8lKB
This has, predictably, hurt the US dollar. This has lifted the pound back over $1.27 for the first time in a week, reversing this week’s Brexit-induced losses.
Also coming up today
Two other central banks will seize the limelight from the Fed. The European Central Bank releases its latest economic bulletin, two days after its president, Mario Draghi, hinted that it implement more stimulus measures.
Then at noon UK time, the Bank of England will set interest rates. We’re not expecting any changes, but the minutes of this week’s meeting will show the BoE’s thinking.
