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You can find the current article at its original source at https://www.theguardian.com/business/live/2019/jun/26/oil-and-bitcoin-rally-as-middle-east-tensions-drive-markets-business-live
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| Bank of England: no-deal Brexit could force interest rate cut - business live | Bank of England: no-deal Brexit could force interest rate cut - business live |
| (about 1 hour later) | |
| Newsflash from America: Durable goods orders fell sharply last month, raising new fears about the health of the US economy. | |
| New orders for durable goods (such as transportation and machinery) fell by 1.3% in May, led by a drop in airline sales. That follows a 2.8% tumble in April, and is weaker than expected. | |
| Demand for capital goods (expensive equipment) fell by 3.3%, and computer-related orders slid by 2.4%. | |
| New orders for US manufactured #durable #goods fell to -1.3% from a month earlier in May 2019, after a revised -2.8% slump in April and worse than market expectations of a 0.1% drop. Transportation equipment, down three of the last four months, drove the decrease. #FUTURES #FX pic.twitter.com/uiBr8zj4L2 | |
| City experts say Mark Carney is correct to predict interest rates would be cut after a no-deal Brexit. | |
| Joshua Roberts, associate director at JCRA, says investors had already worked this out for themselves: | |
| “Carney’s comments are hardly a revelation for the market, which has been judging a rate cut as more likely than a hike for over a month. | |
| The logic is inescapable: if the flow of goods and services between the UK and its most important trading partner is severely disrupted, the Bank of England has a duty to try and stabilise the resulting economic shock.” | |
| Oliver Blackbourn, portfolio manager at Janus Henderson, says the Bank is in the hands of Westminster: | |
| Carney made it clear that he and some others on the MPC favour more support in the event of a no-deal Brexit. | |
| With the Brexit forecast assumption dependent on government policy, we are back to awaiting the new Prime Minister and their ability to manage parliament for indications of future BoE decisions.” | |
| Mark Carney has given his strongest hint yet that the Bank of England could cut interest rates back toward record lows, if Britain crashed out of the EU without a deal. | |
| The BoE governor told the Treasury committee that many policymakers, himself included, believe they would need to protect the economy through a new stimulus package. | |
| Previously, the Bank has suggested it could hike interest rates to prop up the pound and fight inflation, if no-deal caused a sterling crisis and made imports expensive and hard o obtain. | |
| But today, Carney said: | |
| In the event that there is no deal, the response would not be automatic, it would depend on demand, on supply and where the exchange rate went. | |
| Some of us, myself included, have said it is not equally weighted. | |
| However, if Britain leaves with a ‘smooth Brexit’, the Bank’s Monetary Policy Committee expect to raise rates in a gradual, limited way. | |
| Carney also warned that fears of a no-deal Brexit have risen recently, dragging business investment back and hurting the economy. | |
| Financial markets are also anticipating the risk of a disorderly Brexit. Carney said: | |
| The path of interest rates, in the markets judgment, is lower because they are ascribing some possibility to no-deal. And in the event of no-deal, that interest rates would be lower than they otherwise would be. | |
| The governor reiterated that Britain couldn’t rely on “Gatt 24” to insist on tariff-free trade with the EU after a no-deal Brexit. This WTO rule could only be used as part of an agreement between London and Brussels, Carney explained. | |
| He also slapped down suggestions that Britain should just get Brexit over with and leave on 31, pointing out that a transition period is crucial to help companies adjust. | |
| The Bank also denied that there are too many ‘zombie companies’, propped up by low interest rates. | |
| On world affairs, Carney said that trade war tensions have risen since the Bank issued its latest quarterly inflation report in May (just before Donald Trump announced new tariffs on China). | |
| But he remains confident that the Federal Reserve will maintain its independence, despite political pressure from Donald Trump. | |
| He also chastised fund managers who invest in illiquid assets but offer their customers instant redemptions, saying they are “built on a lie”. | |
| This is a hot issue, since Neil Woodford blocked investors from quitting his equity income fund after a wave of redemptions. | |
| Carney warned: | |
| “This is a big deal. You can see something that could be systemic. | |
| “These funds are built on a lie, which is that you can have daily liquidity for assets that fundamentally aren’t liquid. And that leads to an expectation of individuals that it’s not that different to having money in a bank.” | |
| Illiquid investment funds 'built on a lie', BoE's Carney says https://t.co/D2noTJdlMe | |
| Mark Carney finally turns to another issue -- investment funds, which are in the spotlight since Neil Woodford locked down his equity income fund to halt a wave of redemptions. | Mark Carney finally turns to another issue -- investment funds, which are in the spotlight since Neil Woodford locked down his equity income fund to halt a wave of redemptions. |
| Some funds are “built on a lie”, says Carney severely, the idea that you can have daily liquidity from a fund that holds illiquid assets. | Some funds are “built on a lie”, says Carney severely, the idea that you can have daily liquidity from a fund that holds illiquid assets. |
| That encourages small investors to treat such holdings as ‘money in the bank’, which you can get instant access to, the governor tells the Treasury committee. | That encourages small investors to treat such holdings as ‘money in the bank’, which you can get instant access to, the governor tells the Treasury committee. |
| Woodford investors now know the truth.... | Woodford investors now know the truth.... |
| That’s the end of the session. | That’s the end of the session. |
| Q: Are low interest rates allowing an army of zombie firms to “stagger on”, endangering financial stability, asks Steve Baker MP. | Q: Are low interest rates allowing an army of zombie firms to “stagger on”, endangering financial stability, asks Steve Baker MP. |
| Bank of England policymaker Michael Saunders isn’t too worried. He says the number of firms with low profits compared to their interest payments are stable. Yes, there would be more of them if interest rates were higher -- but that could also drive firms to the wall, hurting the wider economy (and creating another wave of zombies)..... | Bank of England policymaker Michael Saunders isn’t too worried. He says the number of firms with low profits compared to their interest payments are stable. Yes, there would be more of them if interest rates were higher -- but that could also drive firms to the wall, hurting the wider economy (and creating another wave of zombies)..... |
| Q: Young people are growing up in an era where interest rates have been extremely low for a decade - isn’t that a problem for the future? | Q: Young people are growing up in an era where interest rates have been extremely low for a decade - isn’t that a problem for the future? |
| Umbrella’s don’t cause rain, shoots back Mark Carney (quoting his MPC colleague Gertjan Vlieghe) | Umbrella’s don’t cause rain, shoots back Mark Carney (quoting his MPC colleague Gertjan Vlieghe) |
| There are structural reasons why borrowing costs are so low - central banks are providing support to help economies. But yes, there are macro-prudential risks from such low interest rates, Carney says. | There are structural reasons why borrowing costs are so low - central banks are providing support to help economies. But yes, there are macro-prudential risks from such low interest rates, Carney says. |
| Q: Back in 2014, you told the committee that monetary policy was at “extraordinary, if not emergency” settings. Would you agree that it still is? | Q: Back in 2014, you told the committee that monetary policy was at “extraordinary, if not emergency” settings. Would you agree that it still is? |
| Carney does not -- even though interest rates (0.75%) are barely higher than five years ago (0.5%). | Carney does not -- even though interest rates (0.75%) are barely higher than five years ago (0.5%). |
| He argues that ‘equilibrium’ interest rates (the point where you’re neither stimulating nor strangling the economy) are lower than in 2014. So borrowing costs today are ‘accommodative’, but not extraordinarily so, the governor insists. | He argues that ‘equilibrium’ interest rates (the point where you’re neither stimulating nor strangling the economy) are lower than in 2014. So borrowing costs today are ‘accommodative’, but not extraordinarily so, the governor insists. |
| Mark Carney warns that “crystallising” businesses’ concerns over Brexit, by plunging out of the EU without a deal, would cause economic damage. | Mark Carney warns that “crystallising” businesses’ concerns over Brexit, by plunging out of the EU without a deal, would cause economic damage. |
| It would lead to some ‘capital scrapping’ as firms canned equipment, which would also hurt skilled workers, he adds. | It would lead to some ‘capital scrapping’ as firms canned equipment, which would also hurt skilled workers, he adds. |
| Back in Westminster, Mark Carney has warned MPs that pay growth will probably slow this summer - having clawed its way up to 3.5% per year. | Back in Westminster, Mark Carney has warned MPs that pay growth will probably slow this summer - having clawed its way up to 3.5% per year. |
| He says the ‘tightness in the labour market’ has pushed earnings up recently, but Britain has still suffered the worst decade for real pay growth since the 1850s. | He says the ‘tightness in the labour market’ has pushed earnings up recently, but Britain has still suffered the worst decade for real pay growth since the 1850s. |
| George Osborne never managed to balance the books as UK chancellor, and he’s not doing much better following his switch to journalism. | George Osborne never managed to balance the books as UK chancellor, and he’s not doing much better following his switch to journalism. |
| Osborne’s Evening Standard lost more than £11m before tax last year, but did achieve a 2% rise in revenues in a tough market. | Osborne’s Evening Standard lost more than £11m before tax last year, but did achieve a 2% rise in revenues in a tough market. |
| Evening Standard reports £11.5m loss amid ad struggles | Evening Standard reports £11.5m loss amid ad struggles |
| Jack Maidment of Mail Online suspects that Mark Carney and Boris Johnson aren’t poles apart on Gatt 24, following the governor’s comments earlier. | Jack Maidment of Mail Online suspects that Mark Carney and Boris Johnson aren’t poles apart on Gatt 24, following the governor’s comments earlier. |
| Seems like Mark Carney and Boris Johnson are actually in the same place on GATT. Mr Johnson yesterday talked about getting an 'agreement' to secure standstill. Mr Carney just told MPs: 'There needs to be an agreement and I believe that was Plan B as described yesterday.' | Seems like Mark Carney and Boris Johnson are actually in the same place on GATT. Mr Johnson yesterday talked about getting an 'agreement' to secure standstill. Mr Carney just told MPs: 'There needs to be an agreement and I believe that was Plan B as described yesterday.' |
| The issue, though, is whether the EU would go along with Boris’s Plan B, if it didn’t provide a solution to the Irish border question, or settle Britain’s outstanding financial liabilities.... | The issue, though, is whether the EU would go along with Boris’s Plan B, if it didn’t provide a solution to the Irish border question, or settle Britain’s outstanding financial liabilities.... |
| Deputy governor Sir Jon Cunliffe has warned the committee that the international economy is providing less support to the UK than in 2018. | Deputy governor Sir Jon Cunliffe has warned the committee that the international economy is providing less support to the UK than in 2018. |
| Q: Don’t we need to conclude Brexit by Halloween, and end this nightmare, one way or another, asks Brexiteer MP Charlie Elphicke. | Q: Don’t we need to conclude Brexit by Halloween, and end this nightmare, one way or another, asks Brexiteer MP Charlie Elphicke. |
| Mark Carney does his best impression of an Oxbridge don, telling the committee dryly that: | Mark Carney does his best impression of an Oxbridge don, telling the committee dryly that: |
| There’s a reason that that 40-plus trade deals stuck between advanced economies in the last quarter century have always had a transition from the status quo to the new arrangement.... | There’s a reason that that 40-plus trade deals stuck between advanced economies in the last quarter century have always had a transition from the status quo to the new arrangement.... |
| I would underscore that it is highly desirable to give businesses enough time to adjust to the new reality. | I would underscore that it is highly desirable to give businesses enough time to adjust to the new reality. |
| Of course, it also matters what that new situation is, adds MPC member Silvana Tenreyro. | Of course, it also matters what that new situation is, adds MPC member Silvana Tenreyro. |
| Worryingly, Mark Carney doesn’t expect the weak business investment to recover soon. Survey data suggests it was weak in the current quarter (April-June). | Worryingly, Mark Carney doesn’t expect the weak business investment to recover soon. Survey data suggests it was weak in the current quarter (April-June). |
| MPC member Michael Saunders chimes in, reiterating that market fears of a no-deal Brexit have risen. | MPC member Michael Saunders chimes in, reiterating that market fears of a no-deal Brexit have risen. |
| The outlook for the economy would be very different now (ie better), if we knew now that we’d see a smooth Brexit, rather than face rolling deadlines and uncertainty, Saunders adds. | The outlook for the economy would be very different now (ie better), if we knew now that we’d see a smooth Brexit, rather than face rolling deadlines and uncertainty, Saunders adds. |