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Mark Carney warns trade war and no-deal Brexit risks are rising - business live Mark Carney warns global trade war could 'shipwreck' global economy - business live
(32 minutes later)
Sterling has lost ground against most other currencies today - just in time to hit summer holidaymakers in the pocket.
The pound has tumbled following a dovish Mark Carney:#GBP -0.46% against other currencies#GBPUSD 1.25954 -0.36%#EURGBP 0.89699 +0.46%#GBPAUD 1.80034 -0.8%#GBPJPY 136.064 -0.74%#GBPCAD 1.65222 -0.49%#GBPCHF 1.24291 -0.45%
Mark Carney’s audience have been tweeting too:
#lgaconf19 BOE Governor MarkCarney says that UK business investment flatlined since brexit referendum & Uk growth overly reliant on household spending pic.twitter.com/QIBj1Qpo2q
In response to @grayee, @bankofengland Governer Mark Carney tells #LGAconf19 spending on infrastruture like social housing gives country 'biggest bang for its pound' + chilling figures of homes needed. Our event looks at partnerships to make this happen https://t.co/OqwpinMJyU pic.twitter.com/db9DMxQsc5
Interesting to hear @bankofengland Governor Mark Carney talking about concerns over global economic outlook and how Bank will respond to no deal Brexit #LGAConf2019 pic.twitter.com/M68VtBB6n3
Bank of England governor @MarkCarney_BOE finishes on a joke with serious intent “there is such a thing as a bad zero carbon transition and one of the worst is to do nothing now and try to do it all at once later - my university exam technique is not the one to follow”
Ouch! Governor Carney has also warned his audience in Bournemouth that the UK economy seems to have slowed very sharply in the last quarter.
He says:
Growth in the second quarter will be considerably weaker, in part due to the absence of that stock building effect and Brexit-related, temporary shutdowns by several major car manufacturers.
Recent data also raise the possibility that the negative spillovers to the UK from a weaker world economy are increasing and the drag from Brexit uncertainties on underlying growth here could be intensifying. The latest surveys point to no growth in UK output.
Looking across the first half of the year, in my view, underlying growth in the UK is currently running below its potential, and is heavily reliant on the resilience of household spending.
This is a timely warning, as we learned today that construction shrank at the fastest pace in a decade last month.
Mark Carney is also cautioning against getting too optimistic about Washington and Beijing striking a trade deal:
The intensification of trade tensions has increased the downside risks to global and UK growth. In this regard, the news at the weekend that the US and China agreed to restart trade talks is welcome – though as we have learnt, progress today is no guarantee of progress tomorrow.
Mark Carney has also produced these charts, which explain why the Bank is worried about a ‘a sea change in financial markets’ that could shipwreck the world economy - if a global trade war explodes into life.
He cautions:
All in all, the risks to the global economy have shifted to the downside. But to what extent? Does the sea change in financial markets presage a sea change in the global economic outlook? And what does the UK experience suggest? A lot will rest on the scale and breadth of the trade effects.
Perhaps inspired by the view of Bournemouth harbour, Mark Carney told his audience that:Perhaps inspired by the view of Bournemouth harbour, Mark Carney told his audience that:
In recent months, there has been a sea change in financial markets driven by growing concerns over the global economic outlook.In recent months, there has been a sea change in financial markets driven by growing concerns over the global economic outlook.
The pound has fallen below $1.26 since Mark Carney’s speech hit the wires, down half a cent at a two-week low today.The pound has fallen below $1.26 since Mark Carney’s speech hit the wires, down half a cent at a two-week low today.
Reuters suggests this sentence from the governor’s speech, talking about a ‘near term policy response’ may be responsible:Reuters suggests this sentence from the governor’s speech, talking about a ‘near term policy response’ may be responsible:
For now, a global trade war and a No Deal Brexit remain growing possibilities not certainties. Monetary policy must address the consequences of such uncertainty for the behaviour of businesses, households and financial markets.For now, a global trade war and a No Deal Brexit remain growing possibilities not certainties. Monetary policy must address the consequences of such uncertainty for the behaviour of businesses, households and financial markets.
In some jurisdictions, the impact may warrant a near term policy response as insurance to maintain the expansion.In some jurisdictions, the impact may warrant a near term policy response as insurance to maintain the expansion.
However, it’s not clear which ‘jurisdictions’ Carney means. It could be the UK, or it could be the US - where the Federal Reserve is under pressure to cut borrowing costs.However, it’s not clear which ‘jurisdictions’ Carney means. It could be the UK, or it could be the US - where the Federal Reserve is under pressure to cut borrowing costs.
Newsflash: Mark Carney, the governor of the Bank of England, is warning that a global trade war could ‘shipwreck’ the global economy.Newsflash: Mark Carney, the governor of the Bank of England, is warning that a global trade war could ‘shipwreck’ the global economy.
Speaking in Bournemouth, Carney explains that trade wars are now the top risk worrying investors, with America threatening Mexico and Europe with new tariffs, on top of its ongoing clash with China.Speaking in Bournemouth, Carney explains that trade wars are now the top risk worrying investors, with America threatening Mexico and Europe with new tariffs, on top of its ongoing clash with China.
Protectionism is on the rise, the governor warns the Local Government Association Annual Conference:Protectionism is on the rise, the governor warns the Local Government Association Annual Conference:
Initially motivated by concerns over bilateral trade imbalances, trade measures are now being taken in response to issues ranging from immigration to Intellectual Property protection to control of the technologies underpinning the Fourth Industrial Revolution.Initially motivated by concerns over bilateral trade imbalances, trade measures are now being taken in response to issues ranging from immigration to Intellectual Property protection to control of the technologies underpinning the Fourth Industrial Revolution.
It has even become fashionable for some to speak of a new Cold War. That bears a moment’s reflection for a lot has changed. At the height of the Cold War, US-USSR trade was worth $2 billion a year; today, US-Chinese trade clocks $2 billion a day. More broadly trade in intermediate goods and services has doubled since the fall of the Berlin Wall, and production has become increasingly integrated across borders.It has even become fashionable for some to speak of a new Cold War. That bears a moment’s reflection for a lot has changed. At the height of the Cold War, US-USSR trade was worth $2 billion a year; today, US-Chinese trade clocks $2 billion a day. More broadly trade in intermediate goods and services has doubled since the fall of the Berlin Wall, and production has become increasingly integrated across borders.
The longer current tensions persist, the greater the risk that protectionism becomes the norm. Once raised, tariffs are usually slow to be lowered. Consider that half a century ago the US imposed tariffs on light trucks due to a dispute over chicken exports to Europe. While the chickens were soon forgotten, the truck tariffs remain in place.The longer current tensions persist, the greater the risk that protectionism becomes the norm. Once raised, tariffs are usually slow to be lowered. Consider that half a century ago the US imposed tariffs on light trucks due to a dispute over chicken exports to Europe. While the chickens were soon forgotten, the truck tariffs remain in place.
Carney also tells his audience that fears of a no-deal Brexit have also risen in recent weeks.Carney also tells his audience that fears of a no-deal Brexit have also risen in recent weeks.
He says:He says:
But global trade tensions are not the only factors influencing UK financial conditions. They also remain highly sensitive to the perceived probabilities of different Brexit outcomes. That’s because asset prices are mean expectations, reflecting the weights that market participants place on every possible outcome.But global trade tensions are not the only factors influencing UK financial conditions. They also remain highly sensitive to the perceived probabilities of different Brexit outcomes. That’s because asset prices are mean expectations, reflecting the weights that market participants place on every possible outcome.
Over the past two months, markets have placed a growing weight on the possibility of No Deal, with the betting odds doubling to almost one in three:Over the past two months, markets have placed a growing weight on the possibility of No Deal, with the betting odds doubling to almost one in three:
The governor warns that the Bank would not “automatically” cut interest rates if this happened:The governor warns that the Bank would not “automatically” cut interest rates if this happened:
A No Deal outcome would result in an immediate, material reduction in the supply capacity of the UK economy as well as a negative shock to demand. There is little monetary policy can do to offset the former. A major negative supply shock is extremely unusual in advanced economies – the last one was the 1970s oil shock, even if the possibility of the next one is brewing in the TwittersphereA No Deal outcome would result in an immediate, material reduction in the supply capacity of the UK economy as well as a negative shock to demand. There is little monetary policy can do to offset the former. A major negative supply shock is extremely unusual in advanced economies – the last one was the 1970s oil shock, even if the possibility of the next one is brewing in the Twittersphere
Fiscal policy (government spending) would also need to be deployed to help the economy, he added.Fiscal policy (government spending) would also need to be deployed to help the economy, he added.
For now, a global trade war and a No Deal Brexit remain growing possibilities not certainties, Carney points out, concluding:For now, a global trade war and a No Deal Brexit remain growing possibilities not certainties, Carney points out, concluding:
Whether current trade tensions shipwreck the global economy or prove to be a tempest in a teacup will have an important influence on the outlook for growth and inflation in the UK.Whether current trade tensions shipwreck the global economy or prove to be a tempest in a teacup will have an important influence on the outlook for growth and inflation in the UK.
However trade tensions evolve and the Brexit process unfolds, UK monetary policy will remain guided by the constancy of the inflation target.However trade tensions evolve and the Brexit process unfolds, UK monetary policy will remain guided by the constancy of the inflation target.
Over in New York, the stock market has opened gingerly as trade war optimism fades.Over in New York, the stock market has opened gingerly as trade war optimism fades.
The S&P 500 index, which closed at a record high last night, has dipped by 3 points or 0.1%.The S&P 500 index, which closed at a record high last night, has dipped by 3 points or 0.1%.
The Dow Jones industrial average is also in the red, down 50 points or 0.2% at 26,666.The Dow Jones industrial average is also in the red, down 50 points or 0.2% at 26,666.
U.S. stocks open slightly lower https://t.co/o4tL2JfgnI pic.twitter.com/DjSBemrL2nU.S. stocks open slightly lower https://t.co/o4tL2JfgnI pic.twitter.com/DjSBemrL2n
Yesterday stocks rallied on relief that the US and China had agreed to resume trade talks. Today, though, investors are noting that Donald Trump is now threatening tariffs on $4bn of European goods -- including cheese and whisky - in a long-running row over subsidies granted to aeroplane-makers.Yesterday stocks rallied on relief that the US and China had agreed to resume trade talks. Today, though, investors are noting that Donald Trump is now threatening tariffs on $4bn of European goods -- including cheese and whisky - in a long-running row over subsidies granted to aeroplane-makers.
Donald Trump threatens new tariffs on $4bn of EU productsDonald Trump threatens new tariffs on $4bn of EU products
Today’s slump in construction activity comes just a day after British factories reported their worst contraction in six years.Today’s slump in construction activity comes just a day after British factories reported their worst contraction in six years.
So is the UK already heading into recession?So is the UK already heading into recession?
Economists professor Costas Milas of Liverpool University thinks it will be close, telling us:Economists professor Costas Milas of Liverpool University thinks it will be close, telling us:
The PMI data for Construction and Manufacturing raise the possibility of the start of a UK recession (i.e. two successive quarters of negative GDP growth). Although the PMI data looks bad, there is some reasonable good news elsewhere.The PMI data for Construction and Manufacturing raise the possibility of the start of a UK recession (i.e. two successive quarters of negative GDP growth). Although the PMI data looks bad, there is some reasonable good news elsewhere.
According to fresh Bank of England data, “divisia money growth” is holding up well at 4% per annum and, at the same time, economic policy uncertainty is no worse (or any better) than what it was in the beginning of the year. “Divisia money growth” weights different forms of money according to their likelihood of being spent (hence, notes and coins have a higher weight than money held in mutual funds, for example). Divisia money also tracks GDP movements quite well.According to fresh Bank of England data, “divisia money growth” is holding up well at 4% per annum and, at the same time, economic policy uncertainty is no worse (or any better) than what it was in the beginning of the year. “Divisia money growth” weights different forms of money according to their likelihood of being spent (hence, notes and coins have a higher weight than money held in mutual funds, for example). Divisia money also tracks GDP movements quite well.
Divisia money and policy uncertainty developments point to GDP growth of 1.44% per annum for 2019Q2 (which is lower than the 1.59% estimate produced by the Bank of England in May) and zero quarter-on-quarter growth for 2019Q2. So, fingers tightly crossed, we might avoid recession....Divisia money and policy uncertainty developments point to GDP growth of 1.44% per annum for 2019Q2 (which is lower than the 1.59% estimate produced by the Bank of England in May) and zero quarter-on-quarter growth for 2019Q2. So, fingers tightly crossed, we might avoid recession....
Professor Milas also reckons the Bank of England could be forced to cut interest rates in the next couple of months, to head off a downturn. More here.Professor Milas also reckons the Bank of England could be forced to cut interest rates in the next couple of months, to head off a downturn. More here.
Costas Milas explains why the probability of no-deal Brexit being on the rise means that the Bank of England may have to proceed with interest rate cuts before 31 October, and the possible consequences of such move. https://t.co/iYYugtcy2sCostas Milas explains why the probability of no-deal Brexit being on the rise means that the Bank of England may have to proceed with interest rate cuts before 31 October, and the possible consequences of such move. https://t.co/iYYugtcy2s
Heads-up: Rating agency Moody’s has now weighed in on Brexit, warning that No Deal would probably drive Britain into a recession.Heads-up: Rating agency Moody’s has now weighed in on Brexit, warning that No Deal would probably drive Britain into a recession.
In its annual credit analysis of the UK, Moody’s has ratcheted up its warnings about leaving the EU without an agreement.In its annual credit analysis of the UK, Moody’s has ratcheted up its warnings about leaving the EU without an agreement.
It warns that:It warns that:
Such an outcome would be very disruptive to current UK-EU trading arrangements and have a material, negative impact on the UK economy and on the economies of certain EU member states,”Such an outcome would be very disruptive to current UK-EU trading arrangements and have a material, negative impact on the UK economy and on the economies of certain EU member states,”
[I imagine that the Republic of Ireland is high on that list of EU states][I imagine that the Republic of Ireland is high on that list of EU states]
Moody’s also warned that the UK could be downgraded, “if the economic impact of Brexit is more severe than it currently expects, such as in a no-deal scenario.”Moody’s also warned that the UK could be downgraded, “if the economic impact of Brexit is more severe than it currently expects, such as in a no-deal scenario.”
Something for Boris Johnson and Jeremy Hunt to ponder, as they continue to insist that they’d take Britain out of the EU without a deal, despite fears it would cost jobs, wipe out businesses, undermine the pound and drive up inflation.Something for Boris Johnson and Jeremy Hunt to ponder, as they continue to insist that they’d take Britain out of the EU without a deal, despite fears it would cost jobs, wipe out businesses, undermine the pound and drive up inflation.
Boris Johnson says no-deal Brexit claims 'wildly over-done' as Hammond says it would cost Treasury £90bn - live newsBoris Johnson says no-deal Brexit claims 'wildly over-done' as Hammond says it would cost Treasury £90bn - live news
Investing legend Warren Buffett has long warned against buying shares when a company floats on the stock market.Investing legend Warren Buffett has long warned against buying shares when a company floats on the stock market.
Buffett’s argument is that IPOs are over-priced, especially when cutting-edge companies come to market during a “hot” period. He also reckons it’s a “mathematical impossibility” that a new IPO can provide the best value, given the imbalance between knowledgable sellers and less- knowledgable buyers.Buffett’s argument is that IPOs are over-priced, especially when cutting-edge companies come to market during a “hot” period. He also reckons it’s a “mathematical impossibility” that a new IPO can provide the best value, given the imbalance between knowledgable sellers and less- knowledgable buyers.
Anyone who took part in Funding Circle’s flotation last October will agree. They paid 440p per share, but have seen their investment slump to just 123p today (down 25% this session alone) following a profits warning from the peer-to-peer business lenderAnyone who took part in Funding Circle’s flotation last October will agree. They paid 440p per share, but have seen their investment slump to just 123p today (down 25% this session alone) following a profits warning from the peer-to-peer business lender
Funding Circle, which lets investors lend directly to small businesses, slashed its revenue growth forecast in half -- and suggested Brexit was to blame.Funding Circle, which lets investors lend directly to small businesses, slashed its revenue growth forecast in half -- and suggested Brexit was to blame.
Samir Desai, Funding Circle’s chief executive and co-founder, said:Samir Desai, Funding Circle’s chief executive and co-founder, said:
“The uncertain economic environment has reduced demand from small businesses and led us to proactively tighten lending criteria.“The uncertain economic environment has reduced demand from small businesses and led us to proactively tighten lending criteria.
Here’s the full story:Here’s the full story:
Peer-to-peer lender Funding Circle warns over revenue amid Brexit fearsPeer-to-peer lender Funding Circle warns over revenue amid Brexit fears
Breaking retail news: One of Mike Ashley’s chief lieutenants has quit Sports Direct after 28 years working for the retail tycoon.Breaking retail news: One of Mike Ashley’s chief lieutenants has quit Sports Direct after 28 years working for the retail tycoon.
The Press Association has the story:The Press Association has the story:
Karen Byers, whom the billionaire called the person who “runs Sports Direct”, was described by insiders as the “glue that holds it all together”.Karen Byers, whom the billionaire called the person who “runs Sports Direct”, was described by insiders as the “glue that holds it all together”.
Her decision to leave with immediate effect was announced to senior store staff and area managers on Monday morning in a conference call, according to sources at the business.Her decision to leave with immediate effect was announced to senior store staff and area managers on Monday morning in a conference call, according to sources at the business.
It looks like the end of a long relationship between the pair.It looks like the end of a long relationship between the pair.
As PA explains:As PA explains:
Mr Ashley hired Ms Byers following a takeover nearly three decades ago, not long after she was said to have sold him a pair of jeans.Mr Ashley hired Ms Byers following a takeover nearly three decades ago, not long after she was said to have sold him a pair of jeans.
The 51-year-old has kept out of the spotlight, although she did face the cameras when Sports Direct invited journalists to visit its Shirebrook warehouse in Derbyshire.The 51-year-old has kept out of the spotlight, although she did face the cameras when Sports Direct invited journalists to visit its Shirebrook warehouse in Derbyshire.
Exclusive: One of Mike Ashley's key lieutenants, Karen Byers, has quit Sports Direct. The retail director leaves after 28 years with immediate effect. Ashley previously said she "ran Sports Direct". Big loss for the company. Story on PA shortly.Exclusive: One of Mike Ashley's key lieutenants, Karen Byers, has quit Sports Direct. The retail director leaves after 28 years with immediate effect. Ashley previously said she "ran Sports Direct". Big loss for the company. Story on PA shortly.
Mike Ashley tells PA "The door will always be open" if she wants to returnMike Ashley tells PA "The door will always be open" if she wants to return
Here’s my colleague Philip Inman on today’s building sector gloom:Here’s my colleague Philip Inman on today’s building sector gloom:
Britain’s construction industry slumped to its worst monthly performance in more than 10 years in June as building firms blamed the Brexit crisis for a lack of new work.Britain’s construction industry slumped to its worst monthly performance in more than 10 years in June as building firms blamed the Brexit crisis for a lack of new work.
Housebuilders joined civil engineering firms and commercial building contractors to warn that a wait-and-see approach to commissioning new projects across the public and private sectors had hit the industry.Housebuilders joined civil engineering firms and commercial building contractors to warn that a wait-and-see approach to commissioning new projects across the public and private sectors had hit the industry.
Most construction firms reported hanging on to their staff to be ready for a conclusion to the Brexit talks, but in the meantime the general slowdown in the economy and the possibility of leaving the EU without a deal was dampening demand.Most construction firms reported hanging on to their staff to be ready for a conclusion to the Brexit talks, but in the meantime the general slowdown in the economy and the possibility of leaving the EU without a deal was dampening demand.
The IHS Markit/Cips construction purchasing managers’ index (PMI) plunged to 43.1, the lowest reading since April 2009 when the country was gripped by the global financial crisis. A PMI figure below 50 shows the sector contracted.The IHS Markit/Cips construction purchasing managers’ index (PMI) plunged to 43.1, the lowest reading since April 2009 when the country was gripped by the global financial crisis. A PMI figure below 50 shows the sector contracted.
More here:More here:
UK construction industry suffers worst month in a decadeUK construction industry suffers worst month in a decade
Britain’s construction woes have even jolted the bond market.Britain’s construction woes have even jolted the bond market.
Investors have driven down the yield, or interest rate, on 10-year UK government bonds to just 0.76%. That’s a three-year low.Investors have driven down the yield, or interest rate, on 10-year UK government bonds to just 0.76%. That’s a three-year low.
Low borrowing costs sounds like a good thing, especially for a country running a budget deficit. Yields move inversely to prices, so investors are paying more to hold UK-backed bonds.Low borrowing costs sounds like a good thing, especially for a country running a budget deficit. Yields move inversely to prices, so investors are paying more to hold UK-backed bonds.
But unfortunately, it suggests the City is pessimistic about UK growth prospects, and seeking the safety of government debt.But unfortunately, it suggests the City is pessimistic about UK growth prospects, and seeking the safety of government debt.
With construction activity falling, it may be harder to get a job at a building firm.With construction activity falling, it may be harder to get a job at a building firm.
Bosses told Markit that there has been a “marginal” drop in workforce numbers, often due to “the non-replacement of voluntary leavers”.Bosses told Markit that there has been a “marginal” drop in workforce numbers, often due to “the non-replacement of voluntary leavers”.