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Bank of England's Vlieghe: no-deal Brexit could mean near zero interest rates - business live Bank of England's Vlieghe: no-deal Brexit could mean near zero interest rates - business live
(32 minutes later)
Bank of England policymaker Gertjan Vlieghe has won support today for suggesting the MPC should publish its own preferred interest rate, rather than focusing its forecasts on the market’s expectations for rates.
Professor Costas Milas of Liverpool University’s Management School, has written in on the point:
MPC Member Gertjan Vlieghe suggested that the Bank of England’s Inflation Report should publish its preferred path of interest rates. Currently, the Bank’s Inflation Report conditions its inflation and output growth forecasts on two alternative scenarios: (a) the current interest rate (which stays the same in the future) and (b) an interest rate moving up or down in line with the expectations of financial markets.
Nevertheless, as my colleague Michael Ellington and I have recently argued, the Bank’s forecasting record under the assumption of constant interest rates is pretty weak. The same holds under the assumption of interest rates moving in line with market expectations.
Even worse, market expectations of interest rates are often at odds with the Bank’s repeated message that interest rates will rise gradually over the next 2 to 3 years.
With this in mind, the Bank is currently facing an embarrassing situation where it produces forecasts based on what others (the markets, that is) believe. Would it not make more sense for the Bank to provide forecasts based on what it actually thinks itself as the most appropriate interest rate?
Deutsche Bank has scaled back its redundancy packages for laid off City workers, according to a report in Financial News.
The German bank is offering less generous terms compared with previous rounds of redundancy, the report claims:
Deutsche is offering staff affected by its latest round of sweeping job cuts a package of statutory redundancy pay plus a one-off payment of less than 10% of salary, according to people familiar with matter. They are also being paid for notice periods — typically three months — which is taxable.
Those in the first wave have received less than the German lender has historically paid out, according to people affected and recruiters. Deutsche has traditionally paid a lump sum that amounts to around a month’s salary for every year of service, former staff at the bank and employment lawyers told Financial News.
Sacked Deutsche Bank workers: Thank god it's over, it's kinda of a relief you know, at least things can't get worse:Deutsche Bank: *DEUTSCHE BANK SCALES BACK REDUNDANCY PACKAGES FOR U.K. STAFF
Deutsche Bank chief executive Christian Sewing has spoken out after it emerged that top executives at its City of London office were fitted for £12,000 suits on the day that thousands of the bank’s staff lost their jobs.Deutsche Bank chief executive Christian Sewing has spoken out after it emerged that top executives at its City of London office were fitted for £12,000 suits on the day that thousands of the bank’s staff lost their jobs.
Tailors from Fielding & Nicholson, an upmarket tailor, were pictured walking out of the bank’s office with suit bags on Monday. The men were initially assumed to be workers who had been made redundant.Tailors from Fielding & Nicholson, an upmarket tailor, were pictured walking out of the bank’s office with suit bags on Monday. The men were initially assumed to be workers who had been made redundant.
Sewing told the German newspaper Handelsblatt that he had personally reprimanded those executives involved:Sewing told the German newspaper Handelsblatt that he had personally reprimanded those executives involved:
That someone would let a tailor come on such a day is disrespectful. In no way is this behaviour in keeping with our values.That someone would let a tailor come on such a day is disrespectful. In no way is this behaviour in keeping with our values.
I assume in any case that the two colleagues will not forget my telephone call.I assume in any case that the two colleagues will not forget my telephone call.
Deutsche Bank bosses fitted for £1,200 suits as thousands lose their jobsDeutsche Bank bosses fitted for £1,200 suits as thousands lose their jobs
The business secretary Greg Clark has urged his fellow Conservatives to do everything possible to avoid a no-deal Brexit, warning that it would lead to the loss of “many thousands” of jobs.The business secretary Greg Clark has urged his fellow Conservatives to do everything possible to avoid a no-deal Brexit, warning that it would lead to the loss of “many thousands” of jobs.
He said MPs should “strain every sinew” to avoid crashing out of the EU under the next prime minister, with leadership rivals Boris Johnson and Jeremy Hunt both saying they would be prepared to leave the bloc on 31 October without a deal.He said MPs should “strain every sinew” to avoid crashing out of the EU under the next prime minister, with leadership rivals Boris Johnson and Jeremy Hunt both saying they would be prepared to leave the bloc on 31 October without a deal.
He told Sky News:He told Sky News:
It’s evident that if you have the disruption that comes from a no-deal Brexit there will be people that will lose their jobs. It’s many thousands of jobs. Everyone knows that.It’s evident that if you have the disruption that comes from a no-deal Brexit there will be people that will lose their jobs. It’s many thousands of jobs. Everyone knows that.
I think every person that considers the evidence that companies have given – whether it’s in the automotive sector, whether it’s in the food sector, whether it’s in aerospace, in industries up and down the country – you know if you become less efficient and your ability to trade is impeded, then of course losing your competitiveness means there will be jobs lost.I think every person that considers the evidence that companies have given – whether it’s in the automotive sector, whether it’s in the food sector, whether it’s in aerospace, in industries up and down the country – you know if you become less efficient and your ability to trade is impeded, then of course losing your competitiveness means there will be jobs lost.
Greg Clark: no-deal Brexit would destroy 'thousands' of jobsGreg Clark: no-deal Brexit would destroy 'thousands' of jobs
Equity markets are fairly subdued across Europe this morning:Equity markets are fairly subdued across Europe this morning:
FTSE 100: +0.3% at 7,530FTSE 100: +0.3% at 7,530
Germany’s DAX: -0.1% at 12,322Germany’s DAX: -0.1% at 12,322
France’s CAC: +0.5% at 5,577France’s CAC: +0.5% at 5,577
Italy’s FTSE MIB: +0.3% at 22,237Italy’s FTSE MIB: +0.3% at 22,237
Spain’s IBEX: +0.1% at 9,289Spain’s IBEX: +0.1% at 9,289
Europe’s STOXX 600:Europe’s STOXX 600:
It’s fair to say there hasn’t been a huge response from currency traders to Vlieghe’s speech and his assertion that UK interest rates could be cut to virtually zero in the event of a no-deal Brexit.It’s fair to say there hasn’t been a huge response from currency traders to Vlieghe’s speech and his assertion that UK interest rates could be cut to virtually zero in the event of a no-deal Brexit.
The pound is up 0.07% against the dollar at $1.2535, and up 0.1% against the euro at €1.1131.The pound is up 0.07% against the dollar at $1.2535, and up 0.1% against the euro at €1.1131.
The full speech from MPC member Gertjan Vlieghe:The full speech from MPC member Gertjan Vlieghe:
We are continuously trying to improve how we communicate monetary policy. Gertjan Vlieghe argues that by explicitly showing the Monetary Policy Committee’s own view on future interest rates, we could make our forecasts easier to understand. https://t.co/LOC8uf33hr pic.twitter.com/3zbFljASxrWe are continuously trying to improve how we communicate monetary policy. Gertjan Vlieghe argues that by explicitly showing the Monetary Policy Committee’s own view on future interest rates, we could make our forecasts easier to understand. https://t.co/LOC8uf33hr pic.twitter.com/3zbFljASxr
Gertjan Vlieghe’s speech this morning was ostensibly about how the Bank of England could improve its communication of monetary policy to the wider public.Gertjan Vlieghe’s speech this morning was ostensibly about how the Bank of England could improve its communication of monetary policy to the wider public.
He said the Monetary Policy Committee should publish its own preferred interest rate, rather than continue to make market expectations the focus of its forecasts.He said the Monetary Policy Committee should publish its own preferred interest rate, rather than continue to make market expectations the focus of its forecasts.
I have argued today that publishing an MPC forecast based on a preferred path for policy, rather than based on a market path, would be a further improvement in our communications.I have argued today that publishing an MPC forecast based on a preferred path for policy, rather than based on a market path, would be a further improvement in our communications.
Our current forecasting approach is unnecessarily complex, and at times, the growth and inflation forecasts are not consistent with the MPC’s objectives, and not consistent with the MPC’s intended actions.Our current forecasting approach is unnecessarily complex, and at times, the growth and inflation forecasts are not consistent with the MPC’s objectives, and not consistent with the MPC’s intended actions.
Publishing an outlook for growth and inflation consistent with the MPC’s best collective view of the preferred path of interest rates would be easier for us to communicate and easier for others to understand.Publishing an outlook for growth and inflation consistent with the MPC’s best collective view of the preferred path of interest rates would be easier for us to communicate and easier for others to understand.
Since many other central banks have, by now, preceded us in this approach, we have been able to learn from their experience that commonly perceived problems with the preferred path approach can be overcome or have not materialised elsewhere.Since many other central banks have, by now, preceded us in this approach, we have been able to learn from their experience that commonly perceived problems with the preferred path approach can be overcome or have not materialised elsewhere.
The Bank of England might have to cut interest rates to virtually zero if Britain crashes out of the EU without a deal, and it is not clear how long it would take for them to rise again.The Bank of England might have to cut interest rates to virtually zero if Britain crashes out of the EU without a deal, and it is not clear how long it would take for them to rise again.
That is the verdict of Gertjan Vlieghe, a member of the Bank of England’s nine-strong Monetary Policy Committee.That is the verdict of Gertjan Vlieghe, a member of the Bank of England’s nine-strong Monetary Policy Committee.
Speaking at the London office of Thomas Reuters, Vlieghe said:Speaking at the London office of Thomas Reuters, Vlieghe said:
On balance I think it is more likely that I would move to cut Bank Rate towards the effective lower bound of close to 0% in the event of a no-deal scenario.On balance I think it is more likely that I would move to cut Bank Rate towards the effective lower bound of close to 0% in the event of a no-deal scenario.
It is highly uncertain when I would want to reverse these interest rate cuts.It is highly uncertain when I would want to reverse these interest rate cuts.
Interest rates are already ultra low, at 0.75%, but the record low was 0.25% in the aftermath of the Brexit aftermath, when the MPC felt an emergency response was necessary.Interest rates are already ultra low, at 0.75%, but the record low was 0.25% in the aftermath of the Brexit aftermath, when the MPC felt an emergency response was necessary.
The Guardian’s Kalyeena Makortoff reports:The Guardian’s Kalyeena Makortoff reports:
The boss of Thomas Cook has been speaking to journalists and insists a deal with Fosun is the best (and only?) option to keep the company trading.The boss of Thomas Cook has been speaking to journalists and insists a deal with Fosun is the best (and only?) option to keep the company trading.
It is not clear what, if any, impact the reorganisation of the group will have on its 22,000 employees, but Peter Fankhauser said he could offer no guarantees:It is not clear what, if any, impact the reorganisation of the group will have on its 22,000 employees, but Peter Fankhauser said he could offer no guarantees:
That is up to Fosun then to decide... the priority is no to complete the recapitalisation of the business.That is up to Fosun then to decide... the priority is no to complete the recapitalisation of the business.
What happens to jobs? Today’s announcement is really about a plan that ensures the business to continue to trade and operate as normal, and the deal preserves our brand with a sustainable balance sheet, giving us the stability to invest and grow our business.What happens to jobs? Today’s announcement is really about a plan that ensures the business to continue to trade and operate as normal, and the deal preserves our brand with a sustainable balance sheet, giving us the stability to invest and grow our business.
So that is principally really good news for our employees, that is a very sensitive discussions to get to this point, what we have announced today so we did not engage with wider stakeholders like unions, which will happen now.So that is principally really good news for our employees, that is a very sensitive discussions to get to this point, what we have announced today so we did not engage with wider stakeholders like unions, which will happen now.
Here’s our full story on Thomas Cook:Here’s our full story on Thomas Cook:
Thomas Cook in £750m rescue deal talks with biggest shareholderThomas Cook in £750m rescue deal talks with biggest shareholder
To put Thomas Cook’s woes into context, it has a market value of around £200m and net debts of £1.25bn.To put Thomas Cook’s woes into context, it has a market value of around £200m and net debts of £1.25bn.
As Neil Wilson, chief analyst at markets.com, says, “it’s desperate times”. He adds:As Neil Wilson, chief analyst at markets.com, says, “it’s desperate times”. He adds:
Thomas Cook largest shareholder Fosun is in advanced talks with management over a deal that would effectively hand over the company to the Chinese firm.Thomas Cook largest shareholder Fosun is in advanced talks with management over a deal that would effectively hand over the company to the Chinese firm.
Shareholders face significant dilution – basically it’s wipe out time. They can take part in the recapitalisation alongside Fosun should they so choose...Shareholders face significant dilution – basically it’s wipe out time. They can take part in the recapitalisation alongside Fosun should they so choose...
News of a deal with Fosun has gone down badly with investors and Thomas Cook shares have hit a record low of 7.5p in early trading, down 44%.News of a deal with Fosun has gone down badly with investors and Thomas Cook shares have hit a record low of 7.5p in early trading, down 44%.
Under the terms of the deal, the shareholding of existing investors will be diluted. The sell off also reflects the cautious tone from Thomas Cook, which highlighted an uncertain consumer backdrop, “particularly in the UK”. It expects earnings in the second half of the year to be behind the same period last year.Under the terms of the deal, the shareholding of existing investors will be diluted. The sell off also reflects the cautious tone from Thomas Cook, which highlighted an uncertain consumer backdrop, “particularly in the UK”. It expects earnings in the second half of the year to be behind the same period last year.
The holiday group also cancelled its third-quarter trading update:The holiday group also cancelled its third-quarter trading update:
All future reporting dates, as previously disclosed, are now under review pending the outcome of the recapitalisation of the Group. As a result, the third quarter trading update originally scheduled for 18 July 2019 is cancelled.All future reporting dates, as previously disclosed, are now under review pending the outcome of the recapitalisation of the Group. As a result, the third quarter trading update originally scheduled for 18 July 2019 is cancelled.
Fosun has issued a statement on its plans to inject capital and take a bigger stake in Thomas Cook:Fosun has issued a statement on its plans to inject capital and take a bigger stake in Thomas Cook:
Fosun is a shareholder in Thomas Cook, because it is a British company operating in the global travel industry, in which we have extensive experience.Fosun is a shareholder in Thomas Cook, because it is a British company operating in the global travel industry, in which we have extensive experience.
We are committed investors, with a proven track record of turning around iconic brands including ClubMed and Wolverhampton Wanderers FC.We are committed investors, with a proven track record of turning around iconic brands including ClubMed and Wolverhampton Wanderers FC.
Thomas Cook boss Peter Fankhauser has been speaking to BBC Radio 4’s Today programme and says a deal with Fosun is the “best available option for us”.Thomas Cook boss Peter Fankhauser has been speaking to BBC Radio 4’s Today programme and says a deal with Fosun is the “best available option for us”.
He added:He added:
It secures the value for our employees, for our suppliers and as well for our customers and that is the main focus that we have.It secures the value for our employees, for our suppliers and as well for our customers and that is the main focus that we have.
This is a very good option to secure the business and to put the business on the solid financial footing for the future.This is a very good option to secure the business and to put the business on the solid financial footing for the future.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Thomas Cook has confirmed this morning that is in talks with its largest shareholder and the owner of Club Med, China’s Fosun, over a rescue deal.Thomas Cook has confirmed this morning that is in talks with its largest shareholder and the owner of Club Med, China’s Fosun, over a rescue deal.
Britain’s oldest package holiday company, which has been struggling with a large debt pile and weaker trading, said it was in “advanced discussions” with Fosun, which -together with Thomas Cook’s core lending banks - inject £750m into the firm, allowing it to keep trading over the winter season.Britain’s oldest package holiday company, which has been struggling with a large debt pile and weaker trading, said it was in “advanced discussions” with Fosun, which -together with Thomas Cook’s core lending banks - inject £750m into the firm, allowing it to keep trading over the winter season.
The deal would give Fosun a large majority of the tour operator business and a large minority stake in its airline, diluting the shareholding of existing investors.The deal would give Fosun a large majority of the tour operator business and a large minority stake in its airline, diluting the shareholding of existing investors.
Chief executive Peter Fankhauser said the deal would secure a future for the business, its customers and its employees:Chief executive Peter Fankhauser said the deal would secure a future for the business, its customers and its employees:
After evaluating a broad range of options to reduce our debt and to put our finances onto a more sustainable footing, the board has decided to move forward with a plan to recapitalise the business, supported by a substantial injection of new money from our long-standing shareholder, Fosun, and our core lending banks.After evaluating a broad range of options to reduce our debt and to put our finances onto a more sustainable footing, the board has decided to move forward with a plan to recapitalise the business, supported by a substantial injection of new money from our long-standing shareholder, Fosun, and our core lending banks.
While this is not the outcome any of us wanted for our shareholders, this proposal is a pragmatic and responsible solution which provides the means to secure the future of the Thomas Cook business for our customers, our suppliers and our employees.While this is not the outcome any of us wanted for our shareholders, this proposal is a pragmatic and responsible solution which provides the means to secure the future of the Thomas Cook business for our customers, our suppliers and our employees.
Also coming up:Also coming up:
9.30am BST: Bank of England policymaker Gertjan Vlieghe speaks in London9.30am BST: Bank of England policymaker Gertjan Vlieghe speaks in London
10am BST: Eurozone industrial production figures for May10am BST: Eurozone industrial production figures for May
1.30pm BST: US producer prices inflation data for June1.30pm BST: US producer prices inflation data for June