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Bank of England warns Brexit delay would hurt growth, after leaving rates on hold - business live | |
(42 minutes later) | |
Newsflash: The Bank of England has warned that the economy would suffer from another Brexit delay. | |
It points out that uncertainty over Britain’s future has already hurt the economy....and further confusion would not help. | |
For most of the period following the EU referendum, the degree of slack in the UK economy has been falling and global growth has been relatively strong. Recently, however, entrenched Brexit uncertainties and slower global growth have led to the re-emergence of a margin of excess supply..... | |
It is possible that political events could lead to a further period of entrenched uncertainty about the nature of, and the transition to, the United Kingdom’s eventual future trading relationship with the European Union. | |
The longer those uncertainties persist, particularly in an environment of weaker global growth, the more likely it is that demand growth will remain below potential, increasing excess supply. In such an eventuality, domestically generated inflationary pressures would be reduced. | |
That last line looks to be a hint that interest rates could stay lower for longer, if Brexit continues to be kicked down the road. | |
If there is a no-deal, the Bank expects the pound to fall, inflation to jump, and growth to weaken. If that happened, interest rates could either rise or fall, it claims, depending on the balance between supporting the economy and keeping prices down. | |
But if Britain headed towards a smooth Brexit, the BoE expects demand to rise, leading to higher interest rates. | |
The BBC’s Faisal Islam has a good take: | |
NEW - Dovish Bank of England keeps rates and asset purchases on hold, but also indicates rates lower for longer in “further period of entrenched uncertainty”. | |
Bank included new language about “political events” leading to continued uncertainty, against weak global background, meaning slower growth and inflation.Also specifically refers to the passing of the Benn Bill in minutes lowering perceived chance of No Deal/ affecting markets | |
- Bank continues to describe No Deal as leading to another sterling fall, rise in inflation, and slower economy - but that the Benn Bill has lowered market perceptions of it - rates up or down depending.A “smooth Brexit” ie deal would lead to “gradual and limited” rate rises. | |
The Bank of England has also warned that ‘underlying growth’ in the UK has weakened, and cited weak business investment due to Brexit uncertainty. | |
However, it also forecasts that GDP will rise in the current quarter, having shrunk in April-June. If so, that would keep Britain out of a recession. | |
The BoE says: | |
Brexit-related developments are making UK economic data more volatile, with GDP falling by 0.2% in 2019 Q2 and now expected to rise by 0.2% in Q3. The Committee judges that underlying growth has slowed, but remains slightly positive, and that a degree of excess supply appears to have opened up within companies. | |
Brexit uncertainties have continued to weigh on business investment, although consumption growth has remained resilient, supported by continued growth in real household income. The weaker global backdrop is weighing on exports. | |
The Bank of England has issued a statement accompanying its decision. | |
It warns that trade tensions are worsening (a point also made by the Fed last night, and the OECD this morning): | |
Since the MPC’s previous meeting, the trade war between the United States and China has intensified, and the outlook for global growth has weakened. Monetary policy has been loosened in many major economies. Shifting expectations about the potential timing and nature of Brexit have continued to generate heightened volatility in UK asset prices, in particular the sterling exchange rate has risen by over 3½%. | |
Newsflash: The Bank of England has left UK interest rates on hold, at 0.75%. | |
It’s a unanimous vote, with all nine policymakers favouring no change today. | |
More to follow.... | |
Newsflash: US president Donald Trump has played down the suggestion he could sack Federal Reserve president Jerome Powell for not aggressively slashing interest rates. | |
In an interview with Fox News, Trump also said he was “not thrilled” with the Fed, which trimmed borrowing costs yesterday. | |
Reuters has the details: | |
U.S. Federal Reserve Chairman Jerome Powell’s job is safe, U.S. President Donald Trump said in a Fox News interview that aired on Thursday, adding that he was “not thrilled” with the U.S. central bank. | |
“It’s safe,” Trump, asked about the chairman’s job, told Fox News in the interview, taped during the president’s trip to California on Wednesday after the Fed’s decision to lower interest rates. | |
Trump on Fox:- #Fed should cut rates more as others cut- Powell does not know how to play the game very well- Powell's job is safe$USD | |
Last night’s rate cut brought the Federal funds rate down to 1.75%-2%, much higher than the 0% in the eurozone. | |
Back in the markets, the oil price has suddenly spiked. | Back in the markets, the oil price has suddenly spiked. |
Brent crude is up 2.7% this morning to $65.31, from $63.60 last night. The spike followed a report that Saudi Arabia has asked Iraq for 20 million barrels of oil, to supply its refineries. | Brent crude is up 2.7% this morning to $65.31, from $63.60 last night. The spike followed a report that Saudi Arabia has asked Iraq for 20 million barrels of oil, to supply its refineries. |
#OOTT crude up on Saudi request for 20m barrels fro Iraq pic.twitter.com/DC3l2TpGiG | #OOTT crude up on Saudi request for 20m barrels fro Iraq pic.twitter.com/DC3l2TpGiG |
That has reignited fears that last weekend’s drone attack on the Abqaiq oil refinery has caused more damage than Saudi authorities have admitted. Yesterday, oil minister Prince Abdulaziz bin Salman said production would be fully restored by the end of September.... | That has reignited fears that last weekend’s drone attack on the Abqaiq oil refinery has caused more damage than Saudi authorities have admitted. Yesterday, oil minister Prince Abdulaziz bin Salman said production would be fully restored by the end of September.... |
Saudi Arabia reportedly asks Iraq for 20M barrels of crude - press - Aramco said to seek diesel, gasoline, fuel oil for domestic use . So much for ample supplies. #OOTT pic.twitter.com/8MsXpQUMOg | Saudi Arabia reportedly asks Iraq for 20M barrels of crude - press - Aramco said to seek diesel, gasoline, fuel oil for domestic use . So much for ample supplies. #OOTT pic.twitter.com/8MsXpQUMOg |
John McDonnell MP, Labour’s Shadow Chancellor, says Westminster politicians should heed the OECD’s warning about a no-deal Brexit. | John McDonnell MP, Labour’s Shadow Chancellor, says Westminster politicians should heed the OECD’s warning about a no-deal Brexit. |
“This report is a clear and stark warning of what we face if Johnson takes this country over the cliff edge of no deal Brexit. It confirms the absolute necessity of preventing this needless threat to our economy.” | “This report is a clear and stark warning of what we face if Johnson takes this country over the cliff edge of no deal Brexit. It confirms the absolute necessity of preventing this needless threat to our economy.” |
The OECD has long warned that Brexit would be bad for the UK economy, and today it has claimed that a disorderly No Deal could trigger a long slump. | The OECD has long warned that Brexit would be bad for the UK economy, and today it has claimed that a disorderly No Deal could trigger a long slump. |
My colleague Philip Inman explains: | My colleague Philip Inman explains: |
Today’s report estimates that losing unfettered access to EU markets after 31 October will likely plunge the UK into a recession next year. The loss of trade, investment and technical knowledge plus a further fall in the pound will prolong Britain’s low rate of growth until at least 2022. | Today’s report estimates that losing unfettered access to EU markets after 31 October will likely plunge the UK into a recession next year. The loss of trade, investment and technical knowledge plus a further fall in the pound will prolong Britain’s low rate of growth until at least 2022. |
Laurence Boone, the OECD’s chief economist, said an agreement to smooth Britain’s exit was important to protect businesses and the economy. | Laurence Boone, the OECD’s chief economist, said an agreement to smooth Britain’s exit was important to protect businesses and the economy. |
“The best thing is to avoid a no-deal Brexit and to stay closely aligned to the EU as possible,” she said. | “The best thing is to avoid a no-deal Brexit and to stay closely aligned to the EU as possible,” she said. |
More here: | More here: |
No-deal Brexit will cut 3% off UK economic growth, warns OECD | No-deal Brexit will cut 3% off UK economic growth, warns OECD |
Here are some charts from the OECD’s new economic outlook report, showing how economic uncertainty and trade tensions are hurting growth and investment: | Here are some charts from the OECD’s new economic outlook report, showing how economic uncertainty and trade tensions are hurting growth and investment: |
The OECD has also downgraded its growth forecast for several advanced economies, including the UK. | The OECD has also downgraded its growth forecast for several advanced economies, including the UK. |
Here’s the details | Here’s the details |
US: 2.4% growth in 2019 (down from 2.8%); 2.0% in 2020 (down from 2.3%) | US: 2.4% growth in 2019 (down from 2.8%); 2.0% in 2020 (down from 2.3%) |
Eurozone: growth of 1.1% in 2019 (down from 1.2%); 1.0% in 2020 (down from 1.4%) | Eurozone: growth of 1.1% in 2019 (down from 1.2%); 1.0% in 2020 (down from 1.4%) |
China: growth of 6.1% in 2019 (down from 6.2%); 5.7% in 2020 (down from 6%) | China: growth of 6.1% in 2019 (down from 6.2%); 5.7% in 2020 (down from 6%) |
Japan: growth of 1% in 2019 (up from 0.7%); 0.6% in 2020 (no change) | Japan: growth of 1% in 2019 (up from 0.7%); 0.6% in 2020 (no change) |
UK: growth of 1% in 2019 (down from 1.2%); 0.9% in 2020 (down from 1%) | UK: growth of 1% in 2019 (down from 1.2%); 0.9% in 2020 (down from 1%) |
The OECD’s chief economist, Laurence Boone, says escalating trade tensions are causing serious harm to the world economy. | The OECD’s chief economist, Laurence Boone, says escalating trade tensions are causing serious harm to the world economy. |
She told Reuters: | She told Reuters: |
“What looked like temporary trade tensions are turning into a long-lasting new state of trade relationships.” | “What looked like temporary trade tensions are turning into a long-lasting new state of trade relationships.” |
“The global order that regulated trade is gone and we are in a new era of less certain, more bilateral and sometimes assertive trade relations,” | “The global order that regulated trade is gone and we are in a new era of less certain, more bilateral and sometimes assertive trade relations,” |
Trade growth is now negative, having grown by 5% in 2017, she added. | Trade growth is now negative, having grown by 5% in 2017, she added. |
Hopes for an end to the trade war between Washington and Beijing were dashed in May, when negotiations collapsed. Both sides then announced fresh tariffs, but have recently delayed or watered them down, ahead of fresh talks in October. | Hopes for an end to the trade war between Washington and Beijing were dashed in May, when negotiations collapsed. Both sides then announced fresh tariffs, but have recently delayed or watered them down, ahead of fresh talks in October. |
Newsflash: The Organisation for Economic Co-operation and Development has warned that global growth has slowed to its weakest since the financial crisis. | Newsflash: The Organisation for Economic Co-operation and Development has warned that global growth has slowed to its weakest since the financial crisis. |
The OECD has slashed its global growth forecast for 2019, from 3.2% to 2.9%. | The OECD has slashed its global growth forecast for 2019, from 3.2% to 2.9%. |
That would be the weakest annual performance since the great recession a decade ago. | That would be the weakest annual performance since the great recession a decade ago. |
It has also cut its growth forecast for 2020, from 3.4% to 3%. | It has also cut its growth forecast for 2020, from 3.4% to 3%. |
#BREAKING OECD slashes global growth forecasts for 2019 and 2020 pic.twitter.com/XAwnEUuPht | #BREAKING OECD slashes global growth forecasts for 2019 and 2020 pic.twitter.com/XAwnEUuPht |
The Paris-based organisation warns that the costs of the US-China trade war are mounting, and the world risks falling into a prolonged period of weak growth unless governments act. | The Paris-based organisation warns that the costs of the US-China trade war are mounting, and the world risks falling into a prolonged period of weak growth unless governments act. |
More to follow.... | More to follow.... |
Tom Leman, head of retail & consumer at Pinsent Masons, argues that too many retailers are still playing ‘catch-up’ - - and Brexit worries aren’t helping. | Tom Leman, head of retail & consumer at Pinsent Masons, argues that too many retailers are still playing ‘catch-up’ - - and Brexit worries aren’t helping. |
Here’s his take on August’s retail sales figures. | Here’s his take on August’s retail sales figures. |
“Whilst monthly stats are a useful indicator of the market they do not tell the full story. The challenging global political environment makes it difficult to make too many assumptions, from these figures, about the health of the retail sector. The threat of a no-deal Brexit makes it almost impossible to predict retail sales and consumer spending in September and October. | “Whilst monthly stats are a useful indicator of the market they do not tell the full story. The challenging global political environment makes it difficult to make too many assumptions, from these figures, about the health of the retail sector. The threat of a no-deal Brexit makes it almost impossible to predict retail sales and consumer spending in September and October. |
Traditional retailers who have evolved their business to reap the rewards of changing consumer behaviours are ahead of the game. These retailers articulate clearly what they stand for and deliver the right products in the right way to customers. But, there are many, generally stuck in the middle, still playing catch-up who need to focus on business evolution to remain competitive.” | Traditional retailers who have evolved their business to reap the rewards of changing consumer behaviours are ahead of the game. These retailers articulate clearly what they stand for and deliver the right products in the right way to customers. But, there are many, generally stuck in the middle, still playing catch-up who need to focus on business evolution to remain competitive.” |
Economist Rupert Seggins has crunched today’s retail sales figures...and also pointed out that the monthly data should be treated cautiously. | Economist Rupert Seggins has crunched today’s retail sales figures...and also pointed out that the monthly data should be treated cautiously. |
UK retail sales growth of 0.6%q/q in the 3 months to August, consistent with a c. 0.03% retail sector contribution to GDP growth. Rise driven mainly by non-store sales & sales by specialised shops (e.g. chemists, computer shops, games shops etc.). pic.twitter.com/dkCwDg4B1z | UK retail sales growth of 0.6%q/q in the 3 months to August, consistent with a c. 0.03% retail sector contribution to GDP growth. Rise driven mainly by non-store sales & sales by specialised shops (e.g. chemists, computer shops, games shops etc.). pic.twitter.com/dkCwDg4B1z |
The UK's favourite piece of statistical noise - monthly change in retail sales. pic.twitter.com/O29YPM1cVg | The UK's favourite piece of statistical noise - monthly change in retail sales. pic.twitter.com/O29YPM1cVg |