May 2013

UK FTSE 100 down 0.6% in morning trade. ECB’s Draghi calls for more European UK. German Ifo business confidence index rebounds and beats the forecasts with a reading of 105.7 in May. US durable goods orders for April rise more than expected…


Powered by Guardian.co.ukThis article titled “Eurozone crisis as it happened: Markets slide after rollercoaster session in Japan” was written by Josephine Moulds and Nick Fletcher, for theguardian.com on Friday 24th May 2013 17.00 UTC

6.00pm BST

Cyprus takes another step to easing capital controls

Developments in Cyprus where authorities have decided to ease restrictions on capital controls. Helena Smith says:

Two days after Central Bank of Cyprus Governor Panicos Demetriades announced that the island would “gradually” relax the capital controls it has been forced to adopt since being bailed out in March, authorities took the step of further easing restrictions on foreign banks.

The finance ministry said controls would no longer apply for two major Middle Eastern banks operating on the island. As of today, international clients would be able to make money withdrawals and transfers from Lebanon’s Byblos Bank SAL and Jordan’s Arab Jordan Investment Bank SA, it said.

Resident clients in Cyprus, however, will still face restrictions including a €300 daily cash withdrawal from their accounts.

Cypriot authorities implemented the controls fearing a run on the island's banks after the EU and IMF forced depositors with more than 100,000 euro in their accounts to participate in the €23bn bailout.

Addressing the thorny issue earlier this week, Demetriades said relaxing the restrictions could only be done “gradually”

 “Eliminating restrictions too abruptly can lead to disruptive outflows and liquidity problems in the banking sector,” he said in a speech in Nicosia, the island’s divided capital.

In a separate speech, the Cypriot finance minister Haris Georgiades said he regarded the restrictions as Cyprus’ biggest short-term problem and pledged that the country would work “to steadily relax” them.

“I don’t believe in prolongation” of the controls, he said. Cyprus is the first eurozone country to enforce such restrictions. 

And on that note it's time to close up for the evening. Thanks for all your comments and we'll be back next week.

5.26pm BST

European markets on the slide again

Thursday's declines have continued although not at the same pace, as investors remained cautious about the outlook for the continuation of central actions to stimulate the global economy. Here's the closing scores:

• The FTSE 100 finished 42.45 points or 0.63% lower at 6654.34 (more here on the week's volatile performance)

• Germany's Dax fell 0.56% to 8305.32

• France's Cac closed 0.26% lower at 3956.79

• Italy's FTSE MIB dropped 0.66% to 16,896.81

• Spain's Ibex lost 0.95% to 8264.6

Meanwhile the Dow Jones Industrial Average is currently down 33 points or 0.22%.

Updated at 5.26pm BST

4.16pm BST

4.04pm BST

An invitation

The Guardian’s news community team are hosting a meet-up event at at
the Guardian’s offices at Kings Place in London. The setup will be
informal – with drinks and nibbles and a chance to get to know other
readers who contribute to our live blogs, followed by a Q&A with the
Guardian liveblogging team.

Unfortunately we've had to move the day, so it's now taking place on
Tuesday June 4th from 6pm to 9pm. If you're interested in attending, please email: james.walsh@guardian.co.uk

Updated at 4.15pm BST

3.29pm BST

Number of Greeks relocating to Germany jumps 43%

Going where the streets are – thought to be – paved with gold? From ekathimerini:

Some 34,000 Greeks relocated to Germany last year, an increase of 43% compared to 2011 when 23,800 Greeks moved there, according to German government statistics.

It is not only Greeks who are increasingly seeking a better life in prosperous Germany but an growing number of people from other debt-hit countries in southern Europe. Last year, 29,000 Spaniards, 42,000 Italians moved to Germany, according to German government statistics. The largest influx, however, was from central Europe, with 176,000 Poles, 116,000 Romanians and 59,000 Bulgarians relocating to various parts of Germany.

In total more than a million new immigrants arrived in Germany in 2012, the largest influx since 1995. The average age of the migrants is 32.

3.05pm BST

US markets open lower

Despite the better than expected US durable goods figures, Wall Street is joining the downward trend.

After half an hour or so or trading the Dow Jones Industrial Average is around 80 points lowere, a 0.5% decline.

And elsewhere:

• The FTSE 100 is down 0.74% at 6647

• Germany's Dax is down 0.54% at 8306

• France's Cac is down 0.01% at 3966

• Italy's FTSE MIB is down 0.85% at 16,865

• Spain's Ibex is down 1.44% at 8224

Updated at 3.06pm BST

2.37pm BST

Portugal may need targets eased, says prime minister

Portugal is set to meet its deficit targets for this year, its prime minister said earlier, but may need an easing of the bailout terms in 2014.

After agreeing a €78bn bailout in 2011, the country has to reduce its deficit to 5.5% of GDP this year, to 4% in 2014 and 2.5% in 2015. These targets have already been eased in March to take account of Europe's worse than expected recession.

Prime minister Passos Coelho told parliament, as reported by Reuters:

The government does not rule out that further flexibility of the goals may be required for 2014.

Our obligation is to do all in our reach to meet what has been agreed as the preferred target. {But] we have already achieved some flexibility before…and it can't be ruled out that further flexibility may become important for 2014.

That's a yes, then.

Portugal's prime minister Pedro Passos Coelho at the Portuguese parliament. Photograph: AP Photo/Francisco Seco
Portugal’s prime minister Pedro Passos Coelho at the Portuguese parliament. Photograph: AP Photo/Francisco Seco

1.58pm BST

Mervyn King calls for

Outgoing governor of the Bank of England Mervyn King said the two sides of the debate on growth vs austerity have exaggerated the difference between their positions. Speaking in Helsinki, King said:

What we need is more common sense. This debate has been vastly exaggerated by people who want to make political arguments.

His timing is interesting, coming two days after the IMF urged chancellor George Osborne to focus on growth and delay austerity. 

Any excuse to wheel out this picture... Mervyn King riding a dog sled in Canada in 2010. King says the growth vs austerity debate has been exaggerated.
Any excuse to wheel out this picture… Mervyn King riding a dog sled in Canada in 2010. King says the growth vs austerity debate has been exaggerated. Photograph: Fred Chartrand/AP

And on that note, I'm handing over to my colleague Nick Fletcher.

Updated at 2.11pm BST

1.45pm BST

US durable orders (excluding transport) rose 1.3% in April

Bloomberg has (already) got a story up on the US durable goods numbers (see 1.34pm).

Alex Kowalski writes:

Bookings for commercial aircraft climbed 18.1% last month after slumping 43% in March, today’s report showed. Boeing Co. (BA), the Chicago-based aerospace company, said it received 51 orders last month, up from 29 in March.

Excluding the more volatile transportation equipment component, durable orders climbed 1.3%, the first gain in three months.

Bookings for non-defense capital goods excluding aircraft, considered a proxy for business investment in items such as computers, engines and communications gear, increased 1.2% after a 0.9% gain the prior month that was previously reported as a drop.

1.36pm BST

As Joe Weisenthal of Business Insider notes, that is the 6th piece of economic news out of the US that has beaten expectations.

1.34pm BST

US brightens on cheery durable goods data

US durable goods orders for April are in and they are much better than expected.

This is the survey that measures the value of orders placed for relatively long-lasting goods, like cars and TVs. Because consumers hold off from buying these kind of things in a recession, it's a good gauge of consumer confidence.

Analysts were expecting a 1.5% increase from the previous month, but they rose 3.3%. That compares with a 6.9% decline in March.

12.16pm BST

Italian consumer confidence drops

Italian consumer confidence dropped unexpectedly in May, reversing a rise in April, as the country remains mired in recession.

ISTAT's consumer confidence index dropped to 85.9 in May from 86.3 in April. Reuters reports:

Consumer spending has long been an Achilles heel of the Italian economy, which has been the most sluggish in the eurozone for at least a decade.

ISTAT reported on Wednesday that people living in families considered to be seriously deprived have doubled in the past two years to 8.6m, or about 14% of the population, as a long recession has eaten into Italians' spending capacity.

Consumer confidence in Italy dropped unexpectedly in May.
Consumer confidence in Italy dropped unexpectedly in May. Photograph: David Noton Photography/Alamy

11.53am BST

EU states must be allowed to fail – ECB’s Weidmann

The EU must allow states to go bankrupt, ECB board member Jens Weidmann says. Newswire MNI has the following lines from his speech in Paris.

He says budget consolidation through spending cuts enhances growth, it can support confidence and lead to lower interest rates. By contrast, he says high levels of public debt are bound to hurt growth.

Returning to his theme from last night's speech (see 8.59am), he warns that high levels of debt can divert central banks from price stability. And he says anchored inflation expectations do no ensure future stability.

On the ECB's outright monetary transactions – its tool to keep bond yields in check by buying up the bonds of crisis-hit states in the secondary markets – he says it remains to be seen if the benefits outweigh the risks. 

Jens Weidmann, president of the Bundesbank and ECB board member, says EU states should be allowed to fail.
Jens Weidmann, president of the Bundesbank and ECB board member, says EU states should be allowed to fail. Photograph: ALASTAIR GRANT/POOL/EPA

10.52am BST

Markets dip despite buoyant Germany

The markets have (largely) turned negative again, despite an upbeat German business confidence survey.

UK FTSE 100: down 0.7%, or 46 points, at 6651

German DAX: down 0.4%

France CAC: up 0.14%

Italy FTSE MIB: up 0.05%

Spain IBEX: down 0.5%

10.44am BST

Draghi’s speech – the highlights

The ECB has posted a link to Mario Draghi's speech last night.

He started with a quote to grab the headlines:

Europe needs a more European UK as much as the UK needs a more British Europe.

Then went on to explain why, with a series of statistics highlighting their interdependency. Among these was the following.

The euro area is the UK’s largest export market. It may not come as a surprise to you by now that no less than 40% of all the goods and services exported by UK businesses are delivered to euro area countries. In 2012 this amounted to 240 billion euros, or just short of £200bn.

Draghi sees some reasons to be cheerful.

Today we are seeing some encouraging signs of tangible improvements in financial conditions. Spreads in sovereign and corporate debt markets have narrowed considerably. Banks in stressed countries have seen the deposits placed with them by euro area non-banks increasing by about 200 billion euro since August 2012.

Mario Draghi says Europe needs a more European UK as much as the UK needs a more British Europe.
Mario Draghi says Europe needs a more European UK as much as the UK needs a more British Europe. Photograph: STEFAN WERMUTH/Reuters

But, he says, economic conditions remain "challenging". He calls for further progress in establishing a Europe-wide banking union, in order to "sever the link between banks and their respective sovereigns". It is, he says, "this link that lies behind the fragmentation in the financial markets of the euro area".

Although he applauds the progress made so far, he says the region must create a Single Resolution Mechanism, to manage the failure of banks within Europe. Draghi says:

Such a mechanism, much like the FDIC in the US, could give markets certainty about the ranking of creditors and the procedures that would be followed in the case of a bank resolution.

This will benefit all EU members, he says. He concludes with another headline-grabber:

The answer to the crisis has not been less Europe but more Europe.

This is a time when the strength of all our institutions is being tested; first, by the financial crisis, then by the recession. The European Union and the European Monetary Union are no exceptions. The choice is between adapting them to the new conditions or do nothing and risk their dissolution.

10.17am BST

UK mortgages data points to house price rise

Back in the UK, figures on mortgages from the British Bankers' Association point towards a slight increase in house prices this year.

The BBA said mortgage approvals rose in April to stand 0.9% higher than a year ago, although net lending fell. Howard Archer of IHS Global Insight writes:

The rise in mortgage approvals in April reported by the BBA data support belief that house prices are likely to achieve a modest gain of a few per cent or so over 2013, as activity gradually picks up supported by initiatives such as the Funding for Lending Scheme and Help to Buy.

However, while a moderate rise in house prices over 2013 looks increasingly probable, a strong upward move still seems unlikely given an ongoing challenging and uncertain economic environment despite the recent signs of moderate improvement. In particular, weak earnings growth and still relatively low and fragile consumer confidence argues against a marked rise in house prices for some time to come.

9.46am BST

Manufacturing confidence picks up in France

Things are picking up even in beleaguered France. Confidence in the country's manufacturing industry picked up more than expected in May, rising to 92 from 88 the previous month, beating expectations of a reading of 89.

But broader business confidence held steady at its lowest level since August 2009. The national statistics office said the broader indicator of overall business confidence remained unchanged at 84.

Julien Manceaux at ING writes:

All in all, it seems that even if manufacturers remain very downbeat, slowly improving order books and decreasing stocks could finally boost activity in the manufacturing sector in the second half of this year. This in turn could lead to a slow recovery in the service sector, the main provider of jobs and investments, whose activity continues to contract: the PMI for the service sector in May was stable at 44.3, which is much lower than the average it reached in the last quarter of the year when the economy was contracting. Even if today’s data are encouraging, they are no more than the first green shoots for the Ayrault government.

9.28am BST

German business survey adds to brightening picture for eurozone – economist

Here's Christian Schulz on that upbeat IFO survey out of Germany (see 9.11am)

German business confidence rebounded healthily in May from recent setbacks. The soft patch in March and April, when the Italian political stalemate and the chaotic Cyprus bail-out had raised fears of a return of the euro crisis, has dissipated.

However, while the assessment of the current situation of the economy jumped to 110.0, almost back to the February peak and indicating healthy growth, businesses remained more cautious about the outlook.

He says the wider eurozone should benefit from growing confidence in Germany.

German domestic strength is good news for the Euro crisis countries, as it raises the chances that they can capitalise on their regained competitiveness via stronger exports. At the same time, it reduces the pressure on the ECB to do more after the May interest rate cut. Rising PMIs, confidence in France (business confidence rose from 88 to 92 in May) and slightly stronger Eurozone consumer confidence (reported yesterday) add to the brightening picture for the Eurozone.

9.20am BST

Olive oil spat resolved

To the serious matter of the great olive oil debacle. Bloomberg is running a story on how olive oil displaced debt at the heart of the European bottleneck. James Neuger reports:

It had the same ingredients as Europe’s debt-crisis drama: a battle between north and south, British defiance, media jeering, and murky decision-making starring a cast of unidentified technocrats.

The conflict was put to rest yesterday: the European Union decreed that restaurants in its 27-nation market can continue to put refillable olive-oil bottles on tables, dropping a ban that was scheduled to take effect in 2014.

A week after a little-known committee endorsed the mandate, EU Agriculture Commissioner Dacian Ciolos scuttled it, pledging instead a regulation that “takes account of the lives of everyone, not only some, to avoid this sort of misunderstanding.”

The olive oil caper of 2013 will go down in history along with now-retracted bans on misshapen vegetables and criminal penalties for grocery-store disregard of the metric system as examples of European rules run amok — even if many tales of EU over-regulation are more fiction than fact.

The offending item. The European Union decreed on Thursday that restaurants in its 27-nation market can continue to put refillable olive-oil bottles on tables, dropping a ban that was scheduled to take effect in 2014.
The offending item. The EU decreed on Thursday that restaurants in its 27-nation market can continue to put refillable olive-oil bottles on tables, dropping a ban that was scheduled to take effect in 2014. Photograph: Geert Vanden Wijngaert/AP

9.11am BST

Sticking with Germany, the IFO business confidence survey came in at 105.7, compared with forecasts of 104.5.

The boost came from the index that measures sentiment regarding the current economic conditions, which rose to 110, compared with forecasts of 107.2. The business expectations index was unchanged at 101.6.

Traders welcomed the release.

8.59am BST

Weidmann warns against central banks propping up governments

Bundesbank president and ECB board member Jens Weidmann has said central banks must be wary of guaranteeing the solvency of governments, in case they find themselves unable to control invlation. Also speaking late last night, Weidmann said:

If the debt sustainability or solvability of the state appears to be upheld only by the interventions of the central bank, then the central bank is committed to that goal and cannot really deliver on its primary goal of price stability.

Germany's Bundesbank president Jens Weidmann says central banks should be wary of guaranteeing the solvency of governments.
Germany’s Bundesbank president Jens Weidmann says central banks should be wary of guaranteeing the solvency of governments. Photograph: KAI PFAFFENBACH/REUTERS

Financial markets newswire MNI reports:

Citing the example of the Bank of Japan, which is buying up 70% of the debt issuance of the government, Weidmann warned that "monetary policy can be pushed into a very difficult spot", where it cannot "free itself from the embrace of fiscal policy."

"Once you're in this game, it is very difficult to get out," he said. "And that's why we need solid public finances in Europe!"

Some have come to view monetary policy as a "sort of silver bullet" to tackle structural problems that the politicians seem unable to resolve rapidly, Weidmann observed. But unless structural reforms are pursued, there is no reason for the central bank to buy them time.

Updated at 9.01am BST

8.50am BST

Draghi calls for more European UK

ECB president Mario Draghi called for "a more European UK", when he spoke to a City of London audience last night. In a speech at the City of London Corporation, he said:

I cannot say which of the two sets of arguments is stronger, the economic or the political ones, neither am I going to enter into a domestic policy debate, but what I can say is that Europe needs a more European UK as much as the UK needs a more British Europe.

ECB president Mario Draghi says European needs a more European UK as much as the UK needs a more British Europe.
ECB president Mario Draghi says European needs a more European UK as much as the UK needs a more British Europe. Photograph: Pool/Getty Images

The speech, which was met with applause, comes as the Conservative party finds itself deeply divided over the issue of Europe.

Draghi refrained from making a direct call for the UK to stay in the EU but instead called on European countries to redouble efforts to agree the terms of a banking union, insisting it would benefit “all EU members” including the UK. He said:

The answer to the crisis has not been less Europe but more Europe.

8.31am BST

Bank of England’s Fisher downbeat on Britain’s prospects

Bank of England policymaker Paul Fisher had a gloomy message this morning, saying the UK economy is likely to remain sluggish for years to come. Our economics editor Larry Elliott reports:

Fears that Britain faces years more weak growth were raised by a leading Bank of England policymaker when he warned that adjustment to the tougher post-crisis climate was only two-thirds to three-quarters complete.

Speaking in Cardiff on Friday, Paul Fisher said there had been nothing to compare with the recent sluggish performance of the economy since modern quarterly growth data was first produced in 1955.

"It is as if the different groups within our society – households, businesses, banks and the government – have all decided that their future financial positions, on average, will be worse than they thought before the crisis", said Threadneedle Street's director for markets.

Fisher added that the willingness of people to accept cuts in their living standards was explained by their downbeat view of the future.

Fisher is one of the three members of the monetary policy committee, who has been pushing the bank to provide additional stimulus to the economy. 

Paul Fisher suggests the UK could face years more weak growth.
Paul Fisher suggests the UK could face years more weak growth. Photograph: Bloomberg/Bloomberg via Getty Images

8.16am BST

German escapes recession, but only just

The German statistics office confirmed this morning that German GDP rose 0.1% in the first quarter, following a 0.7% decline in the last three months of 2012. That means it avoided a recession (defined as two consecutive quarters of contraction) but only just.

Growth was driven by private consumption, which rose 0.8% on the previous month, while construction investment dropped 2.1%. Exports were 1.8% lower on the quarter, but still contributed 0.1% to first quarter growth.

Carsten Brzeski of ING said:

German consumers remain the silent helpers of the economy. Often forgotten, ignored and labelled as had-beens, German consumers have become an important growth driver. In fact, private consumption grew in each since quarter since 1Q 2012.

Unfortunately, the positive trend of private consumption is anything but a spending spree and Germans are still unlikely to become a bunch of shopaholics. This means that despite all delight, this morning’s data also hold an inconvenient truth which interdicts any euphoria: without its exports, the German economy is currently only like a sports car without sixth gear.

Consumer confidence is, however, rising, suggesting there is more growth in store. The GfK consumer confidence index for June rose to 6.5, its highest level since September 2007, from 6.2 in May.

Christian Schulz of Berenberg Bank writes:

In 2013, Germany will have to rely largely on domestic demand for growth. With consumption showing signs of strength and some bounce-back in investment after the long winter, the outlook for domestic demand is brightening.

Updated at 8.34am BST

8.05am BST

European markets open higher

The markets have opened and everything is looking a bit brighter today, after Japanese shares stabilised overnight.

UK FTSE 100: up 0.24%, or 16 points, at 6713

Germany DAX: up 0.4%

France CAC 40: up 0.5%

Italy FTSE MIB: up 0.8%

Spain IBEX: up 0.6%

8.01am BST

Today’s agenda

We've already had the detailed release of German GDP and some consumer confidence numbers – more on those shortly – and there's more data out of the eurozone's largest economy later today.

  • German GDP (Q1): 7am
  • German GfK consumer confidence (June): 7am
  • German IFO business sentiment survey (May): 9am
  • Italian consumer confidence (May): 9am
  • ECB's Costa speaks: 9am
  • UK BBA mortgage data (April): 9.30am
  • ECB's Weidmann speaks: 11am
  • Mervyn King speaks on lessons from the crisis: 12.30pm
  • ECB's Constancio speaks: 1.30pm
  • US durable goods orders (April): 1.30pm

In the debt markets, we've got the weekly announcements about how much banks have paid back of their cheap LTRO money from the ECB, and the UK is selling £2.5bn of short-term debt.

7.41am BST

Good morning and welcome to our rolling coverage of the eurozone crisis. Markets are expected to be calmer this morning after Japan's Nikkei stabilised overnight.

Traders in Tokyo had another dramatic day – with the index swinging wildly from a 3.5% rise to a 3.5% drop at one stage – but it settled down in the afternoon to close 0.9% higher.

We'll be keeping a close eye on the markets and following economic events around the world as the day goes on.

Updated at 7.45am BST

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USA 

In the trading room today: USD New Trading Week Outlook. With a number of notable U.S. economic reports scheduled for release in the week ahead, we explore the near-term outlook for the U.S. dollar and ponder if the greenback will continue to attract bids if the economy shows further signs of improvement, we list the Top 10 spotlight economic events that will move the markets next week, we examine the consensus forecasts for the upcoming economic data, we analyze the latest trend developments in the EUR/USD currency pair, we keep an eye on the price correction in the USD/JPY pair, we note the strengthening of the GBP vs USD, we highlight the market’s reaction to the statement by the Bank of Japan Governor, the German GDP and Ifo Business Climate Index, we discuss new forecasts from Goldman Sachs and HSBC, and prepare for the trading session ahead.

Britain’s top companies lose £36bn in value as stock markets react to US warnings on QE and drop in Chinese manufacturing. Ben Bernanke, chairman of the Federal Reserve, hinted on Wednesday about a possible easing of its $85bn-a-month bond-buying programme, in a testimony to Congress…

 


Powered by Guardian.co.ukThis article titled “Stock markets lose nerve on fears of end to quantitative easing” was written by Nick Fletcher, for The Guardian on Thursday 23rd May 2013 18.13 UTC

A day after the FTSE 100 came within 90 points of its December 1999 all-time high, the index slumped 143 points yesterday to 6696, wiping £36bn off the value of Britain's top companies.

The 2.1% fall was the index's worst in one day since it lost just over 2.5% a year ago to the day, on fears that Greece could leave the eurozone. But after its recent strong surge this latest fall in the blue-chip index merely wipes out the gains made since last Friday.

Stock markets around the world tumbled from their recent highs as investors took fright at weak Chinese manufacturing data and signs that the US Federal Reserve might end its bond-buying programme sooner than expected.

Markets have been buoyed in recent months by the various measures taken by central banks to stimulate the global economy by flooding it with cash. Measures include printing money, buying up mortgage-backed bonds and keeping interest rates at historic lows. Much of the recent economic data indicated the policy was having the desired effect, while the long-running eurozone crisis seemed to have entered a period of relative calm.

But analysts have been warning that any signs the money taps were about to be turned off or that the global economy was not recovering as expected would be taken badly by the markets.

Thursday's rout began with comments late on Wednesday from the Federal Reserve suggesting that America could end its quantitative easing, or QE, programme in the near future, and accelerated after a Chinese survey showed factory activity had fallen for the first time in seven months in May. The Nikkei 225 dropped more than 7% overnight on Wednesday to 14,483, its biggest one-day fall for two years. However, analysts pointed out that the Japanese index had almost doubled in value since November, so was still well ahead for the year.

European stock markets fell, with Germany's Dax and France's Cac both closing around 2.1% lower, while Italy's FTSE MIB fell 3% and Spain's Ibex was down 1.4%.

On Wall Street the Dow Jones industrial average, which had reached an all-time high this week, fell sharply when trading opened on Thursdaybefore staging a recovery. By lunchtime the US index was down just 15 points following stronger than expected weekly jobless claims and home sales.

Rupert Osborne, futures dealer at City broker IG, said: "The stronger home sales and jobless claims … fit with the idea that the US economy is approaching a point where a reduction in stimulus is appropriate. This neatly illustrates the irony of the position; traders across the world are openly hoping for poor US data since this keeps the Fed involved."

Ben Bernanke, chairman of the Federal Reserve, had hinted on Wednesday about a possible easing of its bn-a-month bond-buying programme, in a testimony to Congress. These comments were later compounded by the minutes of the Fed's last policy-making meeting, which showed that some members thought such a move could come as soon as June, much earlier than any analysts had been expecting.

Michael Hewson, senior market analyst at financial spread-betting company CMC Markets UK, said: "There was an expectation after Bernanke's testimony on Capitol Hill that the latest Fed minutes wouldn't add too much to overall market expectations around the prospects for further easing against expectations of possible tapering.

"The release of the latest Fed minutes completely changed that dynamic with a single line, 'a number of participants express a willingness to reduce QE in June'.

"The disappointing Chinese manufacturing data gave markets the extra nudge over the edge that was needed and persuaded investors with money in the game to cash in."

In China the HSBC purchasing managers index fell to 49.6 points in May, from 50.4 the previous month. Any level below 50 produced by the survey of industry indicates a contracting sector. China is a major consumer of commodities, so the signs of a slowdown in the country put metal prices under pressure, with copper down more than 3%. Oil prices also slid lower, Brent crude falling nearly 1% to 2 a barrel.

But gold and silver edged higher as investors searched out safer assets amid the sell-off.

guardian.co.uk © Guardian News & Media Limited 2010

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In the trading room today: Is a Significant JPY Correction Already Underway? As Chinese data disappoints and the Nikkei registers its biggest drop since the March 2011 Tsunami, we examine the factors behind the strengthening of the JPY and ponder if we may be witnessing the beginning of a significant correction of the yen’s recent losses, we analyze the sharp move lower in the USD/JPY currency pair, we monitor the anticipated bounce higher in the GBP/USD pair, we note the volatility in the EUR/USD currency pair, we highlight the market’s reaction to the FOMC Meeting Minutes, the Chinese PMI, the U.K. GDP, and the Euro-zone  Composite PMI, we discuss new forecasts from Bank of Tokyo-Mitsubishi and UBS, and prepare for the trading session ahead.

IMF’s Lipton: government should be more supportive. Gloom as UK retail sales fall. Bank of England minutes show Governor Mervyn King outvoted again on his call for expansion of the Asset Purchase Program. FTSE 100 index has closed at a new 13-year high, and Germany’s DAX hit its highest ever level…

 


Powered by Guardian.co.ukThis article titled “IMF calls for new growth measures to help UK economy and ease austerity – as it happened” was written by Graeme Wearden, for theguardian.com on Wednesday 22nd May 2013 16.05 UTC

6.44pm BST

The last word today goes to our economics editor, Larry Elliott.

Hit the austerity pause button. Invest more in social housing, schools and road repairs. Growth is more important in the short term than deficit reduction. Couched in suitably polite language, that was the uncomfortable message from the International Monetary Fund to George Osborne today.

The chancellor could take some comfort from the fact that the Fund was rather more diplomatic about his economic strategy than it was in Washington a month ago, but not all that much. For the past couple of weeks, the Government has done its utmost to persuade the IMF that Britain should stick to its current budgetary course. Osborne has tried. The chief secretary Danny Alexander has tried. Sir Mervyn King has tried. They have all failed.

Larry's full analysis will be online tonight.

That's all for today. This post from 2.33pm sums up the key points from the IMF report. Thanks. GW

6.36pm BST

Sky News's Ed Conway makes the case tonight that the IMF's call for the government to adjust its fiscal programme is "arguably…the least interesting part of all".

He writes:

The Fund believes Britain’s banking system remains in some trouble. It believes the Government may have to pump extra cash into the semi-nationalised banks, RBS and Llloyds. These are more intriguing criticisms; ones the Government would be wrong to ignore.

And yet it is “Plan A” and “Plan B” that hog the headlines. One can understand why: the Chancellor made key pledges on the deficit, on which it is far easier to judge him than on the complex world of financial reform. But, in the grand scheme of things, the IMF making vague micro-suggestions about his fiscal plans simply isn’t a rift of the scale some would like it to be.

Updated at 6.36pm BST

6.26pm BST

This might interest regular eurozone watchers — Citi, the investment bank, has dropped its prediction that Greece will leave the eurozone next year.

6.10pm BST

Looking back at the IMF report again. John Van Reenen, director of the Centre for Economic Performance at the LSE, argues that Britain's civil servants have played a blinder over the IMF report:

The Treasury’s spin doctors have been working overtime ever since to say the IMF Article IV was likely to be very critical of the government due to internal politics. Hence when it came out as merely “critical”, the report can be dutifully hailed again as a ringing endorsement of government policy.

Article IVs are almost never directly critical of large countries like the UK, and they are always hedged in careful diplomatic language. Nevertheless the message is clear enough if you can read the runes

And that message, as we've been banging on about since David Lipton's press conference, is more infrastructure spending. Now.

The bottom line is that the IMF is endorsing an increase in public investment spending, as many of us have been pushing for years. The most effective way to address deficient demand would be for the government to directly spend at least £20bn on infrastructure over the next two years, as analysed in studies by the Institute for Fiscal Studies, National Institute for Economic and Social Research and LSE’s Centre for Economic Performance, and the IMF now seem to agree.

I wish the IMF could have been even more critical of the failures of the government’s fiscal plans. They are too willing to accept the argument that “credibility” has been purchased by an excessively front-loaded deficit reduction plan, for example.

But it is clear that the chancellor’s (formerly?) favourite international think tank has signed up to the public investment programme we so sorely need. So perhaps we will finally get some real action.

5.47pm BST

EU leaders agree to speed up battle against tax evasion

The European Council has now released the conclusions of today's meeting in Brussels, which include a new agreement to fight tax evasion.

Here's the key section from the official summary:

Tax fraud and tax evasion limit countries' capacity to raise revenue and carry out their economic policies. In times of tight budgetary constraints, combating tax fraud and tax evasion is more than an issue of tax fairness – it becomes essential for the political and social acceptability of fiscal consolidation.

The European Council agreed to accelerate work in the fight against tax fraud, tax evasion and aggressive tax planning. In particular, work will be taken forward as a matter of priority on promoting and broadening the scope of the automatic exchange of information at all levels. 

5.20pm BST

Stock markets hit new highs

Back in the financial markets, and the FTSE 100 index has closed at a new 13-year high, and Germany's DAX hit its highest ever level.

Ben Bernanke's testimony on Capitol Hill, in which he said it was too early to tighten monetary policy (see 3.28pm) gave the markets another sugar rush.

Markets, May 22 2013
Photograph: Thomson Reuters

5.05pm BST

Down the corridor in Brussels, Angela Merkel has told reporters that EU leaders are determined to stop large companies from paying too little tax in countries where they operate.

Reuters reports:

The European Union will ensure big companies pay more taxes in the countries where they are based, German Chancellor Angela Merkel said on Wednesday.

"We will work towards ensuring companies have to pay more where they are based," she said in Brussels at the end of an EU summit, adding that this would affect big companies most.

Merkel also told reporters that leaders had make significant progress by agreeing to prevent banks keeping savings information secret.

4.44pm BST

EU leaders did not discuss whether they should harmonise their corporate tax rates to combat companies who base themselves in low-taxation juristictions, Van Rompuy said:

We have discussed tax fraud, and tax evasion…

Where there is harmful tax competition there are instruments to deal with this.

Van Rompuy adds that more work needs to be done to address instances of "aggressive tax planning", and companies taking advantage of loopholes.

4.33pm BST

In Brussels, president Herman Van Rompuy is telling the press conference that the European Council understands the importance on doing more to fight tax evasion.

Other press conferences are also taking place, so we should hear from other leaders soon – including David Cameron.

4.25pm BST

We've not done much on Europe today, with all the IMF action in Britain. But over in Brussels, a press conference is just getting underway following the Council of Europe meeting.

It's being streamed here.

Updated at 4.33pm BST

4.23pm BST

Do you think the IMF has pulled its punches on the UK, or are today's recommendations as hard-hitting as before? Have your say in this poll.

3.59pm BST

David Lipton, First Deputy Managing Director of the International Monetary Fund (IMF), addresses a press conference at the conclusion of the IMF mission for the 2013 Article IV Consultations with the United Kingdom in central London, on May 22, 2013.
David Lipton, First Deputy Managing Director of the International Monetary Fund, addressing today’s press conference. Photograph: CARL COURT/AFP/Getty Images

The IMF sums up its recommentations as: U.K. Should Restore Growth, Rebalance Economy, in a summary of today's report on its site.

It's topline bulletpoints are:

  • Some signs of an uptick in growth, but still far from strong, sustainable recovery
  • Financial policies should ensure monetary easing reaches broader economy
  • Fiscal, structural policies to boost expectations of incomes and investment returns

3.47pm BST

Lipton: change fiscal policy now

Back to the IMF's report into the UK.

David Lipton has been expanding on the Fund's recommendation that infrastructure spending should be brought forward. He's told Channel Four News that the government would improve its fiscal position in the long term by adjusting its tax and spending policy today:

Faisal Islam has written the quotes up on his blog:

Lipton said:

“Looking at this, it seems clear the country needs infrastructure, and since it needs it eventually this seems the right time to be intensifying the infrastructure effort. Doing it now when the impact would be very substantial seems like a wise course of action. Yes this is fiscal policy – it would require the Government to advance some of its current spending plans – to us seems like a strategy that would help the economy and not damage fiscal sustainability because of its contribution to growth. In long run it would leave the fiscal situation better,” he told me.

And when asked if this was a “Plan B”, Lipton added:

“No I don’t think it’s a Plan B. What we see is the need always to take into account of the impact of policies and their results and making corrections along the way”. But when he asked him if the UK should borrow a little more now in order to borrow less in future, he said: “I think the point is that having a slightly different path of adjustment, we think, would strengthen the economy because some of the spending would be high impact”.

Updated at 3.47pm BST

3.28pm BST

Shares surge on Bernanke testimony

In the financial markets, shares are rallying after the head of the Federal Reserve, Ben Bernanke, said it was too early to tighten monetary policy in America.

The FTSE 100 has leapt 67 points to 6870, up almost 1%, putting the blue chip index on track for a new 13-year high. The Dow Jones index has also posted similar gains, up 131 points at 15518.

Once again, share prices are benefting because the world economy is too weak to allow central bankers to halt quantitative easing, let alone raise interest rates.

The IMF's report into the UK also recommended "accomodative monetary policy", including the possibility of additional quantitative easing in Britain too.

Bernanke's testimony is online here:

Here's the key paragraph:

Recognizing the drawbacks of persistently low rates, the FOMC* actively seeks economic conditions consistent with sustainably higher interest rates.Unfortunately, withdrawing policy accommodation at this juncture would be highly unlikely to produce such conditions.

A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further. Such outcomes tend to be associated with extended periods of lower, not higher, interest rates, as well as poor returns on other assets. Moreover, renewed economic weakness would pose its own risks to financial stability.

* Federal Open Market Committee, which sets US monetary policy

Updated at 3.31pm BST

3.12pm BST

More reaction to the IMF's recommendations is arriving.

Graeme Leach, chief economist at the Institute of Directors, isn't impressed by the idea of bringing infrastructure spending forwards.

Spend the existing money more wisely instead, he argues:

When the IMF says that planned fiscal tightening will be a drag on growth, the discretionary measures amount to only £10 billion, which is pretty small. It would make more sense to argue to maintain the overall level of public spending, whilst shifting a greater proportion towards infrastructure, where the fiscal multipliers are stronger. In other words spend the existing money better, rather than spend even more.

Updated at 3.12pm BST

2.58pm BST

The language in the report issued by the International Monetary Fund is milder then the rhetoric of last month, when Olivier Blanchard said the UK was "playing with fire" by not implementing more growth measures.

But that doesn't mean it's not concerned. Indeed, the IMF says it's now taking a tougher line with the UK:

2.33pm BST

A recap of the IMF’s recommentations

Time to recap the key points from the IMF's report into the UK.

The International Monetary Fund has called for the UK government to bring in new growth measures to support the economy and ease the pace of its austerity programme.

Speaking in London David Lipton, first deputy managing director of the Fund, said the UK economy remained weak, and could suffer permanent damage without additional help.

George Osborne should bring forward intrastructure projects where possible to offset the £10bn of cuts hitting the economy this year, he told reporters in London.

This would mean the government changing the pace of its fiscal plan, with Lipton arguing that the UK's fiscal adjustment should take place in "a more backloaded fashion".

Without adjusting its plans, he said, Britain risked higher unemployment and lower growth in the medium term.

Our view is there is no silver bullet. We are not suggesting that this adjustment in the path of fiscal consolidation would be enough to restore the economy to full utilisation. But we do think it could play a useful and a helpful role for the economy, for workers, and for companies.

The key quotes from Lipton are here.

Lipton said the IMF was encouraged by recent economic data from the UK.  However, it remaind concerned that "persistent low growth" will damage medium-term growth forecasts.

And he didn't shy away from pushing the UK government to do more. On infrastructure spending in particular, he said:

…the government should be more supportive than it has been or it plans to be.

Lipton was speaking after the IMF published its latest annual review of the UK economy. Following a two-week assessment, they also recommended that the UK should speed up the sale of its stakes in RBS and Lloyds. Full report here.

Ed Balls, shadow chancellor, urged Osborne to take the IMF's advice. He claimed Lipton's comments showed that the government had not done enough to support jobs and growth:

Behind the diplomatic language this is the call for action on jobs and growth that the IMF has been threatening to deliver for many months and a stark warning of the consequences if the Chancellor refuses to listen.

More from Balls here.

Updated at 3.00pm BST

1.52pm BST

The IMF is also clear that its recommendations do not amount to a complete new fiscal plan for Britain.

Updated at 2.08pm BST

1.46pm BST

The key quotes from IMF’s David Lipton

David Lipton of the IMF
David Lipton of the IMF.

Watching the IMF's press conference again, the key section comes when David Lipton fleshes out the Fund's recommendation for increased spending on infrastructure.

Q: Are you saying that the UK government should slow its planned pace of fiscal consolidation this year in order to support growth?

Lipton:

Yeah, what we're saying is that… within the framework of its medium-term objectives, that it would be in our view useful for the economy for some… infrastructure investment and other measures to be brought towards the present to reduce the drag that is presently intended under the present framework in this year and in the coming years.

In essence this would be to allow the adjustment to take place in a more backloaded fashion and provide more support for the economy at the front end of the period.

Lipton was then asked whether the government should look to offset the full £10bn of drag from the fiscal consolidation this year., and replies:

We see room to offset the drag from the planned discretionary measures…. I want to be clear, we are recommending a range of other policies beside fiscal policies that would also be supportive of the economy.

Our view is there is no silver bullet. We are not suggesting that this adjustment in the path of fiscal consolidation would be enough to restore the economy to full utilisation. But we do think it could play a useful and a helpful role for the economy, for workers, and for companies.

Now, to determine exactly how much is feasable one has to look through the infrastructure roster and see what can be advanced. Our view is that what can be advanced, should be advanced.

You can watch a recording of the press conference here. The above quotes are from 14 minutes in.

Updated at 2.35pm BST

1.22pm BST

Key event

Back at the Treasury, David Lipton is explaining to journalists why the government should bring forward more infrastructure spending to help the economy.

Faisal Islam of Channel 4 News tweets the highlights:

1.07pm BST

Balls: Osborne should listen

Ed Balls MP, Labour’s shadow chancellor, says that "behind the diplomatic language" the IMF is urging the government to adjust its plans.

Here's his full statement:

Behind the diplomatic language this is the call for action on jobs and growth that the IMF has been threatening to deliver for many months and a stark warning of the consequences if the Chancellor refuses to listen. 

The IMF is clear that we are a long way from the strong and sustained recovery we need and backs the warnings we have made for three years that the Government’s plans are a drag on growth and risk doing long-term damage.

They say, as we have, that you need to strike a balance between the pace of fiscal consolidation and support for growth and jobs. And it is clear that the Government has not got that balance right. That is why the IMF is calling for urgent action to kick-start the economy, including bringing forward long-term infrastructure investment.

With the IMF warning that the recovery is far from secure and the risks are to the downside, a sensible Chancellor would listen to the IMF’s advice and take action. Only a reckless Chancellor would try to plough on regardless. George Osborne has gained a reputation for always putting politics before economics. This is his chance to redress the balance and do the right thing for Britain.

12.58pm BST

Larry Elliott: IMF wants to see more action

Our economics editor Larry Elliott was at the press conference, and confirms that while the initial IMF verdict may have appeared to have pulled its punches, that was not the message coming out from Lipton:

Larry tell me that the Fund's verdict is:

The UK economy is very weak and it has serious problems. The IMF may have couched its report in more diplomatic and palatable language but the definite message is that they want to see more action.

There's another briefing at the Treasury now, and Larry will be giving his full analysis later.

12.56pm BST

Curious press conference, that. David Lipton was rather more critical of the govenment's plans than in the IMF's official statement.

That statement's now online here:

Updated at 1.16pm BST

12.46pm BST

The press conference is over. Reaction and analysis to follow.

12.46pm BST

What the IMF is suggesting:

Lipton explains that the IMF's proposals are still 'fiscally neutral' over the long term.

But the fund is effectively suggesting that some of the government's fiscal adjustment should be pushed backwards.

And Lipton also warned that the UK could suffer higher unemployment and lose economic capacity permanently if ignores the advice.

12.39pm BST

Q: Would Britain be in a better place if the government had prioritised infrastructure spending earlier?

Yes, Lipton replies. If there had been greater focus several years ago then it would be easier to get projects under way now.

But that's with the benefit of hindsight, he adds….

12.35pm BST

Another question on whether the IMF has changed its mind on Britain.

Lipton replies that the Fund is encouraged by recent data, but still believes the government should do more to stimulate growth:

The economic data shows an uptick… we acknowledge that and welcome that but it's modest so far…

The output gap remains substantial and likely to remain so for some time, so we continue to see areas for further action.

12.32pm BST

£10bn spending cuts will hurt growth

The IMF is pretty clear that the spending cuts being implemented tthus year will hurt growth — thus its call for extra growth measures.

Here's the key section from the report:

But planned fiscal tightening will be a drag on growth. Discretionary measures for this fiscal year amount to £10bn.

These will pose headwinds to growth, as expected, coming on top of domestic deleveraging and a weak external outlook, notably at a time when resources in the economy are underutilized.

Updated at 12.32pm BST

12.30pm BST

Key event

Q: Has the IMF toned down its criticism of the UK, having been so critical of Osborne earlier in the year?

Lipton replies that there are areas where Britain must do more to address demand and supply constraints.

In particular, infrastructure spending. Lipton explains:

On a range of areas, the government should be more supportive than it has been or it plans to be…. and this effort should start now…

12.26pm BST

"There's no single silver bullet" to improve the UK economy, Lipton says.

But bringing forward capital spending (as explained at 12.11pm) would be good for businesses, and good for consumers, he suggests.

12.24pm BST

At the press conference, David Lipton is saying Britain needs a multi-pronged approach to the crisis. The government should do more to stimulate growth, and the Bank of England should keep interest rates low until the economy is strong.

Updated at 12.27pm BST

12.23pm BST

You should be able to watch the press conference on the BBC's website, or on Reuters here.

12.21pm BST

Heather Stewart: the mood music is grim

Here's some rapid analysis from my colleague Heather Stewart:

Even before the IMF's team touched down in London, Treasury officials had promised to put up a staunch defence of their tax-and-spending policies.

George Osborne will regard it as a triumph that his officials succeeded in persuading the IMF a) to concede that there are signs of life in the UK economy; and b) to leave out any specific call for a change of heart on fiscal policy. 

But the mood music is still grim: the IMF stresses the "tepid" nature of the recovery, and warns that growth is likely to remain weak for a prolonged period, as the banking sector repairs itself and the eurozone downturn rolls on.

Against that backdrop, it says, the Treasury faces a "dilemma", between fixing the deficit, and underpinning growth. And reading between the lines, the IMF is fairly clear about which prong of the dilemma it would seize: it warns of the "permanent" damage that could be done to the economy by a long period of economic weakness.

12.18pm BST

Key event

The IMF press conference in underway in London, with David Lipton outlining the situation in the UK.

He gave a sobering assessment of the UK economy, saying the recovery is slow, and explaining how a new burst of capital spending could secure the recovery.

The key message form Lipton, really, is that Britain faces an unpleasant dilemma:further fiscal consolidation will weaken the UK output, and risk permanent damage to the economy.

However, relaxing the pace of fiscal consolidation will see debts accumulate further.

Thus, he suggests, Osborne's best plan is to pursue measures that address "supply-side constraints" and also provide near-term
support for the economy.

Particularly, he adds, when Britain's borrowing costs are so low and peopel are out of work:

In the current context in which labor is underutilized and funding costs are cheap, the net returns from such measures are likely to be particularly favorable.

12.12pm BST

As expected, the IMF also urges the government to get Royal Bank of Scotland and Lloyds back fully into the private sector as soon as possible.

12.11pm BST

The IMF’s growth recommentations:

While not directly criticising Osborne's fiscal programme, the IMF calls for several "growth-enhancing initiatives" to offset the drag from consolidation and bolster the recovery.

It also warns that the chancellor's new Help To Buy scheme could backfire.

Here's the iMF's growth recommentations:

• Bringing forward planned capital investment where possible, which would help catalyze private investment and spur much-needed growth. Alongside this, well- designed public guarantees could be used to facilitate private investment.

• Further modifying the composition of consolidation to boost growth. This could include growth-friendly measures, such as reducing marginal effective corporate tax rates to bring investment forward, and introducing tax allowances for raising equity.

To offset the budgetary impact of these measures over the medium term, the government could undertake a reform of property taxes and consider broadening the VAT base.

• The 2013 Budget announced a new scheme, Help To Buy, aimed at boosting activity in the housing market. This measure may temporarily help boost confidence in the housing market, but there is a risk that, in the absence of an adequate supply response, the result would ultimately be mostly house price increases that would work against the aim of boosting access to housing. To mitigate this risk and engineer a supply response, the government should consider fiscal disincentives for holding land without development. 

Updated at 12.11pm BST

12.06pm BST

IMF: Prolonged weak growth likely

Despite those recent signs of recovery, the IMF warns that Britain faces the prospect of a prolonged period of weak growth, with risks to the downside.

The eurozone crisis is a key threat, it added: Here's the key section:

The key risk is that persistent slow growth could permanently damage medium-term growth prospects—this could arise if private sector deleveraging is larger than expected, credit conditions fail to improve, external demand does not pick up, and the drag from fiscal consolidation is greater than anticipated.

In addition, despite recent market calm, growth in the euro area is likely to be weak, and the re-emergence of market tensions cannot be ruled out, with the potential for continued spillovers to the UK from depressed exports, higher bank losses and funding costs.

Updated at 12.06pm BST

12.01pm BST

IMF: UK faces slow recovery

The report is out! And the International Monetary Fund has warned that the UK faces a slow recovery.

It urges the government should implement new growth measures to stimulate the economy.

But it has not directly call on George Osborne to delay his spending cuts, saying there are "nascent signs of momentum”.

There's no explicit call to slow the pace of fiscal consolidation, but the IMF remains concerned about the economic situation.

In its official statement following the two-week visit to London, the IMF said there are encouraging economic signs, but warns:

The UK is, however, still a long way from a strong and sustainable recovery.

Notwithstanding the recent uptick in activity, per capita income remains 6 percent below its pre-crisis peak, making this the weakest recovery in recent history.

Of particular concern is that capital investment (as a share of GDP) is at a postwar low, and that youth unemployment is high.

More to follow!

Updated at 12.01pm BST

11.51am BST

Just under 10 minutes to go until the IMF's conclusions are announced.

It'll be followed by a press conference with David Lipton, first deputy managing director of the IMF, and Krishna Srinivasan, IMF assistant director and UK mission chief.

And lots of reaction from Westminster and the City…

11.27am BST

Speaking of tax, deputy prime minister Nick Clegg has said he raised the issue with Google's chief executive on Monday. My colleage Andrew Sparrow has the details in his Politics Live blog.

11.24am BST

Cameron on tax avoidance

British Prime Minister David Cameron arrives for the European Council meeting at the EU headquarters in Brussels on May 22, 2013.
British Prime Minister David Cameron arriving for the European Council meeting this morning. Photograph: GEORGES GOBET/AFP/Getty Images

Back to Brussels, and David Cameron banged the drum against tax avoidance as he arrived for today's European Council meeting.

The PM told reporters that international collaberation was a key part of ensuring that companies were paying appropriate amounts of tax.

Reuters has the quotes:

I believe in low taxes for businesses because we have got to encourage investment, we have got to encourage jobs."

"We have got to make sure as we set those tax rates that companies pay taxes and that means international collaboration, the sharing of tax information."

"I am making that the headline of my G8 summit in a month's time and it is important that we make sure that (in) the European Union as well, that we act together to make sure we do everything on this agenda.

It is good for our own countries, it is also good for the developing world as well.

11.07am BST

Under an hour to go until the IMF releases its statement on the UK economy.

In the meantime, the Labour Party has cited today's public borrowing figures (Britain borrowed £8bn in April) as proof that George Osborne should change course.

Here's the statement from Chris Leslie MP, Shadow Financial Secretary to the Treasury:

The Government’s failing economic policies continue to be self-defeating. A flatlining economy and high unemployment means lower tax revenues and more benefits spending, which is why deficit reduction has stalled.

Underlying borrowing was £1.3 billion higher last month compared to a year ago and the Government is now set to borrow £245 billion more than planned. This is not more borrowing to invest in creating jobs for the future, but simply to pay for the costs of this government’s economic failure.

After three years of failure the Chancellor must realise that we need strong and sustained growth to get the deficit down. Alongside sensible spending cuts and tax rises we need a jobs and growth plan, including building thousands of affordable homes and a compulsory jobs guarantee for the long term unemployed.

But will the IMF agree? Not long until we find out….

10.54am BST

Corporate tax avoidance is of the major issues under discussion at today's European Council meeting.

The Irish government has insisted today that the problem can only be solved through global co-operation, which sounds like another attempt to rebut criticism of its own low corporation tax rate,

Reuters has the story:

The international community needs to work together to stop large multinationals aggressively playing one country's tax code off against another, Ireland's Minister for Enterprise said on Wednesday.

"They play the tax codes one against the other, that is tax planning and I think we do need international cooperation through the OECD to deal with the aggressive nature of that," Richard Bruton told national broadcaster RTE.

Irish prime minister, Enda Kenny, may expand on this point when he briefs the media in around 40 minutes time.

10.44am BST

Over in Brussels, European leaders are arriving for today's European Council meeting. There's a live feed here.

10.13am BST

Rob Wood, chief UK economist at Berenberg, agrees that it's "too premature" to call the UK as out of the woods, following that drop in retail sales.

Households are struggling with price rises outstripping earnings growth and government benefit cuts.

10.10am BST

Retail sales, the reaction

The pound has dropped over half a cent to below .51 as traders digest the news that UK retail sales were so weak in April.

Economists are concerned too. Here's Howard Archer of IHS Global Insight:

Even allowing for the negative impact of ongoing cold weather and the fact that Easter occurred in March this year, April’s marked drop in retail sales provides a reminder that the economy is not yet out of the woods and still has a challenging job to develop sustained, clear growth.

It's certainly hard to believe a 4.1% drop in food sales can be blamed on Easter and the weather:

9.57am BST

Britain borrowed £8bn to balance its books in April, a record for the month.

However, strip out the effect of the 2008 bank bailouts, and the monthly deficit came in at £6.3bn – below forecasts. So better news than the disappointing retail sales:

9.48am BST

Weak retail sales

UK retail sales took an unexpected, and nasty, tumble in April, new data just showed.

Retail sales fell by 1.4% in April (stripping out fuel costs), their biggest fall in a year, suggesting that the economy may not be recovering as briskly as hoped.

Food sales were down by 4.1%. The Office for National Statistics blamed the bad weather in April — apparently sales of barbecue food and garden furniture were particularly weak.

Updated at 9.56am BST

9.39am BST

The Bank of England minutes are online here:

Here's the section on the MPC's assessment of the economy:

News on the month had on balance been favourable and it was likely that the level of output at the end of Q2 would be 0.7% higher than the Committee had expected three months ago.

By and large, asset prices had continued to rise, but the outlook for the global economy remained subdued, and the risk of a more severe crisis in the euro area remained a major potential impediment to the domestic
recovery.


Outvoted again: Sir Mervyn King. Photograph: David Jones/PA

9.33am BST

Bank of England minutes released

The Bank of England's monetary policy committee remained divided 6-3 on whether to expand its quantitative easing programme, minutes of its last meeting show.

Governor Mervyn King, Paul Fisher and David Miles all pushed for another £25bn of QE, but were outvoted again.

And setting the scene for the IMF press conference at noon, the MPC said it was more upbeat about the UK economy….but still concerned about the eurozone.

More to follow.

9.26am BST

Treasury insiders are prepared for IMF criticism, despite recent upbeat economic data, according to Claire Jones and Chris Giles in the Financial Times.

They point to Tuesday's fall in inflation, for the first time since last September:

The timing is ideal for a chancellor at loggerheads with fund economists.

But officials do not think the better economic data will be enough to silence IMF calls for the UK to reduce the pace of deficit reduction.

And like Nick Watt this morning (see 8.09am), the FT also reckons the chancellor will not bow to any criticism.

9.12am BST

Gaby Hinsliff: Osborne may not be dead in the water

Is the worst over for George Osborne, asks Gaby Hinsliff this morning. As she points out, the chancellor has looked quite upbeat recently "for a man undergoing the economic equivalent of having the Ofsted inspectors in" (great phrase):

The buzz in Whitehall is that today's crucial IMF assessment of the economy, compiled by a team that has spent weeks embedded in the Treasury, won't be without criticism but will be less devastating than initially feared.

After several false alarms, the Treasury finally thinks it spies light at the end of a very dark tunnel.

There are reasons for optimism, now that the UK economy has returned to growth. Britain's dominant service sector just posted its best month since the Olympics, for example, and the stock market rally (the FTSE 100 hit a new 12-year high last night) means a section of the population are feeling wealthier. 

It may be the wrong sort of recovery — based on asset bubbles rather than a resurgence of British industry. But as Gaby explains, there are major political implications:

And after five miserable years, better-off swing voters may well be tempted to treat even fake prosperity much as Britons traditionally do the first sniff of sunshine, by getting out there and frying while it lasts.

They're going to take some convincing that it's a bad thing for their pension funds to be growing again in a bullish stock market, or for their houses to be worth stupid amounts – even if they are worried about their own children being forced off the property ladder. The challenge for Labour, then, may soon be persuading voters to look this dubious economic gift horse in the mouth.

Here's the full piece:

George Osborne may not be dead in the water after all. What will Labour do then?

Updated at 9.12am BST

8.55am BST

Larry Elliott: Furious Osborne has tried to change IMF’s mind

Someone stands to lose face today when the International Monetary Fund passes judgment on the UK, says our economics editor Larry Elliott.

But will it be George Osborne, or the IMF's chief economist Olivier Blanchard?

It was Blanchard who last month famously criticised the chancellor's March budget for not containing more growth-friendly measures. Christine Lagarde, the head of the IMF, also went public with her worries over the UK.

Larry writes:

George Osborne was furious when IMF chief economist Olivier Blanchard dropped his anti-austerity bombshell during its spring meeting in Washington. The Treasury has been doing its utmost to get the IMF mission to change its view during talks over the past fortnight.

But Larry also flags up that Robert Reich, former labour secretary under Bill Clinton, revealed yesterday that US policymakers use Britain as an example of the dangers of austerity….

8.43am BST

The agenda

David Lipton, first deputy managing director of the IMF, and Krishna Srinivasan, IMF assistant director and UK mission chief, will hold a press conference at noon in the Treasury, in London.

Their report, officially called the Conclusion of IMF Article IV Mission to the United Kingdom, will also be released at 12.00pm.

There's also a torrent of UK economic data this morning, including the details of the Bank of England's last monetary policy meeting.

And in Europe, leaders will be meeting for a European Council meeting where growth and tax avoidance will be discussed.

• Bank of England minutes: 9.30am BST

• UK public finances and retail sales: 9.30am BST

• CBI industrial trends: 11am BST

• European Council meeting; afternoon

• Ben Bernanke, Federal Reserve chairman, testifying at the Senate: 3pm BST

8.30am BST

IMF could push for bank sale stake

The IMF may also push the UK government to speed up the sale of its stakes in Royal Bank of Scotland and Lloyds Banking Group.

There were reports last night that today's report will recommend that disposing of the £65bn stakes in the two bailed-out banks is made a priority.

Speculation has been building for weeks that George Osborne could start the selloff process soon, although the chancellor has not yet laid out a timescale. At present, though, RBS's share price is below the price at which the taxpayer bought its stake.

My colleague Jill Treanor explains:

Hopes of a sell-off of the 39% stake in Lloyds and 81% stake in RBS have risen in recent days as their share prices have climbed. On Tuesday shares in Lloyds closed just above 61p, the level which the Treasury has signalled it now regards as break-even for the taxpayer, while RBS was at 342p, still below any break-even targets set by the government.

8.09am BST

IMF to deliver verdict on UK today

Good morning. The British government and the International Monetary Fund could go toe-to-toe today, when the IMF publishes its annual healthcheck of the UK economy.

After two weeks trawling through the nation's accounts and interviewing top officials, the IMF will release its conclusions at noon, followed by a press conference in London.

The IMF had been expected to call for George Osborne to make fresh moves to stimulate the economy, and slow the pace of his fiscal cuts package.

Just a month ago, its top economist warned that the UK government was "playing with fire" by not doing more to boost the weak economy. But recent data – including the news that Britain's economy has started growing again – may have changed the IMF's mind. Or could at least mean its criticism is watered down.

David Cameron's government has already nailed its fiscal colours to the mast, declaring that it remains confident in its plans.

Nicholas Watt, our chief political correspondent, writes this morning:

Downing Street said on Tuesday that it would not anticipate what the IMF will say when it publishes its annual healthcheck of the British economy under its article IV programme. But the prime minister's spokesman added: "The government believes it has the right economic approach."

Downing Street said that the latest GDP figures showed that the British economy is growing and jobs are being created. "Our view is the economy is healing and we are on the right road but we have to stick to it," Cameron's spokesman said.

Nick's full story is here: Government will 'stick to its plans' when IMF delivers verdict on economy.

I'll be tracking the story through the day, along with other key events in the UK economy and beyond.

Updated at 8.20am BST

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In the trading room today: Can the EUR Hold On to Recent Gains vs USD? With the next couple of days scheduled to bring important economic data from the euro-zone, we take a close look at the EUR and explore the potential for the single currency to continue its recent decline against the greenback, we analyze the latest trend developments in the EUR/USD currency pair, we note the bearish breakout in the GBP/USD pair, we keep an eye on the USD/JPY pair as it approaches multi-year highs, we highlight the market’s reaction to the Bank of Japan interest rate announcement, the Bank of England Meeting Minutes, the Japanese Trade Balance, and the U.K. Retail Sales, we discuss new forecasts from Deutsche Bank, Barclays and Credit Suisse, and prepare for the trading session ahead.