European Central Bank and Bank of England leave interest rates unchanged

Both, the European Central Bank and the Bank of England decide to stay the course leaving their benchmark rates unchanged for another month. ECB raises growth projections for the euro-area. Mario Draghi is being quizzed by journalists…


Powered by article titled “European Central Bank press conference after leaving interest rates unchanged – business live” was written by Graeme Wearden, for on Thursday 6th March 2014 14.00 UTC

A Japanese journalist (apologies, I missed her name) gets the second question — asking why the ECB didn’t end the sterilisation of its bond-buying programme (to boost liquidity); and seeking details of why Draghi thinks the eurozone can avoid a Japanese-style deflation trap.

Draghi replies that ending such sterilisation is certainly a tool at the ECB’s disposal, but the governing council did not see the “unwarranted tightening” that would justify it.

Also, it would have a limited impact, lasting “less than a year” (analysts say it would put €175bn of new liquidity into the system).

And on Japan - Draghi says that inflation expectations remain well-anchored in the eurozone, unlike in Japan 20 years ago.

He says people expect the ECB to take action when needed (joking that reporters turn up in Frankfurt each month expecting policy changes, and are disappointed when it doesn’t).

And he pins some of the blame for Europe’s low inflation on global factors such as falling energy prices, and the fact that prices are falling in the ‘programme’ countries where tough austerity is being imposed.

Q&A begins:

Onto questions….

Brian Blackstone of the Wall Street Journal takes the microphone…

…and asks Draghi why the ECB has done nothing today, after saying a month ago that today’s economic forecasts would give the central bank the information it needed to take action:

Draghi replies that the new forecasts reaffirm the ECB’s view that a moderate recovery is underway.

He points to recent data showing a recovery in the service sector – important, as it is the major source of job creation.

The gap between consumer confidence between the periphery and the core of the eurozone has narrowed, he says.

And the jobless rate remained flat (with a “striking” fall in Portugal).

We asked ourselves whether the contingencies that I hinted at last month, such as an unwarranted tightening of financial conditions, or a worsening of the inflation outlook, had happened – and they had not, Draghi explains.

Draghi ends his statement with the usual warning that governments must continue decisive economic reforms, making it ‘easier to do business, and boost employment’ in the region.


ECB raises growth forecasts, but sees low inflation for a while

Draghi is giving some details about the ECB’s new economic forecasts.

The central bank now expects slightly faster growth this year, picking up pace in 2015 and 2016.

The inflation forecasts are interesting too — the ECB does not see it hitting the target of “close to, but below 2%” in 2016:

On the jobs crisis, Draghi says that unemployment in the euro area is “stabilising” but remains high (it was flat at 12% in January).

The euro is rising, up half a cent against the US dollar to €1.37, as Draghi fails to announce any new measures – not even an end to sterilising its bond-buying programme (yet, anyway)

Draghi also points to spare capacity in the euro area:

Draghi reiterates the ECB’s ‘forward guidance’ – that interest rates will remain at their present levels, or lower for an extended period.

Inflation expectations in the medium and long term, continue to be firmly anchored. he says.

Draghi adds that the ECB remains determined to maintain the high degree of accommodative monetary policy for as long as needed, and will take further actions as it sees fit.

And we’re off.

Mario Draghi confirms that the ECB has left the key interest rates unchanged, with the latest data showing that “the moderate economic recovery in the eurozone is proceeding.”

But the ECB’s latest economic forecasts confirm that the eurozone faces a prolonged period of low inflation.

The press pack are assembled at the ECB… now we just need Mario Draghi.


Credit Agricole’s Frederik Ducrozet says there are five things to watch out from Mario Draghi – including the ECB’s new economic forecasts, and whether today’s decisions were unanimous:

RBS economist Richard Barwell reckons Mario Draghi will tell reporters this afternoon that the eurozone economy is healing, and that the ECB certainly would act if needed.

He told Reuters:

”There will be two messages:

firstly, things are eventually going to get better and therefore we don’t need to act today. Secondly, if things get any worse in the near future, we absolutely will act.”

Mario Draghi’s press conference, which begins at 1.30pm GMT (2.30 CET), will give the ECB chief the opportunity to announce any new measures — or perhaps hint at future plans.

As explained in our opening post, the European Central Bank could boost liquidity in the euro area, by ending a process which ‘soaks up’ money spent on eurozone bonds at the height of the crisis (Reuters has a good explainer here).

European Central Bank leaves interest rates unchanged

HERE WE GO. The European Central Bank has voted to leave its main interest rate unchanged, at 0.25%. There’s a brief statement here.

The deposit facility, which banks receive on overnight deposits with the Eurosystem, remains at 0.0%.

The marginal lending facility, which banks pay to borrow overnight, remains at 0.75%.

So, no reaction from the ECB to the low inflation rate in the eurozone (just 0.8%), or the weak growth rates in many members of the currency region.

Next up, Mario Draghi’s press conference in just under 45 minutes time, and the ECB’s new economic forecasts.

Nearly time for the ECB’s decision. A majority of City economists reckon it will also leave interest rates unchanged, but a few reckon we could see a cut….

BCC: No rate rises yet, please

David Kern, chief economist at the British Chambers of Commerce (BCC), hopes the Bank of England will continues to leave interest rates alone for some time:

Kern argues the “continued clamour for early rate rises” is unwelcome and undermines the benefits of the Bank’s forward guidance (that borrowing costs won’t rise until the UK economy is stronger):

Even though we are getting closer to pre-recession GDP levels, this does not mean that the economy is back to normal.

“At a time when inflation is below target and is expected to remain stable, the recent strength of sterling will help to dampen any new inflationary pressures, and should reinforce the case against interest rate increases. Maintaining low rates underpins economic stability, enabling businesses to proceed with much needed investment – in the interests of growth and jobs.”

Today’s decision means UK interest rates have been pegged at just 0.5% for every month since March 2009.

Bank of England decision

NO CHANGE. The Bank of England has voted to leave UK interest rates unchanged at their record low of 0.5%, and also left its quantitative easing programme untouched at £375bn.

Five minutes until the Bank of England’s decision on UK interest rates. There’s little tension in the City, though, given the Bank’s ‘forward guidance’ that rates won’t be lifted until the economy is stronger.

Sony Kapoor, of the ReDefine thinktank, isn’t optimistic that the ECB will announce new measures today:

A couple of photos from today’s clashes (see also 10.59am) between anti-austerity demonstrators and riot police in Athens, after protests were banned during the German president’s visit.

The demonstration was organised by the communist PAME union.

AP reports that riot police used tear gas and pepper spray after “several dozen demonstrators” tried to break through a police cordon preventing them marching to the Finance Ministry.

German factory orders up 1.2%, but dangers loom

Germany’s manufacturing sector made a good start to 2013 — industrial orders jumped 1.2% in January, beating forecasts, according to a new survey from the German Economy Ministry.

It was driven by a 1.6% jump in domestic business, while new orders from overseas rose by 1.0%

Carsten Brzeski, ING economist, says the short-term outlook for the German economy had picked up — but the Ukraine crisis shows the importance of creating more domestic demand.

He writes:

Taken one-by-one, slowing emerging markets, Russia or the Ukraine are too small to matter for the economy. However, together with China, all these countries together account for around 15% of all German exports.

It looks as if the basis for a strong pick-up in German exports is shrinking.

All in all, today’s data send two important messages for the German growth outlook. The near term looks very rosy and industrial production should gain further momentum. To maintain this momentum into the longer term, however, the economy needs more domestic demand.


German president visits Greece; clashes in Athens

Riot police and anti-austerity protesters have scuffled in Athens, as German president Joachim Gauck begins a visit to Greece.

Gauck, who inspected a guard of honour this morning, is expected to visit a second world war memorial site tomorrow.

Athens authorities had imposed a ban on protests in parts of Athens today – which was defied by some demonstrators.

AP has the story:

Riot police have used tear gas and pepper spray during scuffles with union members protesting austerity measures, during a ban on demonstrations in parts of central Athens due to a visit by German President Joachim Gauck.

Scuffles broke out Thursday when a group of several dozen demonstrators attempted to break through a police cordon on a major avenue in an effort to march to the Finance Ministry.

The demonstrations were unrelated to the visit by Gauck, who was meeting with his Greek counterpart and was due to visit the site of a Nazi massacre in central Greece Friday.

Authorities banned all demonstrations from 8 a.m. to 7p.m. local time in parts of the city, citing security concerns. Several hundred union members, mainly construction workers, had already scheduled demonstrations.

These tweets (more here) appear to show the clashes:

Greek newspaper Kathimerini reports that Gauck refused to discuss demands in Greece that Germany should pay reparations for World War II atrocities. But he said Germany bears an undeniable “moral burden.”

Germany says it has settled all World War II reparations issues, and the Greek government has been reluctant to aggressively pursue the matter.

But opposition politicians have seized on Gauck’s visit to call for action.

German president seeks to visit Nazi massacre site


Greek jobless rate drops a little

Greece’s unemployment rate has dropped slightly in December to 27.5%, down from 27.6% in January, but more than double the average for the euro area.

The small decline was due to more people dropping out of the labour market altogether.

The ELSTAT statistics body reported that the number of people actually in work fell by 5,418 in December , while the number counted as unemployed dropped by 10,864.

The total classed as ‘inactive’ (rather than unemployed) rose by 4,453.

The survey also showed that women are worst hit by the Greek jobless crisis — with almost a third unemployed, compared to a quarter of men.

And there was a small annual drop in the youth jobless rate – to 55.5% from 57.1% a year ago.

On an annual basis, almost 100,000 people lost their jobs during 2013, the sixth year of Greece’s recession, while the unemployment total rose by almost 50,000 and the inactive total rose by 47,000.

There are now:

  • 3,555,034 people employed in Greece
  • 1,349,495 people unemployed
  • 3,388,917 people inactive.

Compare and contrast….

John Lewis staff get 15% bonuses

Just in: staff at the John Lewis Partnership are getting bonuses worth almost eight week’s pay — slightly less than a year ago.

The group, famously owned by its workers, reported that employees will share a £202.5m bonus pot for 2013. That’s worth around 15% of salary to its 91,000 partners.

Gross sales broke through the £10bn figure, up 6%, with solid growth at its Waitrose supermarket outlets and John Lewis department stores.

The John Lewis bonus pot is announced to staff across the organisation at the same moment each year.

Pre-tax profits before exceptional items rose almost 9% to £376.4m, but was down 4% at £329m once the £40m cost of compensating staff who were underpaid over holiday pay for several years.

This year’s payment was also hit by the cost of servicing its pension deficit (which is now over £1bn).

Full details here.

Chairman Charlie Mayfield said the outlook looks quite bright:

There are more encouraging signs for the economy as a whole and, although this has not yet come through as a significant increase in consumer spending, I am cautiously optimistic that we will see improvements this year.

I am confident that however quickly the UK economy emerges from this prolonged period of slow growth, the Partnership is well positioned to continue to strengthen its competitive position and to grow market share in both Waitrose and John Lewis.


While Britain’s house prices are accelerating, car sales are slowing down. The SMMT reports that registrations of new vehicles rose by 3% in February, rather lower than the 7.6% seen in January.

New car sales had jumped by over 10% last year, as the British car market outperformed the eurozone.

Today’s Halifax house price survey also shows that affordability is falling towards levels seen in the late ‘80s, as Sky’s Ed Conway flags up:

European markets calm ahead of the ECB

POP. The Milan stock market just hit its highest level since June 2011.

The Italian FTSE MIB jumped 211 points to 20970, a 1% gain.

European investors remained calm as they await the European Central Bank’s meeting, and its new economic forecasts. The Ukraine crisis appears to have drifted off the City’s radar.

In London, the FTSE 100 has gained 27 points to 6802, up 0.4%, with Aviva leading the way after this morning’s decent results.

Germany’s DAX is up 0.4%, and the French CAC has gained 0.6%.

In the currency markets, the euro is flat against the US dollar at $1.372


In the stock market, Aviva’s share price has surged 8% after reporting a 6% jump in operating profits. CEO Mark Wilson says insurance firm’s turnaround plan is working, a year after a shareholder rebellion forced his predecessor out.

But construction firm Balfour Beatty have slid almost 6% after hitting investors with a 32% drop in profits, which it admitted was “disappointing”.

It blamed “challenging economic conditions and operational issues in UK construction”, and a downturn in the Australian mining sector


Kit Juckes of Societe Generale (and Simon & Garfunkel fan) reckons that the European Central Bank will do little today, writing:

What the ECB is likely to offer us today is a pocketful of mumbles (promises, all lies and jests). And we, of course, will hear what we want to hear and disregard the rest.

The most likely move, Kit says, is ending the ‘sterilisation’ of the sovereign bonds bought by the ECB a few years ago. That would increase euro-ares liquidity by around €175bn (see opening post):

That doesn’t strike me as a game-changer….

I can’t really see what the ECB can do from here to boost credit demand and therefore money supply either.


UK house prices jump 2.4% in February – Halifax

Britain’s housing boom surged again in February, with prices rising at their fastest rate in almost five years.

That’s according to the latest survey from the Halifax building society. It reports that prices rose 2.4% last month, which is the biggest monthly rise since May 2009. The average home is now worth £179,872.

Economists had expected a rise of just 0.7%, and this leap reinforces fears that a bubble may be forming in the housing market (although most of the concern still centres on London).

House prices in the three months to January were 7.9% higher than a year earlier.

Stephen Noakes, mortgages director at Halifax, reckons the price rises will slow later this year — pointing to the recent revival in housebuilding.

”Several factors appear to have boosted demand, such as the improved economic outlook, unemployment falling faster than expected, improvements in consumer confidence and low interest rates.

However, continuing pressures on household finances, as earnings fail to keep pace with consumer price inflation, are expected to remain a constraint on the rate of growth of house prices.

Halifax added that the average house is still worth 10% than the pre-crisis peak in August 2007.

Howard Archer of IHS Global Insight said the data shows the Bank of England was wise to end its support for mortgage lending at the end of 2013:

While the strength of house prices is not yet a serious concern outside of London, it is something that needs to be closely monitored given that a number of recent data and surveys have indicated that the strength in house prices is becoming more widespread.

There is rising buyer interest and strengthening market activity across regions.


For more detail on the ECB decision, check out this breakdown of the latest eurozone data on the WSJ.

ECB decision: what the analysts predict

Economists and analysts are quite divided about what the European Central Bank will do at today’s meeting.

Some argue the fragility of the eurozone recovery means the ECB will cut interest rates to fresh record lows. Others point to January’s stable inflation reading, which calmed fears that the region is sinking into deflation.

Berenberg Bank economist Christian Schulz:

It is a close call this time.

The ECB itself had considerably raised the odds of additional easing action by highlighting, in its last statement, the new inflation forecasts that it will publish at the March meeting. But mostly positive data releases since February have weakened the case for action.

On balance, the data received since the last meeting do not warrant downward revisions of the inflation forecasts. The eurozone recovery is proving resilient to the emerging market troubles.

Jonathan Loynes of Capital Economics:

The second estimate of Q4 Euro-zone GDP (released on Wednesday) confirmed that the economy posted a pretty modest quarterly expansion of 0.3% and that growth was driven by exports (+1.2% q/q) and investment (+1.1%). By contrast, household spending edged up by just 0.1%, leaving the consumer revival required to broaden and strengthen the economic recovery still conspicuous by its absence. Admittedly, January’s retail sales numbers (also released Wednesday) recorded a decent monthly gain of 1.6%. But that followed a drop of almost the same size in December, so it is too early to talk about an upward trend. Indeed, retail sales rose by just 0.1% in the three months to January together.

Therefore, the latest batch of data on the euro-zone provided rather mixed signals for the European Central Bank ahead of its Governing Council meeting But while not certain, we think that some form of action – probably in the form of a further cut in interest rates – is a strong possibility.

Ian Williams of Peel Hunt

Although [February’s PMI surveys ] are consistent with Q1 GDP growth of up to +0.5% QoQ across the region, the employment picture is sluggish and price pressures subdued. There is still a case for more policy action after today’s ECB meeting.

Stan Shamu of IG:

Perhaps the main issues to look for would be a cut to the refinancing rate from 25 basis points to say 10 basis points. The idea here is to limit the upside in EONIA (interbank lending rates) rates. There is also a lot of talk about not sterilising the bonds it purchased through its Securities Market Program (SMP) during 2012. This would cap gains in the EUR as it could see its balance sheet expand by around 6%.

There will also be focus on revisions to the ECB’s economic projections.


ECB and Bank of England set policy today

Good morning, and welcome to our rolling coverage of the financial markets, the world economy, the eurozone and business.

It’s Central Bank Thursday — with the European Central Bank and the Bank of England both holding their monthly monetary policy meetings today.

Analysts are split over whether the ECB will take new action to stimulate the eurozone economy, with some hoping that its president, Mario Draghi, hasn’t given up being decisive for Lent.

As Frederik Ducrozet of Credit Agricole puts it:

The ECB has several tools at its disposal if it decides to do more to promote growth and drive inflation up.

It could cut the headline interest rate in the eurozone, which is already at a record low of 0.25%.

Another option is to stop ‘sterilising’ the eurozone bonds it bought to calm the crisis in 2011 and 2012. That would pump more liquidity into the euro financial sector.

The ECB could announce a scheme to drive credit to small firms — similar to the UK’s ‘funding for lending’ scheme’. There’s even the possibility of imposing negative interest rates on eurozone banks to force them to lend more.

Importantly, the ECB has new economic forecasts to work with, showing how its economists expect growth and inflation to pan out through to 2016.

Those forecasts could give it the impetus for action. Although, with the inflation rate stable at 0.8% last month, and the Ukraine crisis looming over the economy, the ECB may decide to sit on its hands for another month

The ECB releases its decision at 12.45pm GMT, followed by a press conference at 1.30pm GMT.

We’re not expecting any fireworks from the Bank of England, as we enter the sixth year of record low interest rates. The BoE will surely leave borrowing costs at the current record low at noon – although there’s always a (thin) chance of a statement.

Yesterday marked the fifth anniversary of UK interest rates at their record low of 0.5%.

Also coming up today – two pieces of economic data from the countries which book-end the eurozone economy:

Greek unemployment survey for December, at 10am GMT

German factory orders for January, at 11am GMT

I’ll be tracking all the key events through the day… © Guardian News & Media Limited 2010

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