Bank of England cuts growth forecasts and leaves rates on hold

 

Powered by Guardian.co.ukThis article titled “Bank of England cuts growth forecasts and leaves rates on hold – as it happened” was written by Graeme Wearden, for theguardian.com on Thursday 4th February 2016 18.51 UTC

One last thing…The London stock market outperformed its French and German rivals today, to finish 61 points higher, or 1%, at 5898.

Mining shares led the way, with Anglo American surging by 19%, Glencore gaining 15% and Antofagasta jumping by 14%.

That followed the sudden weakening in the US dollar, as Wall Street and the City anticipated that US interest rates would not rise much this year, given recent weak data.

A cheaper dollar pushes up commodity prices, while looser monetary policy should be good for growth. Welcome news for miners, who had a torrid 2015.

Mining stocks have also been heavily shorted by hedge funds, so those bears will have been squeezed by the rising share prices.

Good night. GW

Updated

A late PS…

Larry Elliott, our economics editor, has summed up the message from the Bank of England today. Here’s his conclusion:

There are three conclusions to be drawn from the inflation report, the minutes and the governor’s letter.

The first is that it would now be a major surprise if interest rates rose this year.

The second is that the Bank’s credibility has been dented by its failure to call the economy right and the confused messages it has been sending out to the public.

Finally, the prospect of 0.5% interest rates extending into an eighth and perhaps a ninth year risks stoking up a housing boom. The Bank has so-called macroprudential tools that can be deployed to cool down the property market without damaging the rest of the economy. It is going to need them.

And finally, a couple of photos from today’s press conference just landed:

Mark Carney, the Governor of the Bank of England, speaks during the quarterly Inflation Report press conference, in London, Thursday, Feb. 4, 2016. The Bank of England policymakers have voted to keep interest rates at their record low of 0.5 percent as Governor Mark Carney unveils economic forecasts for Britain. (Niklas Halle’n, Pool Photo via AP)
Bank of England Inflation Report Press Conferenceepa05142914 Bank of England Governor Mark Carney speaks during a press conference at the Bank of England in London, Britain, 04 February 2016. The Bank of England has cut its prediction for growth for 2016 from 2.5 per cent to 2.2 per cent and has decided to keep interest rates at 0.5 per cent. EPA/WILL OLIVER

Ouch. The latest economic data from America is a reminder of why the Bank of England is worried about the global economy.

US factory orders shrank by 2.9% in December, according to new data – the biggest drop since the end of 2014.

Being criticised by journalists is an occupational hazard in central banking, but Mark Carney doesn’t appear to enjoy it.

So he may not particularly like this analysis of today’s inflation report, from Sky News’s Ed Conway.

Mr Carney’s problem is that every time he makes a big forecast he seems to get it wrong.

When he came into office, the Governor brought with him a whizzy new framework for setting UK interest rates. Under “forward guidance”, he would provide clarity about borrowing costs.

He promised, based on the Bank’s forecasts, that he and the Monetary Policy Committee would start to consider lifting them only when unemployment dropped beneath 7%.

Suddenly, within a few months, the jobless rate, hitherto stuck stubbornly above that level, started to come down. Within a year, forward guidance had to be dropped, replaced with a far more vague set of promises some nicknamed “fuzzy guidance”.

Not to be deterred, Mr Carney started to drop hints about when the first rise in rates would come. In a speech at the Mansion House in 2014 he signalled that rates would go up sooner than markets expected (which meant within a year). That was wrong.

Last summer he predicted the decision to raise rates would come into sharper relief “at the turn of the year”. That was wrong. Well, unless you’re being very literal indeed and think it could also entail not raising rates.

The one prediction he has stuck to that had, up until now, looked pretty uncontroversial was that the next move in rates would be up rather than down. But, in the past few weeks even that has now come into question….

More here:

The Independent’s Ben Chu flags up one curious moment in today’s press conference:

That’s a bit odd, as you might expect inflation to take off sharpish once spare capacity in the labour market has been sucked up.

As, indeed, a former Bank deputy governor pointed out:

Updated

Today was dubbed “Super Thursday”, but it was more like “Party pooper Thursday” as the Bank of England cut its growth forecasts.

Savers, who might wonder when they might get a higher interest rate, won’t be feeling particularly super, either.

Rohan Sivajoti, advisory services director at financial advisor eVestor, says:

“With a unanimous vote to keep interest rates unchanged, a mediocre global economic outlook and growing deflation fears, ‘Super Thursday’ has proved to be anything but.

“Beleaguered savers, who yet again will be inwardly groaning at the news, may also be resigned to the fact that they have limited options at present. However, now more than ever, savers need to make their investments work harder for them. Those looking to secure their financial future, should review deposits and options for investments and look at reducing debt while it is still relatively cheap to do so.”

There was quite a contrast between Mark Carney’s performance at the press conference, and the minutes of this week’s Monetary Policy Committee meeting released at noon.

Kallum Pickering, senior UK economist at Berenberg Bank, says the MPC are clearly worried.

The MPC cautioned on risk from financial market volatility, slowing global growth and now the EU referendum.

The committee noted that since the previous report other central banks including the European Central Bank had eased further, oil prices had fallen and financial market volatility had risen. This was linked to developments in China and other emerging markets and had ‘coloured’ the outlook for the global economy

Stephanie Flanders, JP Morgan’s chief market strategist for Europe (and former BBC economics editor), says weak wage growth could scupper a rate hike this year.

She writes:

The bottom line of today’s report is that the UK cannot ignore the weakening of global growth prospects – particularly the weakness of global trade – and neither can the Bank of England. But domestic consumption is driving the recovery in the UK and the US and the Bank of England can see little reason to expect domestic consumption to grind to a halt.

On balance, we still expect the US Federal Reserve to raise rates again over the course of 2016 as recession worries recede and sentiment in emerging market economics starts to stabilise. In that environment, we would expect the Bank of England also to raise rates by the end of 2016. However, much will depend on domestic wage pressures, which look somewhat weaker now than they did 6 months ago.

Whatever happens, the high level of UK household debt – much of it borrowed on adjustable or semi-adjustable mortgages – underscores that the rate increases that do happen will be gradual and modest relative to past cycles.“

Snap summary: Carney rails against the doubters

Back in 2014, Mark Carney was labelled the “unreliable boyfriend” for giving mixed messages about possible rate rise timings.

Today, it felt like the governor was playing a defensive husband, denying that he ever misled the public while insisting that he’ll still raise rates at the right time.

Anyway, a quick recap:

The prospects of an early UK interest rate rise have receded, after the Bank of England left borrowing costs at a record low of just 0.5%. The Monetary Policy Committee voted 9-0 to leave rates at 0.5%, with noted hawk Ian McCafferty abandoning his calls for a rise.

The BoE has slashed its growth forecasts. It now expects GDP to rise by just 2.2% this year, not 2.5%, as Britain is hit by the weakening global economy.

Mark Carney has insisted that interest rates are still more likely to rise, than fall. The governor faced down a sceptical press pack in London, who reminded the governor that his previous forward guidance on the path of interest rises has proved somewhat unreliable.

Asked if he sticks to his previous prediction that the next move will be upwards, he declared

“Absolutely. The whole MPC stands by that.”

Carney also rejected criticism for telling households recently that interest rates were “more likely than not” to rise in 2016. He said his original forward guidance, that rates would stay on hold until the economy improved, had given businesses and households confidence.

We are not going to tie our hands ever to raise interest rates or adjust policy in any way, shape or form to a certain date.”

Governor Carney warned that problems in the global economy could hurt Britain, saying:

The outlook for trade is particularly challenging, with net exports expected to drag on UK growth over the forecast period.

But he tried to play down the idea that Britain could follow Japan and the Eurozone into imposing negative interest rates.

Carney said a rate cut hasn’t even been discussed at this week’s MPC meeting, but the committee does keep its tools under review.

And asked about the EU referendum, Carney said the Brexit risk has had some impact on the pound.

“There is not yet a big risk premium built into business and household confidence around the referendum. We do see in th eexchange rate market, and it’s observed in the report, that there has been some buying of protection if you will, around the referendum.”

That’s the end of the press conference. The press pack are scrambling back to their newsrooms, and Mark Carney has headed back to his office to keep the monetary wheels in motion.

I’ll pull together a summary shortly.

Carney: We haven’t discussed negative rates

Q: Negative interest rates are now in place in Japan, the eurozone, and Switzerland, so are they within the Bank’s toolkit?

Carney replies that the bank thinks interest rates are “not at the lower bound” – in other words, they could be cut further.

We will review our toolkit, he continues. But we have not discussed negative rates, as monetary policy is pointing in a different direction.

He reminds the reporters that they saw the minutes of this month’s MPC meeting, while they were locked in a room “being treated pretty badly and forced to read a bunch of documents”*.

Those minutes show that negative interest rates weren’t discussed. You’ll know when they are…

[* - don’t worry, they probably get drinks and biscuits too]

Another questions about Brexit — what contingency plans have the BoE taken?

Carney declines to reveal any details, but suggests that – like with the 2014 Scottish referendum – the Bank will reveal its homework after the event.

Q: Are you worried, governor, that you might go through your entire tenure at the Bank without raising interest rates?

Carney insist he’s relaxed about this prospect.

He points out that former policymaker David Miles did two terms without raising interest rates, but did plenty of other things such as quantitative easing.

The important thing is that we set policy to maximise the changes that we meet our objectives. That’s how we’re going to be judged.

Carney sees downside risks from global economy

Q: How worried is the Bank of England about the global economy?

We do see some downside risks, Carney replies. Britain is a particularly open economy, so it’s very vulnerable to global problems.

That’s why the Bank of England usually has lower growth forecast than other bodies, such as the IMF.

He cites market fears over China, and its knock-on impact on other emerging markets.

And monetary policy could tighten more quickly, if those upside risks develop.

Updated

Q: When does low inflation start to become a worry for the Bank?

Carney bats this question over to Ben Broadbent.

Broadbent says there’s “no simple level when it becomes an over-riding concern”, but the bank is watching wages closely for signs that inflation is weakening.

Now deputy governor Ben Broadbent takes the microphone, insisting that there’s no ‘mechanical link’ between the UK output gap and any interest rate move.

You might remember that the output gap was one measure cited by Mark Carney in 2014, when he took his second stab at setting forward guidance on interest rates.

So, it’s still a factor, but don’t expect it to trigger an interest rate hike.

We won’t be “bound by past comments” when we decide it’s time to raise interest rates, says Carney.

He also denies that his forward guidance, various speeches, and wotnot have caused volatility. Short-term UK interest rates are half as volatile as before he was parachuted into the BoE

City experts aren’t very impressed with Mark Carney’s performance, as he tries to talk down the Brexit risk and talk up the chances of an interest rate hike:

Our economics editor Larry Elliott asks Carney when the decision about rate rises will come into “sharper focus” again.

Carney denies that the MPC are looking at monetary policy through bleary eyes. We take a decision at every meeting. This week’s decision was “easy”, though.

Carney gets a question about the European Union referendum.

He says the Bank of England isn’t modelling for ‘parallel universes”, so today’s report doesn’t estimate the impact of Brexit.

He argues that there isn’t yet a “big risk premium” due to the possibility of Britain leaving the EU.

However, there has been some impact on the pound as investors seek protection ahead of the referendum.

Mark Carney is trying to argue that the financial markets are underpricing the chances of a UK interest rate rise.

Paul Diggle, economist at Aberdeen Asset Management, isn’t sure Carney’s message will get through:

The Bank did send a signal that they think the market is wrong about when it thinks rates will rise. Investors think the first rate rise won’t come until February 2018 and the Bank has tried to say they should bet on it coming sooner.

But the way they send this signal is so opaque – a couple of graphs buried in chapter 5 of the Inflation Report – it’s not really clear whether anyone will pay attention. Carney’s forward guidance certainly hasn’t paid dividends for investors up until now.”

Carney is now warning that there could be more slack in the labour market than first thought.

That would mean wage growth might be disappointing (as firms wouldn’t have to fight for workers as much), meaning inflation remains weak.

But he also points to the introduction of the national living wage, which should raise inflation a bit.

(from April, workers in the UK aged over 25 earning the minimum rate of £6.70 per hour will get a 50p per hour increase).

Updated

Q: Do you think the public gives your advice as much credibility as it used to, given previous guidance on rates?

Carney gives a long answer, defending his original forward guidance (he originally set a 7% jobless rate as a key target before considering a rate rise, only to backtrack when it was achieved sooner than planned).

The worst thing we can say about that guidance is that more people went to work earlier – and we’re not going to apologise for that, Carney smiles.

And he’s also happy that UK households believe rates may rise this year, as it means they are less likely to risk a credit splurge. Although households have made “great progress”, they are still pretty indebted.

Carney insists, though, that the MPC will never “tie its hands” to changing monetary policy at a certain time, or at certain events.

And in short, we have nothing to explain, he concludes — a classic central banker’s answer to criticism.

Carney insists rates more likely to rise than fall

Onto questions:

Q: Does Mark Carney still believe interest rate are more likely to rise, rather than fall?

Absolutely, the governor replies, and so does the monetary policy committee.

He reiterates that the market path of rates implies that inflation will overshoot the 2% target in the medium term unless borrowing costs are hiked.

Updated

Interest rates are more likely than not to rise during the forecast horizon, says Carney.

He points to the current “market path” for interest rates (where investors expect borrowing costs to be). On that path, inflation will hit its 2% target in the medium term, and then rise higher, meaning higher borrowing costs will be needed.

And Carney insists:

We’ll do the right thing at the right time, on rates.

Katie is tweeting the key points from Carney’s press conference:

Carney says the Bank of England expects real incomes in the UK to grow solidly this year, after several lean years.

And business investment should also continue to grow strongly.

Carney then warns that global financial conditions have deteriorated notably recently, with a “particularly challenging” outlook for trade.

That means Britain’s net exports will continue to drag on growth (ie, we’ll import more than we sell to the rest of the world)

Mark Carney’s press conference begins

The governor of the Bank of England is giving a press conference now, to discuss the quarterly inflation report.

Mark Carney begins by saying that the UK economy is in much better shape than in March 2009 when rates were first cut to 0.5%.

Seven years ago, the economy was in serious trouble at the height of the financial crisis, and heading into recession.

Today, we have sluggish global growth, turbulent financial markets, and a resilient UK economy.

And that’s why the Bank still expects the UK economy to keep growing.

The prospect of UK interest rates being cut to a new record low is looming over the City:

It’s staggering to think that UK interest rates have now been pegged at 0.5% for almost seven years (it started in the dark days of March 2009)

Laith Khalaf, Senior Analyst at Hargreaves Lansdown, says we could see a decade of ultra-low rates:

‘An interest rate rise is like the pot of gold at the end of the rainbow, the nearer you get to it, the further away it moves. A rise in rates now looks firmly in the long grass, with growth forecasts cut and cheaper oil putting downward pressure on inflation, which is already way below the Bank of England’s target.

Markets are currently pricing in a rate rise in the middle of 2017, though they have been consistently premature in their forecasts, and reaching the dubious milestone of a decade of ultra-low interest rates is now a distinct possibility.

The prospect of an early UK interest rate rise has receded into the distance, writes Katie Allen from the Bank of England.

She reports:

The Bank flagged the recent sharp sell-off in global stock markets and investors’ jitters about a slowdown in China as it revealed that policymaker Ian McCafferty dropped his recent call for a rate rise.

He had voted against the eight other members of the Monetary Policy Committee (MPC) since last August but this month agreed with his colleagues that it was too soon to raise interest rates from 0.5%, where they have been for almost seven years.

Wage growth has been weaker than the MPC had been expecting and minutes to its latest policy meeting suggested it was cautious about predicting any significant pick-up in pay over coming months.

“Against that backdrop, all members of the committee thought that maintaining the current stance of policy was appropriate at this meeting,” the minutes said.

Here’s Katie’s full story:

The pound has fallen almost half a cent against the US dollar, to $1.456.

Markets are concluding that interest rates won’t move for some time, given today’s gloomy inflation report and the news that Ian McCafferty has given up calling for a rate hike.

The Inflation report is online here, and full of interesting charts if you like that kind of thing.

This one shows how the oil price has fallen much further than the Bank expected:

BoE

And this shows how the markets are already expecting interest rates to stay lower, for longer.

BoE

This chart shows how the Bank of England has cut its growth forecasts for the next three years (the old forecasts are in brackets after the new ones)

BoE grwoth o

And the message from the BoE is that economic conditions have deteriorated over the last quarter:

Since the November Report, global output and trade growth have slowed further and the latest data suggest a softer picture for UK activity in 2015 than previously assumed, with four-quarter growth slowing to 2¼% by Q4 on the MPC’s backcast.

Updated

The Bank of England also points to the turmoil in the financial markets:

Developments in financial markets seem in part to reflect greater weight being placed on the risks to the global outlook stemming from China and other emerging economies.

BoE cuts growth forecasts

The Bank of England has also taken a knife to its growth forecasts, admitting that the UK economy is not expanding as fast as expected.

It now expects GDP to rise by just 2.2% this year, down from 2.5% three months ago.

And for 2017, it has cut its growth forecast to 2.3%, down from 2.6%.

The Bank of England says that economic conditions have deteriorated in the last three since its November quarterly inflation report:

Global growth has fallen back further over the past three months, as emerging economies have generally continued to slow and as the US economy has grown by less than expected.

There have also been considerable falls in the prices of risky assets and another significant fall in oil prices.

The 9-0 vote means that Ian McCafferty has abandoned his calls for interest rates to rise.

He had been the lone hawk on the MPC, arguing that borrowing costs should go up now before inflation took hold. But with oil so cheap, and growth weakening around the globe, he’s had a rethink.

Bank of England interest rate decision

Breaking: The Bank of England has voted to leave UK interest rates at their current record low of 0.5%.

And the decision was unanimous, with the Bank’s monetary policy committee voting 9-0 not to alter borrowing costs.

Updated

Super Thursday, a preamble

We have less than 30 minutes to go until Bank of England announces its interest rate decision, at noon in London.

It will also release its latest quarterly inflation report, with new forecasts for growth and inflation.

And half an hour after that, Mark Carney will hold a press conference to discuss the report.

This is the third “Super Thursday” — but frankly, the first two haven’t lived up to this billing, thanks to the lack of pressure to raise interest rates and the mediocre global economic outlook.

Alastair McCaig of IG reckons it needs rebanding:

How the department overseeing the trade descriptions act have not intervened in the use of the term ‘Super Thursday’ when the Bank of England posts its inflation report and interest rate decision, is somewhat baffling.

Anyway, the smart money is on another ‘no change’ in interest rates, followed by plenty of questions about the darkening global outlook, deflation fears, and whether Britain could follow Japan and the eurozone into imposing negative interest rates.

Ed Conway, writing for Sky News today, points out that borrowing costs could be cut this year.

Households should prepare themselves for a possible UK interest rate cut this year, with investors betting that there is now a greater chance that the next move in borrowing costs is down not up.

Money markets are now putting a one-in-four probability on the Bank of England reducing its official rates below the 0.5% level they have been sitting at since 2009.

It follows a dramatic shift in their expectations for interest rates.

For the majority of the post-crisis recovery, markets were betting that 0.5% would be the floor for borrowing costs, which would rise in the coming years. Now they are not pricing in a full increase in Bank rate until August 2018 – two months after Mark Carney’s five year term as Bank Governor is due to end…

Back in Brussels, Pierre Moscovici has explained that his latest forecasts don’t factor in the prospect of Britain’s leaving the EU.

Why not? Because everyone’s committed to avoiding such an outcome.

Moscovici has also defended the EC’s more rosy forecasts for Greece (well, less gloomy, anyway):

Shares in London have been lurching around like a well-refreshed journalist leaving The Inkwell after last orders (I imagine).

After jumping almost 90 points at the open, the FTSE 100 index slowly subsided until it was only up 20 points, before getting a second wind and romping ahead again.

Mining companies are still leading the way, with Anglo American leaping by 11%, BHP Billiton gaining 8% and Antofagasta up 7.5%.

The FTSE 100 this morning
The FTSE 100 this morning Photograph: Thomson Reuters

It makes for a tricky morning for traders:

So why the wild lurches? Investors are trying to decide how much optimism to take from the rally in the oil price, and the sudden weakness in the US dollar.

This could mean that the turmoil in the commodity market is reaching a bottom, especially if the US Federal Reserve is backing away from raising American interest rates several times this year.

The City is also waiting for the Bank of England to deliver its quarterly inflation report, in an hour’s time.

Ilya Spivak, currency strategist, at DailyFX, says markets expect a “dovish outcome”.

Traders are currently pricing in a 64% chance that rates remain unchanged over the next year, and a 36% probability that rates are cut to 0.25%, he adds.

Commissioner Pierre Moscovici is briefing the media now, about the EC’s new economic forecasts.

My colleague Jennifer Rankin is tweeting the key points:

I can’t believe *anyone* is euphoric, given the last few years. But do carry on, Pierre…

The FT’s Peter Spiegel is also ferreting out some important facts:

Despite those headwinds from China and refugees, the European economy is now entering its fourth year of recovery, says the EC.

Today’s report states:

Growth continues at a moderate rate, driven mainly by consumption. At the same time, much of the world economy is grappling with major challenges and risks to European growth are therefore increasing.

EC forecasts

EC slashes inflation forecast as headwinds grow

A flurry of news is flying our way from Brussels, as the European Commission releases its new economic forecasts.

The headline event is that the EC has slashed its forecast for inflation this year to just 0.5%, from 1% three months ago.

That’s partly because of the oil price, and also because “wage growth remains subdued”.

It has also trimmed its growth forecast for 2016 to 1.7%, down from an earlier forecast of 1.8%.

The EC still expects eurozone GDP to rise by 1.9% in 2017, as the slow recovery picks up pace (a little).

The Commission blames problems in emerging markets, and also points to the refugee crisis.

Commission Vice President Valdis Dombrovskis warns:

Europe’s moderate growth is facing increasing headwinds, from slower growth in emerging markets such as China, to weak global trade and geopolitical tensions in Europe’s neighbourhood.”

The EC has also revised up its Greek forecasts, saying the economy didn’t actually contract in 2015. It also expects a smaller recession this year.

Updated

Anti-austerity general strike brings Athens to a standstill

Greece is in the grips of a general strike today as demonstrators renew their protests against the country’s latest bailout deal.

Transport links are shut down, shops are closed, and thousands of people are marching through the Greek capital right now.

Members of the PAME Communist-affiliated shout slogans during a 24-hour nationwide general strike in Athens, Thursday, Feb. 4, 2016. Unions called the strike to protest pension reforms that are part of Greece’s third international bailout. The left-led government is trying to overhaul the country’s ailing pension system by increasing social security contributions to avoid pension cuts, but critics say the reforms will lead many to lose two-thirds of their income to contributions and taxes. (AP Photo/Petros Giannakouris)
Members of the PAME Communist-affiliated shout slogans during a 24-hour nationwide general strike in Athens today. Photograph: Petros Giannakouris/AP

Our Athens correspondent, Helena Smith, reports that the effects are withering.

She writes:

This is the fifth general strike since the leftist Syriza first came to power but none has been so fully endorsed. In a reflection of the growing anger at all embracing tax and pension reforms, the entire country appears to be paralysed by industrial action supported by every walk of life.

In Athens, where almost nothing is open, streets and central boulevards resembled a ghost town this morning with the shutters down on shops, offices and ministerial buildings. Small businesses, which usually turn a blind eye to the pleas of unionists to stay closed, have today heeded their call. “We have no choice,” said Lakis Antonakis who owns the popular Piazza Duomo café opposite the capital’s cathedral.

“If they pass these laws more than 50 percent of our earnings will be taxed and I am one of the lucky ones because I can depend on tourists. Other businesses are really struggling. It’s become unsustainable to keep them open. Everyone is very pessimistic.”

Unionists, who planned mass protest rallies, attributed the high turn out to the determination of Greeks to ram home the message that they will not accept pension and tax reforms as they now stand.

Members of the communist-affiliated PAME union march during a 24-hour general strike against planned pension reforms in Athens, Greece, February 4, 2016. REUTERS/Alkis Konstantinidis
Members of the PAME Communist-affiliated hold a banner reads in Greek ‘’Social Security’’ during a 24-hour nationwide general strike in Athens, Thursday, Feb. 4, 2016. Unions called the strike to protest pension reforms that are part of Greece’s third international bailout. The left-led government is trying to overhaul the country’s ailing pension system by increasing social security contributions to avoid pension cuts, but critics say the reforms will lead many to lose two-thirds of their income to contributions and taxes. (AP Photo/Petros Giannakouris)
Members of the PAME Communist-affiliated hold a banner reading ‘’Social Security’’. Photograph: Petros Giannakouris/AP

International creditors, led by the IMF, are pushing prime minister Alexis Tsipras for further cuts in pensions to make up for a fiscal shortfall of up to €4.5bn over the next three years.

Grigoris Kalomoiris, of the civil servants union, Adedy, said he also thought Greeks had been encouraged by protesting farmers who have set up roadblocks nationwide. “Their action over the past two weeks has had a ripple effect. Everything is close even the state audit office,” he told me.

“Farmers are leading the way. People are very determined to stop this pillaging because pillaging is what it is. Greece and Greeks cannot go on being pushed like this in the name of debt.”

The strike, ironically, has the full support of Syriza – although government officials, who will soon be called to vote on the reforms, are keeping mum.

National wide strike in Athensepa05142365 Women stand in front of a closed suburban station at the Athens Eleftherios Venizelos airport during a 24-hour national strike, in Athens Greece, 04 February 2016. Greece’s largest private and public sector unions GSEE and ADEDY held a strike on 04 February to protest against the government’s planned pension reforms. Public transport was grinding to a halt, while trains were cancelled and ferries stayed put in harbours, also cutting off the Greek islands from the mainland. EPA/YANNIS KOLESIDIS
A closed suburban station at the Athens Eleftherios Venizelos airport. Photograph: Yannis Kolesidis/EPA

Apparently the solution to monetary policy paralysis is taller central bank governors:

Updated

You might have expected the euro to fall this morning, after Mario Draghi guilefully declared that central banks shouldn’t stop taking action to fight deflation.

But the single currency didn’t take the hint. Instead, the euro has hit a three-month high against the US dollar, at $1.116.

And that’s starting to weigh on European markets, pushing shares down from their earlier highs….

VW car sales fall 14% in Britain

FILE - In this Feb. 14, 2013, file photo, a Volkswagen logo is seen on the grill of a Volkswagen on display in Pittsburgh. New Mexico is suing Volkswagen and other German automakers over an emissions cheating scandal that involves millions of cars worldwide, the first state to do so but almost certainly not the last. (AP Photo/Gene J. Puskar, File)

Sales of Volkswagen cars slumped by almost 14% in the UK last month, suggesting that the company is still suffering from the emissions scandal.

Just 12,055 VW-branded cars were registered in January, down from 13,993 in January 2015, according to new figures from the Society of Motor Manufacturers and Traders.

That cuts VW’s market share to 7.1%, from 8.5%.

Other Volkswagen brands also had a bad month. Sales of Seat cars slumped by 25%, from 4,137 to 3,119.

This is the fourth month in a row that VW car sales have dropped, following last year’s revelations that it used cheat software to get around emissions tests.

Overall, the UK’s new car market got off to a positive start in January, according to the SMMT.

Registrations rose by 2.9% compared with the same month in 2015 to reach an 11-year high of 169,678 units.

SMMT car sales

Updated

Goldman Sachs has weighed into the Brexit debate, predicting that the pound would slump by around 15% if Britain vote to leave the EU.

In a new research note, it argues that investors would be put off from putting capital into the UK if the public reject David Cameron’s new deal.

And if the domestic economy also suffered, sterling would come under sustained pressure – due to the country’s current account deficit.

Goldman predicts:

In our framework, a decline of 2% in domestic demand would still see close to a 15% drop in the British pound to close the current account deficit.

Worth remembering that Goldman isn’t completely impartial in this fight. The Bank has apparently given a six-figure donation to the Britain Stronger in Europe campaign, which is fighting against Brexit.

Mario Draghi: No excuse for inaction

Mario Draghi Presents ECB Report At EU ParliamentSTRASBOURG, FRANCE - FEBRUARY 1: The governor of the European central Bank, or ECB Mario Draghi speaks to the plenary room in the European Parliament ahead of the debate on the ECB report for 2014 on February 1, 2016 in Strasbourg, France. During the last press conference in Frankfurt, Draghi indicated that the bank may review its course of action in March. (Photo by Michele Tantussi/Getty Images)

European Central Bank chief Mario Draghi has dropped a clear hint that the ECB embark on fresh stimulus measures next month.

Speaking in Frankfurt a few minute ago, Draghi insisted that central bankers can’t just stop trying to hit their inflation goals because “global disinflation” is dragging prices down.

He declared:

There are forces in the global economy today that are conspiring to hold inflation down. Those forces might cause inflation to return more slowly to our objective. But there is no reason why they should lead to a permanently lower inflation rate.

What matters is that central banks act within their mandates to fulfill their mandates. In the euro area, that might create different challenges than it does in other jurisdictions. But those challenges can be mitigated. They do not justify inaction.

The speech is online here.

Double ouch:

Ouch. Shares in Credit Suisse have tumbled by around 10% in early trading.

The Swiss bank is missing out on today’s rally, after hitting shareholders with a loss of 5.83 billion Swiss francs ($5.8 billion) in the last quarter. That drove the bank into its first annual loss since 2008.

Credit Suisse took a bigger-than-expected charge to cover restructuring its investment bank,. as new CEO Tidjane Thaim tries to turn the firm around.

Thaim was also quite gloomy about the situation today, warning that:

Market conditions in January 2016 have remained challenging and we expect markets to remain volatile throughout the remainder of the first quarter of 2016 as macroeconomic issues persist .

Oil is continuing to gain ground this morning, adding to last night’s 8% surge.

Brent crude has risen to $35.36, up another 1%.

European stock markets are a sea of green, as traders welcome the higher oil price and the weaker US dollar.

European markets jump in trading

Up we go!

European markets are rallying at the start of trading, breaking three days of declines during this volatile week.

The FTSE 100 index of blue-chip shares opened 80 points higher, at 5917. That’s a gain of 1.2%, clawing back Wednesday’’s losses.

The German, French, Italian and Spanish markets are also up at least 1%.

Mining companies are leading the recovery. The weaker US dollar should spur demand for natural resources, as it will take some pressure off emerging markets.

Top risers on the FTSE 100 today
Top risers on the FTSE 100 today Photograph: Thomson Reuters

And Shell’s shares are rising, despite the company posting an 87% drop in profits this morning. Investors may have feared an even worse performance, given the slump in the oil price.

The key to today’s market moves is that the US dollar took an almighty tumble overnight.

After strengthening for months, the greenback suffered its biggest one-day drop since 2011.

That followed Wednesday’s disappointing US services sector data, which made investors conclude that US interest rates are unlikely to be hiked anytime soon. Perhaps not until 2017?

Mike van Dulken of Accendo Markets says the dollar fell on hopes that the Federal Reserve will “reign in its over-egged hawkishness”.

This delivered a welcome overshadowing of global growth concerns for markets hooked on cheap money.

And this chart puts the dollar’s weakness into some contect:

Asian markets rallied as oil recovers

It’s been another day of wild market action in Asia.

Most stock markets have surged overnight, on relief that the oil price has climbed back to over $35 per barrel.

Australia’s S&P/ASX 200 index led the way, jumping by 2%, with investors hoping that the commodity crunch may be bottoming out.

Only Japan missed out, because the yen gained against the US dollar (bad news for Japanese exporters)

Asian markets today
Asian markets today Photograph: Thomson Reuters

From Melbourne, Chris Weston of IG calls it “an incredible night of moves in markets”. And the trigger was the oil price, which has gained almost 10% since yesterday afternoon.

What we have seen is one of the most amazing one day moves in oil one will ever see, with US and Brent oil rallying 9% and 8% from yesterday’s ASX 200 close.

Oil is benefitting from a weaker dollar, rumours that OPEC might pull an emergency meeting to cut production, and suggestions that the selloff has simply gone too far.

Updated

Introduction: Bank of England Super(?) Thursday

Bank of England Governor Mark Carney listens during an inflation report news conference at the Bank of England in London, Britain November 5, 2015. The Bank of England gave no sign that it was in any more of a hurry to raise interest rates on Thursday, predicting near-zero inflation would pick up only slowly even if borrowing costs stay on hold all of next year. REUTERS/Jonathan Brady/pool

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

It’s Bank of England Super Thursday — that time of the quarter when the UK central bank sets interest rates, and also releases its latest inflation report.

“Super” could be pushing it, though. We’re expecting rates to remain unchanged at 0.5% (of course). The BoE will probably also lower its forecasts for growth and inflation, reflecting recent turmoil and rising pessimism about the world economy.

Governor Mark Carney will then face the cream of the economic press pack, who will presumably try to get him to admit that interest rates are highly unlikely to rise this year (despite Carney’s recent pronouncements). Might they even be cut to fresh record lows, governor?…

Also coming up today…

It’s going to be another lively day in the markets. European shares are expected to rally strongly, after three days of falls, and oil is looking perkier too (more on that shortly)

European Central Bank chief Mario Draghi is giving a speech in Frankfurt this morning; could that include fresh hints about ECB stimulus in March?

In the corporate world, we’re getting results from oil group Shell and mobile network operator Vodafone, among others.

We’ll be tracking all the main events through the day…

Updated

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