cpi

Rolling economic and financial news, from the latest wealth report to the UK inflation data. Credit Suisse wealth report released. German investor morale hit by VW scandal. UK inflation turns negative. Chinese imports tumble 20%…

 

Powered by Guardian.co.ukThis article titled “Richest 1% now own half of all wealth, says Credit Suisse – business live” was written by Graeme Wearden (until 2pm) and Nick Fletcher, for theguardian.com on Tuesday 13th October 2015 13.41 UTC

Wall Street opens lower

US markets have fallen back in early trading, along with other global markets in the wake of poor Chinese trade figures, which cast new doubt over the prospects for the world’s second largest economy.

The Dow Jones Industrial Average is down more than 90 points or 0.5%, while European markets are also still firmly in the red.

Markets fall

Markets fall. Photograph: Reuters/Reuters

After the Treasury Select Committee heard from the newest member of the Bank of England’s Monetary Policy Committee, Jan Vlieghe, who appeared in no hurry to vote for a rate rise, it was the turn of fellow rate-setter Ian McCafferty.

McCafferty was the only one of the nine-member monetary policy committee (MPC) to vote for a hike last week. Katie Allen reports:

McCafferty appeared less worried about the negative impact on the UK and the inflation outlook from a global economic slowdown.

“I place more weight on some of the upside domestic risks to to inflation over the three-year horizon,” McCafferty told MPs.

“It’s clear that we have seen UK wages pick up relatively smartly in nominal terms over the course of the last six months, to a rate that is higher then the MPC would have expected six or nine months ago.”

He also expects a tightening labour market will mean nonimal wage growth accelerates further over 2016 and 2017 and that is something that will only be offset to “some extent” by a pick-up in productivity growth. McCafferty described himself as not hugley optimistic about productivity growth improving.

McCafferty.

McCafferty. Photograph: Rex Features/Rex Features

Asked about the relative merits of using quantitative easing (QE) or changes in the Bank rate to influence the economy, McCafferty noted policymakers had more experience on Bnk rate. He also said he would like to see the Bank rate become an effective marginal instrument again. “Over time, I would like to see Bank rate get up to a point at which we could cut it again were we to need to do so were the economy to slow or inflation to dip below target.”

The latest official figures showed inflation dipped into negative territory in September, at a rate of -0.1%. But McCaffterty sought to reassure MPs “I do not think we are entering a form of deflation” and noted there were few signs of changes in consumer behaviour as a result of stagnant prices.

Asked whether the latest news on inflation might influence him, McCafferty said it would not.

Nor would the latest warning about weaker global growth from the International Monetary Fund.

“In isolation, those things would not on their own change my view of the last few months,” he said.

Dorsey’s promise of no “corporate speak” in his email to Twitter employees about the job cuts fell at pretty much the first hurdle:

Twitter announces job cuts

Over in California, Twitter has just announced plans to cut around 8% of its workforce.

Jack Dorsey hasn’t wasted much time since becoming CEO again. In a letter to staff, he says Twitter will “part ways” with up to 336 workers in an attempt to grow faster.

It’s a tough decision, Dorsey says, but necessary as “the world needs a strong Twitter”….

As usual, the sound of job cuts goes down well on Wall Street – Twitter shares have risen in pre-market trading.

Updated

David Drumm, former head of Anglo Irish Bank.

David Drumm. Photograph: Dan Callister / Rex Features/Dan Callister / Rex Features

One of the bankers blamed for the financial crash in Ireland due to over-lending to property speculators faces extradition from the United States later today.

David Drumm, a former senior figure in the now defunct Anglo Irish Bank, will appear in a court in Boston where he has been living in exile since the institution collapsed in 2009 and hundreds of millions of taxpayers money was spent to nationalise it.

An American judge will decide today whether his arrest at the weekend in Massachusetts at the weekend was lawful. If the judge rules it was then this will pave the way for Drumm’s extradition back to Ireland where he will face up to 33 criminal charges including seven counts of forgery and seven counts of falsifying documents.

Drumm’s re-appearance in the Irish media is a reminder on Ireland’s Budget Day of the bad old days before the crash and the international bail out when bankers loaned billions to property speculators which in turn dangerous overstretched not only key business figures in Ireland but also overheated the Republic’s economy.

Our economics editor, Larry Elliott, has taken a look at today’s UK inflation data, which showed prices were 0.1% cheaper in September than a year ago.

We haven’t seen such weak price pressure in the British economy for many decades, he points out:

This is going to be a record-breaking year for UK inflation. Not since the interwar period has upward pressure on the cost of living been as persistently weak as it has since the start of 2015.

But this is being driven by cheaper commodities, as emerging markets slow down.

The Bank of England is therefore confronted with a situation in which the inflation rate for goods is currently -2.4% while the inflation rate for services is +2.5%.

So what happens next? Larry reckons prices will pick up in 2016, pushing inflation back towards the 2% target. Unless the global economy sours….

Global rich are getting richer

The top 1% of wealth holders now own half of all household wealth.

And that includes 120,000 “ultra-high net worth individuals” across the globe who own at least $50m of wealth each.

That’s according to Credit Suisse’s latest wealth report, which is packed with details about the distribution of wealth across the globe.

This year’s report shows that China’s stock market boom has helped to create more ultra-rich people there. Chinese multimillionaires and billionaires make up 8% of all UHNWI’s.

The group of millionaires below the $50m mark make up another 0.7% of global population, but owns 45.2% of global wealth.

But while the ultra rich have got even richer, others aren’t keeping pace.

Credit Suisse’s chief executive Tidjane Thiam says:

Notably, we find that middle-class wealth has grown at a slower pace than wealth at the top end. This has reversed the pre-crisis trend, which saw the share of middle-class wealth remaining fairly stable over time.

Here are some charts from the report, which is online here.

Credit Suisse wealth report 2015
Credit Suisse wealth report 2015

The top slice of this pyramid group is made up of 34 million US dollar millionaires, who comprise less than 1% of the world’s adult population, yet own 45% of all household wealth.

Credit Suisse estimates that 123,800 individuals within this group are worth more than $50m, and 44,900 have over $100m.

Credit Suisse wealth report 2015
Credit Suisse wealth report 2015

Updated

BoE’s new policymaker: It’s not time to raise rates yet

Hedge fund manager Gertjan Vlieghe

Hedge fund manager Gertjan Vlieghe, who is joining Britain’s MPC Photograph: Gertjan Vlieghe

UK parliament’s Treasury Committee has been hearing from the newest member of the Bank of England’s rate-setting Monetary Policy Committee, Jan Vlieghe, and it appears he is in no hury to vote for a hike.

This is the first time financial markets are getting a chance to hear what the new MPC member thinks about the UK economy, the global outlook and what should come next for interest rates in the UK.

After the Bank’s chief economist, Andy Haldane, recently raised the prospect of a rate cut – from what is already a record low of 0.5% – in the face several risks to the economic outlook, Vlieghe too is not ruling out even lower borrowing costs.

He is worried about the Bank meeting its government-set target for inflation at 2% on the consumer prices index (CPI), which fell to -0.1% this morning.

Asked if the BoE had run out of tools, Vlieghe said “we can cut rates if we judge it necessary” and that the Bank could also re-start its asset purchase programme, also known as quantitative easing (QE).

But he did also say “the next move in interest rates is more likely to be up than down.”

Vlieghe highlighted what he saw as risks to the UK from China’s downturn and the wider global slowdown.

“Clearly, the UK is an open economy, it has very important trade and financial links to the rest of the world. The UK is in reasonably good shape, growth is solid but not fantastic.

But we absolutely have to take into account we are operating in a global environment which is adverse, so to speak, and it’s a headwind to growth and it is one of the things that will prevent, I think, the UK economy from accelerating meaningfully from the pace we are seeing currently.”

He set out some upsides and downsides in the current domestic situation.

The “headwinds” were:

  • A strong pound
  • That the UK is operating in a weak global environment
  • An ongoing fiscal headwind:

But on the plus side:

  • There had been some improvement to productivity growth
  • A housing market recovery
  • Some improvement in real wages

“What we are trying to judge is how these play off against each other,” Vlieghe added.
As for when he might vote for rates to go higher, after already more than six years at their record low, the former hedge fund economist highlighted a host of low inflation numbers from the core rate to people’s inflation expectations.

Speaking after official figures showed headline inflation turned negative in September, Vlieghe said other prices indicators too were “all a little bit below where you’d want them to be to be confident of meeting the 2% inflation target in the medium term”.

“We need them to rise… I am not confident enough right now that they will rise in order to vote for an immediate rate hike. I think we have time. We can wait and see how this plays out and I would want to see a more convincing broad-based upward trajectory before I say OK, now I am confident enough that we will get to 2% eventually and therefore vote for a rate rise.”

Despite the evidence of today’s ZEW survey, German economy minister Sigmar Gabriel has claimed the diesel emissions scandal at Volkswagen won’t permanently damage the German economy.

Asked whether the VW crisis would hit the economic outlook for Germany, Europe’s largest economy, Gabriel said:

“No, I don’t expect the problems at Volkswagen to have lasting effects on the German economy.”

It may be too early to be sure, though. Yesterday, Britain’s transport secretary said Volkswagen deserves to suffer “substantial damage” because of the diesel emissions scandal.

Patrick McLoughlin told MPs that:

“They have behaved in an appalling way,”

“These [defeat] devices were made illegal in 1998 and it is unbelievable to think a company the size and reputation of VW have been doing something like this. They are going to suffer very substantial damage as a result and they deserve to.”

Pre-election giveaways expected in Irish 2016 budget

Irish budget 2016<br />A child’s piggy bank with euro notes as Ireland’s Budget 2016 is to be announced today by Finance Minister Michael Noonan and Minister for Public Expenditure and Reform Brendan Howlin. PRESS ASSOCIATION Photo. Picture date: Tuesday October 13, 2015. Only weeks or months from the next general election the electorate is in line for a softening-up with sources in the coalition Government billing the limited restoration to pay packets as “family friendly”. See PA story IRISH Budget. Photo credit should read: Brian Lawless/PA Wire

For the first time in seven years an Irish budget will actually be giving away something for its citizens after the years of tax hikes, brutal spending cuts, the humiliation of an IMF-EU bail out and the crash of the Celtic Tiger.

Irish Finance Minister Michael Noonan will get to his feet after 2pm inside the Dail and deliver a budget that is expected to include:

  • An increase in €3 to the weekly Old Age Pension
  • Tax cuts for the average worker that are expected to put €1000 back into their pockets
  • A cut of to the hated Universal Social Charge tax which was brought in to help plug the gap in public finances during the bail out times.
  • A €550 tax credit for the self-employed
  • The promise of 20,000 new public homes taken from the portfolio of properties nationalised after the financial crash and the bankruptcies of property speculators. Increases in child benefits and a freeze on prescription charges.

Of course it is hardly a coincidence that the Fine Gael-Labour goverment are facing into an election year in 2016 and will no doubt face accusations from opposition parties of trying to bribe their way back into power. In return the coalition will argue that they have done the “heavy lifting” after four years in office, carried out the painful adjustment policies that restored the nation’s finances and oversaw growth in the economy, and managed an exit from the bail out.
One thing is for sure – Enda Kenny and his administration are going to wait for at least three months before today’s budget measures sink into the public’s consciousness. The Taoiseach has finally decided that he won’t call the election until late February/early March. The wisdom of that decision to go late rests an awful lot on the impact of today’s Budget 2016.

VW emission scandal hits German morale

german flag

The Volkswagen diesel emissions scandal and economic problems in emerging markets have become a toxic cocktail for confidence within Germany, new data shows.

Morale among German investors and analysts fell sharply in October, according to the ZEW think tank, pulling its economic sentiment index down from 12.1 to just 1.9.

ZEW President Professor Clemens Fuest pinned the blame on VW, and troubles overseas:

“The exhaust gas scandal of Volkswagen and the weak growth of emerging markets has dampened economic outlook for Germany.”

ZEW’s assessment of the current situation in Germany also fell, by 12.3 points to 55.2 points.

Despite that, Fuest reckons Germany will not fall back into recession.

For the survey, ZEW asked analysts and institutional investors about their current assessment of the economic situation in Germany, as well as their expectations for the coming months.

VW to slash investment by €1bn/year

Over in Germany, Volkswagen has just announced that it is cutting its investment programme by €1bn per year, as it grapples with the fallout from the diesel emissions scandal.

In a statement just released, VW announced a range of changes including shifting all its diesel cars to cleaner exhaust emissions systems, and making the next generation of its Phaeton car run on electricity..

Dr. Herbert Diess, who runs Volkswagen’s Passenger Brand, says:

“The Volkswagen brand is repositioning itself for the future.

We are becoming more efficient, we are giving our product range and our core technologies a new focus, and we are creating room for forward-looking technologies by speeding up the efficiency program.”

Here’s the key points from VW’s new strategic plan:

  • Accelerated implementation of the efficiency program creates room for reorientation
  • Streamlined processes leverage further cost-saving potential, including cuts in fixed costs
  • Investments to be reduced by 1 billion euros per year compared with planning – combined with prioritization of projects for the future
  • • Product decisions formulated
  • • New Phaeton will be electric
  • • New Modular Electric Toolkit planned

Updated

Over in parliament, MPs are beginning to quiz former hedge-fund economist Gertjan Vlieghe about his appointment to Britain’s Monetary Policy Committee. You can see it here. It could be quite tasty, as explained earlier….

September’s inflation rate is used to calculate a range of benefits payments in the UK.

Consumer expert Paul Lewis reports that these payments will now be frozen, as will other payments linked to the headline inflation rate.

Updated

Britain’s return to negative inflation isn’t a great surprise or a great calamity, says Jeremy Cook, chief economist at the international payments company, World First:

He reckons inflation will pick up sharply in 2016, once the recent slump in oil prices fades into history.

Headline inflation has been pressured for nearly a year now from falling energy and commodity prices but we must remember that base effects will see that initial drop in oil prices fall out of the calculations in the coming months.

Howard Archer of IHS Global Insight also sees UK interest rates on hold for longer.

With inflation back below zero, it’s hard to see Britain’s interest rates rising from their current record low before 2016.

Peter Cameron, Associate Fund Manager at EdenTree Investment Management, explains:

“Inflation is back in negative territory again and it’s very unlikely that we’ll see the Bank of England raise interest rates this side of Christmas. Although wage pressures are emerging and the impact of the falling oil price will soon start to drop out of the numbers, a rate hike would have a deflationary effect by pushing up Sterling.

At a time when the ECB is signalling it is ready to expand QE and the Fed is likely to delay its own rate lift-off into 2016, the Bank will be fearful of allowing Sterling to appreciate too much.”

Updated

There’s no sign of deflation in the British housing market. New data shows that prices rose by 5.2% across the country in August:

Osborne: This isn’t damaging deflation

UK chancellor George Osborne insists that Britain is not entering a period of ‘damaging deflation’:

Deflation is a protracted period in which prices fall in a downward spiral, and people stop spending because today’s items are going to be cheaper tomorrow.

The bigger picture is of a broadly flat inflation rate since the beginning of the year, says Richard Campbell, head of CPI at the Office for National Statistics.

“The main downward pressures on CPI came from clothing, which rose more slowly this September than in recent years, and falling petrol and diesel prices.”

The three reasons why UK inflation is negative again

Clothing and footwear prices rose by 2.8% between August and September this year, compared to 4% between the same 2 months a year ago. That pushed the inflation rate down, to 0.1% in September.

Fuel prices fell by 2.9% between August and September this year compared with a smaller fall of 0.6% between the same 2 months a year ago.

The ONS says:

The largest downward contribution came from petrol, with prices falling by 3.7 pence per litre between August and September this year compared with a fall of 0.8 pence per litre between the same 2 months a year ago. Diesel prices are now at their lowest level since December 2009, standing at 110.2 pence per litre.

And a price cut by British Gas also helped cut the cost of living.

Over to the ONS again:

Gas prices fell by 2.1% between August and September this year, compared with no change between the same 2 months a year ago, with price reductions from a major supplier.

UK inflation, the detail, September 2015

Food and fuel have played a key role in dragging UK inflation down in the last year.

Over the last year, food prices fell by 2.5% and prices of motor fuels fell by 14.9%, according to the ONS.

This chart confirms that the UK’s inflation rate has been bobbing around zero for most of this year.

UK inflation

Clothing and fuel prices push inflation negative

Here’s the key points from today’s inflation report:

  • The Consumer Prices Index (CPI) fell by 0.1% in the year to September 2015, compared to no change (0.0%) in the year to August 2015.
  • A smaller than usual rise in clothing prices and falling motor fuel prices were the main contributors to the fall in the rate.
  • The rate of inflation has been at or around 0.0% for most of 2015.

UK in negative inflation again

Here we go! UK inflation has turned negative again!

The Consumer prices index fell by 0.1% in September, the Office for National Statistics reports. That’s weaker than the zero reading that economists had expected.

It’s the first sub-zero reading since April.

More to follow

Crumbs! The pound has just taken a dive in the foreign exchange markets, dropping almost one cent against the US dollar.

Pound vs dollar

Pound vs US dollar today Photograph: Thomson Reuters

Traders may be calculating that September’s UK inflation reading, due in a moment, is weaker than expected. Could the inflation number possibly have leaked??

Updated

More signs of weakness in Germany – Berlin is expected to trim its estimate for growth this year to 1.7%, down from 1.8%.

Economy minister Sigmar Gabriel could announce the new forecast tomorrow, according to Reuters.

This follows a hattrick of bad economic data last week, with factory orders, industrial production and exports all declining, as emerging market problems hit Germany.

Inflation, a preamble

Just 30 minute to go until we get the Britain’s inflation date for September.

City economists broadly expect that the consumer prices index will remain flat for a second month, leaving inflation at zero. But a negative reading can’t be ruled out.

My colleague Katie Allen explains:

Falling pump prices and a cut in energy bills by British Gas are expected to have kept inflation at zero last month, putting little pressure on the Bank of England to raise interest rates from their record low any time soon.

Official figures on inflation due at 9.30am are forecast to show no change in the consumer prices index measure. Against the backdrop of tumbling global commodity prices, from food to oil, inflation in the UK has been at or close to zero since February, well below the Bank’s target of 2%.

While some have described low inflation as a sign of economic fragility, it relieves the pressure on household budgets after several years of wages falling in real terms following the financial crisis. The latest official figures on the jobs market on Wednesday are expected to put pay growth at 3.1%.

Here’s her preview:

Hedge fund manager Gertjan Vlieghe

MPs could give Gertjan Vlieghe, Britain’s newest interest rate setter, a rough ride when he appears before them in an hour’s time.

Vlieghe should expect some tough questions about his previous role as economist at a hedge fund (Brevan Howard Asset Management).

Vlieghe was appointed to the Bank of England in late July. He had originally hoped to remain a member of Brevan Howard’s long-term incentive plan, but was forced to exit it to avoid “any mistaken impression” of a conflict of interest.

Alan Clarke, an economist at Scotiabank in London, reckons that those concerns may dominate today’s hearing — as Brevan Howard Asset Management (like any hedge fund) could potentially make or lose money due to decisions taken at the BoE.

Clarke told Bloomberg:

“It’s probably right that happens because financial markets have not had a great reputation recently. Sadly, I think, that will overshadow what is an otherwise great appointment.”

Bloomberg economist Maxime Sbaihi predicts that today’s ZEW survey, due at 10am BST, will show economic confidence deteriorated in Germany this month.

Mining stocks hit by Chinese gloom

European stock markets are all falling this morning, as the 20% slide in Chinese imports last month spooks traders.

In London, the FTSE 100 has lost 36 points, or 0.6%, led by mining stocks such as Glencore (-4.5%).

FTSE 100 fallers

FTSE 100 fallers Photograph: Thomson Reuters

The French CAC shed 1%, while Germany’s DAX is down 0.6%.

Conner Campbell of SpreadEX explains:

A whopping 20% fall in Chinese imports in September didn’t get the day off to the best start, with that drop in demand sure to cause ripples of worry the world over.

Updated

Shares in SABMiller have jumped by 9% at the start of trading in London, to around £39.50.

That’s short of the £44 per share proposal which its board have accepted; the City may not be 100% convinced that AB InBev will pull this deal off.

SAB Miller shares

SAB Miller shares this morning Photograph: Thomson Reuters

AB InBev now has until 5pm on the 28th October to file a firm offer for SAB, having won the board round with its latest proposal.

The key is whether Colombia’s Santo Domingo family, which owns 14% of SABMiller, feels £44 per share is enough.

Updated

You know a deal is big when it moves the pound.

Here’s how sterling reacted to the news that AB INBev and SABMiller have agreed terms.

Pound vs US dollar

Pound vs US dollar today Photograph: Thomson Reuters

Updated

AB InBev and SABMiller agree terms on £68bn deal

File photo of a waiter serving a glass of beer ahead of an Anheuser-Busch InBev shareholders meeting in Brussels<br />A waiter serves a glass of beer ahead of an Anheuser-Busch InBev shareholders meeting in Brussels in this April 30, 2014 file photo. SABMiller, the world’s second largest brewer, has promptly rejected an improved offer from bigger rival Anheuser-Busch InBev, saying October 7, 2015, that its 68 billion-pound ($104 billion) valuation was insufficient. REUTERS/Yves Herman/Files

One of the biggest takeover battles in the City in recent years is heading to a climax this morning.

Anheuser-Busch InBev, the brewing giant behind Stella Artois and Budweiser, has announced it has “reached an agreement in principle on the key terms of a possible recommended offer” for its rival, SABMiller (producer of Grolsch, Peroni, Pilsner Urquell…).

Here’s the statement issued to the City.

At £44 per share, the deal values SABMiller at around £68bn — making it the biggest takeover of a UK company ever.

It’s not signed and sealed yet, though – it still needs the support of SAB’s shareholders. Yesterday, SAB rejected £43.50 per share, but the board has now calculated that it can’t turn down this new higher offer.

More here:

Updated

The impact of China’s slowdown will be felt around the globe, warns economist Cees Bruggemans.

The 20% tumble in Chinese imports last month means that growth is continuing to slow, says Yang Zhao, China economist at Nomura Holdings Inc. in Hong Kong.

He said (via Bloomberg)

“Import growth remained sluggish, suggesting weakening domestic demand, particularly investment demand

We maintain our view that GDP growth will decline to 6.7 percent in the third quarter.”

GDP growth was measured at 7.0% in the second quarter of 2015.

Updated

Chinese imports slump 20% as slowdown continues

The latest trade data from China has sent a shiver through the markets this morning.

Chinese imports slumped by over 20% year-on-year in September (in dollar terms), a worse performance than economists had expected. That means imports have now fallen for 11 months running, as the country’s economy has slowed.

Exports dipped by 3.7% — better than the 6% slide which was expected. But it’s the slump in imports that is alarming analysts, as it hints at more problems building in China.

Reuters has more details:

Imports plunged 20.4% in September from a year earlier to $145.2bn, customs officials said, due to weak commodity prices and soft domestic demand.

These factors will complicate Beijing’s efforts to stave off deflation, one of the headwinds threatening the world’s second biggest economy.

The news helped to drive shares down in Asia, where Japan’s Nikkei fell over 1% overnight.

Commodity prices also weakened, as investors calculated that China would be importing less raw materials in the months ahead.

Updated

Introduction: Has UK inflation turned negative again?

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

After the glamour and drama of yesterday’s Nobel economics prize, we’re back into the gritty world of data this morning.

At 9.30am, the latest UK inflation figures for September could show that the cost of living is falling again (at least according to the Consumer Price Index).

It was 0% in August, mainly due to cheaper energy costs, and some economists think it could have fallen below zero last month.

Then at 10am, Germany’s ZEW economic sentiment index will highlight if the emerging market slowdown and the Volkswagen emissions scandal is hurting Europe’s largest economy.

Also coming up…

At 10am, MPs on the Treasury Select Committee will grill Gertjan Vlieghe, the newest member of the Bank of England’s monetary policy committee.

And the banking reporting season will kick off later, with results from JPMorgan Chase, Citigroup and Wells Fargo.

Updated

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

Published via the Guardian News Feed plugin for WordPress.


USA 

G7 will not target exchange rates, but is concerned about the recent yen moves. Yen weakening to be discussed at the G20 meeting this weekend. Mariano Rajoy says Spain will return to growth in 2013. UK inflation sticks at 2.7% in January…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: G7 warns of currency war risks” was written by Josephine Moulds and Nick Fletcher, for guardian.co.uk on Tuesday 12th February 2013 12.46 UTC

2.08pm GMT

G7 concerned about yen movement, says official

The earlier G7 statement on currencies was apparently misinterpreted, and was designed to express concern about the Japanese yen. That’s what a G7 official is saying, according to various wires.

We reported on the concerns about a currency war earlier.

Updated at 2.11pm GMT

1.56pm GMT

France unlikely to meet 2013 deficit target, says state auditor

France has very little chance of meeting its target of cutting its deficit to 3% of output this year, according to the country’s state audit body.

The court of auditors – not part of the government – called on the EU to clarify how it would deal with member states if they did overshoot their budget target.

France has promised to cut its nominal deficit to 3% from 4.5% in 2012, but a deteriorating economy has meant the target has seemed increasingly unlikely to be achieved.

Updated at 2.21pm GMT

12.46pm GMT

Meanwhile, Germany’s deputy finance minister has told DJ/FX Trader that they expect Ireland to exit its bailout programme at the end of this year, and Portugal could could follow it.

And with that, I’m handing over to my colleague Nick Fletcher.

Updated at 1.48pm GMT

12.42pm GMT

There is a feeling that the G7 is protesting too much about the currency wars.

12.41pm GMT

No exchange rate problem in Europe

The EU finance chiefs and European policymakers have emerged from their meeting and are being grabbed by reporters on their way out.

A few lines coming through.

German finance minister Wolfgang Schaüble says we have no exchange rate problem in Europe “yet”. He says there were intense money-laundering talks with Cyprus. He adds:

The crisis is not over, we’re on a good track.

Spanish finance minister Luis de Guindos says the Ecofin meeting did not discuss losses to Cypriot savers. He says the rise in the value of the euro shows investor confidence.

While the vice-president of the European commission, Olli Rehn, says the EC is not working on any sovereign debt restructuring plan for Cyprus. Asked if depostiors in Cyprus could lose money, he says:

We are working on a solution for Cyprus that would ensure its financial stability and debt sustainability.

Updated at 12.42pm GMT

12.25pm GMT

UK inflation report preview

Looking ahead to the Bank of England’s inflation report out tomorrow, which will be scoured for clues that the central bank intends to carry out more stimulus in the coming months.

Howard Archer of IHS Global Insight says:

We suspect that the February Inflation Report will leave the door open to more QE. Once again the Bank of England will likely have the dismal task of raising its consumer price inflation forecasts and cutting its GDP growth projections. This has been the depressing trend for some considerable time now.

With economic activity likely to remain fragile and limited, we believe that the Bank of England will eventually decide to give the economy a further helping hand with another £50 billion of QE. This could well happen in the second quarter, or it may come soon [after] Mark Carney takes over as Bank of England Governor in July.

Updated at 12.28pm GMT

12.19pm GMT

Finmeccanica chief executive arrested

Over to Italy, where the police have arrested the chief executive of the country’s biggest defense and aerospace group, Finmeccanica, which owns the part-British helicopter group AgustaWestland. The Wall Street Journal reports:

[Giuseppe] Orsi is under investigation in a bribery case related to the €560 million ($750 million) sale of 12 helicopters by a Finmeccanica division to India in 2010, according to Finmeccanica and the prosecutor in the case. Mr. Orsi hasn’t been charged.

Mr. Orsi has over the past months repeatedly denied making any bribes.

The company Finmeccanica and its helicopter division, AgustaWestland, are also themselves under investigation in the case, according to the company and the prosecutor. Both companies have denied wrongdoing.

12.06pm GMT

No sign of a currency war – economist

Here’s Christian Schulz of Berenberg Bank on the G7 currencies statement:

The statement shows that the G7 are united and continue to cooperate. No sign of a currency war. Despite criticism from some such as Germany’s Bundesbank, the G7 do not seem to be too worried by the Japanese move to increase their inflation target and more aggressive easing.

In particular the eurozone and the ECB, which have recently borne the brunt of the adjustment, seem unphased by the euro at $1.35 and ¥126. More ECB action than the very modest verbal intervention by ECB president Draghi to slow the appreciation remains unlikely.

He says it looks like it would take a lot for the countries to intervene in the currency markets.

The G7 would only cooperate and potentially intervene in case of abrupt exchange rate movements, which could hurt the economy. This might address French concerns a bit by slowing further appreciation of the euro. However, the threshold for interventions seems to be high, as the 25% depreciation of the Japanese yen against the euro since July has not triggered one.

11.51am GMT

Spain and Italy borrowing costs rise

Italy and Spain have both issued short-term debt today and it seems political instability in both countries has driven borrowing costs higher.

Spain sold €5.6bn of short-term debt, with higher borrowing costs on its 12-month bills. The average yield on the 12-month debt came in at 1.548%, up from 1.472% in January.

Reuters said the rise in yields showed the corruption scandal within the ruling People’s party and an economy mired in recession is starting to weigh on investor appetite.

Italy, meanwhile, secured an average yield of 1.09% on its 12-month debt, up from 0.86% last month, but still way below last year’s peak of 3.97%.

It is thought that traders are reacting to political tensions ahead of the elections this month.

Updated at 11.57am GMT

11.27am GMT

UK pay falls behind inflation

The team on the Guardian’s datablog has plotted how pay has fallen behind inflation in the UK, squeezing household budgets. They write:

Living standards have been falling consistently over the past twelve months, as inflation has run well above the rate of pay increases, which the latest labour market data showed averaging at less than 2%.

11.20am GMT

UK inflation beyond Bank of England’s control – economist

So for a bit more reaction to the UK’s 2.7% rate of inflation. Labour have predictably gone for the “out-of-touch government” line.

Shadow treasury minister Cathy Jamieson said:

This out of touch Government has got its priorities all wrong. Instead of giving a £3 billion tax cut to the very richest George Osborne should be acting to kick-start our economy and help people on modest incomes who are feeling the squeeze.

While Chris Williamson of Markit says the factors driving inflation higher are largely beyond the control of the Bank of England.

Looking into the detail of the January inflation data, the main upward pressures came from an 8.5% jump in alcohol and tobacco prices, a 19.7% leap in education costs due to the rise in tuition fees, a 3.5% increase in utility prices and a 4.2% upturn in food prices. All of these are sources of inflation which are not related to (or affected by) central bank policy. They are either “administered prices”, reflecting changes in government policy and taxation, or are prices set globally, as in the case of oil and many food commodity prices.

Weak demand is meanwhile keeping price pressures low elsewhere in the economy – as is illustrated by a mere 0.2% year-on-year increase in clothing prices, which dropped 5.4% in January, and a modest 0.8% rise in prices for household goods, which fell 2.3% during the month. There is little that can therefore be done to bring inflation down further for the goods and services that are typically influenced by domestic monetary policy, as these prices are already falling.

He expects the Bank of England to turn a blind eye to the causes of higher inflation and instead push on with demand-boosting stimulus to help revive the economy.

But, he says, policy will probably be kept on hold (and the quantitative easing programme maintained at current levels) until a clear picture emerges of how the country has fared in the first quarter.

Updated at 11.35am GMT

11.10am GMT

OECD urges global tax avoidance clampdown

Meanwhile, an OECD announcement has been rather overshadowed by the G7 currency statement.

The Paris-based thinktank has called for a clampdown on tax avoidance by large multinational companies. Reuters reports:

A sweeping overhaul of international corporate tax rules is urgently needed to stop savvy big companies escaping the payment of billions of euros to cash-strapped governments, the OECD said on Tuesday.

Governments face growing demands from voters to force big companies with extensive international business to pay more tax in wake of mounting evidence that many use differences between different countries’ rules to reduce their tax bill.

Updated at 11.36am GMT

11.06am GMT

Hopes that G20 will echo G7 commitment to floating exchange rates

Currencies will be on the agenda again at the G20 meeting in Moscow later this week, and there are hopes they will issue a similar statement.

ECB vice-president Vitor Constancio told Reuters today that they too should reaffirm their commitment to floating exchange rates.

We, of course, want that everyone else respects those principles.

Asked what he expected to come out of the G20 meeting, he said:

I expect that these principles will be reaffirmed, pure and simple.

But there is some scepticism that any agreement could be reached at the larger group of 20. Channel 4′s economics editor says:

Constancio also said there was no currency war going on at the moment.

10.44am GMT

The G7 comprises the US, UK, France, Germany, Italy, Canada, and crucially Japan. But traders say the statement did not go far enough to calm the brewing currency wars.

10.35am GMT

Heated currency rhetoric prompted G7 statement

There is growing concern about the potential for currency wars, as countries fight to remain competitive in the global market.

The problem arises when individual countries undertake measures to stimulate their economies – like the huge quantitative easing programme in the US – that devalues their currency, making their exports look cheaper on the international markets.

But, while the US Federal Reserve and the Bank of Japan are rapidly printing money, the ECB is reining in its stimulus, with banks paying back some of the cheap money it doled out last year.

That could drive the euro even higher, which is the last thing the eurozone economy needs right now.

French finance minister Pierre Moscovici yesterday warned of the effect a rising euro could have on European growth. But he was rebuffed by German officials, who promptly said that exchange rates should not be manipulated.

The heated rhetoric has obviously got some people worried, prompting the G7 statement today. Reuters has a good backgrounder here.

Updated at 10.37am GMT

10.12am GMT

Rajoy says ‘business as usual’

Mariano Rajoy’s message was one of business as usual, reports our correspondent in Madrid, Giles Tremlett, who is at the Economist conference, where the Spanish prime minister was speaking.

He writes:

A characteristically bland appearance by Mariano Rajoy at The Economist conference in Madrid this morning did not produce startling headlines but did show that the Spanish PM is forthrightly intent on continuing with both austerity and reforms.

The word corruption, which is what most worries Spaniards after unemployment and recession, did not pass his lips – and he did not accept that the two party system in Spain has become a problem, increasing corruption levels and damaging the country’s reputation elsewhere.

He continues to insist that Spain will grow again towards the end of the year or next year. He clearly is not interested in changing the constitution either to allow Catalonia a right to self-determination or to change the system of political parties and the way it operates.

More reforms will come this year to further reduce the size of the public administration and to turn Spain itself into a single market, getting rid of barriers erected by regional governments.

The overall message was one of business as usual in government – Rajoy’s priority is the economy and other matters appear to be simple distractions.

Updated at 10.34am GMT

10.08am GMT

The G7 says it will consult closely with regards to actions in foreign exchange markets. It reaffirms that fiscal and monetary policies oriented towards domestic objectives and countries will not target exchange rates.

The (rather brief) statement in full:

We, the G7 Ministers and Governors, reaffirm our longstanding commitment to market determined exchange rates and to consult closely in regard to actions in foreign exchange markets. We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates. We are agreed that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability. We will continue to consult closely on exchange markets and cooperate as appropriate.

10.04am GMT

G7 will not target exchange rates

As leaked, the G7 has reaffirmed its commitment to exchange rates set by the market. It says:

Disorderly movements in exchange rates have adverse implications for stability.

9.58am GMT

UK inflation will hit 3% this year

Britons will continue to suffer rapidly rising prices for some time, according to the experts. Our economics editor, Larry Elliott, reports:

The Bank of England is predicting that it will be up to two years before annual price increases fall back to the Government’s 2% target.

Jeremy Cook, chief economist at foreign exchange company World First said: “While this figure suggests that inflation has stabilised within the target range we expect this to be the last reading for a while that sees CPI below the 3.0% level. While the Bank of England’s asset purchase programme isn’t in itself inflationary, the devaluation of sterling is. Our largest import through 2013, because of the Bank’s monetary policy, will be inflation.

“Home-grown price pressures are also increasing with transport, food and utilities boosting upwards in the latter part of 2012; this will continue to erode wage value through 2013, hurting consumer confidence and limiting spending.”

But the government argued that it was not all bad. A Treasury spokesman said:

Inflation is down by almost a half from its peak of 5.2 per cent. The government has taken continued action to help with the cost of living, by announcing a further increase in the tax-free personal allowance and freezing fuel duty for more than two years.

Updated at 10.13am GMT

9.53am GMT

The statement on currencies, we are expecting in eight minutes, will reaffirm that G7 members will not target exchange rates, Dow Jones reports, citing and EU source.

Updated at 10.13am GMT

9.50am GMT

UK inflation will stay above 2% target – economist

UK inflation is likely to stay above the Bank of England’s 2% target for a while yet, says Capital Economics.

Vicky Redwood writes:

Inflation held at 2.7% for the fourth month in a row in January (in line with the consensus forecast) and is likely to rise a bit further before falling later this year.

Given the clues in last week’s MPC statement, it looks like tomorrow’s Inflation Report will show inflation projected to be above its target for most of the next two years, partly reflecting the inflationary impact of sterling’s recent fall. Nonetheless, the Committee has already said that it is prepared to “look through” the increase.

Indeed, if the economy continues to struggle, above-target inflation should not be a barrier to further stimulus. What’s more, we still expect inflation to fall back towards the end of this year as underlying price pressures fade further.

The main factor keeping inflation high was, apparently, alcohol, where prices recovered after the Christmas sales.

9.33am GMT

UK inflation sticks at 2.7%

In the UK, inflation remains stubbornly high at 2.7%. Although that was slightly better than forecasts of a rise to 2.8%.

The wider measure of retail prices came in slightly higher than expected at 3.3%.

We’ll have all the reaction to that news, as it comes in.

9.24am GMT

G7 to make statement on currencies

Having said that the meeting of the 27 European finance ministers may not be that dramatic, it seems there will be a statement on currencies.

Reuters is reporting that the G7 will publish a statement on currencies at 10am, citing a source at the Ecofin meeting of the finance chiefs.

9.19am GMT

There’s nervousness in the markets ahead of the UK inflation figures (due out in 10 minutes). The pound has fallen to a six-month low against the dollar and slipped against the euro, with investors reportedly anxious about the bleak outlook for the UK economy.

Updated at 10.14am GMT

9.13am GMT

And that is that. Unsurprisingly, there were no questions allowed from the floor. But we’ll have plenty more from Spain during the day, when ECB chief Mario Draghi comes to town.

9.11am GMT

Draghi’s OMT decision was correct – Rajoy

Rajoy says Draghi’s decision to announce the OMT bond-buying programme was correct. The pair meet later in the day to discuss it further. Spain is not yet eligible for ECB help in bringing its borrowing costs down because it is not part of a bailout programme.

He concludes:

I promised not to raise taxes. I have not kept my promises, but I think I have carried out my duties.

Updated at 9.21am GMT

9.02am GMT

Asked about the financing of political parties, Rajoy says that it is not so much a problem with the regulations but with compliance with the regulations. Still, he confirms that there will be an announcement with regards to improvements in this area in the coming days.

Updated at 11.33am GMT

8.53am GMT

Catalonia will not separate from Spain – Rajoy

Rajoy insists that Catalonia will remain part of Spain.

Updated at 9.26am GMT

8.46am GMT

Rajoy says doubts over Spain’s public finances have been removed, and the focus for Spain is now on growth.

Updated at 10.15am GMT

8.36am GMT

The Economist is asking whether the Spanish people have lost faith in their two main parties.

Rajoy gives a very long answer. He says Spain is lucky in that it does not have extremist parties.

It is true that there are lots of things that can improve. But Spain is a country with a free press.

8.30am GMT

Spanish PM predicts economy will grow by end of 2013

Rajoy says Spain’s economy will return to growth in the latter part of 2013 and in 2014.

Updated at 9.26am GMT

8.24am GMT

Spanish PM Mariano Rajoy has started his speech at the Economist conference, but so far it’s all about the Spanish economy. You can watch him live here. We’ll wait and see if the Economist questions him on the secret payments scandal.

The magazine last week printed a scathing critique of Rajoy, calling for a public inquiry into the scandal. It wrote:

The problem facing Spain is that the only people who can clean up this mess are those who created it. Alongside a proper inquiry, Mr Rajoy should start cross-party talks to reform the party system. Otherwise both he and his traditional opponents may drown in a wave of angry populism.

Updated at 10.15am GMT

7.57am GMT

Banks should pay to wind down rivals – ECB

Banks should pay to wind down their failing rivals, but sometimes taxpayer money will be needed in this process, ECB vice-president Vitor Constancio said this morning.

Reuters reports:

There may be a need for “temporary use of public money when, for example, a bridge bank needs to be created” Cosntancio told a bank regulation conference in Helsinki.

The contribution of public money should be in the form “of credit lines that need to be repaid later on”.

He added that banks should be the first line of funding for any bank resolution schemes.

Updated at 10.16am GMT

7.51am GMT

Moody’s cuts growth outlook for G8

Also overnight, rival ratings agency Moody’s cut its outlook for the world’s advanced economies, even as risks to the global economic recovery appear to be diminishing.

It now forecasts real GDP growth for the G8 will be around 1.4% in 2013, 0.2 percentage points lower than its previous forecast in November, reflecting recent weak data.

Despite this revised outlook, Moody’s said factors that may have derailed economic growth have abated following a relative period of calm in global financial markets, with the US steering clear of the fiscal cliff, and the eurozone debt crisis continuing to ease.

7.47am GMT

S&P upgrades Ireland to ‘stable’

There was good news for Ireland overnight, when ratings agency Standard & Poor’s joined Fitch in lifting the country’s sovereign debt rating outlook to stable, after Dublin struck a bank debt deal that improved its chances of exiting its bailout programme by the end of 2013.

Ireland has been subject to biting austerity but looks like it could be on the road to recovery, with economic indicators starting to point the right way. Yesterday, data showed consumer confidence in the country (measured ahead of the bank deal) surged in January from 49.8 to 64.2.

Updated at 7.48am GMT

7.40am GMT

Cyprus banks checked for money laundering before bailout

Eurozone finance ministers yesterday came to what looked like a compromise over Cyprus, with a private company dispatched to look into claims of money laundering on the island before it gets any European aid.

My colleague Phillip Inman reports in today’s paper:

European finance ministers have insisted that Cyprus allows private investigators to check the island’s banks for breaches of money-laundering rules ahead of a €17bn (£14.5bn) rescue deal.

The Eurogroup said investigators would be despatched in a matter of days to the capital Nicosia and will report back to its next meeting in March.

The move follows allegations that Russian oligarchs have deposited billions of roubles in illegal funds in the island’s banks. It was agreed by Cyprus’s government despite concerns that the country is rapidly running out of cash.

Jeroen Dijsselbloem, the Dutch finance minister and head of the Eurogroup, which is comprised of the 17 eurozone members, said the investigation was a precondition for any discussion of the terms of a bailout.

“We have agreed a private firm needs to get involved and we have agreed we need a report in March,” he said.

7.34am GMT

Good morning and welcome back to our rolling coverage of the eurozone crisis and other global economic events.

Spanish prime minister Mariano Rajoy could face his first public grilling this morning, since the scandal enveloping his ruling PP party broke.

Then, later in the day, ECB chief Mario Draghi will speak in Spain’s parliament to discuss the bond-buying programme.

Over in Brussels, the finance chiefs of all 27 EU member states meet this morning but the agenda (for once) is light and nothing conclusive is expected to come of it.

Back in the UK, the ONS will issue key inflation numbers, although markets will await tomorrow’s quarterly inflation report from the Bank of England for clues over where monetary policy is headed.

Updated at 8.14am GMT

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

Published via the Guardian News Feed plugin for WordPress.