Britain loses AAA rating with Fitch. Gross government debt expected to hit 101%. Treasury: we can’t run away from Britain’s debts. Britain is launching legal action against a plan to introduce a financial transaction tax in eurozone countries…


Powered by Guardian.co.ukThis article titled “Fitch downgrades UK credit rating – as it happened” was written by Graeme Wearden, for theguardian.com on Friday 19th April 2013 18.35 UTC

8.34pm BST

Closing summary

Our news story on the Fitch downgrade is now online here: Fitch strips UK of AAA credit rating.

Here's a flavour:

The UK's credit standing took a further blow on Friday when Fitch Ratings became the second major international agency to strip it of its top-notch credit rating.

The move is an embarrassment for the coalition, which promised to protect Britain's rating when it took power in 2010, and will heighten the debate about whether austerity is still the right approach.

Fitch trimmed the rating to AA+ from AAA, citing a weaker economic and fiscal outlook. But it returned the outlook to "stable", removing the threat of any further rating action, at least in the near term.

"The fiscal space to absorb further adverse economic and financial shocks is no longer consistent with a AAA rating," it said in a statement.

And as the reaction to the move has now died down, I'm going to shut up the liveblog for the day.

Here's the key points:

You can track the reaction to Fitch's downgrade from 5.06pm.

Here's the official statement

George Osborne says there's no credible alternative…

Shadow chancellor Ed Balls called it 'another devastating blow' to Osborne, and David Cameron

City analysts reacted calmly.

Thanks for reading, and goodnight. Back next week…..

8.30pm BST

Another photo from Washington, catching Osborne and Sir Mervyn King in thoughtful mood:

Britain Chancellor of the Exchequer George Osborne, center, stands with Bank of England Gov. Mervyn King, left, and U.S. Treasury Secretary Jack Lew during a group photo of the G20 finance ministers and central bank governors on the sidelines of their meeting at World Bank Group International Monetary Fund Spring Meetings in Washington, Friday, April 19, 2013.
Britain Chancellor of the Exchequer George Osborne, center, stands with Bank of England Gov. Mervyn King, left, and U.S. Treasury Secretary Jack Lew during a group photo of the G20 finance ministers and central bank governors on the sidelines of their meeting at World Bank Group International Monetary Fund Spring Meetings in Washington. Photograph: Charles Dharapak/AP

8.15pm BST

Meanwhile in Washington, finance ministers have agreed not to set hard targets for debt reduction.

Reuters has the details

8.09pm BST

UK launches legal action over FTT

Another important story to flag up… Britain is launching legal action against a plan to introduce a financial transaction tax in eleven eurozone countries.

The government says it is worried that the plan will affect banks and institutions in countries outside the scheme – in other words, hurt the City..

From Washington, Larry Elliott reports:

The scheme, also known as a Tobin tax, would put a levy on all euro transactions anywhere in the world. But hopes for it suffered a setback when George Osborne said in Washington that the UK was taking the case to the European court of justice (ECJ).

"I am not against financial transaction taxes in principle," the chancellor said, noting that the UK put stamp duty on shares. "But I am concerned about the extra-territorial aspects of the European commission's proposals.

It's quite a dramatic move from the UK. FTT supporters aren't impressed – the Robin Hood Tax campaign called it "the last refuge of a chancellor who has lost the argument".

Here's the full story: George Osborne to challenge proposed financial transaction tax in court

7.45pm BST

The International Monetary Fund has taken another swipe at the government's budget plans tonight.

In an interview with the BBC's Hardtalk programme, Christine Lagarde was asked whether the UK government needed show more flexibility.

She replied that Britain's recent "weak growth" meant the government could now reconsider its plans (effectively repeating her point from earlier this week).

Here's the quote:

We are saying with this medium-term, strong anchoring of fiscal consolidation, the pace has to be adjusted depending on the circumstances and given the weak growth that we have observed lately … now might be the time to consider.

The IMF has previously backed Osborne's plans. And the reference to "medium-term, strong anchoring of fiscal consolidation" shows it hasn't lost all faith in the UK.

7.35pm BST

Here's a second statement from the Treasury tonight, insisting that the UK economy is improving:

Though it is taking time, we are fixing this country's economic problems.

The deficit is down by a third, a million and a quarter new private-sector jobs have been created and the credibility we have earned means households and businesses are benefiting from near record low interest rates.

The test will come next Thursday, when the first estimate of UK economic output in January, February and March is released. If GDP has fallen then Britain will be a triple-dip recession.

7.23pm BST

Osborne: no credible alternative

US Treasury Secretary Jack Lew (R) talks with British Chancellor of the Exchequer George Osborne (L) during group photo of G-20 finance ministers and central bankers at the 2013 IMF and World Bank Spring Meetings in Washington, DC, USA, 19 April 2013.
 George Osborne (left) speaking to US Treasury Secretary Jack Lew during the group photo of G20 finance ministers and central bankers at the 2013 IMF and World Bank Spring Meetings in Washington. Photograph: SHAWN THEW/EPA

Over in Washington at the G20 meeting, George Osborne is refusing to be beaten down by Fitch's downgrade.

Speaking to the Financial Times, the chancellor argued that there was no 'credible' alternative to his plans.

Osborne said:

While of course there are ongoing economic challenges in the UK, I don’t feel a particularly strong political challenge to our economic policy.

I don’t feel under particular pressure politically because I don’t see anyone coming up with a credible alternative.

7.08pm BST

Rob Wood, chief UK economist at Berenbeg Bank, agrees that Fitch's downgrade has little impact economically. He points out that the UK deficit is not actually expected to fall this year (it is forecast to be £121bn, versus £120bn in 2012-2013)

Wood commented:

The downgrade comes hot on the heels of the spat this week between the IMF and the UK government, about whether to ease back on consolidation.

It will be further ammunition for the Labour opposition. Although in reality the arguments about Plan A and Plan B are pretty meaningless. The Chancellor has more or less switched to Plan B already.

He does not expect government borrowing to fall between FY2011/12 and FY2013/14. Ignoring all his questionable fiddles to get the measured deficit down, the Chancellor expects to borrow more than £100bn in the final fiscal year of the current parliament. It is hard to imagine a credible plan to borrow much more than that. Indeed, the stable outlook from Fitch relies on continued commitment to consolidation.

6.52pm BST

City unshaken by downgrade

There's a pretty muted reaction in the City tonight to Fitch's downgrade.

Economists and traders were already well aware of the state of the British economy, having digested the economic forecasts in last month's budget.

And Britain's credit rating had already lost its AAA status when Moody's made its own downgrade in February. The pound is still down on the day (see 5.33pm for a chart), but a fall of 0.5 cents isn't a big move.

Here's some early reaction:

Torben Kaaber, CEO at Saxo Capital Markets:

Poor George Osborne really has had a bad few days, not only has the IMF turned its back on him, Fitch has just downgraded the UK to AA+; a painful end to the week.

This further adds to the negativity around GBP and the perceived lack of policy to address the UK’s weak economic growth; specifically it was the poor economic growth that was highlighted by both Moody’s and Fitch as the key elements in their decisions to cut.

This downgrade set against a background of weakening UK economic data and the Bank of England likely to continue to add monetary stimulus would suggest that GBP will stay under pressure for now. Either way, shaky ground ahead, however given Osborne’s strong rhetoric to date, it seems the man is not for turning.

David Tinsley of BNP Paribas

For now the UK government is likely to stick to their existing plans for consolidation. But if growth falls short of already modest forecasts then pressure will build still further.

Howard Archer of IHS Global Insight

We suspect that there is likely to be little, if any, economic or market fall-out from Fitch’s decision to strip the UK’s of its rating, especially as the new AA+ rating has a stable outlook attached to it, which means that there are unlikely to be any further changes by Fitch to the rating for at least the next two years.

Updated at 6.58pm BST

6.19pm BST

Fitch's downgrade has come as George Osborne attends the meeting of G20 finance ministers in Washington.

Not the best timing for the chancellor, points out Channel 4's economics editor, Faisal Islam.

6.15pm BST

Ed Balls responds:

Ed Balls, the shadow chancellor, has called the downgrade "another humiliating blow" to the government, and repeated Labour's jibe that Osborne is a "downgraded chancellor".

Here's his full response:

This is another humiliating blow to a Prime Minister and Chancellor who said keeping our AAA rating was the number one test of their economic and political credibility. And it ends a disastrous week for George Osborne’s economic policy after the IMF downgraded its UK economic forecasts again and warned Britain needs a plan B for jobs and growth.

It’s not the views of the credit rating agencies, but the economic realities they are responding to which should be ringing alarm bells at the Treasury. Fitch is clear that their decision is a result of the weak growth performance of the UK in recent years. They are responding to nearly three years of stagnation, rising unemployment and billions more borrowing to pay for this economic failure.

This downgraded Chancellor needs to wake up and realise that his failing economic policies are causing long-term damage and Britain’s families and businesses are paying the price. When even your biggest allies – the IMF and the credit rating agencies – abandon you it really is time to put political pride aside and finally act to kickstart the economy.

Updated at 6.32pm BST

6.12pm BST

A bad week, by George

Fitch's downgrade comes at the end of a difficult week for George Osborne.

The International Monetary Fund warned on Tuesday that the government should ease the pace of its austerity programme, given the weak state of the economy.

On Wednesday, Britain's unemployment rate rose to 7.9%.

Then on Thursday, the IMF's Christine Lagarde repeated that Osborne should rethink and promised that her officials would conduct a thorough investigation into the health of the UK economy next month.

6.00pm BST

Fitch is the first agency to cut Britain's credit rating since last month's budget – the axe has been hovering since it put the UK on "rating watch negative" four weeks ago.

Standard & Poor's is now the only Big Three rating agency to still rank the UK as AAA (Moody's didn't even wait for the budget).

This puts the UK in a similar position as France (who are only AAA with Fitch).

Updated at 6.33pm BST

5.54pm BST

The headwinds of ‘private and public sector deleveraging’

Critics of George Osborne are likely to seize on Fitch's point that Britain's budget deficits are now forecast to be higher than expected last year (the third 'ratings driver' in the statement at 5.12pm)

Fitch blames "the weak growth performance of the UK economy in recent years", which it says are partly due to "headwinds of private and public sector deleveraging and the eurozone crisis".

Clearly Osborne can't be blamed for the euro's woes. But many Keynesian economists have argued that it was a blunder to attempt an austerity programme while many companies, and households, were also looking to pay down their debts.

Updated at 5.59pm BST

5.44pm BST

Treasury: downgrade shows Britain must tackle debts

The Treasury has responded to Fitch's downgrade, arguing that the move doesn't mean chancellor George Osborne should change course:

A spokesman said:

This is a stark reminder that the UK cannot simply run away from its problems, or refuse to deal with a legacy of debt built up over a decade.

Fitch themselves say the government's 'continued policy commitment to reducing the underlying budget deficit' is one of the main reasons UK debt now has a 'stable' outlook.

5.33pm BST

Pound drops after Fitch downgrade

The pound is down half a cent against the dollar today, following Fitch's announcement, to .523.

That's not a major move really, and as you can see sterling had actually been sliding all afternoon….

Sterling, April 19 2013
Pound vs dollar today. Photograph: Reuters

Updated at 6.33pm BST

5.23pm BST

Fitch’s statement

Fitch's statement is online here.

The new rating is AA+ with a stable outlook, which means Fitch is not anticipating a further downgrade in the near future.

5.12pm BST

Why Fitch downgraded the UK

Fitch says it took the decision to downgrade Britain's triple-A rating because of the country's deteriorating economic climate.

It now believes Britain's gross debt will peak at 101% of GDP in 2015-16.

A debt mountain larger than the UK's annual economic outlook is not consistence with a top-notch credit rating.

Here's the key points from tonight's statement:

• Fitch now forecasts that general government gross debt (GGGD) will peak at 101% of GDP in 2015-16 (equivalent to 86% of GDP for public sector net debt, PSND) and will only gradually decline from 2017-18. This compares with Fitch's previous projection for GGGD peaking at 97% and declining from 2016-17 and the 'AAA' median of around 50%.

• Fitch previously commented that failure to stabilise debt below 100% of GDP and place it on a firm downward path towards 90% of GDP over the medium term would likely trigger a rating downgrade. Despite the UK's strong fiscal financing flexibility underpinned by its own currency with reserve currency status and the long average maturity of public debt, the fiscal space to absorb further adverse economic and financial shocks is no longer consistent with a 'AAA' rating.

• Higher than previously projected budget deficits and debt primarily reflects the weak growth performance of the UK economy in recent years, partly due to headwinds of private and public sector deleveraging and the eurozone crisis. Fitch has revised down its forecast economic growth in 2013 and 2014 to 0.8% and 1.8%, respectively, from 1.5% and 2.0% at the time of the last review of the UK's sovereign ratings in September 2012. The UK economy is not expected to reach its 2007 level of real GDP until 2014, underscoring the weakness of the economic recovery.

• Despite significant progress in reducing public sector net borrowing (PSNB from a peak of 11.2% of GDP (GBP159bn) in 2009-10, the budget deficit remains 7.4% of GDP (excluding the effect of the transfer of Royal Mail pensions) and is not expected to fall below 6% of GDP and GBP100bn until the end of the current parliament term. The slower pace of deficit reduction means that the next government will be required to implement substantial spending reductions (and/or tax increases) if public debt is to be stabilised and reduced over the medium term.

Updated at 5.17pm BST

5.06pm BST


Breaking News: Fitch has downgraded the UK's triple-A rating, by one notch, to AA+.

4.34pm BST

Goldbugs swarmed on bullion in April, says Royal Mint

My colleague Katie Allen has been looking into sales of physical gold over the last week and has some interesting numbers from the Royal Mint.

The battering in financial markets for gold has brought out the bargain hunters in the physical market and bars, nuggets and coins are going gangbusters.

In India, the world's biggest gold buyer, the wedding season is boosting sales further, jewellers report.

In the UK the Royal Mint tells us that bullion sales have rocketed.

Richard Samuels, bullion manager at The Royal Mint said:

Demand for gold bullion coins during April has seen an increase of over 150% in sales on the previous month, and over 200% on the same period in 2012.

Shane Bissett, director of bullion and commemorative coin at The Royal Mint said:

Since the dip in the price of gold we have seen increased demand for our gold bullion coins from the major coin markets, and this presently shows no sign of abating. The Royal Mint continues to supply to its customers and is increasing production to accommodate the higher demand.

The gold price has risen today, incidentally, to ,402 per ounce.

Updated at 5.00pm BST

4.03pm BST

Photos: Alessandra Mussolini wears ‘The Devil Wears Prodi’ top

Surprising scenes in the Italian parliamentAlessandra Mussolini MP, granddaughter of Benito, turned up for today's presidential vote with "The Devil Wears Prodi" written on the back of her top.

This led to hissing and booing from centre-left MPs, who had selected former prime minister Romano Prodi as their favoured candidate for the presidency (see 1.25pm for details).

Mussolini is a member of Silvio Berlusconi's PdL party, who are refusing to support their former rival.

Alessandra Mussolini wears a t-shirt to protest during the second day of the presidential election in the lower house of the parliament in Rome April 19, 2013.
Photograph: Max Rossi/Reuters
Lower house president Laura Boldrini (R) checks the t-shirt of  PDL (People of Freedom party) member Alessandra Mussolini (C) during the second day of the presidential election in the lower house of the parliament in Rome April 19, 2013.
Lower house president Laura Boldrini (R) checks the Alessandra Mussolini’s t-shirt. Photograph: Max Rossi/Reuters
PDL (People of Freedom party) member Alessandra Mussolini (L) gestures with Lower house president Laura Boldrini during the second day of the presidential election in the lower house of the parliament in Rome April 19, 2013. I
Photograph: Max Rossi/Reuters
Alessandra Mussolini of The People of Freedom (PdL) wears a T-shirt which reads 'The Devil wears Prodi' ('Il Diavolo veste Prodi') as she arrives in the Chamber of Deputies on the second day of the election of the new Italian President, Rome, Italy, 19 April 2013.
Photograph: Alessandro Di Meo/EPA

We don't have the results of the latest ballot yet, though.

Updated at 4.14pm BST

3.36pm BST

Over in Washington, we're expecting a statement from G20 finance ministers later this afternoon.

Details are starting to leak … the Wall Street Journal reckons we'll get a repeat of their previous comments about committing to avoid a currency war …

Updated at 3.36pm BST

3.30pm BST

Photos: Cyprus begins inquiry into bailout crisis

Cyprus' Finance Ministry permanent secretary Christos Patsalides, the first witness of a public inquiry into Cyprus' economic collapse, testifies before a panel of judges in Nicosia April 19, 2013.
Cyprus’s finance ministry permanent secretary Christos Patsalides testifying today. Photograph: ANDREAS MANOLIS/Reuters

The top civil servant at Cyprus's finance ministry has savaged the country's international lenders as "forces of occupation" with no compassion for human rights, at the start of an official judicial probe into the crisis.

Christos Patsalides told the inquiry that the officials who negotiated with Cyprus had been "unrelenting", and had driven it into its current plight.

Patsalides said:

With the imposition of Germany and the IMF…they shot a pigeon with an atomic bomb".

Cyprus's finance ministry permanent secretary Christos Patsalides (background right) starts testifying, Nicosia Friday 19 April 2013, into the economic circumstances leading to the turmoil of an EU sanctioned bailout for the troubled Mediterranean island.
Photograph: Katia Christodoulou

Here's more details via Reuters:

Asked whether forcing losses on depositors was compatible with their individual rights, Patsalides replied: "When you are dealing with forces of occupation, they don't talk about human rights."

Cyprus, which had modelled itself as an offshore financial services centre for lack of any other resources, now faces a grim future with its reputation in tatters and its economy deep in recession.

"They destroyed an economic system that worked," Patsalides said. "Yes, we have our shortcomings, but the magnitude of the punishment is far greater than the size of the problem."

Updated at 3.41pm BST

2.32pm BST

Schäuble suggests ECB should reduce liquidity

Wolfgang Schäuble has waded into the debate over excessive monetary easing by suggesting that the European Central Bank should take the opportunity to reduce liquidity.

The comments created some concern in the financial markets — with several eurocrisis experts pointing out that the weakest areas of the eurozone would benefit from more easing, not tightening at this stage.

After all, the IMF's Christine Lagarde argued this week that the ECB is the only central bank with the room to do more.

I've now found the comments, which were made in an interview with Germany's Wirtschafts Woche. It's online here.

Here's the key quotes:

There is a lot of money in the market, in my opinion too much money…If the ECB tries to exploit leeway to reduce the large liquidity a little, I can only welcome this.

Schäuble went on, though, to recognise that the economic crisis is not over, adding:

We must not forget in Germany that many European countries are still in a precarious position growth.

Worth noting that eurozone inflation actually dropped to 1.7% last month – hardly a sign of an overheating economy. And many banks have begun repaying early the cheap loans they took from the ECB over a year ago.

Here's the early reaction:

Updated at 2.39pm BST

1.25pm BST

You won't be surprised to learn that Italian MPs have again failed to elect a president, at their third round of voting today.

Now the fourth round, where a successful candidate just needs a straight majority (not the two-thirds mandate of earlier rounds).

The centre-left Democratic party has set up a clash with Silvio Berlusconi's People of Freedom (PDL) by choosing former prime minister Romano Prodi as its candidate.

That could prompt an early general election, as PDL has refused to accept Prodi. He and Berlusconi were fierce opponents through the last decade – Prodi defeated his rightwing rival in the general election of 2006, only to be ousted in 2008, when Berlusconi returned to office.

The fourth round starts in around an hour's time:

Updated at 1.28pm BST

12.25pm BST

Finland approves Cyprus bailout

Finland's parliament has given its approval to the Cyprus bailout, at two votes in Helsinki this lunchtime.

A total of 86 MPs backed Prime Minister Jyrki Katainen’s six-party coalition, with 65 against and 48 MPs absent (figures via Bloomberg).

The country's grand committee (which oversees EU policy) then voted 16 – 9 to back the aid package.

As we wrote yesterday, Cyprus's government is planning to hold its own vote to approve (or potentially reject) the programme agreed with Brussels, the ECB and the IMF.

Updated at 1.27pm BST

11.52am BST

Arrests over Greek migrant shooting

The Greek government has pledged not to deport migrant workers who were shot this week after asking for their unpaid wages, after three supervisors suspected of firing on the group were arrested.

The shooting of 28 Bangladeshi strawberry pickers shot in the Nea Manolada area prompted a public outcry, and coverage in the international media.

Visiting the site today, public order minister Nikos Dendias announced this morning that the victims would not be expelled from Greece, and said the government would crack down on the use of unregistered workers.

Kathemerini adds:

The brutal assault does not only violate Greek laws but also every sense of humanity and has no relation to Greece's culture, Dendias said after speaking with local police chiefs.

Greek police have issued a statement this morning, saying that they have now detained three men near the village where the shootings took place on Wednesday.

Two of the Greek men, aged 39 and 27, were arrested at their lawyer's office. The third, aged 21, was stopped during a road check. according to AP.

Migrant workers sit inside a makeshift camp in Nea Manolada on April 18, 2013.
Migrant workers sit inside a makeshift camp in Nea Manolada yesterday. Photograph: Giota Korbaki/AFP/Getty Images

Updated at 1.26pm BST

11.08am BST

Markets rise on G20 hopes

European stock markets are up this morning, partly driven by hopes that the G20 will make some progress towards repairing the global economy today.

FTSE 100: up 33 points at 6277, + 0.5%

German DAX: up 37 points at 7510, +0.5%

French CAC: up 44 points at 3643, +1.24%

Spanish IBEX: up 120 points at 7932, +1.5%

Italian FTSE MIB: up 330 points at 15,811. 2.1%

Brenda Kelly, market analyst at IG, points out that there are few fundamental reasons for traders to be cheerier:

Equity markets ramped up small gains in early trade, showing a recovery from yesterday’s mediocre performance. The cautious sentiment seems to be hinged on a positive outcome from the meeting of finance leaders in Washington today. Corporate and economic data from both across the water and closer to home have failed to lend any true traction to recent rally.

And Kit Juckes of Société Générale points out that share prices are still benefiting from the relaxed monetary policy that is causing such concern to fast-growing emerging nations (see 8.51am).

Updated at 11.08am BST

10.46am BST

German constitutional court to hear complaint against euro rescue funds

President of the German Constitutional Court Andreas Vosskuhle (R) arrives with other judges for the hearing on the European Stability Mechanism (ESM) and the fiscal pact in Karlsruhe July 10, 2012.
From July 2012, when the German constitutional court held a hearing on the European Stability Mechanism (ESM) and the fiscal pact. Photograph: Alex Domanski/Reuters

Heads up: Germany's constitutional court has announced that it will hear a wide-ranging complaint into Europe's rescue packages in June.

The two-day hearing, set for 11-12 June, will examine whether the European Central Bank's new bond-buying scheme or OMT (Outright Monetary Transactions) violates the German constitution.

Germany's top judges will also consider the ECB's earlier SMP bond-buying programme (used to stabilise the borrowing costs of Spain and Italy in 2011), and its Emergency Liquidity Assistance (which propped up banks in Cyprus). as well.

The court, in Karlsruhe, ruled seven months ago that the European Stability Mechanism (the €700bn rescue fund set aside for bailouts) did not infringe budget sovereignty of the German parliament. This new case will also see it consider the ESM again.

Updated at 1.20pm BST

10.17am BST

IMF fears ‘poisoned umbrellas’ in London

The UK government and the International Monetary Fund are preparing for a serious scrap over Britain's fiscal plans next month.

IMF officials are due in London in May to conduct their annual assessment – and are widely expected to challenge George Osborne's policies (following Christine Lagarde's concern over the UK's weak growth).

The Treasury, though, is planning an aggressive response – suggesting a clash that could potentially influence the economic debate beyond the UK.

According to the Financial Times, an unnamed IMF official is even harking back to the killing of Bulgarian dissident writer Georgi Markov back in 1978:

IMF economists concede they may need to watch out for “poisoned umbrellas” for their so-called “Article IV” mission to London. One aide to Mr Osborne said: “If they recommend we loosen fiscal policy, we won’t do it. We think they are wrong.”

Mr Osborne believes that IMF criticism of his policies is unfair, as Britain’s 1 per cent fiscal contraction this year is in line with the fund’s general recommendations for advanced economies.

Not sure the umbrella reference is in the very best taste…

Financial Times Front Page, April 19 2013
Today’s Financial Times

Updated at 1.16pm BST

9.47am BST

Italian industrial orders down 7.9%

Italy's industrial sector has suffered another slump in demand. Industrial orders tumbled by 7.9% in February, compared to a year ago, a sharper fall than analysts had expected.

On a seasonally adjusted basis, orders were down 2.5% month on month in February, on top of a 1.4% decline in January. That adds to fears that the eurozone economy weakened towards the end of December.

Updated at 1.15pm BST

9.08am BST

Yen falls back…

The G20 will not rebuke Japan over its new aggressive monetary easing policies, according to its finance minister, Taro Aso.

The Yen fell by over 1% against other currencies this morning after Aso told reporters that finance ministers will not make any official complaint over "Abenomics".

In response, the yen has fallen to over ¥99 to the US dollar.

8.51am BST

Emerging economies warn over liquidity surge

The world's leading emerging and developing countries have sounded the alarm this morning over dangers of huge monetary stimulus programmes.

In a joint communique, the group of 24 emerging and developing countries warned central banks in "advanced" economies that their unconventional policies would cause huge damage:

The G24, which includes Brazil, India and South Africa, said:

We remain concerned about the fragility and pace of the global recovery because of the protracted difficulties and uncertainties in many advanced economies, including the euro area and the United States.

We call on advanced economies to take into account the negative spillover effects on the emerging and developing countries of prolonged unconventional monetary policies.

AFP has a full report here.

The quantitative easing programmes launched by the US since the crisis began have long concerned the G24, who saw "hot money" flow into their economies after the Federal Reserve boosted liquidity.

The Bank of Japan's bold new scheme to double its monetary base and finally slay deflation is a new worry – the IMF warned this week that the seeds of the next crisis could be being sown now.

Updated at 1.14pm BST

8.27am BST

Olli Rehn: we could slow austerity down

Good morning, and welcome to our rolling coverage of the latest events in the eurozone crisis and across the world economy.

The battle between growth and austerity is centre stage today as the world's most powerful finance ministers and central bank governors gather in Washington for the G20 talks.

Overnight, European commissioner Olli Rehn signalled that the eurozone may finally be prepared to bow to pressure and relax its fiscal consolidation programme in some countries – where the belt tightening is clearly doing more harm than good.

Speaking to Reuters, Rehn declared:

In the early phase of the crisis it was essential to restore the credibility of fiscal policy in Europe because that was fundamentally questioned by market forces…

There was no choice. Decisive action was taken.

Now, as we have restored the credibility in the short-term, that gives us the possibility of having a smoother path of fiscal adjustment in the medium-term.

It could be an important shift in Brussels' position, as the G20 are expected to discuss whether to agree on a collective "co-ordinated debt reduction plan" for the coming years.

Rehn's comments also come as the International Monetary Fund appeared to shift its position on the balance between fiscal consolidation and stimulus. Some journalists are talking of a power battle within the Fund, with more Keynesian elements perhaps taking the upper hand.

But talk of more stimulus measures in the world's biggest economies may be alarming the developing world – who have issued a warning about the push for ever-more liquidity (more to follow).

In Europe, the Finnish parliament is due to debate the Cyprus bailout. The news yesterday that Cypriot MPs will hold their own vote is causing some jitters.

And Italian MPs will continue to vote on their next president, after two failed ballots yesterday.

I'll be tracking the latest developments in Europe, and beyond, through the day.

Updated at 1.13pm BST

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April 16, 2013 (Allthingsforex.com) – Finance ministers and central bankers from the 20 most-developed industrialized nations in the world will gather in Washington, DC on April 18 and 19.

Currency traders should pay close attention to any statements or agreements that could be made during the G20 meeting on the issues of “currency wars” and competitive currency devaluation.

The G20 did not directly criticize Japan at the last meeting. However, with the yen depreciating rapidly due to the unprecedented measures taken by the Bank of Japan, it would be interesting to see if the efforts of Japanese officials to weaken their currency will be criticized by their G20 colleagues this time around.

The JPY negative trend is still intact, but we could see some unwinding of short yen positions ahead of the meeting.

Included below is a G20 infographic by our friends at FXstreet.com:

g20: finance ministers and central bank governors' meeting


European Parliament unimpressed by MFF. Cyprus heads for presidential runoff after Nicos Anastasiades wins first round. Bailout critic George Lillikas could be kingmaker. G20 says “no currency wars”, yen weakens. Only a week left to the Italian election…

Powered by Guardian.co.ukThis article titled “Eurozone crisis live: MEPs blast EU budget” was written by Graeme Wearden, for guardian.co.uk on Monday 18th February 2013 15.40 UTC

3.40pm GMT

Photos: Iberia workers on strike

There have been dramatic scenes in Spain today as a five-day strike by workers at the Iberia airline got under way.

Strikers scuffled with police at Madrid’s Barajas airport, where demonstrators held a sit-in to protest against plans for compulsory layoffs and salary cuts.

There were also protests in Barcelona and Malaga. Many workers blamed British Airways, which merged with Iberia two years ago.

Here are some photos from Spain:

2.55pm GMT

Euro knocked by Draghi

The euro weakened a little during Mario Draghi’s testimony, down from $1.3359 to $1.3335.

The ECB president also told MEPs that monetary policy would remain “accomodative”, but cautioned that a long period of low interest rates could fuel asset bubbles.

2.48pm GMT

Draghi: Europe’s downside risks

Draghi went on to warn the committee that the threat to the eurozone economy remain to the downside. He cites three threats

1) That Eurozone exports might be weaker than expected

2) the government’s might not implement structural reforms as quickly as hoped

3) Geopolitical issues, that will harm Europe’s ability to recover and could hit commodity prices (a new conflict in the Middle East would fall into this category)

2.44pm GMT

Mario Draghi touched on the issue of the euro’s recent rally, saying:

The exchange rate is not a policy target, but is important for growth and price stability.

So the ECB is not engaging in any currency war, but has an eye on the issue….

2.39pm GMT

Draghi’s opening statement

ECB president Mario Draghi begins his appearance at the European Parliament’s committee on economic and monetary affairs by telling MEPs that Europe “entered 2013 in a more stable financial environment than in recent years”.

He warns, though that the eurozone economy is still weak after shrinking for the last three quarter, and will only recover slowly this year.

We have yet to see significant improvement in the real economy, Draghi adds, but he is encouraged by some signs of optimism in recent surveys.

Updated at 2.39pm GMT

2.36pm GMT

2.34pm GMT

It’s a busy day at the European Parliament – Mario Draghi just arrived at the Committee on Economic and Monetary Affairs.

It’s being streamed live here.

2.17pm GMT

MEPs blast budget deal

Some MEPs are giving Herman Van Rompuy a tough time over the new EU budget, and threatening to block the deal.

Guy Verhofstadt, the former Belgian PM who leads the Alliance of Liberals and Democrats for Europe (ALDE) group, criticised the gap between spending plans and payments. This means Europe’s total unpaid commitments will swell to €300bn, he claimed.

Verhofstadt insisted that the multiannual financial framework must be renegotiated, adding:

This is not an MFF that the parliament can accept.

Hannes Swoboda, who leads the Socialist & Democrats Group, also said the agreement was unacceptable, and would not be approved by MEPs.

However, Britain’s Martin Callanan, who chairs the European Conservatives and Reformists grouping, was more supportive of the budget hammered out after another Brussels all-nighter.

He was most critical of the French:

1.46pm GMT

As Barroso reminds MEPs (not that they have forgotten!), the EU budget agreed by Angela Merkel, David Cameron and the other 25 EU leaders will only be implemented with the approval of the European Parliament.

So this afternoon’s debate (continuing here) could determine whether MEPs block the MFF.

Updated at 1.47pm GMT

1.40pm GMT

Key event

Jose Manuel Barroso is now addressing MEPs on the EU budget, and sounding rather less impressed than Van Rompuy.

Barroso, president of the European Commission, points out that the budget for Connecting Europe is much lower than the Commission had wanted (infrastructure investment was slashed to €24bn, from the EC’s target of €50bn).

That rather undermines Van Rompuy’s argument that this is a “growth-friendly” budget. Last week, telecoms firms warned that the cutbacks would hit the rollout of broadband networks in the UK (details here).

1.31pm GMT

Van Rompuy defends MFF

Herman Van Rompuy is attempting to head off the threat of a revolt in the European Parliament over the seven-year budget agreed by EU leaders (which cuts spending for the first time in the EU’s history).

Van Rompuy is telling MEPs that the new budget shows “a clear shift towards growth-friendly investment” while also recognising that the EU must “tighten belts” in the current financial climate.

The new deal is a good deal for Europe, he insisted, following a summit in which individual leaders had fought “legitimately” for their individual interests.

He also told the Parliament that their concerns had been heeded – even though the budget, or Multiannual Financial Framework (MFF), contains a large gap between spending plans (€960bn) and actual financial commitments from member states (€908.4bn).

There is “maximum flexibility” to ensure funding for projects, Van Rompuy promised.

Here are some more key points (via HVR’s team):

Updated at 1.32pm GMT

1.24pm GMT

1.22pm GMT

Herman Van Rompuy on the EU Budget

Herman Van Rompuy, president of the European Council, is presenting the new seven-year EU budget (agreed 10 days ago) to the European Parliament.

There’s a live-stream here.

Highlights to follow.

12.54pm GMT

Nowotny: eurozone economy is bottoming out

Ewald Nowotny, Austria’s central bank governor and member of the European Central Bank’s governing council, is in upbeat mood today.

Speaking in Vienna a little while ago, Nowotny declared that the eurozone economy will hit its low-point in the current quarter before rebounding from recession, saying:

We believe that the bottom will be reached in the first quarter of this year, that is the first quarter of 2013, and then there will exist a slow upwards development.

Nowotny also added his voice to those insisting that a currency war is not taking place, calling such chatter “absolutely unnecessary”.

According to Reuters, Nowotny also declared that the eurozone crisis was “over for the financial markets”, but not yet for the real economy.

12.14pm GMT

A rare piece of good news from Ireland – Facebook has recruited an extra 100 staff for its international headquarters in Dublin.

This brings the numbers working for the social network giant in Ireland to 500.

Our man in Dublin, Henry McDonald, explains:

It is also a further boost to Dublin’s south inner city which has been labelled “the Google Quarter” given the concentration of global Internet companies in the area including the world’s biggest search engine. The new jobs underline Ireland’s reputation as a major international base for Internet based businesses.

Announcing the new posts in the Irish capital today, the Republic’s Minister for Jobs, Enterprise and Innovation Richard Bruton said: “ICT is a key sector targeted in the Government’s Action Plan for Jobs.

“We are determined to build on the major successes in this sector in recent years, in particular by supporting the further development of the thriving cluster around Dublin’s docklands.

“Today’s announcement of a significant expansion by one of the biggest companies on the internet, with the creation of 100 high-end jobs, is a major endorsement of the tech environment in Dublin and further confirmation of our city’s status as the internet capital of Europe.”

These new appointments however have to be placed in the context of Ireland’s overall unemployment rate which remains at 14.6% – almost five percentage points higher than the EU average, Henry adds.

11.55am GMT

Bundesbank’s monthly report

Germany’s Bundesbank has predicted that the German economy will return to growth this quarter, and ‘pick up pace’ through 2013.

In its latest monthly report, the German central bank indicated that the 0.6% drop in GDP in the final three months of last year will soon be clawed back:

There are signs that economic activity will gradually pick up pace in the remainder of the year, although the external environment should not be expected to kick-start a very strong surge in demand.

More here.

Updated at 11.56am GMT

11.41am GMT

Here’s some comment on the Cyprus presidential election, from Robert O’Daly, European analyst at the Economist Intelligence Unit.

O’Daly reckons Nicos Anastasiades will win next weekend’s second round vote comfortably. But then the hard work starts….

Once the election is out of the way, Mr Anastasiades’ main focus will be on finalising a much-needed bail-out agreement with the EU/IMF, which Cyprus applied for in late June 2012. Any further delays will leave Cyprus uncomfortably close to the €1.4bn international bond repayment due on June 3rd.

The government is currently relying on unorthodox sources of funding, such as borrowing from the pension funds of semi-government organisations, to meet its regular financing needs. It is unlikely that euro zone leaders would allow Cyprus to default because of the risk of contagion to other distressed peripheral countries, but the timing will be tight.

11.29am GMT

Italian political expert Alberto Nardelli has also published his latest predictions on the general election – he reckons that Pier Luigi Bersani’s Democratic Party should win the lower house of parliament by around 5%, and could sweep the Senate (upper house) too — if support for the far-left really crumbles.

He also predicts:

• Monti will get less than 15% of votes 

• Beppe Grillo (of the Five Star Movement) will get more than 15%

• The far-left seriously risks not hitting the 4% threshold required to enter parliament

• The centre-left is within touching distance of winning in Lombardy, and consequently having a majority in the senate too. Bersani’s coalition is on course to win 145-168 seats (majority is 158).

Lombardy, along with Veneto, Sicily and Campania, holds the key to the Senate race — they’re the four swing states. Under Italian voting rules the winner in each region picks up 55% of the seats on offer, with the other parties sharing the rest.

If the far-left does falter, Bersani should pick up some of their support.

And Grillo’s popularity means fewer seats for the other parties who fail to win a region — which could benefit Bersani if he wins those swing states, but harm him where he doesn’t.

11.02am GMT

Italian election looms….

Just a week to go until we know the results of Italy’s general election, and speculation about the result is raging.

Open Europe have published a new analysis paper, which argues that a centre-left coalition is the most likely. A Silvio Berlusconi win – a remarkable thought a few months ago – can’t be ruled out (he was just 4% behind in the final opinion poll of the campaign).

Open Europe’s Vincenzo Scarpetta commented that the final outcome is increasingly hard to call:

The uncertainty involved in the Italian elections, and the number of parties explicitly campaigning on an anti-austerity ticket, show just how challenging it will be for the eurozone to stick to its cash-for-discipline blueprint, as the hawkish North continues to clash with the austerity-fatigued South.”

“The Italian political scene will likely remain fragmented. Ironically, for those who want to see the continuation of Monti-style reforms, a hung Senate with Mario Monti as the kingmaker could be the best outcome, but even so, any government would be up against a strong anti-austerity opposition – with Beppe Grillo as the anti-establishment voice – and strong vested interests.

The centre-left Democratic Party, led by Pier Luigi Bersani, still looks likely to win the most seats — but could well fail to gain control of the Senate. That could lead to an alliance with the new party of the current prime minister, Mario Monti. And either man could end up as PM…..

Here’s a handy box outlining the options.

The full paper can be downloaded here (pdf).

10.30am GMT

The Kingmaker (part 1)

The result of Cyprus’s presidential election next weekend could be determined by the candidate who came third in yesterday’s poll – George Lillikas.

Lillikas, who won almost a quarter of votes cast, is the candidate most opposed to a bailout on the terms currently on the table. During the campaign he pledged to renegotiate the proposed package, if elected, arguing that the conditions that would be imposed by the IMF were undemocratic.

Liilikas commented:

Cyprus should not be economically dependent on anyone, because states which have an economic dependence have a political dependence too.

Lillikas has also argued that Cyprus’s financial problems are less serious than they appear – pointing to the huge reserves of gas recently discovered under its coastal waters. By one estimate there’s $400bn of hydrocarbons waiting to be tapped.

So far, Lillikas hasn’t revealed whether he’ll advise his supporters to vote for Nicos Anastasiades or Stavros Malas. Last night he promised to “reach out” to both sides to push his policies — and reiterated that Cyprus must not surrender its sovereignty:

We will support policies which defend the sovereignty of the Republic of Cyprus, and every policy which defends our national interests and is resistant to the will of foreigners.

Updated at 10.30am GMT

9.37am GMT

Here’s a video clip of George Osborne, UK chancellor, insisting that last weekend’s meeting of G20 finance ministers in Moscow was valuable:

Osborne argued that the G20 are committed to avoiding a currency war…

What you’re seeing at the moment for example on currencies is a determination for us to come together around common language to make it very clear that we won’t be using currencies for competitive devaluations.

Osborne added:

I think it’s a very clear signal from the largest economies in the world that they not going to engage in the kind of things that caused problems for the world economy in the past, when we didn’t have G20 meetings.

Updated at 10.22am GMT

9.27am GMT

War, what war?

Back to currencies… and the yen has fallen by another 0.5% this morning to a new near-four-month low against the US dollar.

This comes after G20 finance ministers pledged to avoid a currency war, by declaring:

We will refrain from competitive devaluation. We will not target our exchange rates for competitive purposes.

That’s been seen as a green light for Japan to continue with its new drive for growth through aggressive monetary policy and more flexible government spending. Prime minister Shinzo Abe’s new policy (dubbed Abenomics) has already driven the yen down steadily – clearly the G20 aren’t going to thwart him.

But with unorthodox monetary policy the new normal, can we really believe that world leaders (who made similar comments last week) and finance chiefs remain committed to a fair fight?

Kit Juckes of Société Générale, for one, isn’t convinced:

The G20′s leaders approve of policies to boost growth, while disapproving of policies to boost growth at the expensive of others. They’d like the kind of ‘war’ where no-one gets hurt. As the chidren say “whatever”!

So while currency manipulation is bad, zero rates and QE are good. And if those policies happen to cause a currency to weaken, well that’s OK. All too complicated for me, I’ll stay short yen as well as CHF [the Swiss franc] and GBP [sterling].

9.09am GMT

Photos: Cyprus’s presidential poll

A few more pictures from Cyprus:

Elsewhere in town….

And the traditional ballot-box shot:

Updated at 9.12am GMT

8.55am GMT

Pound down again

Not a great morning for sterling — the pound has slid to a new seven-month low against the US dollar this morning, down another 0.4% to $1.545.

The weak UK economy, predictions of more quantitative easing and jitters over Britain’s AAA rating have knocked 5% off the value of the pound this year.

This latest sell-off appears to be caused by Bank of England policymaker Martin Weale, who declared on Saturday that a weaker currency was a natural way to fix Britain’s current account deficit, so the BoE should ignore the inflationary impact of weaker sterling (details here)

8.40am GMT

Analyst reaction

The Cypriot election results show that Nicos Anastasiades hasn’t, yet, persuaded the people that they must follow Greece, Ireland and Portugal into an IMF-led bailout. And that could worry the rest of the eurozone.

As Fiona Mullen, an economist at the Sapienta consulting firm, put it (via Reuters):

This result means that Cypriots have not quite decided if Anastasiades is the man to get them out of the crisis. It will be a tough second round

It makes it a bit tougher for Anastasiades to persuade EU leaders that Cyprus is on the right path, that they will do what it takes to get a bailout.

Updated at 8.41am GMT

8.28am GMT

Cyprus election shows bailout splits

Good morning, and welcome to our rolling coverage of the latest economic and political developments across the eurozone, and beyond….

Politics is centre-stage this morning, with crucial elections due in Cyprus and Italy next weekend.

Last night, the Cypriot presidential election failed to deliver a winner as pro and anti-bailout candidates split the vote. The voting round was won by conservative candidate Nicos Anastasiades, who argued through the campaign that Cyprus must sign up for an aid programme from international lenders. More than 45% of voters concluded that they agreed with Nicos.

But the 66-year old leader of the Democratic Rally party was denied a straight victory by two candidates who together won over 50% of the vote. Left-wing Stavros Malas (26.9%) and independent candidate George Lillikas (24.9%) both won significant support after arguing against signing up a tough austerity package in return for bailout help.

While Anastasiades is expected to win next Saturday’s head-to-head tussle with Malas, his failure to romp to victory last night proves that Cyprus remains divided over its future, some eight months after talks began with the International Monetary Fund over a possible loan deal.

The talks had stalled because Cyprus’s outgoing communist president, Demetris Christofias, refused to agree the IMF’s demands, such as sweeping state asset sales.

As my colleague Helena Smith wrote last night, Anastasiades is the favoured candidate among the European establishment:

Brussels had not hidden its hope that Anastasiades would win. An advocate of neo-liberal policies who believes in breaking the power of trade unions, the 66-year-old lawyer has promised to reach a speedy agreement with would-be creditors at the EU, the IMF and the European Central Bank.

“Above all else, we must unite forces to counter this economic crisis which unfortunately our homeland has never experienced before,” he said after casting his ballot.

Cyprus’s financial crisis was caused, in part, by the heavy losses its banks suffered on their Greek debt holdings. The proposed bailout would be around €17bn, much smaller than previous eurozone rescue packages. But the lack of a deal continues to cause concern in the financial markets.

ECB board member Jorg Asmussen says he’s hopeful of an agreement by the end of March – assuming the next president is more amenable to selling off the family silver….

I’ll be tracking reaction to the Cyprus election through the day, along with the latest twists in Italy as its general election campaign enters its last week.

There’s also fallout from last weekend’s meeting of G20 finance ministers — where the world’s leading nations issued a pledge to avoid a currency war. Not everyone is convinced…

Updated at 10.08am GMT

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

Published via the Guardian News Feed plugin for WordPress.

G20 aims for stronger commitments against exchange rate manipulation. UK retail sales plunge in January, down 0.6% on the month, compared with expectations of a 0.5% increase. Eurozone trade surplus widens. US industrial production drops…

Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Currency wars come to Moscow as G20 meets” was written by Josephine Moulds, for guardian.co.uk on Friday 15th February 2013 14.53 UTC

2.53pm GMT

And with that I will hand over the blog to Nick Fletcher. Thanks for all your comments and have a lovely weekend.

2.26pm GMT

US industrial output falls on weak manufacturing

US industrial production dropped unexpectedly in January, weighed down by weak manufacturing and mining.

Industrial output dropped 0.1% over the month, compared with a rise of 0.4% in December, and expectations of a rise of 0.2%.

But Markit points out that the three-month trend is positive, with production rising by 1.6% compared with the previous three months.

2.19pm GMT

Eurozone trade surplus masks worrying developments – economist

Just back to the eurozone trade figures briefly (see 10.14am), which showed a healthy-looking surplus in December.

Howard Archer of IHS Global Insight notes that the underlying picture was not so encouraging as both exports and imports fell appreciably in December and over the fourth quarter of 2012. He writes:

This suggests that the markedly increased 0.6% quarter-on-quarter drop in Eurozone GDP in the fourth quarter of 2012 was significantly influenced by a weakened export performance. Meanwhile, the appreciable drop in Eurozone imports is consistent with weakened Eurozone domestic demand in the fourth quarter.

1.49pm GMT

Bernanke syas US in line with G7 stance

Fed chairman Ben Bernanke is now speaking at the G20. He says a strong US economy equals a strong world economy.

The US is acting in line with the position of the Group of Seven nations, he says, by using domestic policy tools to boost growth and reduce unemployment.

Consistent with the G7 policy statement, the US is using domestic policy tools to advance domestic objectives.

Updated at 2.00pm GMT

1.33pm GMT

Putin tells G20 to get their houses in order

Russian president Vladimir Putin, meanwhile, told the Group of 20 nations that it was vital to eliminate economic imbalances and have a clear strategy on borrowing to put the global economy on a sustainable growth path.

The days when economic crises had an isolated impact are gone. Problems in the US and the eurozone affect each country’s economy.

1.26pm GMT

Lagarde says talk of currency wars is “overblown”

Now IMF chief Christine Lagarde is up. She too says talk of currency wars is “overblown”.

Yes, the euro has appreciated and yes the yen has depreciated, but that is the result of good policies in the eurozone and looser policy in Japan. There is no major deviation from fair value of major currencies.

1.20pm GMT

G20 statement will not make commitments re fx rates

The G20 draft will make not mention a commitment to not target foreign exchange rates, Reuters is reporting, citing a G20 delegate.

Headlines on the wires suggest the latest draft communique will repeat previous language on avoiding excessive foreign exchange volatility and disorderly movements in foreign exchange rates.

But the G20 deputies did not single out Japan in their disucssions about the communique, the G20 delegate said.

Reuters says the draft also reaffirms commitments to medium-term fiscal plans but says some countries need to take into account near-term considerations.

It does not include this week’s G7 language on the need to use fiscal and monetary policies only for domestic objectives.

The (remarkably talkative) G20 delegate said the deputies debated whether fiscal consolidation has been too aggressive or whether the lack of fiscal consolidation has led to too much uncertainty.

Very few pictures coming through from the meeting, but here’s the OECD’s Angel Gurria giving Russia’s finance minister a big hug.

12.01pm GMT

Portuguese PM opens door to cutting 2013 forecast

Back to Portugal, where the prime minister is sounding downbeat about the country’s prospects this year. Pedro Passos Coelho suggested the government may have to cut its forecasts for this year, saying:

The [fourth quarter] results leave us with a level of foreign demand that, if extended into 2013, will not allow us to maintain the projections we have made.

Portugal is in its third year of recession, as it labours under a crippling austerity programme imposed by the country’s international lenders.

10.59am GMT

Meanwhile, over in Moscow, the governor of the Bank of Japan Masaaki Shirakawa is saying countries must be aware of the impact of domestic policies on the rest of the world.

While the head of the OECD Angel Gurria tells CNBC we are further away today from a currency war then we were two or three years ago.

10.47am GMT

UK consumers are skint – Guardian’s Larry Elliott

Here’s our economics editor, Larry Elliott, on the UK retail sales figures. He says, while you can blame the snow for some things, the real reason behind poor sales is that consumers don’t have the money to splash out. More online shortly…

The best explanation of all, therefore, is the most obvious one: consumers are skint. Real incomes, according to the ONS, are back to 2003 levels, and with petrol prices again rising sharply there is simply less money available for discretionary spending.
But isn’t this inconsistent with an improving labour market, which should be leading to an increase in aggregate incomes? Not at all. Rising employment masks two big trends: the increase in part-time work and the willingness of workers to accept cuts in real (inflation-adjusted) pay in order to avoid losing their jobs.
As a result, spending power for millions of Britons is weak and is likely to remain so. That’s why the ONS is reporting that the proportion of on-line sales remained above the 10% mark in January. Normally, there is a spike in internet buying in December as consumers load up on CDs, books and clothes for Christmas presents, and then the percentage falls back. This year it has remained high, a sign that Britain has not lost the spending habit but is being forced to shop around for bargains.

10.34am GMT

Brazil will not allow over-appreciation of real

Brazil’s finance minister Guido Mantega is now making his voice heard over in Moscow at the G20. He says Brazil will not allow an over-appreciation of the real.

Mantega is thoguht to have coined the term “currency wars” to describe the series of competitive devaluations adopted by rich nations to bolster their exports to the detriment of emerging market nations. Reuters reports:

Since then Brazil has actively sought to depreciate its currency, the real, to protect local manufacturers of everything from shoes to suits and make its exports more competitive. It has taken bold action to curb speculative capital inflows with higher taxes.

10.14am GMT

Eurozone trade surplus widens

[Clarification: Using the monthly figures (as usual) apologies to those who prefer yearly statistics]

The eurozone trade surplus widened in December, with imports falling at a faster rate than exports.

Eurostat said the unadjusted trade surplus was €11.7bn in December. That is higher than the €8bn a year earlier, but lower than forecasts for a rise to €13.1bn.

The biggest single improvement was in Italy, which swung to a €9bn surplus in the first 11 months of 2012, from a deficit of almost €27bn a year earlier.

Updated at 11.33am GMT

10.06am GMT

Chris Williamson of Markit is more upbeat.

While the snow clearly had an impact on sales, the decline was nothing like as severe as we’ve seen in previous years. For example, the 0.6% decline in January compared with a 1.9% monthly fall in December 2010, when the country was also hit by heavy snow. The data therefore add to other survey evidence which suggests the economy got off fairly lightly from snow disruption, further allaying fears of a weather-related “triple dip” recession. We should also remember that retail sales are not used in the calculation of the first estimates of GDP, which the PMIs suggest is still on source to recover from the downturn seen late last year.

10.04am GMT

Rob Wood of Berenberg Bank agrees that the snow is not the whole picture.

The snow problem shouldn’t disguise the real problem, however. The underlying picture is that the economy is bouncing along the bottom, so weather disruptions can easily tip it into negative territory.

The underlying story is a familiar one for UK households, which have been fed a diet of meagre wage growth and above target inflation for much of the past four years. As inflation heads up again, those meagre wage rises will stretch even less far and consumption will struggle to get going for a little while yet. The particularly disappointing aspect of today’s data is that the growth in the value of spending on the high street also slowed to a standstill as households presumably tried to boost their savings.

The chances of a triple-drip had receded a little with improved data in recent weeks, but in truth the data had not pointed to much momentum. And this release brings a dip back on the table. If the snow disruption is reflected in other industries, with construction being the most likely candidate again, then we could well see a quarterly contraction in Q1 2013.

10.02am GMT

Here’s Howard Archer of IHS Global Insight on the dire UK retail sales figures.

Even allowing for a substantial hit to retail sales from the snow, the further fall in January fuels concern that consumers may be becoming more careful in their spending as consumer price inflation moves back up and squeezes purchasing power.

A serious concern for retailers – and the economy in general – is that consumers’ purchasing power is coming under renewed pressure from a move back up in inflation while earnings growth remains muted.

9.52am GMT

450 new eBay jobs in Ireland

Briefly over to Ireland where there is some good news on the jobs front, with the announcement of 450 posts from eBay in the border town of Dundalk. Our correspondent in Dublin Henry McDonald reports:

The Taoiseach Enda Kenny visited eBay’s operation centre in Dundalk this morning at the launch of the new jobs.

eBay has joined the likes of Facebook, Twitter, Linked-In and Google in establishing their European base in the Republic.
The new posts will help provide the growing European customer base of the company’s eBay Marketplaces and PayPal businesses with an enhanced experience in the areas of customer services, sales and compliance. The new positions, which are in addition to 1,000 new jobs announced by PayPal last year, are located within its Customer Services team and also based at the Dundalk facility.

Gary Hagel, Senior Director, eBay Customer Experience, UK, Ireland and Rest of Europe said: “eBay’s continued commitment to its customers is underlined through this investment in customer services team members fulfilling a variety of roles to make eBay an even better place to shop and sell. Ireland is a centre of excellence for our Global Customer Experience function and the country provides a highly-skilled workforce for eBay with the required technical and language skills, an attractive research environment and proven track record on delivery.”

Louise Phelan, Vice President Global Operations EMEA at PayPal said: “Today’s announcement is fantastic news for the Dundalk area. We are looking forward to welcoming our eBay colleagues at the PayPal site in Dundalk. Last year was a great year for PayPal in Ireland. Our Dundalk site was operational within 11 weeks of the contracts being signed. We currently have over 230 people employed on site there and we look forward to continuing to expand this number in 2013.”

Updated at 9.57am GMT

9.44am GMT

UK headed for triple-dip?

Just to recap, the UK economy shrank in the final three months of 2012. If it contracts again in the first three months of this year, that will plunge the UK into its third recession in four years… the dreaded triple-dip.

That would leave chancellor George Osborne’s reputation in tatters.

And consumer spending is a huge part of the UK economy, as noted by Sky’s Ed Conway.

9.41am GMT

Here’s James Knightley from ING on the impact of retail sales on the pound.

The ONS stated that there was an impact from snow which had particularly hurt small grocers. This adds to the negative newsflow on the UK with worries over the UK’s EU referendum and the Scottish independence vote along with a potential rating downgrade all helping to keep downward pressure on sterling.

9.40am GMT

Rather than the snow, some analysts see a more fundamental issue at play in the UK retail sales figures.

9.39am GMT

Sterling tumbles on poor retail sales figures

The news has sent the pound tumbling to its lowest point in more than six months against the dollar, at $1.5470.

9.36am GMT

Brits go on diet as snow falls

The main factor driving UK retail sales lower was a slump in food sales, with food sales down 1.6% in January, the largest monthly fall since May 2011.

Even more starkly, food sales were estimated to have fallen 2.6% year-on-year (seasonally adjusted), to the lowest level since April 2004.

The ONS says small grocers blamed poor sales on the heavy snowfall at the end of the month.

As energy and futures trader Nicola Duke notes, the figures do seem to represent reality out on the streets.

Updated at 9.38am GMT

9.32am GMT

UK retail sales slump in January

Ouch. UK retail sales slumped dramatically in January, down 0.6% on the month, compared with expectations of a 0.5% increase.

That’s terrible news for George Osborne as it will reignite fears that the UK is headed for a triple-dip recession.

9.23am GMT

We’ve got UK retail sales figures for January coming up and the forecasts are pretty upbeat. Economists expect December’s 0.3% decline to swing to a 0.5% rise in sales over the month.

Although Marc Ostwald of Monument Securities warns that the data between December and February is often very wide of expectations. Eight minutes until we find out…

9.15am GMT

Tensions in Greece continue to flare

Disabled citizens have gathered outside the main offices of the finance ministry in Athens this morning to protest against reductions to their salaries and pensions imposed as part of a broader government austerity program. Ekathimerini reports:

The union representing the country’s disabled is lobbying the government to provide relief to the retired and working disabled and for guardians of those with heavy disabilities.

Unionists have demanded a meeting with Finance Minister Yannis Stournaras, Labor and Social Insurance Minister Yiannis Vroutsis and others to discuss their grievances.

While Greek students celebrated Valentine’s Day with a protest march last night, demonstrating against reforms to the education system.

And in the country’s second largest city, Thessaloniki, demonstrators gathered to protest against the death of 38-year-old Babakar Ndiaye from Senegal who died after falling from a height of 7m to the train station in Athens while being chased by the municipal police for selling goods in the street.

9.00am GMT

Looking back at yesterday’s figures, Draghi says fourth quarter GDP data was more negative than the ECB expected.

8.53am GMT

Draghi says currency chatter is fruitless

Now it’s ECB chief Mario Draghi’s turn to speak out against currency manipulation. Over in Moscow for the G20, he says:

Currency chatter is inappropriate, fruitless and self-defeating.

He says the ECB mandate is mid-term price stability in both directions.

The exchange rate is not a policy target but it is important for growth and price stability, he adds, noting the fundamental issue at the heart of these discussions.

He too says the euro is not overvalued, saying that nominal and real euro exchange rates are around their long-term averages. He declines to comment on the likely wording of the G20 statement.

He also weighs in on the austerity vs growth debate, saying:

We don’t believe that inflating budget deficits to create demand is sustainable.

No pictures of Draghi in a wooly hat yet, but here’s a reminder of another central bank governor enjoying the snow at the 2010 G7 meeting…

Updated at 8.53am GMT

8.43am GMT

As the meetings and photo shoots of the Group of 20 jamboree begin, there are those that question how useful these events are. Paul Donovan, senior economist at UBS, says:

And so another taxpayer financed weekend minibreak gets underway, as twenty countries fly their officials around the world to have their photograph taken and to issue a pre-agreed communiqué. At a guess the communiqué will say that the G20 likes growth and doesn’t like recessions.

8.28am GMT

Spanish price inflation eases

Spanish inflation eased in January, according to data from the national statistics agency.

CPI rose 2.7% in January, compared with the same month last year, down from 2.9% in December; while the EU-harmonised annual price inflation came in at 2.8%, compared with 3% in December.

8.24am GMT

Portugal eyes full return to bond markets

There’s also some better news out of Portugal, despite the dire GDP figures out yesterday, which showed its economy shrinking by 1.8% in the fourth quarter of 2012. The FT reported last night:

Portugal’s debt agency is confident that the country is poised to regain full access to bond market funding in the next few months and exit its bailout programme, despite its heavy debts and recession-plagued economy.

“I expect we will have full market access in the next few months,” João Moreira Rato, chief executive and chairman of IGCP, the Portuguese treasury and government debt agency, told the Financial Times.

“We are very close to it,” he added. “It looks like everything is moving in the right direction.”

As independent economist Shaun Richards notes, this demonstrates how far removed the financial markets are from reality. He noted the dire economic problems that have been inflicted on Portugal as a result of austerity in his blog yesterday.

Updated at 8.57am GMT

8.19am GMT

Weidmann says ECB won’t target euro

Ahead of the meeting, Germany’s central bank governor Jens Weidmann spoke to Bloomberg. And, of course, the subject of currencies came up.

Weidmann said the euro was not seriously overvalued, and that the ECB would not cut rates just to weaken the euro.

He said ECB chief Mario Draghi was not trying to talk down the euro at the recent press conference. Sticking with the ECB, he said the central bank may be forced to show its hand on the outright monetary transactions bond-buying programme.

He too sees a gradual recovery in the second half.

On Ireland, he said the recent deal to switch a costly promissory note, used to pay for the rescue of failed Anglo Irish Bank, into less expensive sovereign bonds, could breach the ban on monetary state financing.

Finally, he said rumours of his resignation were greatly exaggerated. Keen readers of the blog may remember Twitter erupted with news of Weidmann’s imminent departure last month, only for the Bundesbank to deny it within minutes.

Bloomberg is running both a full story and some key quotes from the interview.

8.01am GMT

G20 currency statement won’t name Japan

Earlier this week, the G7 issued a joint statement reaffirming its “longstanding commitment to market determined exchange rates”. But this show of unity was quickly undermined by off-the-record briefings critical of Japan.

It is thought that G20 hosts Russia would like to echo the thrust of the G7 text when they issue their communique on Saturday, but there will no doubt be substantial wrangling over the wording today and tomorrow.

Russian finance minister Anton Siluanov said yesterday:

The G-20 countries have always held the position that currency policy should be based on market conditions.

Russia has already said that Japan will not be singled out in the text. Siluanov’s deputy, Sergei Storchak – who is Russia’s G20 representative or ‘sherpa’ as they are known – told reporters:

There will be no specific mention of Japan – we are all in the same boat.

7.53am GMT

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

Today the finance ministers and bank governors of the Group of 20 nations will start their two day meeting in Moscow in an attempt to reach a common stance on currency manipulation.

Japan will be under pressure for its expansive policies that have driven down the value of the yen.

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