Inflation

Prices across the single currency region were flat in October while Europe’s unemployment crisis has eased. American household spending rose by just 0.1% in September, down from 0.4% in August. Canadian economic growth slows…

 

Powered by Guardian.co.ukThis article titled “Eurozone emerges from deflation as unemployment hits three-year low – live updates” was written by Graeme Wearden, for theguardian.com on Friday 30th October 2015 13.04 UTC

The latest US economic data just hit the wires, and paints a mixed picture of the world’s largest economy.

American household spending rose by just 0.1% in September, down from 0.4% in August, and only half as fast as economists expected.

But US labour costs have risen by 0.6% during the last quarter, up from 0.2% in the previous three months. That’s a broad measure of pay, suggesting salaries are rising as the employment market continues to tighten.

US consumer spending and income

So on balance, it doesn’t really settle the debate on whether US interest rates will go up before Christmas (as covered in the intro).

Updated

Canadian growth slows in August

Digital illustration - Canadian Flag<br />C95250 Digital illustration - Canadian Flag

The global slowdown has rippled across to Canada.

Canadian GDOP rose by only 0.1% in August, data just released showed, down from 0.3% in July.

That follows this week’s trend of slowing growth in the last quarter (in the UK, the US and Spain).

It’s the third monthly expansion in a row in Canada, following contractions earlier in the year. On an annual basis, the economy was only 0.9% bigger than 12 months ago.

Updated

Over in Lisbon, Portugal’s new government is being sworn in after a general election that produced no clear winner.

It means Pedro Passos Coehlo remains as prime minister, but leading a minority government.

Portugal’s president sparked controversy by asking Passos Coehlo to form the next administration, even though left-wing parties won a majority of seats between them.

This sparked talk that a coup had been perpetrated. But in truth, the wheels of democracy will keep turning.

The opposition will get their chance to kick Passos Coehlo out of office early next month, in a vote of confidence on the new government’s policies.

Merkel has used her China trip to call for more protection for Europe’s steel industry, which has been ravaged by falling prices and overcapacity.

Over to Reuters’ Andreas Rinke:

At a German-Sino business congress in Hefei, Merkel calledfor better protection of the steel and solar industries against unfair international competition, a complaint some manufacturers make against China.

Merkel said the steel sector needed “a certain amount of market protection” as steelmakers have pointed out that environmental regulations differ from country to country,impacting cost advantages.

“I also hope that we can extend the rules already in placein the solar sector,” she added.

Updated

Angela Merkel also had an opportunity to pass on some football tips to the next generation today, during a trip to a primary school in Xin Nan Cun.

German Chancellor Angela Merkel visits China<br />epa05003214 German chancellor Angela Merkel (C) visits a physical education class in Xin Nan Cun, China, 30 October 2015. Merkel is on a two-day official visit to China. EPA/SOEREN STACHE

Updated

Angela Merkel has also predicted that China’s economy will avoid a crash, during her trip to Hefei today.

She told journalists:

“I think one can expect that China’s growth will be a bit weaker, but that it will have constant growth.

“It is obvious that particularly the domestic demand through growing cities is an important factor to stimulate consumption and here with growth.”

This is Merkel’s eighth visit to China since becoming Germany’s leader a decade ago, underlining the importance of the links between Berlin and Beijing.

Photos: Angela Merkel visits China

Angela Merkel has been hard at work building closer trade links with China.

The chancellor has put worries over Germany’s economy, and Europe’s escalating refugee crisis behind her. And the latest photos from the trip suggest it’s going well.

Merkel got a warm welcome from students at Hefei University in Hefei, capital of east China’s Anhui Province….

Students with a banner await the arrival of German Chancellor Merkel at the German University in Hefei<br />Students with a banner that reads “Good day, Mrs Merkel!” await the arrival of German Chancellor Angela Merkel at the German University in Hefei October 30, 2015. REUTERS/ JOHANNES EISELE/Pool

…and then shared a drink with Chinese Premier Li Keqiang, using beer brewed by the students #cheers

Angela Merkel visit to China - 30 Oct 2015<br />Mandatory Credit: Photo by Xinhua/REX Shutterstock (5331237b) Chinese Premier Li Keqiang (L) and German Chancellor Angela Merkel (C) drink beer brewed by Chinese and German students during their visit to Hefei University in Hefei, capital of east China’s Anhui Province Angela Merkel visit to China - 30 Oct 2015

Merkel also told reporters that Germany favours granting China “market economy status” – a shift that would make it harder for the EU to protect local industry from Chinese competition.

However, Beijing still “has to do some homework, for example in the area of public procurement,” she added (Reuters reports)

German Chancellor Angela Merkel Visits China<br />HEFEI, CHINA - OCTOBER 30: German Chancellor Angela Merkel smiles during a signing ceremony on October 30, 2015 in Hefei, China. Merkel is in Hefei, capital of east China’s Anhui Province, for a one day visit, accompanied by her Chinese counterpart Li Keqiang. (Photo by Johannes Eisele - Pool/Getty Images)

A signing ceremony in Hefei. Photograph: Pool/Getty Images

And she also met a group of children in the Baohe district of Hefei:

Angela Merkel<br />German Chancellor Angela Merkel , left, greets village children in Baohe district of Hefei, China, Friday, Oct. 30, 2015. (Johannes Eisele/Pool photo via AP)

Updated

European Central Bank (ECB) president Mario Draghi addresses a news conference after a meeting of the ECB Governing Council in St Julian’s, outside Valletta, Malta, October 22, 2015. European Central Bank President Mario Draghi said on Thursday monetary policy alone cannot solve the euro zone’s economic problems and called on member countries to take additional actions alongside. REUTERS/Darrin Zammit Lupi MALTA OUT. NO COMMERCIAL OR EDITORIAL SALES IN MALTA

European Central Bank (ECB) president Mario Draghi. Photograph: Darrin Zammit Lupi/Reuters

Mario Draghi will be pleased to see the eurozone clamber out of deflation this month, but it only takes a little pressure off his central bank.

Last week, the ECB chief hinted that more stimulus could be needed soon, as inflation remained sharply off course.

Bill Adams, senior international economist at PNC Financial Services Group, believes Draghi will make an announcement at its next meeting:

The ECB’s most likely next move is to announce an extension in December of the duration of its quantitative easing program to last through March 2017. But hawks on the Governing Council may point to an exit from deflation as a reason for the ECB to continue with asset purchases in 2016, but without as clear a pre-commitment as they made in 2015.

This would provide the ECB with discretion to begin a taper of its easing program earlier than expected if inflation surprises to the upside due to pass-through of higher import prices or higher food prices (unprocessed food prices rose 3.0% from a year earlier in October).

No time like the present, eh?….

Updated

European Union jobless rate hits six-year low

Unemployment in the wider European Union has hit a six-year low of 9.3%, even better than the 3.5 year low of 10.8% in the eurozone:

But that still leaves 22.631 million men and women out of work in the 28 countries which make up the EU.

Eurostat explains:

The EU28 unemployment rate was 9.3% in September 2015, down from 9.4% in August 2015, and from 10.1% in September 2014. This is the lowest rate recorded in the EU28 since September 2009.

But this is still far, far too high — almost twice the levels in the UK and the US.

And many countries are still lagging behind.

The highest rates were recorded in Greece (25.0% in July 2015) and Spain (21.6%) — a reminder that the Spanish recovery hasn’t fully fed through to its labour market.

The lowest were recorded in Germany (4.5%), the Czech Republic (4.8%), Malta (5.1%) and the United Kingdom (5.3% in July 2015).

Updated

It’s almost a year since oil prices began to tumble on the world markets, giving the global economy a deflationary squeeze.

The impact of cheap oil should soon start to drop out of the annual inflation rates, though (as prices will no longer be cheaper than a year ago). And that could send consumer prices indices up again….

This is the second time this year that the eurozone has shaken off a bout of negative inflation:

Updated

Eurozone unemployment hits lowest since January 2012

Europe’s unemployment crisis has eased a little, in another little boost to the region.

Eurostat reports that the overall jobless rate dropped to 10.8% in September, down from 10.9% in August.

That’s lower than economists had expected, and is the lowest level since January 2012.

Although the eurozone’s inflation rate was zero in October, that masks wide differences across the economy.

Today’s eurozone inflation data shows that food prices rose by 1.5% year-on-year in October, while service sector costs were up by 1.3%.

Other goods prices only rose by +0.4%, while energy costs slumped by 8.7%.

So on average prices were unchanged (as the economist with one foot in a bucket of scalding hot water and the other foot in a bucket of ice might put it)

Eurozone inflation rises to 0.0%

The eurozone has emerged from deflation!

Prices across the single currency region were flat in October, having shrunk by 0.1% the previous month.

That’s broadly in line with forecast, and shows how little inflationary pressure there is in the eurozone (due to weak energy prices).

Core inflation (which strips out volatile elements such as energy and food) across the eurozone rose to 1% – well below the ECB’s 2% target.

Updated

European stock markets are subdued this morning, as investors wait for the latest eurozone inflation and unemployment data in 25 minutes.

The FTSE 100 has lost 5 points, or just under 0.1%, while the French and German markets are up just 0.15%.

But still, fears that we could suffer a grim October have not come to pass, with most indices posting strong gains this month:

Looking back at Japan…some economists believe the BoJ may beef up its stimulus package in November, when it meets again.

By then, they should have new growth figures showing whether Japan’s economy shrank in the last quarter, or not.

Mitsuo Shimizu, deputy general manager of Japan Asia Securities Group, says:

“They could move after the next meeting – expectations for more easing aren’t going away.”

But there’s also an argument for waiting until the US central bank’s next meeting in December. If the Fed does hike interest rates, then the yen will weaken against the US dollar without the BoJ needing to do anything….

Italy’s unemployment rate has dipped to its lowest point since January 2013 but still remains worryingly high.

New data shows that the Italian jobless rate fell to 11.8% in September, from 11.9% in August, suggesting prime minister Matteo Renzi’s reform plan may finally be bearing some fruit.

It’s better than economists expected.

In 50 minutes time we get the overall eurozone unemployment report….

Updated

Spain’s recovery has been partly due to a strong tourist season, which helped it overcome the housing crash.

The FT’s Ian Mount explains:

Record spending by foreign tourists has helped speed Spain’s recovery from a double dip recovery that began after its real estate bubble popped in 2008.

Tourists injected €53.8bn into the economy over the first nine months of 2015, 6.3 per cent more than in the same period in 2014.

Capital Economics fears that today’s GDP report shows Spain’s ‘impressive’ recovery is faltering a little:

Holger Sandte of Nordea Markets is concerned that Spain’s building and housing sector is still in the mire:

Spanish GDP up by 0.8% as recovery continues

Spain’s economic recovery continues, although at a slightly lower speed.

The Spanish statistics body reports that GDP rose by 0.8% in the last three months, compared to 1% in the second quarter of this year.

On an annual basis, the economy grew by 3.4%, up from 3.1%.

This is the 9th consecutive quarter of growth in Spain, which has been one of the best performing European economics since the debt crisis eased in 2012.

Spanish GDP

Spanish GDP Photograph: Spanish statistics office

Spain is the first eurozone country to report growth figures (we get most of the data in two weeks time).

Today’s numbers mean it is growing faster than the UK, which reported a GDP increase of 0.5% on Tuesday. It also beats America’s annualised rate of 1.5% (which is <0.4% on a quarter-on-quarter basis).

Reaction to follow….

Kuroda predicts moderate recovery for global economy

Governor Kuroda is also trying to dampen fears over China’s economy, and its impact on Japan.

He says he agrees with the IMF that the slowdown in China could last longer than expected, which would be bad for Japanese trade:

Many Japanese companies operate in East Asia so their profits may also be affected.

But he’s still optimistic that the region’s economies are resilient enough to cope:

Our main scenario is for the global economy to recover moderately, driven by the strength in advanced economies.”

Here’s some instant reaction to BoJ governor Haruhiko Kuroda’s comments:

BoJ’s Kuroda: We won’t hesitate to do more

The Bank of Japan (BOJ) building in Tokyo, October 30, 2015. The Bank of Japan held off on expanding its massive stimulus program on Friday, preferring to save its dwindling policy options in the hope that the economy can overcome the drag from China’s slowdown without additional monetary support. REUTERS/Thomas Peter

The Bank of Japan (BOJ) building in Tokyo today. Photograph: Thomas Peter/Reuters

The Bank of Japan has fuelled speculation that it could soon announce fresh stimulus measures, after cutting the Bank’s inflation and growth forecasts.

Governor Haruhiko Kuroda has just told a press conference that the BoJ has more ammunition at its disposal, as it battles against the deflationary pressures gripping the globe.

Kuroda insisted that the BoJ could still hit its target of getting inflation to 2% (even it is is taking longer than hoped), saying:

“We won’t hesitate to make necessary policy adjustments if we judge that there is a change in the broad price trend.”

“I’m not thinking of raising or lowering the current 2% inflation target.”

And on the details of monetary policy, Kuroda declared:

“I don’t think there are limits to our policy options.”

Kuroda was speaking after the BoJ left its current stimulus programme unchanged at its latest policy meeting, despite evidence that Japan hasn’t shaken off the spectre of deflation.

The BoJ also cut its forecast for real economic growth for the current fiscal year to 1.2% from 1.7%. It also kicked back the target for hitting 2% inflation to the back end of 2016, or even early 2017, from the middle of next year.

Some analysts had thought the Bank might boost its 80 trillion yen annual asset-buying scheme today, but Japan’s policymakers are hopeful that the global economy will pick up.

But there are signs that more may be needed. New figures showed that consumer prices fell 0.1% in the year to September, a second monthly decline, while household spending slid 1.3 percent from a year earlier.

More here:

Updated

The Agenda: Will eurozone emerge from deflation?

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

It looks like another busy day for economic news, as policymakers, analysts and the public all ponder the state of the global economy as the year grinds towards its close (just 55 sleeps till Christmas, folks!)

In Europe, the latest inflation data come at 10am GMT. It may show that prices stopped falling in the eurozone, after dropping by 0.1% in September.

We also get European unemployment figures – likely to show that the eurozone jobless crisis is still severe:

EU jobs

Europe’s unemployment rate has been stubbornly high since the debt crisis began Photograph: ONS

There’s also a flurry of data coming our way from across the Atlantic. That includes US personal spending stats at 12.30pm and the University of Michigan confidence report at 2pm GMT.

They’ll both provide more ammunition for the ongoing debate about whether the Federal Reserve will take the plunge and raise interest rates at its December meeting (just 47 sleeps to go!).

Canada will become the latest major economy to report growth figures – economists predict that growth slowed to 0.1% in August from 0.3% in July.

And in the City, it’s quite busy for a Friday.

BG Group, the oil company, has been hit by the weak crude price:

And Royal Bank of Scotland has suffered an operating loss of £134m in the last quarter, after taking a £847m charge to cover restructuring costs.

It still managed to post a net profit though:

More details on that later, along with all the main events through the day….

Updated

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USA 

World markets at their highest since August as investors calculate that the US central bank won’t raise rates this month, and probably not until 2016. Eurozone inflation gauge dips back into negative territory, placing the euro under pressure…

 

Powered by Guardian.co.ukThis article titled “World stock markets hit two-month highs as stimulus hopes build – business live” was written by Graeme Wearden (until 13.45) and Nick Fletcher, for theguardian.com on Friday 16th October 2015 13.21 UTC

US industrial production slips in September

Every piece of US data is now watched carefully to see how it might influence the US Federal Reserve in its interest rate policy.

But there is not too much to glean from the latest figures. US industrial production dipped 0.2% in September, in line with expectations. August’s figure was revised to show a 0.1% decline compared to the 0.4% fall originally reported.

Weakness in the oil and gas sector was mainly responsible for the fall.

Later comes the Michigan consumer confidence survey.

Now here’s an admission. Credit Suisse has said its clients have no idea what is going on out there in the markets. They are “lost and bearish.” The bank says:

Never have we seen so many clients who just do not know what is happening and have cashed up. US investors, in particular, were clearly cautious. European and especially Asian investors were more constructive.

Reasons for the bearishness: Global growth being at ‘growth recession’ levels, China, QE running out of steam, the rise in non-energy high yield credit spreads, the risk of the Fed policy mistake (with most clients believing, correctly in our opinion, that a December rate rise would be a policy mistake and see Yellen’s communication as being poor), US equities being expensive on ‘normalised’ earnings and the 4-week moving average of earnings revisions falling close to a 4-year low.

Two new concerns often cropped up: (i) the $0.5trn decline in global foreign exchange reserves, with this being likened to monetary tightening…[But] 80% of the decline is due to China, where the fall is largely being sterilised. (ii) The rising political tide against profits (living wage in the UK, the BEPS OECD initiative on corporate taxation).

What was not mentioned: Eurozone politics, US debt ceiling, Russia’s involvement in Syria or the UK referendum on the EU.

In sum, we think clients are focused more on risks, which are abnormally high, rather than reward, which is also high, with the equity risk premium, for example, at 5.8%. We would agree, however, that visibility is abnormally low.

Chinese investors, 16 Oct 2015.

Chinese investors appear to have regained their appetite for risk.

The Shanghai Composite Index gained 6.5% this week, helped by speculation that Beijing might do more to stimulate its economy.

Some bolder traders have been borrowing more money to buy shares, anticipating that markets are going to rally this autumn.

Xiao Shijun, an analyst at Guodu Securities, explains (via the WSJ):

“Some medium- to long-term investors are betting that the market has bottomed and thus are more confident to add leverage.”

And there are signs that the authorities have relaxed their recent clampdown on lending, which was imposed to calm excessive speculation.

China’s outstanding margin financing has risen 5.6% since the start of the month and looks to have bottomed, according to IG’s Angus Nicholson.

16 Oct 2015, Nanjing, Jiangsu Province, China --- Chinese investors look at prices of shares (red for price rising and green for price falling) at a stock brokerage house in Nantong city, east China’s Jiangsu province, 16 October 2015.

Ever wondered what you have to do to get banned from the City?

Well, running up losses of £1.4bn through rogue trading will do the trick.

The Financial Conduct Authority – Britain’s City watchdog – has declared today that former UBS trader Kweku Adoboli cannot work in the industry again after demonstrating “a clear and serious lack of honesty and integrity.”

It added:

“In reaching its decision, the FCA has considered all the relevant circumstances and the severity of the risk posed by Mr Adoboli to consumers and financial institutions, and to confidence in the market generally.”

Adoboli was released from prison this summer, having been sentenced to seven years in 2012 for Britain’s biggest ever fraud. He is now fighting efforts to deport him to Ghana, where he was born in 1980.

Updated

The Bank of England building on Threadneedle Street in the City of London.

Kristin Forbes’ speech today highlights that the Bank of England’s interest rate-setting committee is split into several camps, even though it voted 8-1 to leave borrowing costs unchanged last week.

IHS’s Howard Archer has broken them down:

The current position seems to be that Ian McCafferty is already voting for interest rate hike from 0.50% to 0.75%, while Kristin Forbes and (seemingly still) Martin Weale both believe interest rates need to rise before long.

In contrast, Andy Haldane and Gertjan Vlieghe are clearly far off from voting for a rate hike while Ben Broadbent has also recently indicated that he is some way off from such a move.

That leaves governor Mark Carney, and deputy governors Minouche Shafik and Jon Cunliffe in the centre ground.

Updated

Bank of England’s Forbes: Emerging market doom and gloom is “overblown”

Professor Kristin Forbes joined the Monetary Policy Committee of the Bank of England in July of 2014. http://www.bankofengland.co.uk/about/Pages/people/biographies/forbes.aspx

Professor Kristin Forbes.

Capping off a busy week for views out of the Bank of England’s rate-setting committee, Kristin Forbes is giving a speech in Brighton.

The key message for markets from Forbes is that the next move in rates is up and is not too far off.

That puts her at odds with the Bank’s chief economist Andy Haldane who has raised the prospect of the next move being down, even further below the current record low Bank rate of 0.5%.

Forbes says, however, that pessimism about the global economy is overdone.

Forbes, who is also professor of Management and Global Economics at MIT’s Sloan School of Management, told the Brighton and Hove Chamber of Commerce that:

“Although the risks and uncertainties in the global economy have increased, the widespread pessimism is overstated.”

“Despite the doom and gloom sentiment, the news on the international economy has not caused me to adjust my prior expectations that the next move in UK interest rates will be up and that it will occur sooner rather than later.”

“Of course, if some of the potential risks to emerging markets play out – such as a sharper slowdown than expected or financial crisis of some type – then the UK economy is unlikely to be immune. But based on what has actually occurred to date, the limited direct exposure of the UK to emerging markets (even when incorporating second-round effects through other countries such as Germany), appears manageable. This is especially true when considered relative to the strength of the UK’s domestic-led expansion – which shows all signs of continuing, even if at a more moderate pace than in the earlier stages of the recovery.”

At its last meeting, the Bank’s Monetary Policy Committee (MPC) left rates at a record low of 0.5%. But one of the nine rate-setters, Ian McCafferty, voted for a rate rise. Perhaps Forbes will be joining him soon….

Updated

El-Erian: Fed could hike in December

Investors who believe the Federal Reserve won’t raise rates this year could be making a mistake, argues Mohamed El-Erian, the chief economic adviser at Allianz.

El-Erian, former CEO of bond-trading giant Pimco, believes that that Janet Yellen and colleagues could take the plunge at their meeting in December, given the strength of the US jobs market.

He’s written his views up for Bloomberg. Here’s the conclusion:

After a frustratingly slow post-crisis start, the U.S. economy has had an impressive run of job creation. But further progress is dependent on important structural issues that are not easily addressed by Fed policy.

Meanwhile, wage and inflation pressures are starting to build, though in a rather modest fashion. And concerns about excessive risk-taking — an unintended side effect of the central bank’s prolonged use of unconventional monetary policy — are far from settled.

Taken together, this suggests that, even though an October rate hike can almost certainly be discounted, it would be premature to entirely rule out action by the Fed in December, let alone to predict it would be postponed until March of next year. Only a lot more signs of weakness in the domestic economy, as well as a return of global financial market instability, would make that a sure bet.

World markets hit two-month high on stimulus hopes

FTSE 100 slump<br />A city worker walks past a stock ticker screen at the London Stock Exchange in the City of London. PRESS ASSOCIATION Photo. Picture date: Tuesday August 25, 2015. The FTSE 100 Index bounced back above the 6,000 mark after surging by nearly 2% as it recovered following one of its worst sessions in recent years. See PA story CITY FTSE. Photo credit should read: Philip Toscano/PA Wire

World stock markets have hit their highest levels since August, driven by predictions that US interest rates are staying low for a while yet.

The main European indices have all gained nearly 1% this morning, following those gains in Asia overnight and a rally on Wall Street yesterday.

That has pushed the MSCI World Index up by 1.38% to levels not seen since August 21.

MSCI World Markets index

MSCI World Markets index Photograph: Thomson Reuters

Global markets have now gained 6% in October. So unless there’s a major reverse next week, the MSCI will post its best month since 2011.

That’s quite a bounceback from this summer’s turmoil, which saw around $11 trillion wiped off global stocks.

The prospect of more ultraloose monetary policy, plus a little more calm over China’s slowdown, are pushing shares up.

Jasper Lawler of CMC Markets says traders are anticipating more stimulus in Europe and China, rather than worrying about the Fed whipping away the punchbowl with an early rate hike:

Hopes of a delayed rate hike in the US and additional stimulus from Europe and China is helping global stock markets finish the week on a high. Shares across Asia have hit a two month high while the Shanghai Composite is setting up for its best weekly performance since early June.

Weak US inflation data, albeit above expectations, further bruised the case for a Federal Reserve rate rise. Markets are looking ahead to next week when the ECB meeting and China’s GDP report provide opportunities for the European Central Bank and the People’s Bank of China to increase stimulus.

Here’s the situation.

  • FTSE 100: up 0.8% or 49 points at 6,388
  • German DAX: up 0.86% or 86 points at 10,151
  • French CAC: up 0.8% or 38 points at 4,713
  • Japan’s Nikkei: Closed up 1.1% or 194 points at 18,291
  • China’s Shanghai Composite: Closed up 1.6% or 53 points at 3,391.

Uber is not illegal, rules High Court

Minicab-hailing app Uber has just won a victory in the high court.

A judge has ruled that its GPS technology does not break violate the Private Hire Vehicles (London) Act 1998 bans private hire cars from being equipped with taximeters.

My colleague David Hellier explains:

Had it lost the case, the company would have been forced to change its service to comply with rules that protect traditional black-cab drivers.

Here’s the full story:

Eurozone back in negative inflation

It’s official, the eurozone has slumped back in negative inflation again, intensifying pressure on the European Central Bank to act.

Eurostat has confirmed that prices across the euro area fell by 0.1% in September, down from an inflation rate of +0.1% in August.

Eurozone deflation

Eurozone deflation Photograph: Eurostat

The decline is mainly due to weak energy prices. Cheaper oil is driving down the costs of fuel — good news for consumers and business, but it does drag the eurozone inflation rate further from the 2% target.

Howard Archer of IHS Global Insight explains:

This marked the first deflation since March and was down from consumer price inflation of 0.1% in August and 0.3% in May.

A marked relapse in oil prices and very weak commodity prices first undermined and then reversed the upward trend in Eurozone consumer prices that had seen it move from deflation of 0.6% in January to inflation of 0.3% in May.

The ECB has already said it could boost its bond-buying stimulus programme if needed. And with prices falling in many eurozone countries, it could be prompted to act soon:

Britain’s John Lewis has reported underwhelming sales for the last week – with takings at its department store flat year-on-year.

But within the figures, there’s a trend of customers revising the horrors delights of the 1970s, with strong demand for knitted pouffes and platform shoes. Homeowners are even painting their rooms in brown and orange, risking terrifying flashbacks for those of a certain age.

Hugo Boss shop. Shopping. Glasgow, Scotland, UK 15th February 2005 COPYRIGHT PHOTO BY MURDO MACLEOD menswear clothes All Rights Reserved Tel + 44 131 669 9659 Mobile +44 7831 504 531 Email: m@murdophoto.com STANDARD TERMS AND CONDITIONS APPLY see for details: http://www.murdophoto.com/T%26Cs.html No syndication, no redistrubution, repro fees apply.

Hugo Boss shares are being bashed this morning, after it become the latest fashion chain to suffer from the Chinese slowdown.

They fell by 8.5% in early trading, after the German fashion firm cuts its profit and sales outlook. It blamed a slowdown in China, echoing Burberry on Thursday.

Hugo Boss also revealed that sales growth in the US has dropped too, due to weaker spending by tourists. That suggests the strengthening dollar is hurting, leaving overseas visitors with less to spend.

Nestlé hit by noodles recall

Nestle Chief Financial Officer Francois-Xavier Roger addresses a news conference at the company headquarters in Vevey, Switzerland, October 16, 2015. Nestle, the world’s largest packaged food company, lowered its full-year outlook on Friday, as a Maggi noodle recall in India knocked sales and undercalculated U.S. Skin Health rebates weighed on the Swiss company’s profits. Sales dropped 2.1 percent to 64.9 billion Swiss francs ($68 billion) in the nine months through September, missing analysts’ average forecast of 65.9 billion in a Reuters poll. REUTERS/Denis Balibouse

Food giant Nestlé is missing out on today’s rally, after missing sales forecasts and cutting its outlook.

Shares in Nestlé are down 2% today, with investors disappointed that revenue has fallen by 2.1% in the first nine months of the year.

The Swiss firm also cut its 2015 outlook to around 4.5%, below its long-term target of between 5% and 6%.

Nestlé suffered emerging market from weakness in China, and also a major food recall in India. In June, Indian regulators slammed its Maggi instant noodle products as “unsafe and hazardous”.

Updated

TO GO WITH AFP STORY BY JEAN-MICHEL HAUTEVILLE (FILES) A photo taken on March 7, 2012 shows partly built Volkswagen cars are seen traveling overhead at the assembly line for the VW Tiguan and Touran models in Wolfsburg, central Germany. German multinational automotive manufacturing group is headquartered in Wolfsburg. Three weeks after the Volkswagen pollution cheating scandal the companies supplying parts to VW and also the Association of German Metal Traders VDM are fearing consequences for their business. AFP PHOTO / ODD ANDERSENODD ANDERSEN/AFP/Getty Images

A Volkswagen assembly line in Wolfsburg, central Germany. Photograph: Odd Andersen/AFP/Getty Images

The diesel emissions scandal appears to have cost Volkswagen some ground in the European auto sector.

New figures released this morning showed that car registrations rose for the 29th month running, as the industry continued to recover from the dark days of the eurozone debt crisis.

European car sales

European car sales Photograph: Thomson Reuters

Total sales jumped by 9.8% in September, but Volkswagen only sold 8.3% more cars compared to a year ago.

This cut VW’s market share to 23.3%, down from 23.7%.

That’s not a major decline – but remember that the emissions scandal only broke in mid-September, so this could be just the start….

Back in Shanghai, the Chinese stock market has hit a seven-week high as fears over its economy recede a little.

The Shanghai Composite jumped 1.4% today, suggesting traders aren’t too worried about Monday’s growth figures:

European stock markets are putting recent turbulence behind them.

The main indices are all up in early trading, with Britain’s bluechip FTSE 100 index jumping by 34 points of 0.5%. That means the Footsie has gained over 5% in October.

Here’s the situation:

European stock markets, October 16 2015

European stock markets, October 16 2015 Photograph: Thomson Reuters

European markets are now on track for their longest series of gains since April, points out Mike van Dulken of Accendo Markets.

He adds:

This remains driven by weak/mixed macro data from China, US and Europe delaying expectations for a Fed rate hike and high hopes of additional global stimulus which is considered positive for risk appetite.

Yesterday’s US inflation data is also helping to push money into shares.

Prices fell by 0.2% month-on-month in September, leaving the price of living unchanged year on year.

“Money managers are saying it looks increasingly like the Fed will not hike because the data around the world is coming in weak,” Mads Pedersen, head of global asset allocation at UBS Wealth Management, told the Wall Street Journal.

“Lukewarm data is good for equities again, just like it has been for most of this recovery.”

A flurry of weak corporate data in recent days has left most economists convinced that the Fed won’t raise interest rates at its monetary policy meeting later this month.

This week we’ve seen falling profits at Goldman Sachs, a profit warning from Walmart, and even falling demand for high end Winnebagos as US consumers cut back.

And earlier this month, the US employment figures were a big disappointment – with much fewer new jobs created than expected (just 142,000).

That doesn’t add up to the first rise in US interest rates since the financial crisis began.

David Levy, portfolio manager at Kenjol Capital Management, explains:

“Investors are reacting to the increasing likelihood that the Fed rate hike, which had been expected just a month ago in September, now likely won’t happen during the course of this year.”

There’s also talk in the markets that the Chinese government could announce fresh stimulus measures soon.

Pressure on Beijing could grow on Monday, when Chinese GDP figures are released. Economists predict that growth slowed to 6.8% in the last quarter, down from 7% in Q2.

Asian markets hit two-month highs

Asia-Pacific stock markets have hit their highest level in two months, as traders in Tokyo, Shanghai and Melbourne anticipate that the era of ultra-low global interest rates isn’t over yet.

Japan’s Nikkei jumped 1%, on hopes that the US Federal Reserve isn’t going to end the party this month. Other stock markets in the region are also showing gains:

Asian stock markets, October 16 2015

Asian stock markets right now. Photograph: Thomson Reuters

The Agenda: Markets to rally on US Fed hopes

(FILES) This May 4, 2008 file photo shows the US Federal Reserve Building in Washington, DC. The Federal Reserve kept its benchmark federal funds interest rate unchanged at near zero percent as expected July 29, 2015, providing no fresh hints on when a long-awaited rate rise might come. The Federal Open Market Committee said the US economy has expanded “moderately” in recent months and the jobs market has strengthened, but noted continued “soft” business investment and exports. AFP PHOTO/Karen BLEIERKAREN BLEIER/AFP/Getty Images

The US Federal Reserve Building in Washington, DC. Photograph: Karen Bleier/AFP/Getty Images

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

Investors will be watching the US economy closely today, for signs that the world’s largest economy may be slowing. There are two pieces of economic data on the agenda:

  • US industrial production, at 2.15pm BST
  • The Michigan Consumer Confidence report, at 3pm BST

Economists reckon the figures might be weak, as Michael Hewson of CMC Markets explains:

Today’s US industrial and manufacturing production data for September are expected to reinforce the disappointing narrative with declines in both of -0.3% and -0.2% respectively, both of which would be negative for the second month in succession.

And negative economic data looks good for stocks right now….

…so shares in Europe are expected to rise, as traders bet that the US Federal Reserve could leave interest rates unchanged for the rest of the year.

As Hewson puts it, with the data so mixed….

…. is hard to see how policymakers can arrive at a consensus for what would be a momentous decision of being the first rise in US rates for 9 years. No-one will want to be remembered for getting a call of that magnitude wrong.

There’s also financial results from foodmaker Nestlé, French supermarket Carrefour, and UK retailer John Lewis (of which more shortly….).

Updated

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

Published via the Guardian News Feed plugin for WordPress.

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

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Published via the Guardian News Feed plugin for WordPress.

Inflation falls to 0.7% in the eurozone in October, fueling demands for more action to stimulate demand. Eurogroup ministers thrash out rules for bank rescues. Japanese shares rise as government slashes commitment to greenhouse gas emission curbs…

 


Powered by Guardian.co.ukThis article titled “Brussels and ECB urged to act as eurozone inflation falls to 0.7% – live” was written by Phillip Inman and Nick Fletcher, for theguardian.com on Friday 15th November 2013 14.41 UTC

Some good news for Ireland, with Deutsche Bank creating 700 new jobs in the country’s financial sector. Henry McDonald in Dublin says:

The German bank is seeking to create a regional hub and centre of excellence in Dublin’s Eastpoint Business Park. It has been operating in Ireland since 1991 and already employs 300 workers.

The Global Head of Financial Institutions at Deutsche, Neilus De Groot said the high standard of Ireland’s graduates was a dominating factor in its decision. Most of the new workers will be hired in the next two years, he said.

The expansion in Deutsche’s Irish operation is being backed by the Republic’s Industrial Development Authority.

Ireland’s Minister for Jobs, Enterprise and Innovation Richard Bruton said that it was a huge vote of confidence in the country’s international financial services sector and in the Irish economy.

“International financial services is a key sector targeted as part of the Government’s Action Plan for Jobs.

“This is a sustainable, export-driven industry where Ireland has developed major strengths and we have put in place important changes to target substantial jobs growth in the coming years,” he added.

Deutsche Bank’s expansion comes in the same week that Enda Kenny revealed he is in discussions with Chancellor Angela Merkel to access funds for Irish small businesses from the German state KFW development bank.

Updated

Back in the US, industrial production fell unexpectedly in October. It slipped 0.1% month on month after a 0.7% rise in September, as output at power plants and mines declined. Rob Carnell of ING Bank said the figures would have little effect on the timing of the Federal Reserve easing off on its bond buying programme:

[This is] hardly the sort of figure that will send the Federal Reserve scrabbling to start the taper. But the headline appears worse than the underlying picture. Indeed, manufacturing production delivered a reasonable 0.3% month on month increase, and most of the softness was concentrated in utilities and mining, in particular natural gas extraction, where on-going price softness seems to have weighed on extraction activity, and production has been feeble for some months.

Together with a limp report from the Empire Manufacturing survey for November, delivered before the production data, the tone of newsflow since Janet Yellen’s Senate testimony, where she spelled out that taper required a notable improvement in the economy – has been mediocre.

Risk markets won’t be too upset by this.

Sterling has moved higher against the dollar and euro after Bank of England policymaker Martin Weale said it could not ignore inflation expectations, and may have to raise rates before all spare capacity in the economy is used up.

Upbeat UK economic data this week and comments from Bank governor Mark Carney have raised the prospects of interest rates rising more quickly than previously expected. Weale’s comments seem to be adding to that idea. He said:

We cannot risk a situation where people say we are deliberately looking the other way if the data show a significant change in inflation expectations.

Updated

Earlier, in a speech in London, European Central Bank board member Yves Mersch said it would not be easy to turn off the money taps, even as he repeated suggestions it could buy assets from banks if needed.He said:

Obviously it will not be an easy matter to get out of the low rates of our policies. We are not there yet…there are more questions that have to be addressed before we address this question. But that does not mean we are not considering (it) and we don’t have it at the back of our mind.

ECB member Peter Praet became the first of its policymakers to talk about asset buying, and today Mersch said it was an option, but there were difficulties:

In our mandate it says we can do asset purchases…but Europe is a little bit different in so far that we do not have a single sovereign signature.

Quotes courtesy Reuters.

Updated

Mixed signals from the US, where the New York state manufacturing sector unexpectedly shrank although business confidence was relatively stable.

The Federal Reserve’s Empire manufacturing index fell to -2.21 from 1.52 in October (anything below zero indicating a contraction). But the index of business conditions was 37.51, edging down from 40.76. Annalisa Piazza at Newedge Strategy said:

The outcome is much weaker than expected and it marks the lowest print since the start of the year.

The breakdown of the report shows a marked deterioration in all the main components, a sign that activity has registered some slowdown over the month despite less pressure on the fiscal side.

All in all, the picture described by today’s report is not encouraging as it looks like the effects of the fiscal debate and government shutdown have not waned yet.

Cyprus to lift capital controls

… in the next few months says Cypriot minister of finance Harris Georgiades in an interview with Reuters. Says restrictions are already looser than in March, when the independent southern section of the island was forced to close two banks and slap controls on money transfers to prevent economic collapse.

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

Updated

More from the EU, this time its disease monitoring agency. In a sobering report, it says there are several categories of bacteria that cannot be killed with with carbapenems, the most powerful class of antibiotic drugs.

Reuters reports the European Centre for Diseases Prevention and Control saying the proportion of infections resistant to carbapenems has increased sharply in the last four years – particularly in southern Europe – and almost all European countries now have reported cases.
The most severe cases involve bloodstream infections, but drug-resistant bugs can also more frequently cause serious problems in the respiratory and urinary tracts.
Reuters said: “The ECDC data showed that the proportion of bloodstream infections due to Klebsiella pneumoniae, a common cause of illness in hospital patients, that were resistant to carbapenems was above 5 percent in 2012 in five countries – Greece, Cyprus, Italy, Romania and Slovakia.
“In recent years, there has been a rush for the exit by the drugs industry as its researchers have struggled to find leads for novel antimicrobial drugs. Companies have turned instead to more profitable lines of drug research, including treatments for cancer and chronic diseases. A consortium of drug firms berated the government in a letter today for allowing the NHS to reject drugs at the cost of many lives, though these are mostly anti-obesity and related drugs that are expected to be hugely profitable as the world gets fatter.
Reuters added: “Pfizer, once the leader in the field, closed its antibiotic research centre in Connecticut in 2011, to the dismay of many scientists. It now focuses anti-bacterial work on vaccines.
Others to have quit include Bristol-Myers Squibb and Eli Lilly, leaving only a handful of firms like “GlaxoSmithKline and Merck & Co in the game. Switzerland’s Roche, however, has re-entered the arena through a $550 million tie-up with privately held Polyphor this month to develop and commercialise an experimental antibiotic against hospital superbugs.”

EU disinflation is for the long term

Marie Diron, senior economic adviser to the EY Eurozone Forecast, says a look beneath the headline figures in today’s Eurozone inflation data shows it is a long term problem:
“Today’s inflation data are interesting not so much about the headline inflation rate, which we knew would be very low, but about evidence of how broad-based downward price pressures are. Lower energy prices have contributed to bring inflation down. This often proves to be temporary. Much more of a concern is the fall in inflation for non-energy goods. Prices of a wide range of these goods are either stagnating or falling. Inflation has also come down to very low levels for a range of services. These trends highlight the squeeze on profit margins from subdued demand in the Eurozone.

“This environment is unlikely to change in the near future, which means that the ECB should be ready not only for a long period of low inflation but also for the possibility that deflation sets in. In our view, the ECB should do more to avoid deflation. One possibility would be to provide clearer forward guidance about its monetary policy. This could have a significant impact on the euro exchange rate which would both help raise inflation and boost growth.”

The Rock blockade is lawful, says EU

Looks like the cigarette smuggling dispute between Spain and Gibraltar is going to rumble on after EU officials said Madrid’s near blockade of the island is lawful. Maybe blockade is a bit over the top. Maybe extra security is a better phrase. Well, Britain is not going to be happy. the extra checks that have upset so many locals are likely to carry on.

But who knows, maybe the Spanish have a point. Maybe they are suffering from Gibraltar’s ultra low cigarette tax, which makes its ciggies 40% cheaper than those sold on the mainland.

Come on Rock inhabitants, you know smoking is bad for you. Put a decent tax on fags. The the Spanish would have to think again, cos they always undermine their principled stand against Gibraltar’s independence when they refuse to give up Cueta, the “autonomous city of Spain” located on the north African coast where Tunisia should be.

Updated

China takes reform leap

AP is reporting that not only is the one child policy to be relaxed (parents can have two children if only one parent was an only child rather than previous policy of both parents being only children), but a host of business measures have also been agreed.

In that vein, China’s leaders have promised to open its markets wider to private and foreign competitors.
The country’s consumption tax will be expanded to cover polluting products. Property tax reform wil be accelerated. New environmental taxes to be devised. Also sectors protected from foreign investment to be opened up.
AP said Chinese leaders are under pressure to replace a “tapped-out growth model based on exports and investment”.
It said: “The ruling party pledged in Friday’s report to allow the creation of privately owned banks and to allow the market to allocate resources moves that will help more efficient private companies.
“As for foreign companies, the plan pledges to ease limits on foreign investment in e-commerce and other industries.”

Updated

Early repayments to ECB’s LTRO below expectations

Annalisa Piazza, analyst at Newedge Strategy, said in an note that ECB details of next week’s LTRO early repayments, just announced, illustrate how weak the European financial system remains.

“On Wed, 5 banks will repay a total of €3.155bn of the first 3y LTRO and 3 banks will repay a very modest €0.431bn of the second 3y LTRO. The total amount is just a touch below market expectations of €4bn (Reuters poll) and around €2bn below the average repayments of the past 4 weeks,” she said.
“Around €380bn out of the total €1013bn borrowed has been repaid so far.
The ECB remains “alert” on the development of liquidity conditions (excess liquidity below €200bn) but Draghi made clear during last week’s press conference that there is no direct correlation between liquidity and eonia rates. As such, no additional action was needed at the current juncture given the limited movements in money market rates. That said, the tone of the ECB remained extremely dovish and Draghi left the door open to any option in the coming months. We rule out that further liquidity will be injected in early 2014 but Q4 additional measures are still in the cards.”

Italy and Finland’s draft budget plans for 2014 at risk of breaking EU rules …

… while French, Spanish and Dutch draft plans barely make it, the European Commission said today.

If you want to know what losing national self determination feels like, you need look no further than the Brussels’ judgements on national budgets. Poland and Croatia face sanctions for running persistently high deficits. According to some analysts, Poland’s misdeeds could hamper its entry to the euro

Anyway, the review marks the first time Brussels has enjoyed such gorgeous, unalloyed power to criticise the finance proposals of member states, at least those inside the eurozone.

Technically, the EU’s executive arm is doing no more than reviewing the main assumptions of draft national budgets to assess if they are in line with EU laws. This is before they are submitted to national parliaments.

However, the commission can demand a revised budget plan from a euro zone country if its draft clearly breaks EU rules,

There are 19 EU countries under investigation at the moment for breaking various rules, after Germany was added this week for running monster current account surpluses that Brussels believes could be as bad for the currency zone as large annual deficits.

Italy, the eurozone’s third biggest economy, wants some leeway because its public debt is rising rather than falling and it suffers chronically low growth.
“There is a risk that the draft budgetary plan for 2014 will not be compliant with the rules,” the commission said in a statement. “In particular, the debt reduction benchmark in 2014 is not respected,” it said.
The commission said that the eurozone’s second biggest economy France had taken the recommended steps to reduce its budget gap below 3 percent in 2013, and its 2014 draft budget is in line with EU budget rules, but with no margin for error, reported Reuters .
Also, France’s structural reform plans made only “limited progress”, the commission said.

Oil bonanza in the North Sea

There is an exaggerated sense of the story in that headline, but nonetheless it is positive for employment in Aberdeen and Shetland, even if it will have the green lobby crying into its nettle tea (I prefer strawberry with a hint of mango).

Aberdeen-based EnQuest said it will generate billions in taxpayer revenues, create 20,000 construction jobs and 1,000 ongoing roles with its development of the Kraken oilfield east of the Shetland Islands. It will invest £4bn as part of the project.
The plans are understood to represent the largest UK North Sea investment announced this year.
The government has handed the company oil allowances enabling it to claim tax relief on around £800m of profits, which offsets the “billions in taxpayer revenues”, which these days mean extra income tax, national insurance and VAT, not corporation tax. All hail the holders of capital, we bow before you.

Back to the story. EnQuest chief executive Amjad Bseisu said: “Kraken is a transformational project for EnQuest and we are delighted to be able to proceed with it, working with the Government and our partners to maximise the extraction of approximately 140 million barrels of oil in this field, over its 25-year-long life.
“It is only by combining our skills and expertise with fiscal incentives, such as heavy oil allowances, that really substantial projects like Kraken are possible.”

Britain has the highest inflation among EU 28…

Along with Estonia.

Eurostat said: “In October 2013, the lowest annual rates were observed in Greece (-1.9%), Bulgaria (-1.1%) and Cyprus (-0.5%), and the highest in Estonia and the United Kingdom (both 2.2%) and Finland (1.7%). Compared with September 2013, annual inflation fell in twenty-three Member States, remained stable in one and rose in four. The lowest 12- month average rates up to October 2013 were registered in Greece (-0.4%), Latvia (0.3%) and Sweden (0.5%), and the highest in Romania (3.7%), Estonia (3.5%), Croatia and the Netherlands (both 2.9%).

“The largest upward impacts to euro area annual inflation came from electricity (+0.11 percentage points), accommodation services (+0.09) and tobacco (+0.08), while fuels for transport (-0.31), telecommunications (-0.16) and heating oil (-0.08) had the biggest downward impacts. ”

It illustrates the power of oil to move inflation up and down. While it is a huge drag on prices at the moment, an upwards move in the oil price would quickly reverse the situation.

Updated

Obamacare is not going so well….

Says the New York Post, which is obviously not the final arbiter on healthcare policy, but the headlines tweeted by Joe Weisenthal of Business Insider are not going to make for enjoyable reading in the White House. It is a lesson to all governments that a dodgy, hurried website can let down years of good work.

Eurozone inflation falls

Euro areaannual inflation was 0.7% in October 2013, down from 1.1% in September. A year earlier the rate was 2.5%. Monthly inflation was -0.1% in October 2013.

EU down to 0.9%

Updated

Nestle promotes jobs for young people

Food giant Nestle is to create 1,600 jobs for young people over the next three years, and hundreds of paid work experience placements. The company, which still wrestles with accusations of selling baby milk to African mothers, is already a major employer in the UK with centres in Buxton (bottling), York (chocolate) and Cumbria (coffee), while its head office recently moved from Croydon to Gatwick in Sussex.
The Press Association reports that the jobs will range from sales assistants to business management as well as working on the shop floor.

Chief executive Fiona Kendrick said: “Sadly, young people in the UK and Ireland are stuck in a catch-22 situation – they can’t get a job without experience, but can’t get experience without a job.
“As employers we value young people with experience, so we have to provide them with enough opportunities to gain it.”

Nestle said it will offer 300 paid work experience placements in its factories, offices and sales teams as well as helping social enterprise group MyKindaCrowd to give skills and employability training to more than 12,000 school and college students.

The placements will be for four weeks and will pay above the national minimum wage.

Updated

Japan stocks rise as greenhouse emission curbs slashed

Should have said earlier, but it is never too late to talk about the Japanese stock market, which rose to a sixth month high last night at 15,165, up almost 2% on the day. The strengthening dollar had something to do with it and gains on Wall Street. The US stock market maintained its upward trajectory following doveish remarks by Janet Yellen (see earlier post). Abenomics seems to have lost is lustre, but if the US dollar rises then japanese exports have a free run and Toyota’s profits will carry on rising.

In an unrelated move, the Japanese government increased its target for greenhouse gas emissions, which was probably inevitable after the shutdown of all its nuclear power stations. Some of them may reopen, though the Fukushima disaster means they are likely to stay shut and Japan’s reliance on imported liquid gas will continue.

Top of the Agenda: A European backstop for banks needed says Asmussen

Reuters reports that Joerg Asmussen, European Central Bank board member, said this morning that eurozone governments must put in place ways to financially support their banks in case they need more capital. Speaking ahead of the Eurogroup’s second day of meetings, Asmussen said health checks by the ECB found there were still plenty of banks with weak balance sheets. Today finance ministers are discussing backstops for banks in time for the ECB’s asset quality review, the results of which are due in October 2014.

“We will continue to discuss this today,” Asmussen said on entering the meeting.

“From the ECB side we always said it was absolutely necessary that we have credible backstops in place before the whole exercise starts, so we need three layers of backstops. These are first private markets, second domestic markets, or domestic bank rescue funds, and the third layer is the European Stability Mechanism (ESM) as it stands,” he said.

Updated

Guy Hands forced to accept low price for Infinis

An interesting development in the London listings market after energy generator Infinis priced its initial offering at the low end of its price range. Infinis is owned by Guy Hands’ Terra Firma private equity business, which is recovering from the loss of EMI after a tussle with US bank, and main debtholder, Citi. David Hellier in City AM says the IPO market has cooled after a strong run in response to poor results from the life assurance pensions provider Partnership, which had knock effects for recent float Just Retirement.

Updated

Nationwide says Help to Buy needs to be watched closely

The boss of Nationwide has been talking about the building society’s results this morning. He says current account 7-day switching has been a boon and brought a 47% increase in new customers since it was introduced. Graham Beale said he hopes to have 10% of current account market by 2020. But more interestingly, hinted that the feverish state of the London housing market was causing him concern and said it should be actively monitored by the authorities. At the moment the Treasury and the Bank of England are passing the buck between them over which one is responsible for an overheating housing market. The buck passing has annoyed Treasury select committee chairman and Tory MP Andrew Tyrie, who has written to BoE governor Mark Carney asking him to clarify the position.

Eurozone deflation fears are expected to heighten when the final readings for eurozone consumer price inflation (CPI) are published. They are expected to confirm price rises have slowed alarmingly.

The ECB’s Erkki Liikanen and Yves Mersch will speak today with markets looking for more comments on the policy outlook. Analysts reckon there will also be much speculation on divides in the ECB board’s ranks after the recent rate cut to 0.25%. The cut split opinion and pitted president Mario Draghi against some of his colleagues.

Mike van Dulken, Head of Research at Accendo Markets, said there is a general expectation for the FTSE 100 to open +5pts at 6675. “Another positive performance from both the US and Asian equity sessions after FedChairwoman-elect Janet Yellen supported her pre-released text with a robust testimony before the Senate Banking committee in defending theFed’s policies and stating that she doesn’t see tapering of QE3 for a good while yet with benefits exceeding costs for now and early withdrawal a big risk amid a fragile recovery,” he said in a note.

He continued: “Japan’s Nikkei again the outperformer (>15,000) thanks to a weaker JPY (USD/JPY >100) as officials signal they are prepared to fight to keep currency weak. Expectations and optimism about the release of some much-desired additional details on Chinese economic reforms next week also got markets excited helping China and Hong Kong muster good gains.”

Good morning, it’s Friday

Hi, I’m Phillip Inman, The Guardian’s economics correspondent. I’m stepping in for Graeme Wearden today.

This morning we can look forward to euro area inflation at 10am. There’s an Ecofin ministers meeting today – last night the Eurogroup told Greece to make more progress in its negotiations with the troika There’s usually an Ecofin press conference around lunchtime.

Janet Yellen was giving heavy hints in her testimony to Congress that she would keep monetary policy loose if given the job of succeeding Ben Bernanke as Federal Reserve boss. There should be some more market and analyst reaction today.

Also, I’ll keep an eye on the FTSE, which is coming off a peak in October, where it neared 6800. Was yesterday the beginning of another rally?

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Published via the Guardian News Feed plugin for WordPress.

During the press conference held to announce the BoE’s new forward guidance for interest rates, Carney made it clear the MPC plans to stay the course. Interest rates are to remain low, but what does that say about economic recovery, inflation and house prices?..

 


Powered by Guardian.co.ukThis article titled “Five things we learned from the Bank of England inflation report” was written by Phillip Inman, for theguardian.com on Wednesday 7th August 2013 14.37 UTC


1. Interest rates are going to stay low for a very long time

Current predictions say the Bank will only consider raising rates in 2016, but it could be 2017 or 2018 before the economy is considered strong enough to cope with higher rates. It will not consider raising rates until unemployment declines to 7% (from 7.8%), and its own forecast puts unemployment above 7% in 2016.

2. The current economic recovery is fragile

The UK might have seen a 0.9% jump in GDP in the first six months of the year, but the Bank of England is concerned that growth remains weak. The level of GDP is below where it was in 2008 and well below where it would be if the crash hadn’t happened. High unemployment shows there is slack in the economy that can be deployed without causing inflation.

3. Fears of a house price bubble are misplaced

Governor Mark Carney argued that the level of transactions are well below the peak (about a third lower) and house prices are still below the highest point in 2008, so a bubble is a long way off. And anyway, he said, the central bank now monitors the big lenders for dodgy or risky practices, so a repeat of the crazy lending in the first half of the last decade is unlikely.

4. Inflation is not a worry

This is not something the Bank of England has explicitly declared in its quarterly inflation report. It says monetary policy committee is still watching for any signs of inflation. However, there is little pressure from rising wages and it blames the current 2.9% rate (well above the 2% target) on the rising cost of train fares and regulated monopoly suppliers such as those related to water rates and gas prices.

5. More quantitative easing could be on the way

During the press conference held to announce the BoE’s new forward guidance for interest rates, Carney made it clear the MPC plans to “maintain the current highly stimulative stance of monetary policy” and could even extend it. The Bank is unlikely to cut rates further, but could boost QE. It has pumped £375bn into the financial system to promote lending to little avail (it might have been even worse without it, said Carney’s predecessor Lord King). Some analysts argue it should rise to £425bn.

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Bundesbank warning over slipping deficit targets. Vodafone: ‘Severe’ economic weakness in Southern Europe. Parliamentary Committee approves plan to bail-in large depositors. UK inflation falls more than expected to 2.4% y/y in April from 2.8%…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis as it happened: Italian PM warns EU could ‘implode’ without action on growth and jobs” was written by Graeme Wearden and Nick Fletcher, for theguardian.com on Tuesday 21st May 2013 17.21 UTC

6.21pm BST

Protests over Papandreou’s talk on Greek crisis

Over in Greece, there is much ado over former prime minister George Papandreou giving a talk on the crisis that has rocked the country at an upcoming Ted X convention in Edinburgh. Helena Smith in Athens says:

On hearing of the politician’s participation in a panel entitled “moments of truth,” outraged Greeks (for although they are anonymous that is what the protestors are presumed to be) immediately launched a protest campaign that has already drawn thousands of signatories. 

“George Papandreou lead Greece into the embrace of the IMF … and [with it] into a deep humanitarian crisis,” said the protestors in a statement that referred to the galloping unemployment, poverty and unprecedented number of suicides that stewardship under the IMF has also unleashed. “At the same time Papandreou continues to support the neo-liberal policies that drove the country to its present plight while he travels in luxury around the world giving lectures on the lessons he has learned from the Greek crisis.”

This is not the first time that Papandreou has been openly criticised for capitalising on the crisis – the politician’s decision give a course about his experience at Harvard university’s JFK school last year sparked similar anger. But it is the first time that protestors have taken to the internet to vent their spleen – with the pressure now mounting (2824 signatures had been gathered by this afternoon) it remains to be seen whether he will be forced to pull out of the conference.

Chief executive of Russian energy company Gazprom, Alexey Miller (L), leaves the Maximos mansion after a meeting with Greek prime minister Antonis Samaras. Photograph: EPA/Alexandros Vlachos
Chief executive of Russian energy company Gazprom, Alexey Miller (L), leaves the Maximos mansion after a meeting with Greek prime minister Antonis Samaras. Photograph: EPA/Alexandros Vlachos

Meanwhile Papandreou's arch rival — Greece's current prime minister Antonis Samaras, has spent the afternoon in talks with the head of Gazprom as the country attempts to expedite it’s much-delayed privatisation drive. 

This is the third time since March that Gazprom chief Alexei Miller has flown into Athens for talks. The Russians have made no secret of the fact that they want to buy Despa, the Greek natural gas company long seen as a jewel in the crown of Greece’s privatisation program which protestors say is yet another humiliation the country is being forced to endure as a result of IMF intervention.

And on that note, it's time to close up for the day. Thanks for all the comments, and we'll be back tomorrow.

5.13pm BST

European markets end on strong note

European markets made a positive finish to the day, boosted by comments from Federal Reserve member James Bullard suggesting there would not be an early end to the central bank's bond buying programme.

The FTSE 100 finished up 48.24 points at 6803.87, its highest finish since its record close on 30 December 1999

• Germany's Dax rose 0.19% to 8472.2, reversing an early fall

• France's Cac closed 0.33% higher at 4036.18

• But Italy's FTSE MIB fell 0.45% although it was well off its lows

• Spain's Ibex ended 0.6% lower

The Dow Jones Industrial Average is currently 48 points or 0.32% higher.

4.36pm BST

Fed’s Bullard says bond buying should continue

Recent comments from US Federal Reserve members seemed to suggest a tapering off of its bond buying programme.

But James Bullard, president of St Louis Federal Reserve Bank, said the centrel bank should keep buying bonds, while adjusting the pace depending on economic conditions.

And in a speech to the Goethe University in Frankfurt, he said the ECB should consider asset purchases if inflation fell further. He said, as reported by Reuters:

Quantitative easing is closest to standard monetary policy [once interest rates get near zero], involves clear action and has been effective.

3.23pm BST

Germany and Spain agree deal to combat youth unemployment

Still with unemployment, one of the biggest issues facing the eurozone (and indeed elsewhere), Germany has agreed a deal to help reduce youth unemployment in Spain.

Under the terms of the agreement between the two countries, Germany will create 5,000 jobs a year for young Spanish workers. El Pais reports:

A memorandum of understanding in this area was signed Tuesday in Madrid by Spanish Labor Minister Fátima Báñez and her German counterpart Ursula Von der Leyen. It includes work combined with professional training and stable posts for qualified workers.

Báñez welcomed Germany’s “commitment” toward helping young Spaniards, adding that the accord would provide “many opportunities for many young Spanish people which today, because of the crisis they do not have in Spain, and which, however, they can have in other European Union countries on a temporary basis.”

The accord calls for the interchange of workers and cooperation in the area of labor affairs. There are currently 43,548 Spaniards affiliated with the German Social Security system, and 37,797 Germans in the Spanish system.

Both countries also agreed to work together on initiatives at the EU level to reduce youth unemployment. “This cooperation between Spain and Germany will very soon show itself in additional joint measures that will make a better life for our young people possible,” the two countries said in a statement

3.19pm BST

Samaras hopes to attract outside investment to tackle jobless crisis

Greek prime minister Antonis Samara said his recent trips to China and Azerbaijan would help attract outside investment into the country and combat its chronic unemployment problem.

According to a report by ekathimerini, Samaras said after a meeting with Greek president Karolos Papoulias in Athens:

We have consolidated Greece’s position in Europe and now we are consolidating it on a global level.

He said unemployment, which reached a record 27% in February was “the country’s biggest problem.”

Greek prime minister Antonis Samaras after his meeting with Greek president Karolos Papoulias. Photograph: AP Photo/Petros Giannakouris
Greek prime minister Antonis Samaras after his meeting with Greek president Karolos Papoulias. Photograph: AP Photo/Petros Giannakouris

Updated at 3.51pm BST

2.53pm BST

Opening rise on Wall Street lifts European markets

An opening rise on Wall Street has given a lift to global markets.

The Dow Jones Industrial Average has added 49 points or 0.3% in early trading, ahead of a congressional testimony from US Federal Reserve chairman Ben Bernanke on Wednesday. The meeting will be closely watched for any comments on the Fed's bond buying programme, and whether its quantitative easing could be coming to a close. Recent remarks by Fed members have suggested that actions to boost the economy could start tapering off.

With the money taps providing a major influence on the stock market rally, any signs they will be switched off could see shares decline from their recent peaks.

At the moment though, investors are still in the mood to wait and see. So with the positive start in the US, the FTSE 100 is at its best levels of the day, up around 25 points at 6781and close to its 2000 peak of 6798. Higher than that, and we are back in territory last seen in 1999, and not far off the all time peak of 6930.

Meanwhile European markets have also seen a turnaround after the US open. Both Germany's Dax and France's Cac 40 had drifted lower during the morning, but are now up around 3 points.

Italy's FTSE MIB and Spain's Ibex 35 are both in negative territory but are off their worst levels.

2.24pm BST

Interesting blogpost on Open Europe today, suggesting that the solution to Britain's "Europe problem" could be a new kind of membership of the EU, dubbed EEA plus.

This 'special status’ would give Britain the benefits of the single market, along with votes on issues that are relevent to the European Economic Area. 

Thus, the UK could keep influence on issues that really matter to it, like the financial system. It could also exclude itself from areas where closer integration wasn't desirable. So neither In nor Out.

Another great advantage of this model is that it could provide an institutional wrapping for all those countries that for one reason or another cannot be full EU members, and certainly not eurozone members: the UK, Norway, Switzerland and maybe even Turkey. It would be a new mode of European membership – and, if the UK can get its act together, very much the "economic growth" tier.

EEA plus: a model for the future of the UK in Europe?

And I'm handing over to my colleague Nick Fletcher. Thanks all. GW

1.42pm BST

Protester on St Peter’s Basilica in Rome

Italian businessman Marcello De Finizio stands on the dome of St Peter's basilica to protest against austerity measures on May 21, 2013 at the Vatican.
Photograph: ANDREAS SOLARO/AFP/Getty Images

An Italian businessman continues to hold a one-man anti-austerity demonstration on the dome of St Peter's basilica, having scaled it yesterday to protest against the European Union's economic policies.

Marcello Di Finizio, who owns a restaurant in Trieste restaurant, dodged security and scaled the basilica on Monday afternoon.

Authorities have been trying to persuade the 47-year-old man to come down, but so far without success.

Di Finizio, who has climbed the 137-metre dome twice before, is holding a banner which reads:

Stop this massacre, the political horror show is continue….help us Pope Francis..

Italian businessman Marcello De Finizio stands on the dome of St Peter's basilica to protest against austerity measures on May 21, 2013 at the Vatican. The businessman hung  a banner saying:
Photograph: ANDREAS SOLARO/AFP/Getty Images
Italian businessman Marcello di Finizio stands by his banner with writings against the Italian Government and the Euro as he protests on St. Peter's 130-meter-high (42-feet-high) dome, at the Vatican, Tuesday, May 21, 2013.
Photograph: Alessandra Tarantino/AP

Updated at 1.51pm BST

1.04pm BST

Letta demands EU action on growth and jobs

The Italian prime minister has warned that the European Union could implode unless leaders do more to deal with its economic crisis and the record levels of youth unemployment.

Enrico Letta, whose popularity has fallen steadily since he was sworn in last month, told the Senate in Rome this morning that EU leaders must show decisive action.

Otherwise, he warned, voters will reject the European project at the ballot box.

Here are Letta's key quotes (via the Ansa newswire)

I have the impression that the EU cannot keep going as it has up to today, with timidness or a lack of decisions.

Either it accelerates or it risks imploding…. As things are, I don't think it can hold up and the people will be the ones who make it implode the next time they vote.

Letta was briefing MPs before leaders gather for the next Council of Europe meeting on Wednesday. He said youth unemployment had to be an "absolute" priority, adding:

The EU is in a crisis of legitimacy over the lack of results [on youth joblessness].

The record levels of youth unemployment (over 60% in Greece now), so seem to have shaken European leaders and top officials in Brussels into action.

There's a great piece on this issue in Germany's Spiegel newspaper, which lambasts leaders for talking about the problem, but not fixing it.

Jobless Youth: Europe's Hollow Efforts to Save a Lost Generation

Here's a flavour:

Perhaps it takes reaching a certain age to recognize the problem. "We need a program to eliminate youth unemployment in Southern Europe. (European Commission President José Manuel) Barroso has failed to do so," says former German Chancellor Helmut Schmidt, now 94. "This is a scandal beyond compare."

Economists also argue that it's about time Europe did something about the problem. "The long-term prospects of young people in the crisis-ridden countries are extremely grim. This increases the risk of radicalization of an entire generation," warns Joachim Möller, director of Germany's Institute of Employment Research, a labor market think tank.

"It was a mistake for politicians to acknowledge the problem but do nothing for so long," says Michael Hüther, head of the Cologne Institute for Economic Research, which is closely aligned with employers. And Wolfgang Franz, former chairman of the German Council of Economic Experts, says that "unconventional approaches" are called for to combat not just youth unemployment but also its long-term negative consequences.

"Someone who is unemployed in his or her younger years will spend a lifetime struggling with poorer career opportunities and lower pay," he adds.

….

The Italian public are demanding action too, with well-attended protests over the weekend demanding a new economic plan:

Thousands of people protested in Rome urging Prime Minister Enrico Letta to focus on creating jobs.
Photograph: Francesco Fotia/Demotix/Corbis

Updated at 1.12pm BST

12.09pm BST

Pound thumped by inflation data

Pound vs Dollar, May 21 2013
Pound vs US dollar today. Photograph: Thomson Reuters

The pound has fallen more than one cent against the US dollar today following the news that UK inflation fell more than expected in March.

The drop in the consumer prices index, from 2.8% to 2.4%, means there's more chance the Bank of England will ease monetary policy again soon. Especially with new governor Mark Carney arriving this summer:

Andy Scott, account manager at HIFX, commented:

Whilst the economy seems to be showing some more positive signs of recovery, it’s still very sluggish and there’s still the risk of seeing further contractions unless the pace of recovery picks up, especially with the eurozone still in recession.

The new governor will no doubt be keen to make his mark at the Bank when he starts in July and he may well opt for additional quantitative easing to further aid the recovery.

Updated at 12.09pm BST

11.53am BST

The overview of the Bundesbank's latest monthly report is online here (pdf).

Its upbeat assessment of the German economy is accompanied by this warning:

However, the poor economic conditions prevailing in many parts of the euro area and the current problems associated with the sovereign debt crisis mean that macroeconomic risks remain high.

11.29am BST

Bundesbank urges rigour over deficit targets

Bundesbank, German Federal Bank facade.
Photograph: imagebroker/Alamy

Gerrmany's economy is on track for a solid recovery in the current quarter, the Bundesbank has predicted in its new monthly report on Europe's largest economy.

The German central bank also warned European leaders not to relax their deficit targets too much, as this would – in its view – hurt credibility in the eurozone.

The Bundesbank pointed to a recent rise in production orders across the country's manufacturing base:

Overall economic activity is expected to improve markedly in the second quarter of 2013, a view that is supported not only by the likely catching- up effects in response to the weather-related downturn in construction activity during last winter.

With industrial new orders picking up appreciably after a poor start to the year, there is reason to hope that exports and investment in machinery and equipment – the demand components that can usually be relied upon most to set the pace for the German economy – will recover as well.

Last week's GDP data showed that Germany grew by just 0.1% in the first three months of 2013, as the wider eurozone shrank by another 0.2%.

And on the issue of flexibility when applying deficit-reduction rules, the report said:

The binding effect (of the rules) threatens to be damaged from the start if the impression arises that necessary deficit reduction could perpetually be pushed back as long as sufficient political pressure is applied.

(quotes via Reuters)

The key word here is 'perpetually', I suspect. Spain and France are already being offered more time to get their deficits below the EC's 3% target — without any alarm in the financial markets.

Updated at 11.51am BST

11.07am BST

Key event

Interesting piece in the Wall Street Journal today about how the eurozone crisis has prompted a surge in grass root politic:

It looks at the Spanish municipality of Torrelodones, where housewife-turned-mayor Elena Biurrun has thrown out official perks and used the savings to improve school and local infrastructure since being elected two yeas ago:

Here's a flavour:

At her inauguration Ms. Biurrun choked up before a jubilant crowd.

Then she began slashing away. She lowered the mayor's salary by 21%, to €49,500 a year, trimmed council members' salaries and eliminated four paid advisory positions.

She got rid of the police escort and the leased car, and gave the chauffeur a different job. She returned a carpet, emblazoned with the town seal, that had cost nearly €300 a month to clean. She ordered council members to pay for their own meals at work events instead of billing the town.

"I was so indignant seeing what these people had been doing with everyone's money as if it were their own," Ms. Biurrun said.

10.37am BST

European markets dropping back

After yesterday's record high on the German DAX, European stock markets are mostly down this morning. In London, though, the FTSE could hit another 12-year high today, after closing at its highest level since September 2000 yesterday.

European stock markets, May 21 2013, morning
Photograph: Thomson Reuters

Traders are anticipating the prospect of central bankers starting to withdraw the drip of monetary stimulus, especially with the Fed's Ben Bernanke testifying at Capitol Hill tomorrow.

It's the old argument over whether we're experiencing a bubble that's threatening to pop, or if the central banks are cannily guiding us to a point where genuine confidence and economic fundamentals take over.

As Yusuf Heusen, sales trader at IG, explains:

Perhaps global growth doesn’t merit markets at these highs, but liquidity-boosting actions from central banks take precedence.

The City is also absorbing a profits warning from cruise liner firm Carnival, as my colleague Nick Fletcher explains: FTSE heads for new 13 year high, but Carnival sinks 13% after warning on earnings…

… and the surprise departure of G4S boss Nick Buckles, 10 months after its Olympic security debacle.

Updated at 11.58am BST

9.50am BST

Economist Rob Wood of Berenberg Bank agrees that UK inflation is heading higher, despite this morning's surprise drop:

The squeeze on consumers from higher inflation will get worse before it gets better, but today's data highlights that underlying inflationary pressures remain well contained.

Inflation is likely to peak, probably around the 3 percent mark maybe a touch below, this summer which is much better than it seemed a few months ago.

9.47am BST

UK inflation, the early reaction

Duncan Weldon, the TUC's senior policy officer, cautions against getting too excited by today's drop in inflation:

While Societe Generale's Kit Juckes warns that the cost of living will probably head higher:

And IG's Chris Beauchamp reckons it gives the new Bank of England governor, Mark Carney, more leeway to waggle the monetary policy levers:

9.37am BST

UK inflation drops

Just in, UK inflation has fallen for the first time since last September.

The Consumer Prices Index came in at 2.4% last month, the Office for National Statistics reported. That's a surprise drop after March's 2.8%, and closer to the Bank of England's official target of 2%.

Lower fuel and lubricant costs were the prime factor, the ONS said.

Good news for the UK, although real wages are still failing to keep pace (they're rising by around 0.8% annually, on average).

Reaction to follow.

Updated at 9.38am BST

9.26am BST

Draft law to bail-in large depositors approved

Europe has moved a step closer to bailing in large depositors in future bank rescues, as happened in Cyprus this year.

Last night, the European Parliament's economics committee approved draft legislation under which customers with more than €100,000 would be liable to fund a rescue package. Smaller savers, though, would still be protected.

This new bank recovery and resolution mechanism is meant to end the era of taxpayer-funded bank rescues. Bank of England Deputy Governor Paul Tucker called it a milestone towards a world where governments were no longer willing to rescue banks that are “too big to fail”.

Under the EU proposal, a bank would dip into large deposits of over €100,000 once it had exhausted other avenues such as shareholders and bondholders, Reuters explains.

There could still be a battle, though, over who stands first in line for losses.

Sven Giegold, a German Green lawmaker, explained:

The struggle will be how binding the bail-in and the hierarchy of liabilities is.

That issue of seniority of claims is explained well by Frances Coppolo, former banker, here: The equivalence of debt and equity.

It explains how, if bank is in trouble, losses are initially suffered by shareholders, before working their way down this table:

Bank liability structure
Photograph: Frances Coppola

So for all the talk about Cyprus being unique, its bailout was clearly a watershed, as Matina Stevis of the Wall Street Journal points out:

8.52am BST

Vodafone warning on Southern Europe

Good morning, and welcome to our rolling coverage of the latest developments in the eurozone financial crisis and across the global economy.

The economic crisis in Southern Europe has been laid bare by Vodafone this morning.

It warned shareholders that it has been scorched by the ongoing slump in demand in Spain, Italy, Portugal and Greece, blaming "severe macroeconomic weakness" across the region.

Vodafone is taking a new £1.8bn impairment charge on its Spanish and Italian operations, taking its total writedowns on Southern Europe this year alone to a hefty £7.7bn.

Revenue in Southern Europe are down by 16.7%. Some of that can be blamed on competition, but mostly its due to the biting recession in the eurozone's weaker members, amid austerity cuts and record unemployment.

Vittorio Colao, chief executive, didn't pull his punches either, saying;

The macroeconomic environment in Southern Europe has been very challenging.

And today's financial results back this up — with a 12.8% tumble in service revenue in Italy, partly driven by "the severe macroeconomic weakness". In Spain, they fell 11.5%.

In Greece, too, revenues are down by 13.4%.

OK, a nation's mobile phone bill isn't exactly the last word in financial modelling. But it just shows what an economic crisis means in practice — for companies, fewer calls means less business, while for consumers it's another sign that they simply can't afford to spend what they used to.

As usual, I'll be tracking all the news through the day….

Updated at 8.57am BST

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Inflation is forecast to remain above the central bank’s 2% target until at least the end of 2015 – peaking at 3.2% later this year. The Bank of England governor insisted a “recovery is in sight” but warned the path for the UK economy will not be smooth…



Powered by Guardian.co.ukThis article titled “UK set for low GDP growth for at least two years, Bank of England warns” was written by Phillip Inman, economics correspondent, for guardian.co.uk on Wednesday 13th February 2013 12.38 UTC

Britain will suffer low growth and a squeeze on average incomes for at least another two years, the Bank of England warned on Wednesday, signalling that the economy will remain weak until the next election.

Inflation will remain above the central bank’s 2% target until at least the end of 2015, peaking at 3.2% in the second half of this year, it said. Growth, which is not expected to get above 1% this year, will fail to gain any momentum until 2015 when the economy will regain the size it last achieved in 2007.

The Bank of England governor, Sir Mervyn King, insisted a “recovery is in sight” but warned the path ahead for the UK economy will not be smooth in part because there are limits to what more economic stimulus can achieve.

Nevertheless, he said the central bank remained ready to do more to help the economy if needed.

“We must recognise there are limits to what can be achieved via general monetary stimulus – in any form – on its own,” he said.

Sterling tumbled on the gloomy outlook for the UK and the prospect that the Bank’s monetary policy committee, ignoring recent good news from higher construction output, will inject more funds into the economy. The pound fell to $1.55, down a cent on the previous day.

The governor appeared baffled that ministers had sanctioned large investments in green energy through higher prices and the near trebling of university fees, which raised inflation and made the MPC’s job harder.

King said it was “an own goal” by the government, though he assumed they had taken the impact on inflation into account when they agreed the policies.

His comments came as official figures showed that low wages and high inflation over recent years have badly hit household incomes.

The Office for National Statistics said the real value of average earnings has fallen back to 2003 levels after 30 years of strong growth.

It said new research has revealed average earnings peaked in 2009, but since then wage increases have been outstripped by inflation. Wages are currently running at 1.8% a year, though some areas of the economy remain buoyant.

The ONS said the economy is no larger than it was in 2005 after growth, which began to rise in the latter part of 2009 and the first half of 2010, flatlined.

The Bank of England is under pressure from monetarist economists to bring down inflation by raising interest rates to allow a period of real wages growth. Some economists believe that only with higher consumer demand will the economy regain its previous momentum.

Challenging this view are economists who argue the central bank should inject more money into the economy to improve lending conditions.

The incoming governor, Mark Carney, hinted last week that he may press for the bank to be more aggressive in its attempts to boost growth.

King said the MPC was committed to “looking through” the current high inflation because some of the rise came from one-off factors, such as the near trebling in university tuition fees, and the risk that higher interest rates would crash the economy and push inflation below its target.

“Attempting to bring inflation back to target sooner would risk derailing the recovery and undershooting the target in the medium term,” he said.

The central bank has spent £375bn on buying government bonds but has held off from increasing the programme.

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The pressure of economic bad news is becoming so intense that banker is turning publicly upon banker– and even supposed panaceas such as rate-setting independence are in question. Political interference puts central banks under attack…



Powered by Guardian.co.ukThis article titled “Facade of central bank control is starting to crumble” was written by William Keegan, for The Observer on Sunday 27th January 2013 00.06 UTC

The outgoing governor of the Bank of England indulges in thinly disguised criticism of the views of his nominated successor, the Canadian Mark Carney. A former member of the Bank’s monetary policy committee – the American Adam Posen – conducts a manifestly undisguised assault on the centralised way in which Sir Mervyn King allegedly runs the Bank, having already on many occasions differed from him on policy.

And Jens Weidmann, president of Germany’s Bundesbank, says that Stephen King, the chief economist at HSBC, is “perhaps right” in forecasting the demise of that fashionable financial panacea of recent decades – central bank independence. Weidmann cites political interference with the independence of the Bank of Japan, among others.

Yes, central banks are under attack: and central bankers are taking pot-shots at one another.

King, who did more than any other British official to promulgate the adoption of “inflation-targeting”, made an impassioned plea last week for its preservation, including, in his speech in Belfast, a history of all those inflationary problems of the 1970s, and the long struggle to bring inflation down to tolerable rates.

In saying “tolerable” I am begging the question; but economic history shows that a moderate amount of inflation is a necessary condition for growth. Rip-roaring inflation is certainly not, and is socially destructive as well. But deflation – falling prices – is inimical to growth, as the recent experience of Japan has demonstrated.

In recent years King’s position has been an Augustinian one: the necessity of announcing inflation targets, but the desirability of not hitting them too soon, if at all.

By contrast, Carney has revived the idea of a target for nominal gross domestic product, a measure that is the sum of inflation and real growth.

People seem to have forgotten that, under chancellor Nigel Lawson, the Thatcher government tried targeting “money GDP” with pretty poor results. Carney could do well to study that excellent book The Economy Under Mrs Thatcher, 1979-1990, by the economist Christopher Johnson (who, sadly, died just before Christmas). As Johnson wrote, with the money supply statistics all over the place, “the use of money GDP created further confusion and was ineffective in controlling either real growth or inflation”.

Another book worthy of Carney’s attention is Inside The Bank of England: Memoirs of Christopher Dow, Chief Economist 1973-84, which has been long delayed, but whose publication last week turns out to be well timed.

Dow, who was on the frontlines when inflation was serious (25% in 1975) kept a diary – against the wishes of the governor of the time, Gordon Richardson, who, I am pretty certain, would have granted him a posthumous pardon if he had read this remarkable book. (That is, if they are not already discussing it up there in the great central bankers’ resting parlour in the sky.)

Richardson was governor from 1973 to 1983. He arrived at the Bank shortly after Dow had been appointed by the previous governor, Leslie O’Brien, and worked closely with Dow throughout, one of the latter’s self-appointed tasks being to try to keep Richardson’s flirtations with monetarism, and concerns about public sector borrowing, within reasonable bounds.

In their introduction to the memoirs, the economists Graham Hacche and Christopher Taylor, who worked for Dow, note that “the main worries for UK watchers when Dow entered the Bank were slower trend productivity growth than in other major economies, persistent balance of payment problems, and an upward trend in inflation”.

Plus ça change, although, as noted, inflation then was in another league. But, as now, it was a time of economic crisis – welcome to the party, Mr Carney – and, in addition to concerns about economic policy, Richardson and Dow spent much of their time trying to reform the Bank, a task which, the chancellor and the Treasury have made no secret about, is due to be embarked upon all over again under the leadership of Carney.

In a foreword to the book, Sir Kit McMahon, former deputy governor, says of the Bank in the mid-1970s: “The Bank’s organisation was ancient and creaking.” Not to put too fine a point upon it, that is what the Treasury thought when appointing Carney.

But if the Treasury thinks that by tinkering with monetary policy Carney will help it out of a fiscal hole, it may have another think coming. A sound Keynesian, Dow thought that the management of aggregate demand, with the object of maintaining high output and employment, depended mainly on fiscal policy. A contractionary fiscal policy – especially one of trying to cut the deficit at a time of depression – is hardly calculated to bring us out of depression, as a succession of GDP figures, including the latest 0.3% decline, have shown.

Thus, as Gordon Brown wrote recently in an article for Reuters: “The policy void today lies less in the weaknesses of national central bank leadership than in the reluctance of national governments to contemplate global leadership.” Brown demonstrated such leadership in 2008-09, both in his contribution to the rescue of the banking system and in coordinating the G20 economic stimulus in April 2009. Then came the austerity merchants, to, literally, devastating effect.

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Bank of England’s policymakers voted 8 to 1 against pumping further funds into the economy despite ongoing economic weakness. The committee was concerned about the rising value of the pound which is testing its 2012 high against the U.S. dollar…



Powered by Guardian.co.ukThis article titled “Bank of England votes against more QE” was written by Phillip Inman, economics correspondent, for guardian.co.uk on Wednesday 19th December 2012 11.57 UTC

Bank of England policymakers kept their hands firmly on the brake this month despite broad agreement that the economy remained weak and was likely to worsen slightly into the new year.

According to minutes of its meeting earlier this month, the monetary policy committee voted 8 to 1 against pumping further funds into the economy following a report that inflation is likely to stay above 2% next year.

The vote sent a clear signal that the global situation, the recession across the eurozone and the UK economy will need to deteriorate further before a majority of MPC members agree to boost the central bank’s quantitative easing beyond £375bn.

David Miles, the former City economist and external member of the MPC, argued there was enough slack in the economy to allow a boost to output without extra inflation, but his call for an increase in QE to £400bn was voted down.

Vicky Redwood, UK economist at Capital Economics, said the MPC was in “wait and see mode” and was likely to need a strong indication of a downturn before increasing the volume of QE.

“The committee’s comments suggest that more QE is not imminent. It noted that risks from the euro area seemed less pressing and that inflation was likely to remain above its target over the next year or so.

“But the MPC also gave the impression that it would not take much to tip the balance back in favour of more purchases. It noted that business surveys were consistent with flat output in the near-term and re-iterated its expectation that inflation would fall back to target in the medium-term,” she said.

The MPC has relied on its funding for lending scheme to increase credit in the absence of more QE. The committee said there were early signs of banks accessing the £80bn of cheap credit in the scheme for new mortgages and business loans, but little more than £5bn had been deployed so far.

A rise in the value of the pound was noted by the committee, which voiced concern that attempts to rebalance the economy towards exports was being undermined.

Howard Archer, chief UK economist at IHS Global Insight, said the MPC may decide to increase QE in the new year, if only to drive down the value of the pound relative to other currencies.

The Treasury’s decision to repatriate bank funds had also worked against an increase in credit, the committee said.

In November the Bank agreed to return coupon payments on the government bonds it had bought so far under the QE scheme, saying the transfer would be equivalent to more than £35bn worth of monetary easing.

However, in the minutes central bankers said the monetary impact of the transfer would be slightly smaller in the very short term than initially assumed, because it had led to a reduction in the issuance of Treasury bills rather than gilts.

Redwood said: “The government’s decision to use the transfer of cash from the QE fund to reduce the issuance of Treasury bills might imply less of a monetary easing than had gilt issuance instead been cut. Indeed, if we are right in expecting the economy to disappoint the MPC’s expectations, and eurozone tensions to re-emerge, then more QE is not too far off.”

Bank of England director Paul Fisher and chief economist Spencer Dale have both said recently that they are concerned about higher than expected inflation.

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Bank of England governor sees persistently low growth that will last until the next election. Mervyn King cuts 2013 growth forecast to 1% and warns about the possibility of a triple-dip recession. Bank of England keeps “QE option open”…



Powered by Guardian.co.ukThis article titled “UK risks triple-dip recession, Mervyn King warns” was written by Josephine Moulds, for guardian.co.uk on Wednesday 14th November 2012 13.46 UTC

The UK economy risks suffering from a triple-dip recession amid a period of persistently low growth that will last until the next election, the governor of the Bank of England has warned.

Sir Mervyn King cut Britain’s growth forecast to 1% next year and warned that output was more likely than not to remain below pre-crisis levels over the next three years. “There seems a greater risk that the UK economy may be in a period of persistent low growth,” he said on Wednesday.

The UK economy emerged from a double-dip recession in the third quarter of this year, when the economy grew by 1%, but King warned that this was driven by one-off factors. “Continuing the recent zig-zag pattern, output growth is likely to fall back sharply in the fourth quarter as the boost from the Olympics in the summer is reversed – indeed output may shrink a little this quarter,” he said. If that period of contraction continues into 2013, the UK could drop into a triple-dip recession.

At the same time, the Bank significantly raised its inflation forecasts. Inflation is now is expected to reach around 3% in the near-term and not fall back significantly until the second half of 2013, later than previously thought.

UK inflation jumped to a surprise five-month high of 2.7% last month, driven by rises in tuition fees and dearer food bills. Energy price rises over the next few months are likely to drive it even higher.

King said the outlook for inflation was the main reason why the monetary policy committee decided not to expand the quantitative easing (QE) programme in November. He said there were limits to what monetary policy could do to boost an economy undergoing far-reaching adjustments in the wake of the financial crisis and amid severe headwinds from the eurozone debt crisis.

But economists said the bank may still engage in more QE in the future. Howard Archer of IHS Global Insight said: “With economic recovery currently looking feeble, fragile and far from guaranteed, we believe that the Bank of England will ultimately decide to give the economy a further helping hand with a final £50bn of QE. This seems most likely to occur in the first quarter of 2013.”

Labour said this gloomy outlook proved the coalition government’s economic plans were not working. The shadow chancellor, Ed Balls, said: “This sobering report shows why David Cameron and George Osborne’s deeply complacent approach to the economy is so misplaced. Their failing policies have seen two years of almost no growth and the Bank of England is now forecasting lower growth and higher inflation than just a few months ago.”

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