International Monetary Fund (IMF)

Kristin Forbes, a member of the Bank of England Monetary Policy Committee, signals she may vote for an interest rate hike on the back of recovering UK economy by downplaying potential fallout for UK from emerging markets slowdown…

 

Powered by Guardian.co.ukThis article titled “Bank of England policymaker says rate rise will come sooner, not later” was written by Katie Allen, for theguardian.com on Friday 16th October 2015 13.06 UTC

An interest rate hike in the UK will come “sooner rather than later” and pessimism about the state of the global economy is overdone, according to a Bank of England policymaker.

Kristin Forbes, a member of the bank’s rate-setting monetary policy committee (MPC), was also upbeat about the domestic economy. She argued that the country had only limited exposure to emerging markets such as Russia and Brazil and that, despite signs of a slowdown in those markets, British businesses should not be deterred from building stronger links with them.

Forbes’s intervention, against the backdrop of a recovering UK economy, indicated that she is preparing to vote for rates to be raised from their current record low of 0.5%.

“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,” she said in a speech on Friday.

Forbes conceded that if some of the potential risks to emerging markets play out – such as a sharper than expected slowdown – “then the UK economy is unlikely to be immune”. But she said the UK’s exposure “appears manageable”.

Her comments align her with fellow rate-setter Ian McCafferty, who has voted for higher rates at recent policy meetings, where the MPC has split 8-1 at recent gatherings in favour of holding rates steady. But the Bank’s chief economist, Andy Haldane, said last month that rates may have to be cut further given signs of a slowdown in the UK and risks to the global economy from China.

The newest member of the nine-person MPC, Jan Vlieghe, also left the door open to an interest rate cut this week when questioned by MPs. Highlighting low inflation, Vlieghe told parliament’s Treasury committee that there was an option to cut rates but that the next move was “more likely to be up than down”.

Forbes, a US economics professor, said that on emerging markets, “recent negative headlines merit a closer look”.

“After considering the actual data and differences across countries, the actual news for this group is much more balanced (albeit not all bright),” she said in her speech, entitled “growing your business in the global economy: Not all doom and gloom”.

She was speaking a week after the International Monetary Fund warned central bankers that the world economy risks another crash unless they continue to support growth with low interest rates.

Forbes referred to the IMF’s latest downgrade to global growth prospects but noted that the fund had left its China forecasts unchanged. The data from China “has not yet weakened by anything close to what the gloomy headlines imply”, she added.

More broadly, she felt the global outlook was also better than headlines suggested.

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

She told business leaders that they should not be deterred from trading with emerging markets by the recent negative news, which “should prove temporary”.

“UK companies – as a whole – have been slow to expand into emerging markets. This may provide some stability over the next few months if the heightened risks in some of these countries become reality. But when viewed over a longer perspective, this limited exposure to emerging markets has caused the UK to miss out on growth opportunities in the past,” Forbes said.

UK interest rates were slashed to shore up the economy during the global financial crisis and they have stayed at a record low for more than six years. With inflation below zero and headwinds from overseas, economists do not expect a rate hike until well into next year.

In the US, interest rates are also at a record low of near-zero. Policymakers had been signalling they could start hiking last month but then worries about China’s downturn prompted them to wait. Still, the Federal Reserve chair, Janet Yellen, recently said the current global weakness will not be “significant” enough to alter the central bank’s plans to raise rates by December.

Forbes was also optimistic that the UK could weather the turmoil and said its domestic-led expansion “shows all signs of continuing, even if at a more moderate pace than in the earlier stages of the recovery.””

Howard Archer, an economist at the consultancy IHS Global Insight, said Forbes’ remarks reinforced the picture of a wide range of views on the rate-setting committee.

“The current wide range of differing views within the MPC highlights just how uncertain the outlook for UK interest rates is – although it still seems to be very much a question of when will the Bank of England start to raise interest rates rather than will they,” he said.

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Alexis Tsipras and his party have returned to power with a mandate to govern Greece and implement the bailout deal. Syriza officials said the party would seek to form a stable government immediately with the aim of maintaining confidence in the country…

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How well did Syriza and Alexis Tsipras do?

With 99.5% of the votes counted, Syriza had 35.5% of the vote, easily beating the centre-right New Democracy, the next biggest party on 28.1%. After Tsipras disappointed supporters by accepting a harsh eurozone-led austerity programme finalised in August, leftwingers appeared to be deserting Syriza, with polls showing New Democracy level just two weeks ago. But Syriza will now have 145 seats in the 300-member parliament – just four fewer than when Tsipras took power in January. Its share of the vote is also less than one percentage point down on its 36.3% share in January, although turnout was put at a record low of 55.6%.

What next for Syriza and Alexis Tsipras?

Syriza officials said the party would seek to form a stable government immediately with the aim of maintaining confidence in the country. Its former coalition partner, the small anti-austerity rightwing Independent Greeks party, is ready to use its 10 seats to forge a power-sharing agreement with Syriza. Independent Greeks’ leader, Panos Kammenos, joined Tsipras on stage to celebrate the result. Tsipras claimed the result gave him a mandate to govern and that he intended to serve a full term, promising relief for voters weary from five elections in six years.

Does this change the bailout deal with the EU?

No. Syriza campaigned on a pledge to implement the €86bn (£63bn) bailout, while pledging measures to protect vulnerable groups from some of its effects. In exchange for the bailout funds, Tsipras agreed to deficit-reduction measures including tax rises, changes to pensions and social welfare cuts. Other aspects include labour market reform, liberalisation of consumer markets and fewer perks for civil servants. Tsipras’s first task will be to persuade EU lenders that Greece has taken enough agreed steps to ensure the next payment. The bailout programme is up for review next month.

Could the IMF decline to join the bailout?

Yes. The International Monetary Fund has said it will refuse to take part in the bailout unless there is an “explicit and concrete” agreement on debt relief for Greece. The IMF has argued that Greece cannot bear the full burden of the austerity programme and that its creditors should include debt relief in the package. Without a long moratorium on repayments, perhaps of 30 years, or a reduction in the value of the debt, the burden will become unmanageable, the IMF has argued.

Will Greece need another bailout anyway?

Greece might need another rescue. Tsipras hopes Syriza’s electoral victory will give him renewed clout to negotiate debt relief and less onerous austerity measures from Greece’s creditors. But that stance will not be popular with Germany or European institutions that imposed draconian measures on Greece in the name of fiscal discipline. If Tsipras is unable to extract significant concessions, the economy will remain weak, endangering deficit-reduction targets in the current deal and potentially requiring another bailout to head off a debt default.

What do the markets think?

Reaction in financial markets was muted on Monday morning. The euro was little changed while Britain’s FTSE 100 share index, which has gyrated in the past in reaction to Greek events, rose slightly. The yield on Greek two-year bonds fell a little, meaning traders think the risk of default is reduced. Simon Smith, chief economist at the currency trader FxPro, said: “The immediate impact has been minimal, the single currency opening little changed versus Friday’s opening levels. In the wider picture, it’s not going to make life any easier for the likes of the EU, IMF and European Central Bank and the negotiations surrounding debt sustainability over the coming months.”

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The Greek prime minister promises €500 million for poorest Greeks, after reaching agreement to unlock €10 billion of long-awaited bailout loans. New female deputy governor appointed at the Bank of England. Read the full story here…

 


Powered by Guardian.co.ukThis article titled “Greece finally reaches deal over bailout loans – business live” was written by Graeme Wearden, for theguardian.com on Tuesday 18th March 2014 14.59 UTC

Those anti-austerity protests in Athens are continuing, flags up university lecturer Spyros Gkelis:

Greece’s bailout negotiations may be over, but protests over its austerity programme continued today.

One demonstration took place outside Athens city hall, led by school caretakers; hundreds are being laid off via the public spending cutbacks.

A second demo involved patients from a care home for people with chronic or incurable diseases, which is scheduled to close soon. Several patients from the foundation blocked the entrance to prime minister Antonis Samaras’s office, to protest against cuts to state subsidies.

As flagged up earlier, Greece’s finance minister said this latest round of negotiations with the Troika were the worst since the Greek debt crisis began:

Yannis Stournaras told reporters:

“This review was the toughest we’ve had so far….A difficult negotiation is over.”

Greek government debt jumped in value as prime minister Antonis Samaras announced that a deal had been reached with its lenders.

This has pushed down the interest rate, or yield, on its 10-year bonds to around 6.8%, from over 7% last night. At those levels, traders appear confident that the risk of default, or debt restructuring, has receded.

Greece finally reaches deal over next bailout loans

After seven months of gruelling negotiations in Greece, prime minister Antonis Samaras has announced that the debt-stricken country has finally struck a deal with its troika of creditors at the EU, ECB and IMF.

After marathon talks that in recent weeks have rarely ended before dawn, Greece’s fragile two-party coalition has clinched the deal that will allow its triumvirate of lenders to release €10.1bn euro in aid – much of it outstanding since September.

The Greek prime minister Antonis Samaras announced the agreement as he visited the finance ministry where it was formally signed. He also announced that €500m will be distributed to the poorest members of Greek society — which we understand has not pleased its Troika of lenders.

Our correspondent Helena Smith was there, and has the story:

Samaras told reporters:

“The long negotiations with the troika have been successfully concluded. When others doubted the economy’s achievements or even tried to thwart them, this government, united, went on [with the business] of seriously pursuing its mission, to get the country out of the crisis,”

Listing what he described as the 21-month-old governments achievements to date – preventing Greece’s exit from the euro zone, ending the country’s prolonged recession and attaining a primary budget surplus “earlier than the [financial assistance programme] foresaw” – Samaras said the time had come when austerity-hit Greeks could finally take back what they had lost.

Aided by the primary surplus (to be formally announced by the Greek statistics agency in April) he pledged that his administration would now act on its promise to shore up those most affected by the crisis.

“With great satisfaction I can announce that more than 500 million euro will immediately be given to over a million Greeks on the basis of income and property criteria. That is to say to the poorest, to those who have suffered the most, to those who are most in need.

And of course to those in uniform whose monthly salary is less than 1,500 euro. Just as we had promised.”

But that may not be easy. As is so often the case in a country that while making terrific fiscal progress has yet to deal with the cause of its problems – its monumental debt – black clouds are on the horizon.

The Troika is not the least bit happy with the idea of the surplus being handed out and has made clear that it wants the extra monies to be used for growth and development. Ditto with the government’s plans to return the country to international markets before euro elections in May. Parliament also has to endorse the measures Athens has now signed up.

The policies are expected to be included in a one-size-all omnibus bill to be put to the House in the coming days. MPs are already digging in their heels.

“We can expect a little bit of Greek drama in the next week,” said veteran commentator Giorgos Kyrtsos.

Updated

Shake-up at the Bank of England – a summary

A quick summary of the key points so far:

Dr Nemat Shafik of the International Monetary Fund has been appointed as a new deputy governor of the Bank of England, in a broad shake-up of Britain’s central bank.

Shafik will become the Bank of England’s first female deputy governor since 2008, and will also break the all-male dominance of the Monetary Policy Committee. She says she will help to “reform financial markets for the post-crisis world”.

Shafik, aged 51, was once the youngest ever vice-president of the World Bank, and a former permanent secretary at the Department for International Development. She’s been a deputy managing director at the IMF since 2011.

Her appointment has been welcomed by former MPC member Adam Posen.

In other changes, Ben Broadbent is also promoted to deputy governor while Andy Haldane becomes chief economist. Spencer Dale and Paul Fisher are leaving the MPC.

Analysts say the changes show Mark Carney is serious about reshaping the Bank. Further changes are expected tonight,.

Elsewhere:

The German Constitutional Court has confirmed an initial ruling that Europe’s bailout fund, the ESM, is legal.

Sainsbury’s has become the latest UK supermarket to post falling sales, ending a track record dating back nine years. Coverage starts here.

Updated

Back in the UK, Barclays has provoked further criticism of its pay policies by handing almost £32m of shares to its top managers (full story here).

The shares come from bonuses awarded in previous years, which have now ‘vested’.

The Robin Hood Tax campaign, which lobbies for a transaction tax, said the payouts show we live in a “two-tier” Britain. Spokesman David Hillman said:

“It turns the stomach that in a year when profits plunged and scandals raged Barclays’ top brass are receiving lottery-sized handouts regardless. This blows Barclays’ claim to be a reformed institution out of the water.”

News in Greece: the Athens government and its Troika of lenders have reached an agreement to unlock the country’s next tranche of bailout loans.

The breakthrough comes after months of on-off talks, as the two sides argued over whether Athens was meeting the terms of the deal.

We’ll have the full story shortly – in the meantime, finance minister Yannis Stournaras told reporters that the talks had been gruelling, admitting:

”This review was the toughest we’ve had so far.”

While prime minister Antonis Samaras has given some details about fresh aid for the poorest Greeks.

More to follow….

Another interesting point about Nemat Shafik’s appointment – her new role as deputy governor for markets and banking includes overseeing the unwinding of the Bank’s huge bond-buying programme.

The bank says she will “lead the design and execution of an eventual exit from quantitative easing by the MPC.”

That’s a crucial job – the Bank currently holds £375bn of government debt, bought to stimulate the economy after rates were cut to their current record low.

The BBC’s Robert Peston says this will be a new responsibility for Shafik:

And although she is a very high powered person, as deputy managing director of the IMF since April 2011 and prior to that permanent secretary at the Department for International Development, the cut and thrust of markets will be new to her.

To be fair, though, it’s hard to think of a central banker who does have first-hand experience of unwinding unconventional monetary policy of this scale.

Updated

Governor Mark Carney is due to announce further changes tonight, shaking up less senior ranks of the BoE.

Eight months after taking office, the Canadian central banker is now making his mark on Threadneedle Street.

Philip Shaw, chief economist at Investec, says:

“This shows the extent to which Mark Carney is reshaping the bank.

He’s serious about making reform, not only to the structure of the Bank … but also in terms of its culture.”

Here’s my colleague Katie Allen on today’s changes at the Bank of England:

Chancellor George Osborne has appointed a respected female economist as a Bank of England deputy governor, ending four years of an all-male interest-rate setting committee.

The appointment of Nemat Shafik, a deputy managing director of the International Monetary Fund, was one of three senior officials announced on Tuesday as part of a radical shakeup at the Bank under governor Mark Carney. Ben Broadbent, already on the monetary policy committee, will take over as a deputy governor from Charlie Bean when he retires this summer. City grandee Anthony Habgood becomes chairman of court at Threadneedle Street, managing the Bank’s affairs other than monetary policy.

The appointment of Egyptian-born Shafik, who is also a British and US national, follows growing criticism of Osborne’s failure to appoint a woman to the monetary policy committee. The nine-member committee, which meets monthly to set interest rates under the chairmanship of Carney, has been without a female member since Kate Barker left in May 2010.

More here: Bank of England makes Nemak Shafik and Ben Broadbent deputy governors

Updated

Another former MPC member, Adam Posen, reckons appointing Minouche Shafik as a deputy governor of the Bank of England is a wise move:

Conspiracy theory watch:

Updated

To recap, this morning’s changes mean Paul Fisher and Spencer Dale will both leave the Bank’s monetary policy committee later this year.

What will this mean for interest rates?

Analysts at BNP Paribas point out that MPC is losing a dove (Fisher) and a hawk (Dale, who voted to raise rates in 2011). However, they don’t have much idea on Shafik’s views, while Haldane’s independent streak means he also hard to predict.

Bank of England changes – early reaction

PWC’s chief economist Andrew Sentance, a former MPC member, sums up the changes:

The TUC’s senior economist, Duncan Weldon, also points to Paul Fisher’s exit from the MPC:

The Telegraph’s Jeremy Warner points to the rise of the ex-Goldman Sachs operative Ben Broadbent:

Updated

The big loser in today’s changes appears to be Paul Fisher — the Bank’s executive director for markets — who is leaving the monetary policy committee

Fisher faced a grilling from MPs last week over suggestions that the BoE failed to investigate concerns that the foreign exchange market had been rigged.

Updated

The Bank of England shake-up continues. Andy Haldane, the highly regarded executive director for financial stability, has been promoted to chief economist — in something of a job swap with incumbent Spencer Dale.

Lagarde: we’ll miss Minouche

IMF managing director Christine Lagarde says the Fund will miss Nemat Shafik — describing her as “a dear colleague and, I am proud to say, a dear friend as well”.

“I know I speak for all colleagues at the Fund when I say that Minouche will be missed.

The fact that she is leaving us to take up such an important post is testimony to her broad command of policy issues, her superb leadership and communications skills, and her global reputation.”

Updated

Profile: Nemat ‘Minouche’ Shafik, the new Bank of England deputy governor

Nemat Shafik will arrive at the Bank of England in August to take up her deputy govenor duties with an impressive track record.

Egyptian-born Shafik, who is also a British and US national, holds a degree in economics and politics from the University of Massachusetts-Amherst, an MSc in Economics from the London School of Economics, and a DPhil in Economics from St. Antony’s College, Oxford University.

Having been the youngest ever Vice President at the World Bank at just 36, she then joined Britain’s Department for International Development (DFID) and rose to become the department’s most senior civil servant ( Permanent Secretary)

At DFID she oversaw all Britain’s overseas development work, including bilateral aid programmes in over 100 countries.

She then joined the International Monetary Fund in April 2011 as a Deputy Managing Director, and oversees work on countries in Europe and the Middle East.

She was also responsible for the IMF’s $1 billion administrative budget, human resources for its 3,000 staff and oversees the IMF’s training and technical assistance for policy makers around the world. She regularly chairs the Board of the IMF and represents it across the globe.

Shafik is often known by her nickname Minouche, as the Guardian reported last year, adding:

Anyone who describes herself as a world citizen, and who was named “woman of the year” at the Global Leadership and Global Diversity awards, and who has had a distinguished career in global economic development, is clearly well-placed to think about the way global governments work together on complex, long-term issues.

Nemat Shafik says she will help “reform financial markets for the post-crisis world” when she joins the Bank of England, on 1 August.

I am excited to be joining the Bank at such a critical time of institutional change, and I look forward to fulfilling this challenging new role on the Bank’s senior leadership team, as we re-shape the Bank’s balance sheet, review and strengthen the Bank’s operational roles, and, through continued international engagement, reform financial markets for the post-crisis world.

Her fellow new deputy governor, Dr Ben Broadbent, says he’s “honoured” to keep serving the British public (he’s been on the MPC since 2011).

I have found my role as an external MPC member immensely rewarding, and I look forward to working with Mark Carney, my future fellow MPC and FPC members, and all Bank staff in this new capacity, as we work together to maintain monetary and financial stability.”

The full statement is online here.

The chancellor, George Osborne, has broken away from putting the finishing touches to tomorrow’s budget to announce the changes at the Bank of England:

Updated

The appointment of Nemat Shafik goes some way, finally, to addressing the gender imbalance at the top of the Bank of England.

She becomes the first woman deputy governor since Rachel Lomax, who stepped down in 2008.

She will also end the male domination of the monetary policy committee, which dates back to 2010 when Kate Barker left the MPC at the end of May 2010.

Updated

Two new Bank of England deputy governors appointed.

The UK Treasury has just announced that Dr Nemat Shafik, a deputy managing director of the International Monetary Fund, will join the Bank of England as a deputy governor.

Shafik, who was the youngest ever Vice President at the World Bank (at just 36!), will take responsibility for markets and banking — in response to allegations that foreign exchange markets have been rigged.

She will join the Monetary Policy Committee (which sets interest rates), taking Paul Fisher’s chair, and also the Financial Policy Committee (responsible for financial stability).

Ben Broadbent, the former Goldman Sachs man on the MPC, has also been promoted to deputy governor in charge of monetary policy.

And in another shake-up at Britain’s central bank, the Bank of England Court is getting a new chair — City grandee Antony Hapgood.

The changes are part of Mark Carney’s efforts to reform the Bank of England. In a statement, the governor said Shafik, Broadbent and Hapgood will all drive the Bank forwards:

With a diverse combination of skills and experience, these appointments result in a well-rounded senior management team at the Bank – one that will set the direction for an ambitious agenda of transformation for the institution and enable it to meet the challenges and opportunities it faces in maintaining monetary and financial stability.”

More to follow….

Updated

German constitutional court: ESM rescue fund is legal

Breaking news in Germany — the country’s constitutional court has ruled that the main European bailout fund is legal, upholding its preliminary ruling from 2012.

The judges in Karlsruhe have concluded that the €700bn fund, the European Stability Mechanism, does not violate Germany’s parliament’s control of its budget.

Chief judge, Andreas Vosskuhle, declared that:

Despite the liabilities assumed, the budgetary autonomy of the German Bundestag is sufficiently safeguarded.

This confirms the judge’s original view — which was delivered when the eurozone crisis was raging.

But the court has also capped Germany’s contributions at €190bn — any increased will need parliamentary approval.

18-Mar-2014 09:18 – CONSTITUTIONAL COURT REITERATES GERMANY’S LIABILITY TO ESM MUST BE LIMITED TO 190 BLN EUROS, ANY MORE NEEDS PARLIAMENTARY APPROVAL

18-Mar-2014 09:19 – GERMAN CONSTITUTIONAL COURT ALSO CONFIRMS LEGALITY OF FISCAL PACT

Sainsbury’s will be buffeted by discounters and price wars in 2014, says Richard Hunter of Hargreaves Lansdown Stockbrokers:

The march of the discount supermarkets continues to threaten prospects, whilst the strategic measures being taken by Sainsbury’s quoted rivals will exert further pressure.

In addition, the group’s accompanying comments reflect caution over the medium term outlook, even after this difficult quarter. More positively, the company is enjoying some success in the increasingly important areas of convenience stores and online, whilst general merchandising is showing further progress and market share has been maintained.

From supermarkets to Moneysupermarket…

Simon Nixon, founder of price-comparison site Moneysupermarket.com, has an extra £129.5m to spend after cashing in a chunk of shares this morning.

Nixon cut his stake in the financial services price comparison site to 16.6% after selling 70m shares – or around 12% of its share base.

He had already raised £100m when the firm floated in 2007, and raised another £200m from a share sales last summer.

Nixon famously founded the financial services price comparison site after dropping out of a “boring” accountancy course. He can now afford to do something rather more exciting…

ASOS shares tumble on growth fears

Shares in online retailer ASOS have tumbled almost 20% this morning after missing sales forecasts and announced new investment plans which will take a chunk out of its profit margins.

The fast-growing firm told shareholders this morning that sales rose by 26% in January and February — less than analysts had expected (some had expected a 35% rise)

It is also throwing millions of pounds more at its warehousing and IT operations, hiking its capital expenditure budget from £55m to £68m this year.

ASOS’s ability to react quickly to the latest fashion trends have made it a hit with Generation Y and Millennials (young people, your honour) — it expects to shift £1bn of goods this year. This morning’s tumble has wiped around £1bn off ASOS’s value, as analysts fear that its spectacular growth rates could be faltering.

CEO Nick Robertson insists that spending more money on infrastructure makes sense — it will push ASOS’s sales capacity to £2.5bn per annum, over £1bn higher than previous guidance. But the City doesn’t like the impact on profit margins — down to 6.5%, from the 7% expected.

Sainsbury’s conference call highlights

Justin King and his successor Mike Coupe are holding a press call with financial reporters now:

King reiterated that Sainsbury held its market share and outperformed its peers, despite delivering “declining sales”. Journalists are asking whether the firm will retaliate to the price war launched by Morrison’s last week:

My colleague Sean Farrell is tweeting the highlights:

Sainsbury’s is losing out to upmarket rivals in the battle for online shoppers, reckons veteran retail analyst Nick Bubb reckons:

After last Thursday’s bombshell from Morrison’s, today’s Sainsbury’s Q4 trading update (for the 10 weeks ending 15th March) will get plenty of attention and although a 3.1% LFL sales decline was expected (given the tough “horsemeat” comp of +3.6% LFL a year ago), there is not much here for the normally ebullient Justin King to shout about.

And growth of only 6% in Online Grocery sales certainly isn’t much to shout about, with Waitrose and Ocado evidently stealing Sainsbury’s customers, while Sainsbury overhaul their customer website and hold back marketing.

J Sainsbury shares have fallen by 0.7% in early trading, down 2.2p to 309.2p.

It’s the end of an era, say retail analysts, as they digest Sainsbury’s failure to grow sales in the last quarter.

Andrew Stevens of Verdict Retail agrees that last year’s strong performance was hard to match, tweeting:

King: it’s disappointing, but….

Radio 4’s Today Programme joked that Justin King ‘left it too late’ by tendering his resignation in January — had he quit last year, he’d have the rare honour of having grown sales throughout his tenure.

King replied that falling sales are obviously disappointing, but argued that Sainsbury’s did retain market share and has been the best-performing major player since the financial crisis began (rival Morrison’s issued a shocker of a profits warning last week)

Updated

Sainsbury’s impressive sales record finally broken

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

We start with the news that supermarket chain Sainsbury’s proud claim to have grown sales in every financial quarter since 2005 has been broken.

J Sainsbury has just reported that like-for-like sales slid slid by 3.1% (or a chunkier 3.8% if you include fuel sales) in the 10 weeks to March 15, the first fall in 36 consecutive quarters.

That’s a larger decline than expected, confirming that Britain’s grocers are suffering as consumers feel the pinch and budget chains such as Aldi and Lidl eat their lunch.

It also adds a small scratch to CEO Justin King’s impressive record at Sainsbury’s, as he prepared to leave the company this summer.

A year ago, Sainsbury’s grew its sales by 3.6%, partly because it benefitted from the public alarm as horsemeat started showing up in some rivals’ products.

King also blamed other one-off factors (including the weather, the first refuge of the struggling retailer).

He told shareholders:

The market is now growing at its slowest rate since 2005, with falling food inflation in particular benefiting customers.

The later timing of Easter and Mother’s Day, which fall in quarter one of our new financial year, and unseasonable weather have also contributed to lower market growth year-on-year.

And a day ahead of the Budget, King warned that the UK remained a tough place to operate:

Although some economic indicators are showing an improvement in the health of the economy, we expect the outlook for customers to continue to be challenging for the coming year.

Sainsbury’s will hold a press conference shortly. I’ll be tracking the reaction to the figures, and all the other key developments through the day.

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The British economy expanded by 1.9% in 2013– the fastest GDP growth since the first quarter of 2008, after 0.7% q/q growth in final three months of last year. But the UK economy still remains 1.3% smaller than the pre-crisis peak…

 


Powered by Guardian.co.ukThis article titled “UK economy grows by fastest rate since financial crisis – live” was written by Graeme Wearden, for theguardian.com on Tuesday 28th January 2014 14.55 UTC

UK economy posts best annual growth since 2008

Time for a very brief catch-up.

Britain’s economy has posted its fastest annual growth since before the Great Recession, expanding by 1.9% during 2013.

The Office for National Statistics reported at 9.30am that GDP rose by 0.7% in the final three months of 2013.

Chief economist Joe Grice said that, after a long haul, there are signs that the recovery is more broad-based.

We have now seen four successive quarters of significant growth and the economy does seem to be improving more consistently.

The growth was, predictably, welcomed by Conservative ministers as a sign that the government’s economic plan is working.

George Osborne said:

“These numbers are a boost for the economic security of hardworking people.

Growth is broadly based, with manufacturing growing fastest of all.

It is more evidence that our long term economic plan is working. But the job is not done, and it is clear that the biggest risk now to the recovery would be abandoning the plan that’s delivering jobs and a brighter economic future.”

But shadow chancellor Ed Balls said Britain’s cost-of-living crisis wasn’t resolved, and backed business secretary Vince Cable’s warning last night that the shape of the recovery was wrong.

Deputy PM, the Liberal Democrat’s Nick Clegg, welcomed the GDP news but also cautioned that deficit-reduction plans need to “fairly” share the burden.

• City economists broadly welcomed the data — Berenberg Bank’s Rob Wood reckons we could see growth rise to 3% this year.

Britain’s Services sector grew by 0.8% in the last quarter. Industrial production was up 0.7% (with manufacturing output jumping by 0.9%), but construction output fell by 0.3%.

 

Some economists warned that this shows Britain has failed to rebalance its economy since the financial crisis began. The best-performing part of the services sector was the “Business services and finance” section.

The IPPR said that the recovery could stumble unless firms use their cash piles on business investment.

Productivity remains a concern, too, with Duncan Weldon of the TUC flagging up that the number of extra hours worked is rising faster than GDP.

An opinion poll from ITV News and ComRes found that many people fear inequality is rising. It also found that just 22% of people believe George Osborne should get the credit for the recovery.

And with that, Nick Fletcher is taking over for the rest of the day. Cheers all. GW

ITV News/ComRes poll on the economy

Three quarters of Britons believe that the gap in wealth between rich and poor is widening in the UK, and barely a fifth reckon George Osborne should get the credit for the recovery.

Just two findings from an opinion poll published by ITV News and ComRes this lunchtime, which showed that many people say they haven’t felt the benefits of the upturn..

It found that a majority saw inequality rising as the UK recovery picks up pace — with 61% agreeing that “economic growth has only really benefitted wealthy individuals” so far.

2,052 British adults were interviewed, online, between Friday 24th and Sunday 26th January 2014.

 

While 40% said the economy had got better over the last three months, 34% reported no change and 25% said it had got worse.

Here’s another highlight:

There is a degree of optimism moving forward, with three in ten (31%) British adults agreeing that they are confident that if the UK economy grows they will be personally better off, despite 38% disagreeing.

However, only one in ten (11%) agree that they have benefitted from the growth in the UK economy over the past six months and seven in ten (71%) disagree.

There are more details over on ITV News’s website.

Updated

Duncan Weldon: The productivity problem

Back to UK GDP, and I just chatted with TUC senior economist Duncan Weldon about growth and productivity.

He explained that while the 0.7% growth in Q4 2013 is clearly welcome, the balance of the UK economy still doesn’t look great.

Indeed, it appears to have become less balanced since the financial crisis – with the Service sector now above its pre-crisis peak but the Manufacturing and Construction sectors around 10% smaller.

Unless those parts of the economy grow faster than services, you’re not going to get a better balance.

But his main concern is about productivity — recent labour market stats show that the total hours worked rose by 1.1% in the three months to November. Today’s data shows 0.7% growth in the three months to December — so either there was a big drop in output in December (unlikely) or output per hour fell in Q4.

Britain’s falling productivity is one of the big economic mysteries of recent years — why is it taking more and more hours to produce the same amount of output since the crisis began?

Weldon reckons there are clues in the unemployment data. It shows a large rise in people employed in healthcare and human services (up over 4000,000 since the start of 2008) and real estate (+100k), but significant falls in construction (-200k) and manufacturing (->300k) over the same period.

 

The pattern, he concludes, is that Britain has created more lower-paid, lower-productivity jobs since the crisis began – which is very bad news in the long term for growth potential and living standards.

He’s just launched a longer blog post of his own about it. Worth a read:

The Changing Shape of the British Economy in Recession & Recovery

Updated

Switching to the US briefly, a slab of bad American economic news just hit the wires.

Orders for durable goods slumped by 4.3% in December — the biggest monthly fall since last July. Economists had expected that orders grew by 1.8% .

December was a grim month weather-wise in the US (ice storms gripped the country, and has already been blamed for recent poor employment data). So perhaps it’s all the snow’s fault…

GDP: more reaction

Our economics correspondent Phillip Inman writes that George Osborne cannot, and shouldn’t, crow too loudly about the UK growth:

Vince Cable and his supporters are well aware there are key components of the recovery that are still Awol. Business investment kept falling last year when it was supposed to take over from consumer spending as one of the main drivers of growth. Export growth has stuttered to a halt, leaving us with a persistent balance of payments problem before the country really starts to spend and suck in huge amounts of imports.

Then there is the London factor. Along with the south-east, the capital is bounding along while many regions are still propped up by the public sector.

But concerns about the nature and sustainability of the recovery are only one restraint on triumphalism.

The other is the need to continue selling austerity as a key election message. How can the government cheer while it tries to convince a weary electorate they must vote for more cuts?

Why George Osborne won’t be cheering too loudly about the latest GDP figures

 

Over on the Telegraph, Jeremy Warner recognises that the service sector growth, while welcome, shows how the recovery is still unbalanced:

In the end, the only route to sustainable, balanced growth is via gains in productivity and incomes, and regrettably, we are not yet there.

The economy has been juiced to give Coalition parties a boost ahead of the election, but with the deficit not yet tackled, glaring gaps in industrial competitiveness, severe supply side constraints, and a runaway housing market, we are still a million miles away from economic salvation.

Britain’s economic recovery: unbalanced and unsustainable

Looking through the reaction to the UK GDP, Ian Brinkley, chief economist at The Work Foundation, makes an important point — that Britain still has a productivity problem.

“The latest preliminary GDP figures confirm a firmly based, if not spectacular, recovery is underway. However, with employment growing faster than GDP the productivity figures for the final quarter of 2013 are likely to be very poor.

Preliminary GDP figures in recoveries are often revised upwards, so the underlying position may be a bit better than we think. Either way, however, we have a jobs rich and productivity poor recovery and that may not be sustainable over the medium term.”

Updated

Sticking with parliament, Ed Balls (amid much noise from the Conservative benches) is trying to ask about the economy. 

Speaker Bercow shushes them,  ’punning’ about how in tennis you get new balls after seven games (?)

Balls asks why Osborne won’t admit that living standards aren’t going up.

Osborne replies that Balls had claimed that a recovery couldn’t happen under the government’s plan, that the deficit would go up, that we’d never get growth without extra government spending.

On the other side of the house they need new crystal balls, Osborne concludes.

Very good, Chancellor, a joke about my name, responds the shadow chancellor.

They then clash about fiscal policy – Balls asks Osborne to rule out cutting the top rate of tax. The chancellor replies by attacking Balls’ plan to raise the rate to 50p, saying it’s anti-business and has been refuted by the IFS already.

Updated

Over in Parliament, MPs are holding Treasury questions — they’re discussing important issues like infrastructure spending (Danny Alexander is denying that the government is moving too slowly).

One opposition MP, Sammy Wilson, DUP member for East Antrim, just welcomed the news that the economy was growing, but asked what is happening to stimulate growth beyond London.

David Gauke, exchequer secretary, replies that employment has gone up in every region of the UK since the election.

The quarterly GDP data has become increasingly charged with political implications as the next election draws nearer (scheduled for May 2015).

Faisal Islam of Channel 4 comments:

Britain’s businesses need to stop sitting on their cash piles and crank up their investment, argues IPPR’s chief economist Tony Dolphin:

“The news that manufacturing is growing is welcome. But businesses have been sitting on a lot of cash, and the economy is still smaller than before the crisis. We need more business investment and a pick up in exports before we can truly see this economic growth as sustainable.

“Much of the recovery is based in London in the finance and business sectors but we need to see growth across the whole country. We need more sectors like the car industry taking up the baton of recovery, investing in plant and machinery to drive an increase in productivity. The jobs market held up better than expected but unless we see investment by companies in their capabilities we won’t see the growth in living standards that we want.

Dolphin is also concerned that few lessons have been learned since the crisis ripped through the financial markets and the global economy:

“Strong growth in the short-term does not mean that structural weaknesses in the UK economy that became more evident during the ‘Great Recession’ have been eliminated. Unless we move to adopt a new economic model, the recovery will prove unsustainable and bittersweet for those who do not benefit from it before it is extinguished.”

Updated

TUC: danger of unsustainable recovery

And here’s TUC general secretary Frances O’Grady’s take:

“Any return to growth is welcome, but this is the wrong kind of recovery and is two years late.

“The recovery is yet to reach whole swathes of the country or feed into people’s pay packets. This must change if the benefits of recovery are to be felt by both businesses and workers.

Unless the short-term boost provided by house prices and consumer debt is transformed into investment, rebalancing and higher living standards, the danger is that it will prove unsustainable.”

Nick Clegg: Recovery plan must be fair

Interesting comments from deputy prime minister Nick Clegg — he’s said that the task of repairing the country’s finances must be completed “fairly”.

I’ve taken the comments from PA:

“Our economy is moving in the right direction – unemployment is down and growth is up.

“The coalition Government has set Britain on the right course by repairing the country’s finances and helping to create over 1.6 million jobs in the private sector.

“But we must finish the job fairly, with further investment in jobs outside London and by cutting taxes for working people.”

The reference to fairness comes a day after the Liberal Democrats appeared to break away from the post-2015 deficit reduction plan laid out by George Osborne. Business secretary Vince Cable said further welfare cuts to save an additional £30bn in the next parliament were political and ideological commitment.

Service sector, the details…

The strongest performing part of Britain’s services sector was “Business services and finance”, which posted 1.2% growth in the last quarter.

That covers banks, insurers, technology companies, other financial firms, estate agents, and goods rental companies.

Sky’s Ed Conway just had an entertaining exchange of views with the Treasury after he argued that this showed the UK was NOT rebalancing:

Andrew Goodwin, senior economic adviser to the EY ITEM Club, reckons growth rates will slip back during 2014 because of the financial pressure on households:

The challenge now is to broaden out the recovery beyond the consumer and housing market. The enduring squeeze on real wages will limit the consumers’ ability to continue to drive the recovery forwards.

Investment and exports are likely to have improved in Q4, but not enough to drive growth forward at the pace we’ve become accustomed to. So the chances are that the pace of growth will slow a little through 2014.

Rob Wood of Berenberg Bank isn’t worried by the 0.3% drop in construction output in the last quarter, and

With all construction surveys red hot right now, construction should bounce back quickly and economy wide growth should accelerate further. There are absolutely no signs of growth slowing anytime soon. If anything, the risks are towards an acceleration.

He predicts strong growth both this year and next year, as the Bank of England’s exceptionally loose monetary policy reaps dividends:

The 2013 data show that low interest rates and a massive housing stimulus can be a very powerful tailwind indeed, offsetting headwinds to growth from factors like deleveraging. With every chance that some of the headwinds will fade this year, the monetary policy tailwind should drive UK growth higher over the next two years.

The recovery will snowball. We expect the economy to expand by 3.0% in 2014 and then 3.3% in 2015.

Stronger growth will put more pressure on the Bank to raise interest rates — although governor Mark Carney spent a lot of his time at Davos last week insisting that the UK economy isn’t strong enough yet.

Ed Balls: Vince Cable is right to express concerns

Shadow chancellor Ed Balls says he’s happy that the economy is “finally” growing. 

But, speaking on BBC News 24, he warned many people are suffering from a cost-of-living crisis with real wages still falling.

There is more to do to get a balanced strong economy, Balls says.

That’s exactly what George Osborne says, replies the BBC’s Simon McCoy. You’re in agreement with him?

No, Balls replies, He says he’s frustrated that George Osborne spent three years getting things wrong, and “choked off” the recovery.

He argues business don’t trust the chancellor, if they did they’d be investing more.

McCoy asks about Vince Cable’s comments last night about the shape of the UK economy.

Balls replies that Cable is right, and he’s reflecting the same concerns I’m expressing.

Have you spoke to each other about this?

No, he’s a grown-up politician who looks at these figures and sees a big difference between the government’s complacency and the reality, the shadow chancellor replies.

Balls adds that the risks in the global economy mean Britain needs a stronger recovery.

These are fragile times, and he’s [Cable] saying, as I’m saying, that this is not the strong sustained economy that we need.

Here’s our full news story about today’s GDP data:

UK economy grew 1.9% in 2013 – the fastest growth since 2007

The British economy grew at the strongest rate in six years in 2013, having ended the year on a strong note as the recovery became more entrenched.

The UK’s services and manufacturing sectors were the drivers of 0.7% growth in the fourth quarter, taking the annual growth rate to 1.9%, the strongest since 2007 before the financial crisis took hold.

The economy grew in every quarter last year according to the Office for National Statistics, providing a significant boost for the chancellor who has persistently argued that a burgeoning recovery is proof that his economic plan is working.

Updated

The CBI are also upbeat about prospects this year. CBI director-general John Cridland says:

The economy is growing and the recovery gathering momentum. This is good news, and we’re seeing improvement across many different sectors.

While I chew through the GDP data, our senior political correspondent Andrew Sparrow is liveblogging from parliament where top executives from Atos and G4S are being questioned by MPs over public sector reform.

Atos and G4S questioned by MPs: Politics live blog

 

Jeremy Cook, chief economist of World First, the currency exchange firm, reckons the UK ended the year in ‘fine fettle’, even though the service sector provided much of the growth, again….

“The 0.3% fall in construction output will be a concern, but I would hope that an increased level of investment throughout 2014 should reverse this.”

The government needs to do more to sustain the recovery, warns John Longworth, Director General of the British Chambers of Commerce.

Longworth said the rise in GDP confirms anecdotal evidence that UK firms are “ever more bullish”, but rising confidence isn’t enough:

 “It is of course heartening that Britain is now amongst the fastest-growing advanced economies. But more must be done to shore up the foundations of this recovery if it is to be a lasting one.

Unless we do much better on the three ‘T’s – training, transport infrastructure and trade support – our aspirations for investment at home and success around the globe cannot be achieved.

 

Updated

GDP: the key charts

This chart shows how Britain has, finally, posted four quarters of growth in a calendar year for the first time since 2007:

And this chart shows how Britain’s dominant services sector (in green) bounced back much more strongly from the crisis than industrial production (black), construction (yellow) or agriculture (blue):

 

ING: UK could achieve 3% growth in 2014

Reaction is flooding in:

ING’s James Knightley reckons that the UK could grow by up to 3% in 2014:

With business surveys, such as the purchasing managers’ indices and the British Chambers of Commerce reports indicating very strong activity across the economy it looks as though there is significant momentum at the beginning of 2014.

Employment continues to rise robustly, housing activity is very firm, confidence is on the rise, credit growth is improving and the UK’s key export market – the Eurozone – is showing some encouraging signs.

Here’s ONS chief economist Joe Grice’s official comment on today’s growth data:

“We have now seen four successive quarters of significant growth and the economy does seem to be improving more consistently.

“Today’s estimate suggests over four fifths of the fall in GDP during the recession has been recovered, although it still remains 1.3 per cent below the pre-recession peak.”

Osborne: Broadly-based growth

The manufacturing part of the UK economy grew by 0.9% in the last quarter, slightly faster than the wider industrial sector, which grew by 0.7%.

George Osborne has seized on that as a stick to smite critics (such as Vince Cable?)  who claim that he’s failing to rebalance the economy and should change his plans:

Don’t forget that construction output fell by 0.3% during the quarter – unlike in Q3 when all sections of the economy expanded.

David Cameron tweets that today’s growth figures shows that the government’s plans are working:

Today’s data  also means that the UK has grown for all four quarters in a calendar year — that’s not happened since 2008  (although the double dip was revised away, there have been occasional quarters of negative or flat growth)

Joe Grice repeated that that there is now a “rather better tone” to the UK economy, after four quarters of growth.

Grice declined to say when UK workers might finally see wages rising in real terms, but did point out that inflation has recently fallen.

 

Updated

Joe Grice explains that the 0.3% drop in construction output may be down to seasonal factors (worth remembering, though that the building sector had seen growing strongly early in the year).

Asked about the wider state of the UK economy, Grice says that “in the last year we have had more balanced growth than previously, but over the longer period we have had a divergence in the recovery.”

That’s shown by the fact that that the Service sector is now bigger than before the financial markets were convulsed by the collapse of Lehman Brothers, but construction and manufacturing are someway shy.

 

The recovery has been somewhat erratic, says Joe Grice, but it “feels like the economy now has a better tone”.

However the UK economy is still 1.3% smaller than before the financial crisis began.

 

 

Updated

The UK service sector grew by 0.8% in the fourth quarter, and Industrial output racked up 0.7% growth.

But Construction output fell by 0.3% in the October-December period.

That means the services sector is higher than in 2008.

But both industrial production and construction are around 11% smaller than before the crisis, Grice adds

 

 

Updated

On an annual basis, GDP for 2013 was 1.9% higher than in 2012, says the ONS’s Joe Grice.

That, I believe, means Britain has recorded its strongest growth for any year since 2007.

 

UK GDP DATE RELEASED

BREAKING: The UK economy grew by 0.7%  in the final three months of 2013, the ONS just announced.

 

Key event

Just a few minutes until the Office for National Statistics reveals the preliminary estimate of UK GDP for the final three months of 2013.

ONS chief economist Joe Grice will announce the data at 9.30am sharp, and then take questions from the press.

It should be broadcast live on the BBC and Sky News in the UK.

Fact for the morning, via Sky News’s Ed Conway – Poland is the fastest-growing member of the EU since the financial crisis began in 2008:

Key event

And here’s another graph reinforcing how the UK’s economy has lagged behind major rivals since the great recession - with particularly weak growth from mid-2010 to mid-2012:

 

 

What the analysts are predicting

Here’s a couple of analyst predictions about today’s GDP data (due in under 30 minutes):

Howard Archer of IHS Global Insight:

Our best bet is that GDP growth edged back to a still very decent 0.7% quarter-on-quarter in the fourth quarter of 2013 after accelerating to 0.8% quarter-on-quarter in both the third and second quarters from 0.5% quarter-on-quarter in the first quarter. This would still result in year-on-year GDP growth accelerating to 2.8% in the fourth quarter of 2013 from 1.9% in the third quarter, thereby giving the best annual growth rate since the first quarter of 2008. 

It would also result in overall GDP growth in 2013 coming in at 1.9%, which would be the best performance since 2007 and up from growth of just 0.3% in 2012. Even so, GDP in the fourth quarter of 2013 would still be 1.3% below the peak level seen in the first quarter of 2008.

Kit Juckes of Societe Generale [SG]:

The market looks for a 0.7% gain, SG for a 0.8% increase that takes the annual growth rate up to 2.9%, the fastest since Q4 2007. Sterling is a little stronger again today. Positive economic surprises have supported the currency and triggered a sharp re-pricing of the interest rate outlook, despite Mr Carney’s best efforts to keep that in check.

The pound has risen slightly this morning, touching $1.66 against the US dollar.

James Ramsbottom, chief executive of the North East Chamber of Commerce, just put his finger on the underlying issue with the British recovery – it doesn’t feel like a recovery for most of us, yet anyway.

Speaking on the BBC’s Today Programme, Ramsbottom said that manufacturing had “sustained” his region’s economy (Nissan have a big plant in Sunderland) while construction has only recently picked up.

“But for many people on the street, it doesn’t feel like it’s changed,” Ramsbottom added.

Rob Marshall, who runs a web design firm, also cautioned that he didn’t feel any better about business conditions than a year ago. But he has hired more staff since founding his firm in 2009, growing from four staff to 13.

Duncan Weldon, the TUC’s senior economist, makes four important points about today’s data (in this blog):

It’s provisional data, it won’t tell us much about  living standards, UK productivity may still be falling, and Britain has lost a lot of ground against most comparable countries since the crisis began:

 

Another point to watch will be which sectors of the UK economy did best – services, construction or manufacturing.

Weldon says:

Whilst the top line figure will tell us something about the overall pace of the recovery, the sector breakdown will tell us about its balance.

Updated

Back to UK GDP. It’s worth remembering that, despite the decent growth seen so far this year, Britain’s economy has still not reached its pre-crisis peak. Three months ago it was still 2.5% smaller than its peak in 2008.

 

 

The ONS reported last month that the UK grew by 0.5% in the first quarter of 2013, then 0.8% in the second and third quarters.

 

An important development in emerging economies this morning – India surprised the markets by announcing a surprise rise in interest rates, from 7.75% to 8%

The move is designed to underpin the rupee, and also to target India’s inflation rate. Central Bank chief Raghuram Rajam said he might be able to cut rates again in future once inflation has been pegged back. 

The unexpected move comes hours before the central bank of Turkey (also under pressure in the recent emerging market turmoil) meets to discuss monetary policy. Many analysts expect a rate hike, or other measures, to prevent the Turkish lira being further routed.

A reminder that while Britain’s recovery continues, there’s the potential for upheaval elsewhere….

CBI sees “real upsurge” in output

The CBI has fuelled confidence in Britain’s economy by declaring this morning that business output in the private sector is rising at the fastest pace since the collapse of Northern Rock.

Ahead of this morning’s GDP data, the employers body said the economic outlook looked bright. The proportion of firms reporting higher output over the last quarter has hit its highest level since Autumn 2007.

Katja Hall, the CBI’s chief policy director, said:

A picture is unfolding of a real upsurge in output across much of the UK economy.

Many firms in many sectors are feeling brighter about their prospects than they have for a long time, showing the recovery is gaining traction.

UK GDP data to show recovery continued

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

Britain’s economic recovery is centre-stage today, with new data likely to show that the UK has recorded its strongest year since being rocked by the financial crisis six years ago.

Preliminary GDP data for the final three months of 2013 will be unveiled with a flourish by the Office for National Statistics at 9.30am GMT. Economists expect another decent quarterly growth, with the economy growing by around 0.7%-0.8% (estimates vary, as usual).

That would mean annual growth of around 1.9% — which would be the best performance since 2007. 

Caveats abound, of course. Many experts fear that Britain has failed to rebalance its economy over recent years, with the current recovery based on the rickety framework of consumer spending and the housing recovery. A very British recovery, in other words.

The business secretary Vince Cable even threw his weight behind this argument last night, warning that the “shape” of the recovery was less than ideal.

Cable said:

A real recovery is taking place

The big question now is whether and how recent growth and optimism can be translated into long-term sustainable, balanced recovery without repeating the mistakes of the past.  We cannot risk another property-linked boom-bust cycle which has done so much damage before, notably in the financial crash in 2008.

Cable also appeared to be moving the Liberal Democrats away from George Osborne’s plan of further cuts beyond the election to eliminate the deficit — more here:

Vince Cable undermines chancellor with ‘wrong sort of recovery’ message

But there are signs that the chancellor’s March of the Makers hasn’t come to an abrupt halt, such as rising orders in the manufacturing sector.

Britain is among the first countries to report GDP data for the last quarter, so today’s preliminary reading could give some clues to how the global economy fared at the end of 2014.

I’ll be tracking the UK GDP data, and economic reaction to it, along with other news through the  day.

 

Updated

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Forecast for U.K. economic growth of 1.9% this year raised to 2.4% with IMF chief Christine Lagarde declaring ‘optimism is in the air’. IMF may also upgrade its outlook for the global economy, which in October it predicted as expanding by 3.6% this year…

 


Powered by Guardian.co.ukThis article titled “IMF upgrades UK economic growth forecasts as global economy expands” was written by Katie Allen, for theguardian.com on Monday 20th January 2014 12.14 UTC

The International Monetary Fund is widely expected to raise its outlook for the UK this week, nudging up the country’s growth forecasts by more than for any other major economy.

The Washington-based fund is due to unveil an update on Tuesday to its World Economic Outlook from last October. Back then it forecast UK national output would rise 1.9% in 2014. Now it is expected to predict growth of 2.4%, according to a Sky News report.

The IMF is also expected to upgrade its outlook for the global economy, which in October it predicted as expanding by 3.6% this year. That would reflect the cautiously optimistic tone in a New Year’s speech from its managing director, Christine Lagarde, last week.

“This crisis still lingers. Yet, optimism is in the air: the deep freeze is behind, and the horizon is brighter. My great hope is that 2014 will prove momentous … the year in which the seven weak years, economically speaking, slide into seven strong years,” she said.

If confirmed, the substantial upgrade to the UK will be a welcome boost to Chancellor George Osborne and his much repeated assertion that the coalition’s “economic plan is working”.

But in the past the IMF has echoed other economists, including experts at the UK’s own Office for Budget Responsibility, that the UK remains over-dependent on consumer spending to grow.

The latest crop of official data underscored those concerns, with weaker outturns for construction and manufacturing and a jump in Christmas retail sales.

Economists generally feel, however, that overall growth will pick up this year and the IMF is just the latest of a string of forecasters to raise the UK’s outlook.

The business group CBI has pencilled in 2014 growth of 2.4%, the British Chambers of Commerce expects 2.7% and the OBR forecasts 2.4%.

A report from EY Item Club on Monday forecast UK economic growth would pick up to 2.7% this year from 1.9% in 2013. It too warned the recovery was not built on solid foundations, however, due largely to the pressure on household incomes.

Peter Spencer, chief economic advisor to the EY ITEM Club comments: “It is hard to find another episode in time where employment has been rising and real wages falling for any significant period of time. The weakness of real earnings is proving to be the government’s Achilles heel and could prove to be the weak spot in the recovery.

“Consumers have reduced the amount they save to fund their spending sprees. But they cannot continue to drive growth for much longer without an accompanying recovery in real wages or a rise in their debt to income ratio.”

There have also been warnings that the recovery is not being felt throughout the UK, and is instead largely benefiting London and the south-east.

A study by the TUC trade unions group on Monday said the recent recovery in jobs had failed to reach the north-east, the north-west, Wales and the south-west, leaving them in the same situation or worse at providing jobs than they were 20 years ago.

The US-based IMF could not be immediately reached for comment.

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Disappointing UK trade data and industrial output. IMF calls for concerted action in euro area. Protest rally in Greece today after loans approved. The agenda- new IMF forecasts due. Markets head higher in today’s trading session…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis: IMF cuts growth forecasts amid new Greek protests – as it happened” was written by Graeme Wearden, for theguardian.com on Tuesday 9th July 2013 14.56 UTC

5.59pm BST

Closing summary

Time to wrap up for the day. Here's a brief closing summary with links to the key points in the blog.

The International Monetary Fund has cut its growth forecasts, admitting that the world economy has not met its expectations since April. The IMF warned that emerging economies were hitting roadblocks, while the eurozone was being held back by its weak banks and record unemployment. See 2.30pm for details and press conference highlights.

The UK, though, was one of the few countries whose growth prospects were revised up. The Treasury said it showed Britain was healing, but critics said the recovery was too weak (see 2.36pm and 3.38pm onwards).

In the eurozone, there was relief that finance ministers had agreed to extend Greece most of its next bailout tranche last night.However, a think tank warned that the economy will shrink by more than expected this year (see 1.45pm)

Municipal workers, who face losing their jobs through Greece's bailout programme, held another strike today. Up to 3,000 employees held a protest rally in Athens (see 1.02pm onwards)

epa03781500 Greek municipal employees protest in front of the Greek Parliament against a suspension decision and possible future layoffs in Athens, Greece, 08 July 2013.
Greek municipal employees protesting in front of the Greek Parliament today. Photograph: ALKIS KONSTANTINIDIS/EPA

Shares rose across Europe's financial markets, fuelled by hopes for economic growth after Alcoa, the world's largest aluminium producer, posted decent results last night.See 5.09pm for closing prices.

In the UK, the latest economic data showed that manufacturing output fell last month. Economists said the survey raised the chances of the Bank of England announcing new stimulus measures in August (see 9.39am onwards for details and reaction)

Britain's trade gap also widened in May. But exports to non-EU states hit a new record high (see 12.10pm).

I'll be back tomorrow. Until then, thanks and goodnight!

5.35pm BST

Hark! I hear the sound of the European Central Bank scrambling to fix the damage caused by Jorg Asmussen's interview today.

Apparently Asmussen just meant to confirm that rates would stay low for an 'extended period', and did not mean to suggest this would be more than a year.

According to Reuters, though, Asmussen said:

(ECB President) Mario Draghi said in his press conference it is not six months, it's not 12, it goes beyond.

The perils of dabbling with forward guidance – especially in the vague way the ECB has done.

5.09pm BST

Markets close

FTSE 100. last 3 months. to July 9
Photograph: Thomson Reuters

The IMF's warnings of an emerging market slowdown and a deeper eurozone recession this year did not spook the financial markets.

European stocks finished at their highest level in a month, as the upbeat mood that began this morning survived the day's ups and downs.

• FTSE 100: up 63 points at 6513m +1%

• German DAX: up 93 points at 8062, +1.2%

• French CAC: up 22 points at 3846, +0.58%

• Spanish IBEX: down 2 points at 8014, -0.03%

• Italian FTSE MIB: down 9 points at 15790, – 0.06%

In the bond markets,UK and German sovereign debt strengthened, but the yields on Spanisn and Italian bonds rose [prices up means yields, or borrowing costs, are down]

10-year bond yields tonight (not closing prices)

• US: flat at 2.63%

• UK: 2.44%, down 4 basis points (or 0.04%)

• Germany: 1.65%, down 4bp

• Spain: 4.71%, + 6bp

• Italy: 4.42%, +4bp

• Greece: 11.1%, + 15bp

Updated at 5.09pm BST

4.21pm BST

Video: The IMF’s new forecasts

Here's BBC News's piece on the International Monetary Fund's new forecasts, including highlights from Olivier Blanchard's press conference, and comment from World First's Jeremy Cook:

4.17pm BST

4.16pm BST

In the currency markets….

Meanwhile, the pound continues to be pummelled on the foreign exchanges, hitting a three-year low of .4812.

This morning's weak manufacturing data (see 9.39am onwards) is being blamed, with economists expecting yet more quantitative easing from the Bank of England in August.

And the euro has also fallen against the dollar, after the European Central Bank's Jorg Asmussen revealed that last week's guidance of low rates for an 'extended period' meant more than 12 months (Mario Draghi had been rather more vague).

Here's Asmussen's full interview, which sent the euro as low as .278.

3.56pm BST

Ed Ball: Infrastructure spending still essential

Shadow chancellor Ed Balls argues that the UK government should still bring forward structural spending, as the IMF argued after its official healthcheck of the UK economy:

These forecasts confirm that, after three years of flatlining, the IMF believes Britain's economic recovery will remain weak. While this year's figure has been revised up, it is disappointing that this is still a lower forecast than the IMF was making at the start of this year.

And the IMF's advice to George Osborne remains unchanged. As they said just a few weeks ago, Britain is a long way from a strong and sustained recovery and so the government should bring forward infrastructure investment right now to create jobs and growth.

George Osborne did pledge £100bn of infrastructure projects in last month's spending review (details)…

3.41pm BST

TUC: UK is experiencing a less rubbish recovery

Here's the official reaction to the IMF's new forecasts from the TUC's general secretary, Frances O’Grady:

The IMF upgrade is welcome, if unsurprising. But raising growth forecasts from rubbish to not quite so rubbish hardly constitutes a strong recovery. The UK is still on course for the slowest recovery in over a century, and growth this year will still be well below the OBR’s initial forecast of 2.9 per cent.

UK economic growth is slow and limited to a few industries and areas of the country. And with wages continuing to fall in real terms, most ordinary workers are not feeling any sort of recovery at all.

The case for a plan B – replacing austerity with investment in infrastructure and proper employment schemes for young people – is just as strong.

3.38pm BST

Treasury: We’re on the road to recovery

No surprise that the the UK Treasury has welcomed the IMF's upgrade – three months after being furious at Olivier Blanchard for suggesting George Osborne should change course.

A Treasury spokesperson said:

The IMF has confirmed that the UK economy is moving from rescue to recovery, revising up its growth forecast for this year.

But the IMF again warns of the continued risks to the global economy, showing that the recovery cannot be taken for granted.

3.36pm BST

NIESR predicts stronger UK growth in Q2

Bang on queue – the NIESR think tank has predicted that the UK economy grew by 0.6% in the second quarter of 2013.

If accurate, that would mean that growth picked up nicely after the 0.3% expansion in the January-March period. No wonder the IMF's raised its forecast…

3.13pm BST

UK – still a weak recovery

Thomas Helbling of the IMF
Photograph: IMF

Asked about the decision to revise UK growth predictions up (2.30pm onwards), defying the general mood, the IMF argued that we shouldn't get carried away.

Thomas Helbling, division chief of the World Economic Studies division, said that the change (from +0.6% to +0.9%) was pretty normal. It reflected the fact that growth in the first quarter was stronger than expected (+0.3%), and positive signs from the last three months.

Heibling said:

It doesn't change the big picture in the UK, that the recovery is weak…

and added that policymakers should be alert to the need to do more to secure the recovery.

No mention of the UK 'playing with fire', as Olivier Blanchard famously warned in April….

3.08pm BST

Eurozone gloom

The IMF warned that the eurozone has struggled more than it expected three months ago, as it warned that the recession will be deeper than previously feared.

It now expects GDP to fall by 0.6% across the eurozone this year, down from 0.4% before. It is particularly worried about Italy, predicting a 1.8% contraction this year (down from 1.5%).

And the recovery in 2014 will be a ilttle feebler, it says, with GDP rising by just 0.9%, not 1%.

The IMF said the eurozone suffered from:

low demand, depressed confidence, and weak balance sheets [which] interacted to exacerbate the effects on growth and the impact of tight fiscal and financial conditions.

2.49pm BST

Read the report yourself

2.47pm BST

Japan growth forecast hiked

Japan, along with the UK (see 2.36pm), is one of the few countries to be upgraded by the IMF this afternoon — growth of 2% is now expected this year, up from 1.5%.

Olivier Blanchard said there had been a clear increase in confidence since the launch of the Abenomics stimulus package earlier this year. But the IMF remains cautious, citing several dangers to Japan.

They include the risk that bond investors will worry about debt sustainability (Japan's ability to repay its debts). If they demand higher rates, that would put Abenomics in trouble, he added.

2.41pm BST

Blanchard: Emerging markets have hit speedbumps

Olivier Blanchard, chief economist at the International Monetary Fund
Olivier Blanchard, chief economist at the International Monetary Fund Photograph: /IMF

The iMF's chief economist, Olivier Blanchard, has warned that emerging markets face cyclical and structural problems.

Speaking at a press conference now (live here), Blanchard said that the IMF saw slightly slower growth across most economies, compared to April. This is particularly clear in the BRIC economics (Brazil, Russia, India and China), he warned:

After years of strong growth, the Brics are beginning to run into speedbumps.

For example, the IMF expects China to grow by 7.75% this year and next year, which is 0.25% (for 2013) and 0.5% (2014) less than before.

Updated at 2.44pm BST

2.36pm BST

…but raises UK forecast

However, the IMF has raised its forecast for UK growth. It now expects GDP to increase by 0.9% this year, up from 0.6% back in April (when it actually cut the forecast from 0.9%).

My colleague Phillip Inman explains:

Britain will grow faster this year than previously expected according to the International Monetary Fund (IMF), in the first major upgrade of the UK’s economic outlook for almost three years.
The economy will expand by 0.9% compared with the previous forecast of 0.6%, the IMF said in its quarterly global financial health check. But a lacklustre performance by developing countries, a prolonged eurozone recession and US spending cuts will hamper plans to increase exports and restrict Britain’s GDP growth in 2014 to 1.5%, it added.
George Osborne will be cheered by the more upbeat outlook after suffering two years of brickbats from the IMF, which has lectured the government on taking a more expansionary stance and delaying public spending cuts. Yet growth of 1.5% next year could still be too weak to improve employment or spark a revival in manufacturing investment, which the chancellor believes is necessary for a more sustainable recovery.

Here's Phillip's full story.

Updated at 2.36pm BST

2.30pm BST

IMF cuts global growth forecasts

Breaking: The International Monetary Fund has cut its forecast for global economic growth this year.

In its World Economic Outlook Update, the IMF predicted growth of around 3.1% this year, down from 3.3% back in April.

it also cut next year's growth forecast to 3.8%, down from 4%.

It said the downgrade was largely due to:

appreciably weaker domestic demand and slower growth in several key emerging market economies, as well as by a more protracted recession in the euro area.

More details and reaction to follow….

2.24pm BST

Nearly time for the IMF:

2.09pm BST

One for history lovers:

Bryan, who ran for the US presidency several times without sucess, was a leading critic of the Gold Standard back in the day when most of the world's currencies were pegged to each other.

He argued that it was wrong that credit availability and interest rate levels were influenced by the amount of gold in the system – and wanted the system expanded to include silver.

In the famous speech of 9th July 1896, Bryan declared:

You shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.

Despite the support of America's farming community (heavily dependent on loans to keep running), Bryan never succeeded in changing the monetary system of the day. He looked rather prescient forty years later (as Lords of Finance explains)

Updated at 3.32pm BST

1.57pm BST

New IMF report due at 2.30pm BST

A reminder that the International Monetary Fund will release its updated World Economic Outlook at 2.30pm BST.

There'll be a press conference, which should be streamed live here.

Updated at 1.57pm BST

1.48pm BST

1.45pm BST

Greek thinktank predicts deeper recession

A Greek thinktank has punctured any euphoria over last night's loan deal, by warning that the country's economy will shrink by even more than expected this year.

The Athens-based IOBE think tank predicted that Greece's GDP could shrink by as much as 5%, from a previous forecast of around 4.6%. That's a rather deeper forecast than Greece's lenders expect (officially, anyway):

Reuters has more details:

"The projection on growth must be adjusted downwards – the recession this year will be around 5.0 percent," IOBE said in its quarterly report. It said it would range between a decline of 4.8 and 5 percent, compared with its previous forecast of a 4.6 percent slump.
The EU and IMF expect the economy to shrink by 4.2 percent in 2013; the Bank of Greece projects a contraction of 4.6 percent. The economy shrank 6.4 percent last year.
"Fiscal consolidation and improved competitiveness have not been coupled with successful implementation of the structural reforms programme," the locally influential think tank said.
IOBE projected the country's unemployment rate will rise to 27.8 percent this year, raising its previous 27.3 percent projection. Unemployment was 26.8 percent at the last count.
"As long as the recession persists, the economy isn't only burning fat but also productive tissue," said Nikos Vettas, the new head of IOBE.

Updated at 1.45pm BST

1.27pm BST

Photos: today’s protests in Athens

Just in – new photos from Athens of the protest rally held today by up to 3,000 municipal employees who oppose plans to lay off thousands of workers as part of the Greek bailout (see also 1.02pm):

Municipal employees chants slogans in front of the ministry of administrative reform in Athens, during their protest rally  on July 9, 2013.
Municipal employees chants slogans in front of the ministry of administrative reform in Athens. Photograph: LOUISA GOULIAMAKI/AFP/Getty Images
A municipal worker sits in front of riot police guarding the parliament during a rally against public sector reforms in Athens July 9, 2013.
A municipal worker sits in front of riot police guarding the parliament. Photograph: YANNIS BEHRAKIS/REUTERS

A municipal worker holds a banner reading “layoffs” near the Greek parliament. Photograph: LOUISA GOULIAMAKI/AFP/Getty Images

Updated at 1.27pm BST

1.02pm BST

A striking municipal worker stands on July 9, 2013 in front of police forces protecting the Greek Parliament in Athens.
A striking municipal worker in front of police forces protecting the Greek Parliament in Athens earlier today. Photograph: LOUISA GOULIAMAKI/AFP/Getty Images

Up to 3,000 striking municipal workers have marched through the streets of central Athens to voice their anger over the planned cuts in civil service numbers, according to Associated Press reporters.

As explained at 9.00am, their union has called a two-day strike which began yesterday. They oppose being added to the “mobility and reallocation scheme”, from where they can be sacked if they don't accept a new job.

The Greek Administration and E-Governance Ministry has said that 4,200 civil servants will be added to the pool this month, rising to 12,500 by the end of September. More than 8,000 municipal police will also be included.

The Athens government is committed to dismissing 15,000 civil servante by the end of 2014, including 4,000 this year, so entering the pool could easily lead to the sack.

12.10pm BST

UK exports outside the EU hit record high

A technician assembles a Nissan car on the production line at Nissan's Sunderland plant on January 24, 2013 in Sunderland, England. The Japanese manufacturer's factory employs 6,225 people producing the Juke, Note and Qashqai models.
The production line at Nissan’s Sunderland plant. Photograph: Christopher Furlong/Getty Images

My colleague Katie Allen has analysed today's UK trade data (9.39am onwards), and found some positive news for UK business secretary Vince Cable and the business groups that have been pushing sales to new markets for fear of being too dependent on a troubled eurozone.

ONS data shows goods exports to non-EU countries have hit a record high. In the three months to May, exports of goods to non-EU countries rose £1.7bn (4.6%) to £39.0 billion. That outstripped growth in goods exports to the EU, which were up by £0.3bn (0.8%) to £37.4bn.

The ONS adds more details:

Outside the EU, the level of exports to China continues to grow. In the latest three months the value of exports was 17% higher than the average 2012 quarterly level.

Import values from China were little changed, so the trade deficit with China, which had averaged £5.2 billion a quarter in 2012 shrank to £4.8 billion in the latest three months.

Historically, the UK runs a trade in goods surplus with the United States. That rose in the latest three months. The value of exports was 5% higher than its average 2012 level, while imports fell by 8%.

And here's Katie's full story on today's trade figures and industrial output data: UK manufacturing suffers surprise output fall after string of upbeat survey

Updated at 1.28pm BST

11.55am BST

Latvia has finally been given full approval to join the eurozone.

EU finance ministers gave their agreement at today's ECOFIN meeting, stating:

Euro notes and coins will be issued in Latvia on 1 January 2014.

Riga will join at a rate of 0.702804 lats to the euro.

Updated at 11.57am BST

11.20am BST

Portugal’s junior coalition leader sees stability after dramatic week

Portuguese Foreign Affairs Minister and CDS-PP President party Paulo Portas (L) meets with Portugal's President Anibal Cavaco Silva at Belem president palace in Lisbon July 9, 2013.
Paulo Portas (left), Portuguese deputy PM and CDS-PP leader, at his meeting with Portugal’s President Anibal Cavaco Silva at Belem president palace today. Photograph: RAFAEL MARCHANTE/REUTERS

Over in Portugal, the head of the junior coalition partner has declared that the country is ready to return to political stabilty – a week after his resignation destabilised the government.

After a meeting with the country's president, CDS-PP party leader Paulo Portas told reporters that:

We think the conditions for stability are in place and that political stability is important not only for the government but also for the conclusion of the aid package.

Portas was promoted to deputy prime minister last weekend, after resigning as foreign minister last Tuesday.

That cabinet reshuffle has calmed the panic over Portugal's bailout — although its sovereign debt is still changing hands at lower prices than before Portas quit. Portuguese 10-year bonds are trading at a yield of 6.9% this morning (Tradeweb data).

11.05am BST

Spain’s house price crash

The slump in Spain's housing market continues, according to data released today by the real estate firm Tinsa.

Tinsa reported that prices fell by 10.6% year-on-year in June, which means the average property has lost around 40% of its value since the financial crisis began.

As this graph shows, property prices were rising by around 15% per year during the boom days, but have been shrinking ever since.

Spanish house prices over last decade
Photograph: Tinsa

10.45am BST

In the City…

Marks & Spencer is the worst performer on the FTSE 100, falling almost 2% this morning after reporting another quarter of falling clothes sales.

That won't protect CEO Marc Bolland from criticism from the hordes of small shareholders at today's annual general meeting. Here's the full story: M&S clothing and non-food sales fall for eighth consecutive quarter.

The word from Wembley Stadium is that the small investors are not in particularly good spirits:

The other key corporate story of the day was the appointment of Ben van Beurden as new chief executive of Royal Dutch Shell. That's not caused any ructions, with Shell's shares up 1% – in line with the market.

And here's a comment on the markets from Brenda Kelly, senior market strategist at IG:

The warm weather may be helping to energise equity markets, with the FTSE 100 powering through the 6500 level led by its key components, miners and banks. With US aluminium producer Alcoa providing a strong start to the US earnings season by beating forecasts, and the misfortunes of Greece seemingly appeased, risk appetite is back with a vengeance.

UK manufacturing production continues to be something of a fly in the ointment for the overall economic outlook, falling by 0.8% in May against the 0.3% increase expected. While most UK economic data has been fairly good of late, this adds up to an annualised fall of 2.9% in total and thus may give credence to the recent forward guidance from the Bank of England in respect of the perpetuation of a loose monetary policy.

Updated at 10.51am BST

10.19am BST

Greece's debt agency just rolled over €1.625bn of six-month bonds, showing that it still has access to the short-term money markets.

The T-bills were sold at average yield of 4.2%, with the agency receiving bids for 1.7 times as much debt as was on offer. That's an identical result to a similar auction in June.

10.03am BST

Reaction: Britain’s weak industrial production and widening trade gap

City analysts say this morning's disappointing UK economic data (9.39am onwards) suggest that growth may not have been as strong last quarter as hoped.

This could increase the chances of the Bank of England increasing its bond-buying programme next month.

Here's some instant reaction (partly culled from the Reuters terminal)

Philip Shaw of Investec:

Trade figures are as expected, no great surprises. The tone of the data suggests to us that we are still likely to get more QE from the Monetary Policy Committee next month.

Rob Wood of Berenberg Bank:

On trade … I think it broadly confirms the continuing picture for the UK, which is that this is not an export-led recovery we are starting to see. This is a monetary policy, low rate, rising consumption, rising house prices-driven recovery, so I don't expect the trade balance to improve very much.

Tom Vosa of National Australia Bank:

The mix seems to be that disappointingly, we're not seeing the rebalancing of the economy that we would like… But the trade data still points to a relatively robust Q2, although perhaps not as high as 0.6% on the quarter which the survey data had been pointing to.

Updated at 10.07am BST

9.48am BST

Pound slides

Sterling took a small tumble when this morning's weak UK economic data hit the wires a few minutes ago. The pound is down over half a cent against the US dollar, at .489. Against the euro, it's close to a four-month low at €1.155.

9.44am BST

Graph: Britain’s trade gap

..and this graph shows how Britain has made little, if any, impact on its trade gap over the last year, leading to today's deficit of £2.435bn.

UK monthly trade gap
UK monthly trade gap in goods and services with the rest of the world. Source: ONS

9.39am BST

UK trade gap widens as industrial output stalls

Britain's industrial output stalled in May, dashing hopes of a 0.2% rise, as the sector appeared to stumble.

The Office for National Statistics reported that manufacturing output was down by 0.8% in May, or 2.9% lower on a year-on-year basis. That left output across the wider industrial sector unchanged month-on-month, or down 2.3% on an annual basis.

In another downbeat news, Britain's trade gap widened in May to its biggest deficit in six months.

The Office for National Statistics reported that Britain's defict in goods rose to £8.491bn, up from £8.43bn in April. Even when services was added, the overall trade gap was £2.435bn, up from £2.073bn in April.

Updated at 9.39am BST

9.29am BST

Merkel’s election prospects looking rosy

German Chancellor Angela Merkel (CDU) talks to trainee Francis Schwan during a visit of the company GE Energy in Berlin, Germany, 08 July 2013.
German chancellor Angela Merkel visiting a GE Energy factory in Berlin yesterday. Photograph: Soeren Stache/dpa/Corbis

German chancellor Angela Merkel should be pleased that the mini-saga of Greek bailout loan tranche was concluded last night, ahead of Germany's general elections this autumn.

A raft of opinion polls have shown that Merkel's CDU/CSU party holds a healthy lead, with around 42% of the vote. With her junior partners, the right-wing Free Democrats, close to the 5% threshold for winning seats, there's a decent chance that the existing coalition will retain power.

As the Wall Street Journal explains:

Ms. Merkel's CDU/CSU group appears to be strengthening. The FDP is just short of 5% in some surveys. But its results in recent regional elections have been better than opinion polls predicted.

"The FDP has few core supporters and many of its voters decide late," says Manfred Güllner, head of Berlin polling institute Forsa.

A center-right win would please German business, which fears a stronger left-wing influence in government could lead to higher taxes. But it would disappoint many other countries in the euro zone, including France, where some officials hope a grand coalition with the SPD might push Ms. Merkel toward slightly more generous and growth-friendly policies on the European debt crisis.

German polling data, July 9
Photograph: WSJ

More here: Merkel Gains Ground as Election Nears

Updated at 10.05am BST

9.00am BST

Protest march due in Greece as strike continues

Greek municipal employees are continuing a two-day strike, in protest at the plans to lay off thousands of public sector workers.

The walkout will hit municipal offices and operations across the country, although social welfare services should continue (according to the informative Living in Greece)

Even though the Athens government has agreed to cut the state workforce, unions representing municipal staff have organised a march starting anytime now (11am local time, or 9am BST)

In a statement (here in Greek) the POE-OTA says that 'mass, unified' protests are the only way to prevent ordinary workers being impoverished through the bailout programme.

As crisis-watcher Yiannis Mouzakis points out, municipal workers are often at the lower end of the pay scale:

Updated at 9.00am BST

8.32am BST

Kathimerini: legislation on Greek ‘prior actions’ due soon

Back to Greece, where the Kathimerini newspaper flags up that legislation will soon be tabled on the Athens parliament to push through the 'corrective actions' demanded by the Troika.

A vote on the measures (which sparked angry protests yesterday) is expected next week.

Kathimerini writes:

A multi-bill bundling together all the prior actions that Athens must honor in order to receive the pledged funding – including an overhaul of the tax system and cutbacks in the civil service – is expected to be tabled in Parliament on Tuesday or Wednesday.

The bill will be put to a debate with a vote expected next week. The most controversial aspect of the legislation is a pledge by Greece to put 12,500 civil servants into a so-called mobility scheme in the coming weeks, where they would receive lower wages ahead of a status review, as well as 15,000 layoffs by the end of next year.

In last night's statement (online here) the Eurogroup insisted last night that these 'prior actions' are taken swiftly in return for Greece receiving its aid loans.

8.27am BST

Europe’s stock markets advance

FTSE 100 risers, early trading, July 9 2013
The biggest risers on the FTSE 100 in early trading. Photograph: Thomson Reuters

Optimism abounds in the stock markets this morning, with shares up across Europe after Greece secured its aid tranche last night.

Traders are also cheered by upbeat forecasts from alumunium producer Alcoa (details). By sticking to its demand forecast, Alcoa calmed fears that China's economy is caught in a rapid slowdown.

And in the UK, economic surveys released overnight have shown that retail sales rose in June, while house-buying inquiries also picked up. Further signs that the British economy may be returning to health.

• FTSE: up 60 points at 6510, + 0.9%

• German DAX: up 57 points at 8026, +0.7%

• French CAC: up 19 points at 3843, + 0.5%

• Spanish IBEX: up 61 points at 8081, +0.8%

• Italian FTSE MIB: up 112 points at 15912, + 0.7%

Updated at 8.34am BST

7.55am BST

The agenda

Here's what's coming up:

• EU finance ministers meet at ECOFIN: all day

• UK industrial production for May: 9.30am BST

• UK trade balance for May: 9.30am BST

• IMF: World Economic Outlook update: 2.30pm BST

7.41am BST

Greece gets its loans… eurozone gets a blast

Greek finance minister Yannis Stournaras at Eurogroup meeting.
Greek finance minister Yannis Stournaras at last night’s Eurogroup meeting. Photograph: Isopix/Rex Features

Good morning, and welcome to our rolling coverage of the latest events across the eurozone, the financial markets, and the global economy.

So, after all the talks and tension, Greece will receive its next bailout loans – in return for making further cuts to its public sector workforce.

Eurozone ministers last night agreed to extend €2.5bn of loans to Athens this month, with a further €500m arriving in October if various corrective actions (ie: civil service layoffs) are taken.

As our Europe editor Ian Traynor wrote last night from Brussels:

Under Monday's agreement, Athens has to get to grips with a painful programme of public sector job losses mainly affecting education.

Some 6,500 teachers or education ministry staff are either to be fired or put on a "reserve" and sacked at the end of next year if no alternative work has been found. This makes up more than half of the 12,500 public sector jobs on the line, which also include 3,500 police posts. Police officers anxious for their jobs staged protests in Athens at the weekend

With the International Monetary Fund expected to provide a further €1.8bn of loans, last night's decision removes a nagging worry as Europe's politicians prepare to wind down for the summer break. The move should please the financial markets, and give European finance ministers a sprint in their step as they gather for an ECOFIN meeting today.

But their problems are not over, as the IMF has been swift to warn in its new annual assessment of the euro area.

Pointing to the eurozone's weak growth and record unemployment, the IMF urged "concerted policy actions" to end the malaise.

IMF managing director Christine Lagarde warned bluntly that the economic crisis in Europe had not been resolved, saying:

Over the past year, substantial actions at both the national and euro-wide levels have been taken to combat the crisis,"

But despite this progress, the economic recovery remains elusive, unemployment is rising, and uncertainty is high. Additional policy measures are required to fully restore confidence, revive growth, and create jobs.

International Monetary Fund (IMF) Managing Director Christine Lagarde waits for the start of an euro zone finance ministers meeting in Brussels July 8, 2013.
Christine Lagarde at last night’s eurozone finance ministers meeting in Brussels. Photograph: FRANCOIS LENOIR/REUTERS

The IMF said growth was beng hampered by "centrifugal forces across the euro area" – including weak banks, record jobless, and limited credit in part of the region. Here's the full report.

The IMF's four-point plan for the eurozone contained familiar themes:

• a 'credible' assessment of how much capital needs to be pumped into Europe's struggling banks (and then action to fix the problems)

• completing banking union (including introducing a single resolution mechanism for failed banks)

• new measures to stimulare economic demand (with a nod of approval to Mario Draghi for last week's promise to keep interest rates low).

• and finally structural reforms (always an IMF favourite).

But with Europe soon to wind down until September, it's not clear that the warning will be heeded soon.

The IMF will be in the news this afternoon too, when it releases its latest World Economic Outlook report (at 2.30pm BST). That will include its latest economic forecasts for countries across the world, and the global economy.

I'll be tracking the IMF report, reaction to last night's eurogroup meeting, and other news in the eurozone and beyond through the day….

Updated at 7.59am BST

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Published via the Guardian News Feed plugin for WordPress.

Highlights from the ECB press conference. The ECB has ‘marginly’ revised down its growth forecast for this year, but has also ‘marginly’ raised next year’s forecast. Recovery expected later this year. However, the governing council still sees downside risks for the European economy…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis: ECB and EC reject criticism over Greek bailout – as it happened” was written by Graeme Wearden, for theguardian.com on Thursday 6th June 2013 16.07 UTC

5.06pm BST

ECB’s lack of action sends markets lower

European markets have closed sharply lower once more, with the falls accelarating as investors expressed their disappointment with the lack of any action from the European Central Bank. Mario Draghi's subsequent press conference (from here) seemed to suggest the bank would be sitting on its hands for some time, not what those expecting some stimulus to the flagging European economy wanted to hear. So the response from the markets was clear:

• The FTSE 100 finished 83.20 points or 1.3% lower at 6336.11

• Germany's Dax was down 1.19% at 8098.81

• France's Cac closed 0.99% lower at3814.28

• Italy's FTSE MIB lost 2.63% to 16,525.07

• Spain's Ibex dropped 0.89% to 8216.7

Overnight the Nikkei lost another 0.8% bringing it close to bear market territory – it is now 19.3% below its peak, near the necessary 20% decline.

Ahead of the US non-farm payroll figures on Friday, the Dow Jones Industrial Average is currently 0.27% or 40 points lower.

Meanwhile Spanish and Italian bond yields were heading higher, another result of Draghi's deliberations.

And on that note, it's time to wrap up for the evening. Thanks for all your comments and we're back again tomorrow.

Updated at 5.07pm BST

4.20pm BST

Honey I shrunk the Greeks

Cyprus based blogger Yiannis Mouzakis has some forthright views on the IMF's mea culpa from last night. The piece is called Honey I shrunk the Greeks and here's a flavour:

Greek society has paid a heavy price for the flaws in the design of the first program. The IMF admits that an early debt restructuring would have eased the burden of adjustment on Greece and most importantly would have contributed towards a less dramatic blow on the economy, employment, the prospects of the Greek youth and the purpose of many others.

A Greek politician in the early days of the program said that the Memorandum with the troika was a “blessing” for the country. Indeed a blessing it was but primarily for the eurozone. It is time to return the favour soon.

4.15pm BST

Bad time for Draghi to disappoint the markets

More criticism of Mario Draghi's press conference, and its negative effect on the markets. Dr Nicholas Spiro of Spiro Sovereign Strategy writes:

Today wasn't Mario Draghi's finest hour – far from it.

While this month's ECB press conference was never going to be an easy one given the souring market backdrop, Mr Draghi conspicuously failed to allay concerns that the ECB has run out of monetary policy ammunition and that the governing council is deeply divided over what course of action – if any – to take.

What's more, the ECB president drew attention to the double-edged sword of the OMT bond-buying programme.

While Mr Draghi continues to champion the scheme as the most successful form of verbal intervention ever, he is increasingly frustrated that the OMT programme has lulled eurozone politicians into a complacent slumber.

Mr Draghi appears to have something of a love-and-hate relationship with his own bond-buying programme.

At a time when central bank policy action is the focal point for investor anxiety, this is what not the right time for Mr Draghi to disappoint the markets. Yet this is what he did.

3.52pm BST

Bonds slide

Mario Draghi's performance has not gone down well in the bond markets either.

Spanish and Italian debt has slid in value as investors digest the lack of new action from the ECB.

The yield (interest rate) on Spain's 10-year bonds has jumped by 25 basis points to 4.69%, while Italy's is up 25 basis poionts at 4.39%. Both big moves — and not encouraging for market confidence in either country.

There are other factors at play…. traders may be jittery ahead of tomorrow's US jobs data.

And the escalating protests in Turkey have driven its stock market down 8%. In London, the FTSE 100 is off 60 points, or 1%, as the trading day approaches a close….

Updated at 4.08pm BST

3.09pm BST

Marc Ostwald: Game over for Super Mario

Mario Draghi, President of the European Central Bank, ECB addresses a press conference following the meeting of the Governing Council in Frankfurt am Main, central Germany, on June 6, 2013.
Mario Draghi at today’s press conference. Photograph: DANIEL ROLAND/AFP/Getty Images

Marc Ostwald of Monument Securities has torn into Mario Draghi following today's press conference (see 1.32pm onwards). 

In a note sent to City clients, Ostwald warns that the ECB president has taken the final steps on the road from "OMT's hero" to "policy ammmuntion free zero".

By puffing his bond-buying programme, failing to announce measures to help small firms, and hailing the ECB's conservative nature, Draghi looks a less powerful ECB president then before, Ostwald argued.

Here's the full note:

While there will be plenty of market participants who view this ECB press conference as 'boring', 'dull' or some other similar epithet, it does in fact signal the demise of 'Super Mario", the man who supposedly saved the Euro.

Last month's rate cut was clearly an exercise of a politically unaware case of railroading through an ECB rate cut, probably because Draghi was fearful for his reputation as "Mr Euro". Unfortunately for Mr Draghi, he forgot that line one of his job description is: to remember that one must be sensitive at all times to the political and personal complexities of being ECB president. He did not, and now looks to be a very lame duck, a "has been" actor recalling his greatest moment ("the OMT was my idea" and very effective) or James Cagney in White heat ("look Mum I am on top of the world).

His attempts to jawbone financial markets into a sense of security highlight the lack of support from his fellow ECB council members, which have been increasingly evident in recent weeks. After all what does it mean when he says there was: 'ample discussion of "of nonstandard measures", "discussed negative deposit facility", the ECB is reflecting "on other types of forward guidance" , "if EIB produces something, will look at taking it as collateral" and that he is "confident single resolution mechanism will be in place by time single supervisor takes over", and then tops this all off with "We are all in all more conservative vs. other central banks"? Forget any personal battles with Bundesbank's Weidmann, Draghi is fighting most of the rest of the ECB council.

It means there is complete disagreement on the ECB council, it means his powers of persuasion as ECB president and the architect of the OMT are as strong in currency terms as 'bitcoin', and his policy of 'jawboning' markets with platitudes is dead in the water. To be sure, there is a confluence of events internationally, above all the Fed "tapering" debate and the rising doubts about the potential efficacy of Abenomics, but ultimately Draghi is just another dead man walking, a man who fits well with that line from Talking Heads' classic Psychokiller: ""You start a conversation; you can't even finish it. You're talking a lot, but you're not saying anything. When I have nothing to say, my lips are sealed" …..

…the enduring impression that is likely to remain is that the ECB is out of policy ammunition, and that Draghi's activism is no longer supported by many members of the council, who are fed up to the back to the teeth with politicians failing to use the time that ECB policy has being buying them to implement structural reforms."

Perhaps one should the question: "Draghi dead; OMT dead?", especially given the IMF admissions overnight on the first Greek bail-out?

[end]

And here's some more reaction:

Updated at 3.41pm BST

2.49pm BST

Draghi ended his press conference with a pop at Europe's weaker countries, and their need for reform (following a question from a Spanish journalist).

Why, he asks, did these nations rely on "protected industries" for growth during the "fairytale times" of the last decade? They must reshape their economies and become truly competitive.

And that's that. Reaction to follow.

2.46pm BST

Draghi: Greece bailout in the past

Mario Draghi has refused to admit that the European Central Bank made any mistakes over the Greek bailout of 2010, echoing the defiant attitude of the European Commission earlier today (see 11.56am onwards).

He argues that we should look at the progress made in Greece, rather than any imperfections that occured in the past.

Let's look at the present, he says. "Greece has undertaken an extraordinary adjustment", and that progress must be acknowledged.

Remarkably, Draghi says that he's pleased that the ECB is not criticised in the IMF's report, which he then admits he's not actually read yet.

But once he gets round to it, he expects that the report is really based on hindsight. Nothing to worry about.

Or in his words:

But often these mea cuplas are a mistake of historical projection. You judge things that happen yesterday with today's eyes…. It's very hard to give judgements on events taken four years ago.

2.31pm BST

Anything to declare, Mario? Well, not really

Next question — is Draghi worried about deflation, and does the ECB have any mistakes to own up to on Greece following the IMF report?

Draghi mutters "well, not really", before explaining about deflation:

He replies that most of the recent drop in inflation has been due to falling energy costs. Core inflation has moved less dramatically.

He adds that deflation means a wide-ranging drop in prices across an economy — there is no sign of that in the eurozone, he insists

Updated at 2.31pm BST

2.26pm BST

Draghi has now embarking on long answers about how conditions in the eurozone are slowly improving — citing the steady decline in excess liquidity (as banks repay their emergency ECB loans), and high stock markets (!).

Things are getting better, he says, but it's a question of time. No reason for the ECB to announce new measures today.

Not a terribly impressive performance…..

2.20pm BST

Draghi also railed against complacency in Europe, saying peripheral members must push on and introduce reforms now while conditions are calm. They shouldn't take today's market levels for granted.

2.19pm BST

2.17pm BST

Draghi: Not worried by German court ruling

Draghi is fielding questions over next week's German constitutional court hearing into the legality of his OMT bond-buying programme.

Draghi begins by hailing his own idea, saying it is "very hard" not to believe that OMT has been "the most successful monetary policy of recent time."

He points to the way bond yields fell since last summer, when he first promised to do 'whatever it takes' to save the euro.

Draghi then says he has "complete confidence" in the German court when it considers the case, which has been brought by the country's Bundesbank.

Intruigingly, Draghi himself will not be testifying. That honour has been passed to Jorg Asmussen, Germany's representative on the ECB (!).

Asmussen's knowledge of German law makes him the best representative, Draghi smiles. But given the case pits the ECB against the Bundestag, it can't be a happy assignment for Asmussen.

2.09pm BST

Draghi gets the Cyprus question

FINALLY, a question for Mario Draghi about the capital controls imposed in Cyprus back in March, from the FT's Michael Steen.

What does Draghi feel about such restrictions being imposed, and how would be feel about seeing them in another country?

Draghi replies that such controls "profoundly distort" markets in the eurozone, and should be lifted as soon as possible.

However, the issue does not fall within the ECB's 'competence', he points out.

This is the first time that the Cyprus bailout has been raised at an ECB press conference.

Updated at 3.30pm BST

2.02pm BST

Consensus….

Was the decision unanimous? Apparently no.

Draghi says there was consensus on today's decisions, and adds that there has been too much dramatisation over the ECB's decision making. Disagreement is good, he says.

1.59pm BST

Key event

Interesting: Draghi reveals that the ECB's governing council is "reflecting on issuing forward guidance" on its monetary policy.

He points out, though, that the Bank has already pledged to keep running its liquidity programmes until at least next summer — that's guidance.

1.57pm BST

Draghi: governments must fix the jobs crisis

Draghi moves onto the issue of structural reforms, and the eurozone's jobs crisis.

The ECB president said that the failure to restructure the eurozone labour markets meant that the burden was falling on the shoulders of the young.

Governments must fix these weaknesses, he adds, as Draghi returned to a familiar theme.

He points out that a "a fast-changing world" means people must develop new skills, which means investing in human capital.

1.52pm BST

Draghi: we’re ready for negative rates

Mario Draghi, 6th June 2013
Photograph: Bloomberg

Questions — has the ECB rowed back on its plans to help small firms get credit?

Draghi replies by saying the ECB considered several new measures to help the economy, including bringing in negative interest rates on bank deposits.

He casually drops in that the ECB is "now technically ready" to impose negative rates, but isn't planning to bring it in yet (citing the unintended consequences of forcing banks to pay to leave money with their central bank).

There is no reason to act right now…. we keep these non-standard measures on the shelf.

Draghi then says the ECB had a full discussion on recent data – some good, not so good — before concluding that it will continue to monitor all developments before deciding whether to act.

1.45pm BST

Key event

Draghi's statement should be online shortly….

1.44pm BST

Draghi fires warning shot over deficit targets

Draghi concludes his statement by reiterating that eurozone governments should not 'unravel' their progress on deficit reduction programmes.

He adds that the ECB believes that countries should only be given extensions to hit their deficit targets "in exceptional circumstances"

(last week, the EC handed extensions to France, Spain, and four other countries, and also spared Belgium a fine over its failure to bring down its deficit).

1.40pm BST

ECB: less inflation this year

The ECB has also cut its inflation forecast for this year, slightly, reflecting lower oil prices.

Updated at 1.42pm BST

1.39pm BST

ECB tweaks growth forecasts

The ECB has 'marginly' revised down its growth forecast for this year, Draghi says, but has also 'marginly' raised next year's forecast.

The governing council still sees downside risks for the European economy next year, though, he adds.

1.36pm BST

Draghi: gradual recovery later this year

Draghi starts by reading out his statement as usual, noting that there hav been "significant improvement in financial markets" since the middle of 2012.

He remains confident that the conditions are in place for a gradual economic recovery later this year. The ECB will remain accomodative for as long as needed, he adds.

However, labour markets remain weak, he adds.

1.32pm BST

Watch ECB press conference here

Mario Draghi's press conference is starting now: it's being streamed here.

1.32pm BST

Quick piece of US economic news — the number of people filing a new claim for unemployment dropped by 11,000 last week.

1.28pm BST

ECB press conference imminent

Mario Draghi is about to hold a press conference in Frankfurt to explain why the ECB left interest rates unchanged at today's meeting.

The financial world will be looking to see if the decision was unanimous, and whether the ECB considered bringing in negative interest rates on bank deposits, among other issues:

Surely the IMF's Greek paper will get a mention too?….

1.17pm BST

Ian Traynor: IMF and EC divided over Greek restructuring

The IMF criticism and the commission’s defence of its performance boil down to a dispute over whether Greece’s staggering debt level should have been restructured early in 2010, when the troika was fixing the terms for the bailout.

From Brussels, our Europe editor Ian Traynor explains:

While the IMF takes the view now that it was a cardinal error not to restructure, the commission argues strongly that there were too many unknowns, the risks were huge, such a move could have unleashed a rollercoaster of panic across the eurozone, and there was not yet any real eurozone firewall or bail-out funds in place.

“Even assuming it was inevitable and the only solution, the risks associated with an early Greek debt restructuring were huge,” according to Commission thinking.

“The whirlpool in the financial markets in early 2010 was only beginning to subside, the banking system was extremely fragile and it was not possible to estimate financial and psychological effects of the largest bond restructuring in history or its potential ripples to the real economy of the euro area. Against this background, later restructuring allowed for time to build firewall capacity. “An earlier restructuring would have also entailed risks of systemic contagion.”

12.47pm BST

ECB leaves rates unchanged

No change at the ECB.

It voted to leave its benchmark rate at the current record low of 0.5%.

The deposit rate (paid by the ECB on bank deposits) remained at zero. No negative rates today.

It also maintained its marginal lending rate (how much it charges banks who want to borrow overnight) at 1%

Updated at 12.47pm BST

12.37pm BST

Troika ‘needs rethinking’ after Greek mistakes

Sharon Bowles, chair of the European Parliament's economic and monetary affairs committee, has called for a review of the Troika system in the light of the International Monetary Fund's report.

Bowles, a Liberal Democrat MEP, pointed out that the IMF has made mistakes before without learning the lessons. More democraticac accountability is needed to keep the Fund in line.

Here's her full statement:

It is all well and good of the IMF to admit that mistakes have been made. But the real question is whether lessons have been learnt. The IMF was equally critical of the handling of the Asian crisis as it was on Greece. Cyprus was not handled efficiently either. So, are lessons really being learned?

It is clear that the Troika needs to be rethought. For example, it needs to be more coordinated in its work and able to take more time to take decisions when conflicting models emerge. It also needs to factor in the preservation of the single market into its decisions. Since Greece the workings of the Troika have obviously not improved, as the case of Cyprus clearly shows. There, the IMF put its own preferences before the country's economic sustainability.

The Troika will also need to become more democratically accountable, above all else to the European Parliament. It is not possible that decisions which strike at the very heart of a country continue to be taken without the proper level of accountability. The first step on this course would be for the IMF to appear in public during hearings with the EP and not in camera.

12.00pm BST

The Bank of England has voted to leave interest rate unchanged, and made no increase to its quantitative easing programme, at Sir Mervyn King's final meeting.

11.56am BST

EC rejects criticism over Greek bailout

EC spokesman Simon O'Conner
EC spokesman Simon O’Conner at today’s midday briefing. Photograph: /EC

The European Commission has rejected criticism over the 2010 Greek bailout, at a combative press briefing in Brussels.

Spokesman Simon O'Connor strongly refuted the suggestion that the EC had anything to apologise for. Instead, he claimed, the strategy used in Greece remained valid today.

O'Connor told reporters that the EC disagreed with the IMF's conclusion that it would have been better, with hindsight, to have implemented a debt restucturing in 2010 rather than 2011.

Greek debt writeoffs then would have been highly damaging, he insisted.

He also pointed out, as the IMF did its report, that the bailout programme has succeeded in keeping Greece in the euro.

Under questioning by our Europe editor Ian Traynor, O'Connor argued that factors beyond the EC's control had caused Greece's plan to veer off track.

One or two things happened in the intervening years that were highly damaging… there was speculation over a Greek exit from the euro area which created a much more unstable environment.

O'Connor added that the EC, and its partners, had faced an unprecented situation in Greece.

The assembled journlists, though, appeared unimpressed. The Telegraph's Bruno Waterfield suggested that at a more democratically accounable institution someone senior would have resigned.

Here's how the press pack reacted:

11.36am BST

Key event

Martin Koehring, European analyst for The Economist Intelligence Unit, reckons the IMF's admission of mistakes over Greece is designed to put more pressure on European governments to provide more debt relief to Greece.

Should that not be forthcoming, the IMF could walk away, he suggests:

The IMF has admitted that it underestimated the impact of austerity on the Greek economy and the country's debt sustainability. In our opinion, this is the IMF's latest attempt to put pressure on its European partners in the bail-out programme to provide more debt relief to Greece, in order to reduce Greek public debt to substantially below 110% of GDP by 2022 (from around 175% of GDP this year); this is the IMF's target to achieve debt sustainability in Greece.

There is also a risk that the IMF is positioning itself to withdraw from the rescue programme altogether, especially if euro zone debt relief is not forthcoming. The IMF has already bent its own rules so that it could continue lending to Greece; the IMF normally only lends to a country if its debt sustainability is guaranteed for at least one year out. Moreover, the size of the IMF's support to Greece (amounting to 2,159% of Greece's quota in the Fund) has also raised concerns within the Fund.

Koehring adds that the Greek government may use the IMF report as a bargaining tool in its negotiations with the troika in order to ease the austerity programme, by cutting sales taxes or delaying (again) its public-sector layoff plan.

11.16am BST

German factory orders drop

Just in: German factory orders slumped unexpectedly in April, casting doubt on the theory that Germany's manufacturing base is bouncing back from its winter blues.

Industrial orders fell by 2.3% in April – the biggest monthly fall since last November. It was driven by a drop in demand for large machinery, cancelling out stronger consumer demand.

On a brighter note, the German finance ministry did also revise up its figures for March, to a 2.3% rise (from 0.1%).

But April's data was still a disappointment, and included a 3.6% drop in orders from the eurozone.

Here's how the figures break down:

• Capital goods: -3.6% (domestic -3.2%, foreign -4.0%);

• Consumer goods: +7.5%,

• Intermediate goods: -1.9%

And here's some early reaction:

11.02am BST

Greek unemployment data

The impact of the Greek austerity programme is clearly visible in today's unemployment data, which shows the jobless rate rose again in March.

Another 4,626 people lost their jobs during the month, pushing the total out of work to 1,309,071, or 26.8% of the working population – up from 26.7% the previous month.

But there is a glimmer of good news – February's figure was revised down from 27%. And this graph suggests the surge in unemployment may be bottoming out (at levels worthy of a depression)

Greek unemployment data, to March 2013
Photograph: ELSTAT

On a seasonally-unadjusted basis, the number of people in work actually rose in March in Greece, to 3,580,680.

Greek employment levels, to March 2013
Number of people in work,to March 2013.
Employment levels, to March 2013 Photograph: /ELSTAT

However, another 3,379,478 people were classed as 'inactive', so didn't crop up in the headline jobless rate.

That means more people are inactive and unemployed than actually in work in Greece.

And last night's IMF report shows that the Troika expected Greece's unemployment rate to be just 15% in 2012, not 25%. As it admitted:

The recession has been deep with exceptionally high unemployment. The [bailout] program did not restore growth and regain market access as it had set out to.

And here's the new Greek Labour Force Survey.

10.02am BST

Greek finance minister tells the Guardian: IMF report will help

Greece's Finance Minister Yiannis Stournaras.
Greece’s Finance Minister Yiannis Stournaras. Photograph: ERIC PIERMONT/AFP/Getty Images

The Greek finance minister Yannis Stournaras has just welcomed the IMF's report into the 2010 bailout, in an interview with our correspondent in Athens, Helena Smith.

Stournaras says the controversial IMF report has added to his optimism that the country's debt-stricken economy will recover.

Stournaras said:

I am optimistic. It is a good report and it helps Greece

It is a good piece of self-criticism. It is an objective report reporting mistakes made by the international community and by Greece.

Stournaras added that his optimism is partly based on the Washington-based organisation's prognosis that Greece "will not need further [budget cutting] measures in 2013-14." 

It also emerged this morning that Stournaras, a professor of economics, actually played a role in compiling the report.

Back in 2010, he was head of the Foundation for Economic and Industrial Research (IOBE) in Athens, and was repeatedly asked about the weaknesses of the Greece's first €110bn EU-IMF bailout. 

According to Ta Nea, the Greek newspaper, Stournaras says he told the Fund’s technical team at the time that the programme was wrong to prioritise deficit reduction, rather than not structural reforms.

Helena adds:

Commentators this morning have not forgotten that Greece’s “unsustainable” debt load started out at €310bn euro back in 2010 and is ….. €310bn euro today. 

In the interim, the country has been plunged into recession, spiralling unemployment (at 27 % the worst in the euro zone) , with plummetting living standards and the closure of hundreds of thousands of businesses.

9.49am BST

Greek report: latest reaction

The IMF's failure to accurately predict the full impact of Greece's austerity programme meant that its economic forecasts for Greece were wildly off-beam, points out Gabriel Sterne, economist at Exotix:

Stock broker Dan Davies, though, suggests that the political infighting in Greece made it impossible for the IMF to do much better in 2010:

While Sony Kapoor of the Redefine thinktank argues that the European Union and the ECB were more culpable:

Updated at 12.21pm BST

9.25am BST

French unemployment up again

Confirmation this morning that France's labour market is weakening. The French unemployment rate hit 10.8% in the first quarter of this year, meaning it has risen steadily for the last two years.

That's up from 10.5% at the end of 2012, according to the Insee agency, and a new 14-year high.

Updated at 11.25am BST

8.45am BST

Will Draghi address IMF report?

The Greek report included some criticism of the way the 'Troika' – officials from the IMF, the ECB and the EU – worked together during the crisis. It found that they struggled to 'gel', and that there was no clear division of labour:

Here's a highlight:

The Troika partners listened to each other and were well-prepared. However, detailed conditionality increased the coordination challenge. There was also sometimes a lack of continuity in the Troika teams. All-in-all, this exacerbated uncertainty and reduced the possibility for early agreements.

Draghi didn't work at the ECB in 2010 when the first Geek bailout was agreed – his views on the Bank's performance then could be interesting….

8.37am BST

Where to read last night’s IMF report on Greece

The IMF's 50-page report into the 2010 Greece bailout, and the mistakes that were made along the way, is online here:

EX POST EVALUATION OF EXCEPTIONAL ACCESS UNDER THE 2010 STAND-BY ARRANGEMENT.

Updated at 8.37am BST

8.36am BST

AP: no rate cut expected, despite the recession

Here's AP's take on the ECB's governing council meeting today:

The European Central Bank is expected to leave its benchmark interest rate at a record low of 0.5 percent on Thursday even though there's still a recession in the 17 countries that use the euro.
The ECB cut its benchmark rate by a quarter point in May and analysts say it will probably hold off at its meeting in Frankfurt, Germany, while it assesses how the economy is doing. Some do not rule out a surprise cut to stimulate the eurozone economy.
The ECB is looking at different ways to get growth started. President Mario Draghi has said it is talking to other European Union officials about ways to encourage banks to lend more to small companies but it is not clear when a proposal might be ready.

8.12am BST

Central banks in focus; IMF’s Greek failings linger

Good morning, and welcome to our rolling coverage of events in the eurozone and the global economy.

It's Central Banks day, with the ECB and the Bank of England both meeting to set monetary policy.

Neither Bank is expected to change their headline interest rates, but the ECB's press conference (from 1.30pm BST) will be closely watched. Mario Draghi could reveal details of new measures to help small firms access credit, or indicate if the ECB is closer to imposing negative interest rates on eurozone bank deposits to force them to lend more.

In London, it'll be Sir Mervyn King's last ever Monetary Policy Committee meeting. There's little chance, though, that the MPC will give Merv the £25bn of quantitative easing he's been calling for.

The BoE decision comes at noon BST.

The other main event today could be the fallout from the International Monetary Fund's 'mea culpa' over its Greek bailout.

I covered the release of the report in yesterday's blog (from 9pm), but to get newcomers up to speed, here's our news story from last night:

The International Monetary Fund admitted it had failed to realise the damage austerity would do to Greece as the Washington-based organisation catalogued mistakes made during the bailout of the stricken eurozone country.

In an assessment of the rescue conducted jointly with the European Central Bank (ECB) and the European commission, the IMF said it had been forced to override its normal rules for providing financial assistance in order to put money into Greece.

Fund officials had severe doubts about whether Greece's debt would be sustainable even after the first bailout was provided in May 2010 and only agreed to the plan because of fears of contagion.

While it succeeded in keeping Greece in the eurozone, the report admitted the bailout included notable failures.

"Market confidence was not restored, the banking system lost 30% of its deposits and the economy encountered a much deeper than expected recession with exceptionally high unemployment."

More here: IMF admits: we failed to realise the damage austerity would do to Greece

The report suggested that it would have been better to have agreed a debt reduction plan for Greece back in 2010, rather than letting the issue fester until 2011.

it was also critical of European politicians who fuelled the crisis by speculating Greece could leave the euro, saying they had made the situation even worse.

I'll cover the fallout from the report, and other events, through the day…..

Updated at 8.44am BST

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

Published via the Guardian News Feed plugin for WordPress.

IMF’s Lipton: government should be more supportive. Gloom as UK retail sales fall. Bank of England minutes show Governor Mervyn King outvoted again on his call for expansion of the Asset Purchase Program. FTSE 100 index has closed at a new 13-year high, and Germany’s DAX hit its highest ever level…

 


Powered by Guardian.co.ukThis article titled “IMF calls for new growth measures to help UK economy and ease austerity – as it happened” was written by Graeme Wearden, for theguardian.com on Wednesday 22nd May 2013 16.05 UTC

6.44pm BST

The last word today goes to our economics editor, Larry Elliott.

Hit the austerity pause button. Invest more in social housing, schools and road repairs. Growth is more important in the short term than deficit reduction. Couched in suitably polite language, that was the uncomfortable message from the International Monetary Fund to George Osborne today.

The chancellor could take some comfort from the fact that the Fund was rather more diplomatic about his economic strategy than it was in Washington a month ago, but not all that much. For the past couple of weeks, the Government has done its utmost to persuade the IMF that Britain should stick to its current budgetary course. Osborne has tried. The chief secretary Danny Alexander has tried. Sir Mervyn King has tried. They have all failed.

Larry's full analysis will be online tonight.

That's all for today. This post from 2.33pm sums up the key points from the IMF report. Thanks. GW

6.36pm BST

Sky News's Ed Conway makes the case tonight that the IMF's call for the government to adjust its fiscal programme is "arguably…the least interesting part of all".

He writes:

The Fund believes Britain’s banking system remains in some trouble. It believes the Government may have to pump extra cash into the semi-nationalised banks, RBS and Llloyds. These are more intriguing criticisms; ones the Government would be wrong to ignore.

And yet it is “Plan A” and “Plan B” that hog the headlines. One can understand why: the Chancellor made key pledges on the deficit, on which it is far easier to judge him than on the complex world of financial reform. But, in the grand scheme of things, the IMF making vague micro-suggestions about his fiscal plans simply isn’t a rift of the scale some would like it to be.

Updated at 6.36pm BST

6.26pm BST

This might interest regular eurozone watchers — Citi, the investment bank, has dropped its prediction that Greece will leave the eurozone next year.

6.10pm BST

Looking back at the IMF report again. John Van Reenen, director of the Centre for Economic Performance at the LSE, argues that Britain's civil servants have played a blinder over the IMF report:

The Treasury’s spin doctors have been working overtime ever since to say the IMF Article IV was likely to be very critical of the government due to internal politics. Hence when it came out as merely “critical”, the report can be dutifully hailed again as a ringing endorsement of government policy.

Article IVs are almost never directly critical of large countries like the UK, and they are always hedged in careful diplomatic language. Nevertheless the message is clear enough if you can read the runes

And that message, as we've been banging on about since David Lipton's press conference, is more infrastructure spending. Now.

The bottom line is that the IMF is endorsing an increase in public investment spending, as many of us have been pushing for years. The most effective way to address deficient demand would be for the government to directly spend at least £20bn on infrastructure over the next two years, as analysed in studies by the Institute for Fiscal Studies, National Institute for Economic and Social Research and LSE’s Centre for Economic Performance, and the IMF now seem to agree.

I wish the IMF could have been even more critical of the failures of the government’s fiscal plans. They are too willing to accept the argument that “credibility” has been purchased by an excessively front-loaded deficit reduction plan, for example.

But it is clear that the chancellor’s (formerly?) favourite international think tank has signed up to the public investment programme we so sorely need. So perhaps we will finally get some real action.

5.47pm BST

EU leaders agree to speed up battle against tax evasion

The European Council has now released the conclusions of today's meeting in Brussels, which include a new agreement to fight tax evasion.

Here's the key section from the official summary:

Tax fraud and tax evasion limit countries' capacity to raise revenue and carry out their economic policies. In times of tight budgetary constraints, combating tax fraud and tax evasion is more than an issue of tax fairness – it becomes essential for the political and social acceptability of fiscal consolidation.

The European Council agreed to accelerate work in the fight against tax fraud, tax evasion and aggressive tax planning. In particular, work will be taken forward as a matter of priority on promoting and broadening the scope of the automatic exchange of information at all levels. 

5.20pm BST

Stock markets hit new highs

Back in the financial markets, and the FTSE 100 index has closed at a new 13-year high, and Germany's DAX hit its highest ever level.

Ben Bernanke's testimony on Capitol Hill, in which he said it was too early to tighten monetary policy (see 3.28pm) gave the markets another sugar rush.

Markets, May 22 2013
Photograph: Thomson Reuters

5.05pm BST

Down the corridor in Brussels, Angela Merkel has told reporters that EU leaders are determined to stop large companies from paying too little tax in countries where they operate.

Reuters reports:

The European Union will ensure big companies pay more taxes in the countries where they are based, German Chancellor Angela Merkel said on Wednesday.

"We will work towards ensuring companies have to pay more where they are based," she said in Brussels at the end of an EU summit, adding that this would affect big companies most.

Merkel also told reporters that leaders had make significant progress by agreeing to prevent banks keeping savings information secret.

4.44pm BST

EU leaders did not discuss whether they should harmonise their corporate tax rates to combat companies who base themselves in low-taxation juristictions, Van Rompuy said:

We have discussed tax fraud, and tax evasion…

Where there is harmful tax competition there are instruments to deal with this.

Van Rompuy adds that more work needs to be done to address instances of "aggressive tax planning", and companies taking advantage of loopholes.

4.33pm BST

In Brussels, president Herman Van Rompuy is telling the press conference that the European Council understands the importance on doing more to fight tax evasion.

Other press conferences are also taking place, so we should hear from other leaders soon – including David Cameron.

4.25pm BST

We've not done much on Europe today, with all the IMF action in Britain. But over in Brussels, a press conference is just getting underway following the Council of Europe meeting.

It's being streamed here.

Updated at 4.33pm BST

4.23pm BST

Do you think the IMF has pulled its punches on the UK, or are today's recommendations as hard-hitting as before? Have your say in this poll.

3.59pm BST

David Lipton, First Deputy Managing Director of the International Monetary Fund (IMF), addresses a press conference at the conclusion of the IMF mission for the 2013 Article IV Consultations with the United Kingdom in central London, on May 22, 2013.
David Lipton, First Deputy Managing Director of the International Monetary Fund, addressing today’s press conference. Photograph: CARL COURT/AFP/Getty Images

The IMF sums up its recommentations as: U.K. Should Restore Growth, Rebalance Economy, in a summary of today's report on its site.

It's topline bulletpoints are:

  • Some signs of an uptick in growth, but still far from strong, sustainable recovery
  • Financial policies should ensure monetary easing reaches broader economy
  • Fiscal, structural policies to boost expectations of incomes and investment returns

3.47pm BST

Lipton: change fiscal policy now

Back to the IMF's report into the UK.

David Lipton has been expanding on the Fund's recommendation that infrastructure spending should be brought forward. He's told Channel Four News that the government would improve its fiscal position in the long term by adjusting its tax and spending policy today:

Faisal Islam has written the quotes up on his blog:

Lipton said:

“Looking at this, it seems clear the country needs infrastructure, and since it needs it eventually this seems the right time to be intensifying the infrastructure effort. Doing it now when the impact would be very substantial seems like a wise course of action. Yes this is fiscal policy – it would require the Government to advance some of its current spending plans – to us seems like a strategy that would help the economy and not damage fiscal sustainability because of its contribution to growth. In long run it would leave the fiscal situation better,” he told me.

And when asked if this was a “Plan B”, Lipton added:

“No I don’t think it’s a Plan B. What we see is the need always to take into account of the impact of policies and their results and making corrections along the way”. But when he asked him if the UK should borrow a little more now in order to borrow less in future, he said: “I think the point is that having a slightly different path of adjustment, we think, would strengthen the economy because some of the spending would be high impact”.

Updated at 3.47pm BST

3.28pm BST

Shares surge on Bernanke testimony

In the financial markets, shares are rallying after the head of the Federal Reserve, Ben Bernanke, said it was too early to tighten monetary policy in America.

The FTSE 100 has leapt 67 points to 6870, up almost 1%, putting the blue chip index on track for a new 13-year high. The Dow Jones index has also posted similar gains, up 131 points at 15518.

Once again, share prices are benefting because the world economy is too weak to allow central bankers to halt quantitative easing, let alone raise interest rates.

The IMF's report into the UK also recommended "accomodative monetary policy", including the possibility of additional quantitative easing in Britain too.

Bernanke's testimony is online here:

Here's the key paragraph:

Recognizing the drawbacks of persistently low rates, the FOMC* actively seeks economic conditions consistent with sustainably higher interest rates.Unfortunately, withdrawing policy accommodation at this juncture would be highly unlikely to produce such conditions.

A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further. Such outcomes tend to be associated with extended periods of lower, not higher, interest rates, as well as poor returns on other assets. Moreover, renewed economic weakness would pose its own risks to financial stability.

* Federal Open Market Committee, which sets US monetary policy

Updated at 3.31pm BST

3.12pm BST

More reaction to the IMF's recommendations is arriving.

Graeme Leach, chief economist at the Institute of Directors, isn't impressed by the idea of bringing infrastructure spending forwards.

Spend the existing money more wisely instead, he argues:

When the IMF says that planned fiscal tightening will be a drag on growth, the discretionary measures amount to only £10 billion, which is pretty small. It would make more sense to argue to maintain the overall level of public spending, whilst shifting a greater proportion towards infrastructure, where the fiscal multipliers are stronger. In other words spend the existing money better, rather than spend even more.

Updated at 3.12pm BST

2.58pm BST

The language in the report issued by the International Monetary Fund is milder then the rhetoric of last month, when Olivier Blanchard said the UK was "playing with fire" by not implementing more growth measures.

But that doesn't mean it's not concerned. Indeed, the IMF says it's now taking a tougher line with the UK:

2.33pm BST

A recap of the IMF’s recommentations

Time to recap the key points from the IMF's report into the UK.

The International Monetary Fund has called for the UK government to bring in new growth measures to support the economy and ease the pace of its austerity programme.

Speaking in London David Lipton, first deputy managing director of the Fund, said the UK economy remained weak, and could suffer permanent damage without additional help.

George Osborne should bring forward intrastructure projects where possible to offset the £10bn of cuts hitting the economy this year, he told reporters in London.

This would mean the government changing the pace of its fiscal plan, with Lipton arguing that the UK's fiscal adjustment should take place in "a more backloaded fashion".

Without adjusting its plans, he said, Britain risked higher unemployment and lower growth in the medium term.

Our view is there is no silver bullet. We are not suggesting that this adjustment in the path of fiscal consolidation would be enough to restore the economy to full utilisation. But we do think it could play a useful and a helpful role for the economy, for workers, and for companies.

The key quotes from Lipton are here.

Lipton said the IMF was encouraged by recent economic data from the UK.  However, it remaind concerned that "persistent low growth" will damage medium-term growth forecasts.

And he didn't shy away from pushing the UK government to do more. On infrastructure spending in particular, he said:

…the government should be more supportive than it has been or it plans to be.

Lipton was speaking after the IMF published its latest annual review of the UK economy. Following a two-week assessment, they also recommended that the UK should speed up the sale of its stakes in RBS and Lloyds. Full report here.

Ed Balls, shadow chancellor, urged Osborne to take the IMF's advice. He claimed Lipton's comments showed that the government had not done enough to support jobs and growth:

Behind the diplomatic language this is the call for action on jobs and growth that the IMF has been threatening to deliver for many months and a stark warning of the consequences if the Chancellor refuses to listen.

More from Balls here.

Updated at 3.00pm BST

1.52pm BST

The IMF is also clear that its recommendations do not amount to a complete new fiscal plan for Britain.

Updated at 2.08pm BST

1.46pm BST

The key quotes from IMF’s David Lipton

David Lipton of the IMF
David Lipton of the IMF.

Watching the IMF's press conference again, the key section comes when David Lipton fleshes out the Fund's recommendation for increased spending on infrastructure.

Q: Are you saying that the UK government should slow its planned pace of fiscal consolidation this year in order to support growth?

Lipton:

Yeah, what we're saying is that… within the framework of its medium-term objectives, that it would be in our view useful for the economy for some… infrastructure investment and other measures to be brought towards the present to reduce the drag that is presently intended under the present framework in this year and in the coming years.

In essence this would be to allow the adjustment to take place in a more backloaded fashion and provide more support for the economy at the front end of the period.

Lipton was then asked whether the government should look to offset the full £10bn of drag from the fiscal consolidation this year., and replies:

We see room to offset the drag from the planned discretionary measures…. I want to be clear, we are recommending a range of other policies beside fiscal policies that would also be supportive of the economy.

Our view is there is no silver bullet. We are not suggesting that this adjustment in the path of fiscal consolidation would be enough to restore the economy to full utilisation. But we do think it could play a useful and a helpful role for the economy, for workers, and for companies.

Now, to determine exactly how much is feasable one has to look through the infrastructure roster and see what can be advanced. Our view is that what can be advanced, should be advanced.

You can watch a recording of the press conference here. The above quotes are from 14 minutes in.

Updated at 2.35pm BST

1.22pm BST

Key event

Back at the Treasury, David Lipton is explaining to journalists why the government should bring forward more infrastructure spending to help the economy.

Faisal Islam of Channel 4 News tweets the highlights:

1.07pm BST

Balls: Osborne should listen

Ed Balls MP, Labour’s shadow chancellor, says that "behind the diplomatic language" the IMF is urging the government to adjust its plans.

Here's his full statement:

Behind the diplomatic language this is the call for action on jobs and growth that the IMF has been threatening to deliver for many months and a stark warning of the consequences if the Chancellor refuses to listen. 

The IMF is clear that we are a long way from the strong and sustained recovery we need and backs the warnings we have made for three years that the Government’s plans are a drag on growth and risk doing long-term damage.

They say, as we have, that you need to strike a balance between the pace of fiscal consolidation and support for growth and jobs. And it is clear that the Government has not got that balance right. That is why the IMF is calling for urgent action to kick-start the economy, including bringing forward long-term infrastructure investment.

With the IMF warning that the recovery is far from secure and the risks are to the downside, a sensible Chancellor would listen to the IMF’s advice and take action. Only a reckless Chancellor would try to plough on regardless. George Osborne has gained a reputation for always putting politics before economics. This is his chance to redress the balance and do the right thing for Britain.

12.58pm BST

Larry Elliott: IMF wants to see more action

Our economics editor Larry Elliott was at the press conference, and confirms that while the initial IMF verdict may have appeared to have pulled its punches, that was not the message coming out from Lipton:

Larry tell me that the Fund's verdict is:

The UK economy is very weak and it has serious problems. The IMF may have couched its report in more diplomatic and palatable language but the definite message is that they want to see more action.

There's another briefing at the Treasury now, and Larry will be giving his full analysis later.

12.56pm BST

Curious press conference, that. David Lipton was rather more critical of the govenment's plans than in the IMF's official statement.

That statement's now online here:

Updated at 1.16pm BST

12.46pm BST

The press conference is over. Reaction and analysis to follow.

12.46pm BST

What the IMF is suggesting:

Lipton explains that the IMF's proposals are still 'fiscally neutral' over the long term.

But the fund is effectively suggesting that some of the government's fiscal adjustment should be pushed backwards.

And Lipton also warned that the UK could suffer higher unemployment and lose economic capacity permanently if ignores the advice.

12.39pm BST

Q: Would Britain be in a better place if the government had prioritised infrastructure spending earlier?

Yes, Lipton replies. If there had been greater focus several years ago then it would be easier to get projects under way now.

But that's with the benefit of hindsight, he adds….

12.35pm BST

Another question on whether the IMF has changed its mind on Britain.

Lipton replies that the Fund is encouraged by recent data, but still believes the government should do more to stimulate growth:

The economic data shows an uptick… we acknowledge that and welcome that but it's modest so far…

The output gap remains substantial and likely to remain so for some time, so we continue to see areas for further action.

12.32pm BST

£10bn spending cuts will hurt growth

The IMF is pretty clear that the spending cuts being implemented tthus year will hurt growth — thus its call for extra growth measures.

Here's the key section from the report:

But planned fiscal tightening will be a drag on growth. Discretionary measures for this fiscal year amount to £10bn.

These will pose headwinds to growth, as expected, coming on top of domestic deleveraging and a weak external outlook, notably at a time when resources in the economy are underutilized.

Updated at 12.32pm BST

12.30pm BST

Key event

Q: Has the IMF toned down its criticism of the UK, having been so critical of Osborne earlier in the year?

Lipton replies that there are areas where Britain must do more to address demand and supply constraints.

In particular, infrastructure spending. Lipton explains:

On a range of areas, the government should be more supportive than it has been or it plans to be…. and this effort should start now…

12.26pm BST

"There's no single silver bullet" to improve the UK economy, Lipton says.

But bringing forward capital spending (as explained at 12.11pm) would be good for businesses, and good for consumers, he suggests.

12.24pm BST

At the press conference, David Lipton is saying Britain needs a multi-pronged approach to the crisis. The government should do more to stimulate growth, and the Bank of England should keep interest rates low until the economy is strong.

Updated at 12.27pm BST

12.23pm BST

You should be able to watch the press conference on the BBC's website, or on Reuters here.

12.21pm BST

Heather Stewart: the mood music is grim

Here's some rapid analysis from my colleague Heather Stewart:

Even before the IMF's team touched down in London, Treasury officials had promised to put up a staunch defence of their tax-and-spending policies.

George Osborne will regard it as a triumph that his officials succeeded in persuading the IMF a) to concede that there are signs of life in the UK economy; and b) to leave out any specific call for a change of heart on fiscal policy. 

But the mood music is still grim: the IMF stresses the "tepid" nature of the recovery, and warns that growth is likely to remain weak for a prolonged period, as the banking sector repairs itself and the eurozone downturn rolls on.

Against that backdrop, it says, the Treasury faces a "dilemma", between fixing the deficit, and underpinning growth. And reading between the lines, the IMF is fairly clear about which prong of the dilemma it would seize: it warns of the "permanent" damage that could be done to the economy by a long period of economic weakness.

12.18pm BST

Key event

The IMF press conference in underway in London, with David Lipton outlining the situation in the UK.

He gave a sobering assessment of the UK economy, saying the recovery is slow, and explaining how a new burst of capital spending could secure the recovery.

The key message form Lipton, really, is that Britain faces an unpleasant dilemma:further fiscal consolidation will weaken the UK output, and risk permanent damage to the economy.

However, relaxing the pace of fiscal consolidation will see debts accumulate further.

Thus, he suggests, Osborne's best plan is to pursue measures that address "supply-side constraints" and also provide near-term
support for the economy.

Particularly, he adds, when Britain's borrowing costs are so low and peopel are out of work:

In the current context in which labor is underutilized and funding costs are cheap, the net returns from such measures are likely to be particularly favorable.

12.12pm BST

As expected, the IMF also urges the government to get Royal Bank of Scotland and Lloyds back fully into the private sector as soon as possible.

12.11pm BST

The IMF’s growth recommentations:

While not directly criticising Osborne's fiscal programme, the IMF calls for several "growth-enhancing initiatives" to offset the drag from consolidation and bolster the recovery.

It also warns that the chancellor's new Help To Buy scheme could backfire.

Here's the iMF's growth recommentations:

• Bringing forward planned capital investment where possible, which would help catalyze private investment and spur much-needed growth. Alongside this, well- designed public guarantees could be used to facilitate private investment.

• Further modifying the composition of consolidation to boost growth. This could include growth-friendly measures, such as reducing marginal effective corporate tax rates to bring investment forward, and introducing tax allowances for raising equity.

To offset the budgetary impact of these measures over the medium term, the government could undertake a reform of property taxes and consider broadening the VAT base.

• The 2013 Budget announced a new scheme, Help To Buy, aimed at boosting activity in the housing market. This measure may temporarily help boost confidence in the housing market, but there is a risk that, in the absence of an adequate supply response, the result would ultimately be mostly house price increases that would work against the aim of boosting access to housing. To mitigate this risk and engineer a supply response, the government should consider fiscal disincentives for holding land without development. 

Updated at 12.11pm BST

12.06pm BST

IMF: Prolonged weak growth likely

Despite those recent signs of recovery, the IMF warns that Britain faces the prospect of a prolonged period of weak growth, with risks to the downside.

The eurozone crisis is a key threat, it added: Here's the key section:

The key risk is that persistent slow growth could permanently damage medium-term growth prospects—this could arise if private sector deleveraging is larger than expected, credit conditions fail to improve, external demand does not pick up, and the drag from fiscal consolidation is greater than anticipated.

In addition, despite recent market calm, growth in the euro area is likely to be weak, and the re-emergence of market tensions cannot be ruled out, with the potential for continued spillovers to the UK from depressed exports, higher bank losses and funding costs.

Updated at 12.06pm BST

12.01pm BST

IMF: UK faces slow recovery

The report is out! And the International Monetary Fund has warned that the UK faces a slow recovery.

It urges the government should implement new growth measures to stimulate the economy.

But it has not directly call on George Osborne to delay his spending cuts, saying there are "nascent signs of momentum”.

There's no explicit call to slow the pace of fiscal consolidation, but the IMF remains concerned about the economic situation.

In its official statement following the two-week visit to London, the IMF said there are encouraging economic signs, but warns:

The UK is, however, still a long way from a strong and sustainable recovery.

Notwithstanding the recent uptick in activity, per capita income remains 6 percent below its pre-crisis peak, making this the weakest recovery in recent history.

Of particular concern is that capital investment (as a share of GDP) is at a postwar low, and that youth unemployment is high.

More to follow!

Updated at 12.01pm BST

11.51am BST

Just under 10 minutes to go until the IMF's conclusions are announced.

It'll be followed by a press conference with David Lipton, first deputy managing director of the IMF, and Krishna Srinivasan, IMF assistant director and UK mission chief.

And lots of reaction from Westminster and the City…

11.27am BST

Speaking of tax, deputy prime minister Nick Clegg has said he raised the issue with Google's chief executive on Monday. My colleage Andrew Sparrow has the details in his Politics Live blog.

11.24am BST

Cameron on tax avoidance

British Prime Minister David Cameron arrives for the European Council meeting at the EU headquarters in Brussels on May 22, 2013.
British Prime Minister David Cameron arriving for the European Council meeting this morning. Photograph: GEORGES GOBET/AFP/Getty Images

Back to Brussels, and David Cameron banged the drum against tax avoidance as he arrived for today's European Council meeting.

The PM told reporters that international collaberation was a key part of ensuring that companies were paying appropriate amounts of tax.

Reuters has the quotes:

I believe in low taxes for businesses because we have got to encourage investment, we have got to encourage jobs."

"We have got to make sure as we set those tax rates that companies pay taxes and that means international collaboration, the sharing of tax information."

"I am making that the headline of my G8 summit in a month's time and it is important that we make sure that (in) the European Union as well, that we act together to make sure we do everything on this agenda.

It is good for our own countries, it is also good for the developing world as well.

11.07am BST

Under an hour to go until the IMF releases its statement on the UK economy.

In the meantime, the Labour Party has cited today's public borrowing figures (Britain borrowed £8bn in April) as proof that George Osborne should change course.

Here's the statement from Chris Leslie MP, Shadow Financial Secretary to the Treasury:

The Government’s failing economic policies continue to be self-defeating. A flatlining economy and high unemployment means lower tax revenues and more benefits spending, which is why deficit reduction has stalled.

Underlying borrowing was £1.3 billion higher last month compared to a year ago and the Government is now set to borrow £245 billion more than planned. This is not more borrowing to invest in creating jobs for the future, but simply to pay for the costs of this government’s economic failure.

After three years of failure the Chancellor must realise that we need strong and sustained growth to get the deficit down. Alongside sensible spending cuts and tax rises we need a jobs and growth plan, including building thousands of affordable homes and a compulsory jobs guarantee for the long term unemployed.

But will the IMF agree? Not long until we find out….

10.54am BST

Corporate tax avoidance is of the major issues under discussion at today's European Council meeting.

The Irish government has insisted today that the problem can only be solved through global co-operation, which sounds like another attempt to rebut criticism of its own low corporation tax rate,

Reuters has the story:

The international community needs to work together to stop large multinationals aggressively playing one country's tax code off against another, Ireland's Minister for Enterprise said on Wednesday.

"They play the tax codes one against the other, that is tax planning and I think we do need international cooperation through the OECD to deal with the aggressive nature of that," Richard Bruton told national broadcaster RTE.

Irish prime minister, Enda Kenny, may expand on this point when he briefs the media in around 40 minutes time.

10.44am BST

Over in Brussels, European leaders are arriving for today's European Council meeting. There's a live feed here.

10.13am BST

Rob Wood, chief UK economist at Berenberg, agrees that it's "too premature" to call the UK as out of the woods, following that drop in retail sales.

Households are struggling with price rises outstripping earnings growth and government benefit cuts.

10.10am BST

Retail sales, the reaction

The pound has dropped over half a cent to below .51 as traders digest the news that UK retail sales were so weak in April.

Economists are concerned too. Here's Howard Archer of IHS Global Insight:

Even allowing for the negative impact of ongoing cold weather and the fact that Easter occurred in March this year, April’s marked drop in retail sales provides a reminder that the economy is not yet out of the woods and still has a challenging job to develop sustained, clear growth.

It's certainly hard to believe a 4.1% drop in food sales can be blamed on Easter and the weather:

9.57am BST

Britain borrowed £8bn to balance its books in April, a record for the month.

However, strip out the effect of the 2008 bank bailouts, and the monthly deficit came in at £6.3bn – below forecasts. So better news than the disappointing retail sales:

9.48am BST

Weak retail sales

UK retail sales took an unexpected, and nasty, tumble in April, new data just showed.

Retail sales fell by 1.4% in April (stripping out fuel costs), their biggest fall in a year, suggesting that the economy may not be recovering as briskly as hoped.

Food sales were down by 4.1%. The Office for National Statistics blamed the bad weather in April — apparently sales of barbecue food and garden furniture were particularly weak.

Updated at 9.56am BST

9.39am BST

The Bank of England minutes are online here:

Here's the section on the MPC's assessment of the economy:

News on the month had on balance been favourable and it was likely that the level of output at the end of Q2 would be 0.7% higher than the Committee had expected three months ago.

By and large, asset prices had continued to rise, but the outlook for the global economy remained subdued, and the risk of a more severe crisis in the euro area remained a major potential impediment to the domestic
recovery.


Outvoted again: Sir Mervyn King. Photograph: David Jones/PA

9.33am BST

Bank of England minutes released

The Bank of England's monetary policy committee remained divided 6-3 on whether to expand its quantitative easing programme, minutes of its last meeting show.

Governor Mervyn King, Paul Fisher and David Miles all pushed for another £25bn of QE, but were outvoted again.

And setting the scene for the IMF press conference at noon, the MPC said it was more upbeat about the UK economy….but still concerned about the eurozone.

More to follow.

9.26am BST

Treasury insiders are prepared for IMF criticism, despite recent upbeat economic data, according to Claire Jones and Chris Giles in the Financial Times.

They point to Tuesday's fall in inflation, for the first time since last September:

The timing is ideal for a chancellor at loggerheads with fund economists.

But officials do not think the better economic data will be enough to silence IMF calls for the UK to reduce the pace of deficit reduction.

And like Nick Watt this morning (see 8.09am), the FT also reckons the chancellor will not bow to any criticism.

9.12am BST

Gaby Hinsliff: Osborne may not be dead in the water

Is the worst over for George Osborne, asks Gaby Hinsliff this morning. As she points out, the chancellor has looked quite upbeat recently "for a man undergoing the economic equivalent of having the Ofsted inspectors in" (great phrase):

The buzz in Whitehall is that today's crucial IMF assessment of the economy, compiled by a team that has spent weeks embedded in the Treasury, won't be without criticism but will be less devastating than initially feared.

After several false alarms, the Treasury finally thinks it spies light at the end of a very dark tunnel.

There are reasons for optimism, now that the UK economy has returned to growth. Britain's dominant service sector just posted its best month since the Olympics, for example, and the stock market rally (the FTSE 100 hit a new 12-year high last night) means a section of the population are feeling wealthier. 

It may be the wrong sort of recovery — based on asset bubbles rather than a resurgence of British industry. But as Gaby explains, there are major political implications:

And after five miserable years, better-off swing voters may well be tempted to treat even fake prosperity much as Britons traditionally do the first sniff of sunshine, by getting out there and frying while it lasts.

They're going to take some convincing that it's a bad thing for their pension funds to be growing again in a bullish stock market, or for their houses to be worth stupid amounts – even if they are worried about their own children being forced off the property ladder. The challenge for Labour, then, may soon be persuading voters to look this dubious economic gift horse in the mouth.

Here's the full piece:

George Osborne may not be dead in the water after all. What will Labour do then?

Updated at 9.12am BST

8.55am BST

Larry Elliott: Furious Osborne has tried to change IMF’s mind

Someone stands to lose face today when the International Monetary Fund passes judgment on the UK, says our economics editor Larry Elliott.

But will it be George Osborne, or the IMF's chief economist Olivier Blanchard?

It was Blanchard who last month famously criticised the chancellor's March budget for not containing more growth-friendly measures. Christine Lagarde, the head of the IMF, also went public with her worries over the UK.

Larry writes:

George Osborne was furious when IMF chief economist Olivier Blanchard dropped his anti-austerity bombshell during its spring meeting in Washington. The Treasury has been doing its utmost to get the IMF mission to change its view during talks over the past fortnight.

But Larry also flags up that Robert Reich, former labour secretary under Bill Clinton, revealed yesterday that US policymakers use Britain as an example of the dangers of austerity….

8.43am BST

The agenda

David Lipton, first deputy managing director of the IMF, and Krishna Srinivasan, IMF assistant director and UK mission chief, will hold a press conference at noon in the Treasury, in London.

Their report, officially called the Conclusion of IMF Article IV Mission to the United Kingdom, will also be released at 12.00pm.

There's also a torrent of UK economic data this morning, including the details of the Bank of England's last monetary policy meeting.

And in Europe, leaders will be meeting for a European Council meeting where growth and tax avoidance will be discussed.

• Bank of England minutes: 9.30am BST

• UK public finances and retail sales: 9.30am BST

• CBI industrial trends: 11am BST

• European Council meeting; afternoon

• Ben Bernanke, Federal Reserve chairman, testifying at the Senate: 3pm BST

8.30am BST

IMF could push for bank sale stake

The IMF may also push the UK government to speed up the sale of its stakes in Royal Bank of Scotland and Lloyds Banking Group.

There were reports last night that today's report will recommend that disposing of the £65bn stakes in the two bailed-out banks is made a priority.

Speculation has been building for weeks that George Osborne could start the selloff process soon, although the chancellor has not yet laid out a timescale. At present, though, RBS's share price is below the price at which the taxpayer bought its stake.

My colleague Jill Treanor explains:

Hopes of a sell-off of the 39% stake in Lloyds and 81% stake in RBS have risen in recent days as their share prices have climbed. On Tuesday shares in Lloyds closed just above 61p, the level which the Treasury has signalled it now regards as break-even for the taxpayer, while RBS was at 342p, still below any break-even targets set by the government.

8.09am BST

IMF to deliver verdict on UK today

Good morning. The British government and the International Monetary Fund could go toe-to-toe today, when the IMF publishes its annual healthcheck of the UK economy.

After two weeks trawling through the nation's accounts and interviewing top officials, the IMF will release its conclusions at noon, followed by a press conference in London.

The IMF had been expected to call for George Osborne to make fresh moves to stimulate the economy, and slow the pace of his fiscal cuts package.

Just a month ago, its top economist warned that the UK government was "playing with fire" by not doing more to boost the weak economy. But recent data – including the news that Britain's economy has started growing again – may have changed the IMF's mind. Or could at least mean its criticism is watered down.

David Cameron's government has already nailed its fiscal colours to the mast, declaring that it remains confident in its plans.

Nicholas Watt, our chief political correspondent, writes this morning:

Downing Street said on Tuesday that it would not anticipate what the IMF will say when it publishes its annual healthcheck of the British economy under its article IV programme. But the prime minister's spokesman added: "The government believes it has the right economic approach."

Downing Street said that the latest GDP figures showed that the British economy is growing and jobs are being created. "Our view is the economy is healing and we are on the right road but we have to stick to it," Cameron's spokesman said.

Nick's full story is here: Government will 'stick to its plans' when IMF delivers verdict on economy.

I'll be tracking the story through the day, along with other key events in the UK economy and beyond.

Updated at 8.20am BST

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German industrial production up 1.2% in March. Rehn and Asmussen quizzed on Cyprus. Encouraging Chinese trade data sends Japanese Nikkei to new five-year high. IMF officials fly in for annual health check on the UK economy…

 


Powered by Guardian.co.ukThis article titled “European markets rally as German industry bounces back – as it happened” was written by Graeme Wearden, for theguardian.com on Wednesday 8th May 2013 15.09 UTC

6.08pm BST

Closing summary

Time to stop, after a fairly slow-moving day, I'm afraid. Here's a closing summary.

Germany's economy may be recovering faster than thought after fresh industrial production data beat forecasts. The 1.2% jump in industrial output was hailed as a sign that Europe's largest economy would dodge recession (see 11.10am onwards)

There was further relief after China's trade data showed an increase in both imports and exports. Although some analysts questioned the figures, they were taken as a positive sign for the global economy (see 8.26am for the detail, and 10.44am for the concerns).

World stock markets kept climbing. Japan's Nikkei hit a five and a half-year high overnight, while Europe's markets finished at their highest levels since 2008. But some City analysts fear that a rally based on accomodative central banks will end in tears… (see 5.22pm)

The inquest into the Cyprus bailout continued. MEPs quizzed commissioner Olli Rehn and the ECB's Jörg Asmussen over the errors that led up to its rescue package. Both men tried to pin the blame on the failures of the Cyprus government, and argued that banking union and new resolution mechanisms would avoid a repeat (see 9.07am onwards)

The International Labour Organisation warned that the youth unemployment crisis is worsening. Those aged 15-25 are almost three times as likely to be jobless as older workers. (see 2.07pm)

Poland's central bank cut interest rates to a new record low. Norway, though, held borrowing costs unchanged (see 12.37pm onwards).

Back tomorrow. Goodnight!

5.46pm BST

Life after the Troika

During Jorg Asmussen's testimony at the European Parliament today, the ECB executive talked about how the much-criticised Troika won't be needed one day.

I missed the key quotes, but Matina Stevis of the WSJ has filed a news story on it tonight.

Here's a flavour:

Europe should eventually put an end to the much-criticized "troika" of International Monetary Fund, European Commission and European Central Bank ad hoc teams managing the euro-zone bailouts, ECB executive-board member Joerg Asmussen said Wednesday.

Future economic crises should be dealt with using the European Union's own institutions, he added, calling for a strong EU crisis-mechanism framework to handle future financial turmoil.

Mr. Asmussen didn't mention the IMF as part of his vision for future European crisis-resolution. The IMF has participated in the troika from the start of the crisis and contributes money to the four euro-zone bailouts, although much less than the euro zone.

"The [troika] setup is a bit of a strange [one]…decided in a crisis mood. So this has to be changed," Mr. Asmussen said.

And here's the full story: Call to End Troika in Europe Crises.

Keeping future bailout packages within the EU might calm some of the accusations that policies are being imposed undemocratically, and could also remove some of the tensions in negotiations.

It's not going to happen anytime soon, though….

5.22pm BST

Caution as European shares hit five year high

European stock markets have closed at their highest levels since before the collapse of Lehman Brothers in 2008.

In Germany, the DAX has finished at a new record high, following its strong industrial production data. It was also helped by solid results from Deutsche Telekom, which hiked its profit forecasts.

In the City, the FTSE 100 finished at levels not seen since December 2007, helping the wider FTSEurofirst300 index to a five-year high.

But it's not hard to find analysts warning that the rally is built on shaky ground, with accomodative central banks underpinning share prices.

Here's the closing prices:

• FTSE 100: up 26 points at 6583, + 0.4%

• German DAX: up 70 points at 8251, +0.8%

• French CAC: up 35 points at 3956, + 0.9%

• Spanish IBEX: up 53 points at 8597, + 0.6%

• Italian FTSE MIB: up 133 points at 17255, + 0.78%

Torben Kaaber, chief executive of Saxo Capital Markets, said the decent-looking (if dubious) Chinese trade data also pushed shares up.

Kaaber, though, warns that the rally could soon unravel:

As long as China keeps growing and the US keeps announcing positive corporate results, then Europe will continue to have oxygen pumped into its lungs.

This is artificial strength, however.

There are still too many bogeymen lurking under the European bed to believe that the upward trajectory of European indices, including the FTSE, is a sure sign of rude economic health.

If you pump a 9 stone librarian full of steroids and get him to compete in the Sumo Wrestling World Championships, he may last for a short while but will still eventually, inevitably get squashed. We could be seeing a similar situation across European markets.

4.03pm BST

Video: Alex the Lazy Greek

The Omikron Project, a Greek group that aims to dispel stereotypes about their country, released a new video today starring Alex The Lazy Greek (who isn't lazy really).

It uses official data to show that Greeks aren't actually the workshy, indulged characters you might see painted in the media sometimes:

The figures seem to check out.

One of Greece's biggest problems, though, is its relatively poor productivity. As Paul Krugman wrote almost a year ago, joining the euro actually masked that issus, until the crisis blew up.

Fifteen years ago Greece was no paradise, but it wasn’t in crisis either. Unemployment was high but not catastrophic, and the nation more or less paid its way on world markets, earning enough from exports, tourism, shipping and other sources to more or less pay for its imports.

Then Greece joined the euro, and a terrible thing happened: people started believing that it was a safe place to invest.

Foreign money poured into Greece, some but not all of it financing government deficits; the economy boomed; inflation rose; and Greece became increasingly uncompetitive. To be sure, the Greeks squandered much if not most of the money that came flooding in, but then so did everyone else who got caught up in the euro bubble.

And then the bubble burst, at which point the fundamental flaws in the whole euro system became all too apparent.

And as Krugman point out, America – a single currency region with full political union – can support areas of lower productivity without imposing tough fiscal programmes.

Updated at 4.09pm BST

3.44pm BST

Open Europe: time to kick-start the EU services market

Is fully opening up Europe's service market the key to the recovery? And should some countries stop waiting patiently for a deal on liberalisation, and strike their own deal?

Open Europe, the think tank, believes it is, and they should. It released a new report today arguing that a fully liberalised EU services sector would boost European GDP by almost €300bn, or around 2.3%.

Yet Europe still doesn't have a complete single market in services — despite politicians such as David Cameron often lobbying for it at EU Summits. The solution could be for a smaller group of countries to 'go it alone' using the so-called ‘enhanced cooperation’ procedure, under which the Financial Transaction Tax is being implemented.

As Open Europe’s director Mats Persson put it:

EU-mandated reform programmes are already being used to open up and liberalise the services sector in places such as Greece and Portugal so, logically, the very same reforms should happen at the EU level.

Governments now have the chance to show they’re committed to ‘more Europe’ in the area where it really matters – reigniting economic growth and boosting employment.

And Dr Adam Marshall of the British Chambers of Commerce argues that countries with dominant service sectors are missing out because it's not as easy for them to do business across the EU as for manufacturers:

The single market in services, which would benefit Britain, has barely started – in contrast to the single market in goods, which has benefited Germany for years now.

Interview: Dr Adam Marshall of the British Chambers of Commerce

And here's the full report: “Kick-starting growth: How to reignite the EU’s services sector”

2.32pm BST

McDonald’s sees European sales drop

The eurozone downturn appears to be hitting fast-food giant McDonald's.

It has reported a 2.4% drop in sales in Europe, it's biggest market, in April. A drop in demand in Continental Europe was blamed:

Positive performance in the U.K. and Russia more than offset by Germany, France and other markets.

That took the shine off a 0.7% rise in US sales last month, and helped to drag total sales down by 0.6%. In the Asia-Pacific region, sales were down 2.9% — which it partly attributed to bird flu outbreaks.

McDonald's chief executive Don Thompson warned that the company faces "a persistently challenging macro environment".

Here's the official statement.

Updated at 2.34pm BST

2.07pm BST

Warning over youth unemployment crisis

Unemployed brothers Andrew (L) and Jonathan Courtman smoke during the day in Corby Town Centre on April 24, 2013 in Corby, England. A recent study pin pointed Corby as Britain's youth unemployment capital.
Unemployed brothers Andrew (left) and Jonathan Courtman in Corby, dubbed Britain’s youth unemployment capital. Photograph: Christopher Furlong/Getty Images

The global youth unemployment situation is nearing danger point, an influential UN body warned today.

The International Labour Office said that young people are nearly three times more likely to be out of work than older adults. And as the financial crisis has rumbled on, many are giving up on ever finding employment.

The Lost Generation is becoming a predictably depressing reality —

In a new report, the ILO flaggged up that the global youth unemployment rate is rising again.

The weakening of the global recovery in 2012 and 2013 has further aggravated the youth jobs crisis and the queues for available jobs have become longer and longer for some unfortunate jobseekers.

So long, in fact, that many youth are giving up on the job search.

The youth jobless rate was 11.5% in 2007. It peaked at 12.7% in 2009 before falling back, but has now climbed again to 12.6%. It is forecast to reach 12.8% by 2018.

My colleague Katie Allen has the full story here: Young people 'almost three times more likely than adults' to be unemployed

And the FT explains that This Time It's Different, in a bad way:

In the past, youth unemployment has in some countries risen quickly during recession, but fallen quickly afterwards. This time, the length of the downturn is causing particular problems. In the majority of countries in the OECD club of mostly rich nations, one-third or more of young jobseekers have been unemployed for at least six months, up from a quarter in 2008

FT: UN warns global youth unemployment will continue to rise

1.40pm BST

Spanish PM: bailout risk is diminishing

Spain's Prime Minister Mariano Rajoy listens to a debate in the Spanish parliament in Madrid, Wednesday May 8, 2013.
Spain’s Prime Minister Mariano Rajoy in parliament today. Photograph: Paul White/AP

Missed this earlier — Spain's prime minister, Mariano Rajoy, told the Madrid parliament this morning that the country was increasingly unlikely to need a bailout.

Rajoy told MPs that his austerity measures and reforms — deeply unpopular in Spain — are starting to pay off.

Associated Press has the details:

Conservative Prime Minister Mariano Rajoy told Parliament on Wednesday that Spain was no longer close to a financial abyss and the threat of needing a bailout had receded.

Rajoy said his policies were "beginning to work," though he said much remained to be done.

The premier claimed one major achievement was the sharp drop in recent months of the country's borrowing costs on bond markets. He said that could save the country up to 1 billion euros (.31 billion) this year.

Spain's 10-year bonds are trading at a yield of around 4.1% today, indicating it can borrow much cheaper than last summer when yields topped 7%.

But the real economy still looks dire — with unemployment at 27% (and 54% for young people), and no hope of the recession ending soon.

1.05pm BST

Norway holds rates

The central bank of Norway has resisted joining the ranks of the rate-cutters, and has just voted to leave interest rates unchanged.

Updated at 1.09pm BST

12.53pm BST

That rate cut means Poland's interest rates are now at a record low – as in the US, the eurozone, Japan, Australia, the UK…

12.37pm BST

Poland cuts interest rates

Just in – the central bank of Poland has cut interest rates by 25 basis points, becoming the latest county to ease monetary policy.

This cuts the headline cost of borrowing in Poland to 3%, from 3.25%.

12.32pm BST

12.31pm BST

German industrial production cheers analysts

Carsten Brzeski, ING's senior economist, reckons Germany is emerging from its winter contraction, when GDP shrank by 0.5% in the last three months of 2012.

Commenting on Germany's strong industrial output data (see 11.10am onwards), Brzeski said:

It looks as if the outlook for German industry is clearing slowly but surely…

There's a lot of contradictory signs… but industrial production looks OK – we will get out of the contraction of the fourth quarter and though we're not accelerating as much as in 2010, we won't have a recession.

One contradictory sign is the latest PMI data, which has shown Germany's private sector contracting slightly in April.

Greg Smith, head of corporate dealing at foreign exchange company World First, is also cheered by today's data:

It seems like the German juggernaut is still powering ahead, which will be a welcome boost for Merkel and the Eurozone in general.

This news follows on from upbeat German factory orders yesterday and, coupled with stronger trade figures overnight from China, means that the global economy has had a good 24 hours or so – although we shouldn’t get carried away as the underlying growth picture remains fragile.

Germany's economy ministry was also upbeat about prospects in the manufacturing sector, saying improving order levels and a recovery in the construction industry should provide further impetus later this year.

12.20pm BST

The Athens stock market has joined today's rally, rising by over 7% – driven by bank shares.

Generally, though, the City is pretty quiet:

11.34am BST

European markets keep rising

European stock markets have climbed higher after Germany's industrial data was released, with its DAX index hitting a new record intraday high.

German DAX: up 48 points at 8230, + 0.6%

• French CAC: up 27 points at 3948, + 0.7%

• FTSE 100: up 15 points at 6573, + 0.24%

• Spanish IBEX: up 40 points at 8584, + 0.47%

• Italian FTSE MIB: up 90 points at 17213, + 0.5%

Yusuf Heusen, sales trader at IG, suggests we're entering a phase where economic data comes in stronger but without the chance of monetary policy being tightened.

For investors nothing could be sweeter, so it will take a fairly substantial chunk of bad news to disrupt the positive narrative.

11.24am BST

Germany's forecast-beating industrial output in March (see 11.10) was partly driven by a surge in energy use, which made up for a sharp drop in construction.

Here's the details of the 1.2% rise in industrial output:

Manufacturing output: +1.4%, of which:

  • Intermediate goods: +0.6%
  • Capital goods: +2.1%
  • Consumer goods: +1.0% (durables: +2.2%; non-durables: 0.7%)

Energy: +4.0

Construction: -3.1%

Updated at 11.25am BST

11.10am BST

German industrial output beats forecasts

German industrial output jumped last month, according to data just released which bolsters hopes that Europe's largest economy has avoided falling into recession.

Industrial output rose by 1.2% month-on-month in March, rather better than consensus (of -0.1% on average, according to Reuters).

The news follows yesterday's rise in German factory orders (+2.0%),

It means German industrial output fose by 0.2% in the first three months of 2013, after a 2.6% drop in the last three months of 2012. An encouraging signal for German GDP.

The euro swiftly rose half a cent against the US dollar, to .313.

Updated at 11.31am BST

10.44am BST

About that Chinese trade data….

I mentioned earlier (opening post) that the strong Chinese trade data was being treated with suspicion by some analysts…

…well, Business Insider just helpfully posted a research note from Nomura, which argues that the figures are being artificially inflated as Chinese sellers are effectively 'over-charging' as a way of drawing extra capital into the country.

Nomura analyst Zhiwei Zhang explained:

We believe exports to destinations like Hong Kong, a major financial hub, are likely being over-invoiced in an attempt to circumvent capital controls and bring foreign capital into China.

This view is supported by the recent SAFE announcement of capital flow controls on 5 May, which identified trade as a potential channel for unregulated capital flows.

Updated at 10.45am BST

10.31am BST

Greece sells short-term bonds ahead of China trip

In the debt markets, Greece just sold €1.3bn of six-month bills, at an average yield of 4.2%.

That's a drop on the 4.25% demanded by bond traders at the previous auction.

Some reassurance for the Athens government, as it tries to attract new investment to Greece. Prime minister Antonis Samaras* will fly to China next week in the hope of drumming up new businesss

Kathimerini has the latest:

The government was buoyed by the news on Tuesday that German company Hochtief had sold its 26.7 percent stake in the management of Athens International Airport to a Canadian pension fund. Samaras is also keen to come back with trade agreements from China when he visits for five days later this month.

The prime minister stepped up preparations for his trip on Tuesday, when he met with Development Minister Costis Hatzidakis. It is expected that as many as 60 Greek businessmen as well as representatives of the state privatization fund, TAIPED, will accompany Samaras on his visit between May 15 and 19.

* – NOT Nicos Anastasiades as originally scribbled – thanks to kind readers for flagging up my error

Updated at 10.59am BST

10.01am BST

Tweet of the day

10.00am BST

A few more key points from the Asmussen/Rehn hearing (see here onwards)

9.49am BST

Asmussen, who is Germany's man on the executive board of the European Central Bank, denies being influenced by domestic concerns during the Cyprus negotiations:

Updated at 9.59am BST

9.45am BST

Great question for the European Central Bank from Greek MEP Thodoros Skylakakis — why did the ECB extend emergency loans to certain Cypriot banks, and allow them to increase their borrowing, in the run-up to the bailout request.

Asmussen explains that Laiki Bank needed emergency liquidity assistance after it suffered large losses on its Greek bonds. The ECB reckoned that the ELA loan was a fair decision, as long as it believed that Laiki could be recapitalised.

Yet…. the total ELA assistance came to upwards of €9bn — or more than half Cyprus's annual economic output:

Skylakakis wasn't happy with Asmussen's answer — but at least someone's asking the key questions about how the Cyprus debacle occured:

Updated at 9.47am BST

9.26am BST

MEPs are pushing for answers on how the Cyprus rescue deal was so badly botched, but Rehn and Asmussen aren't taking the blame.

Rehn argued that the Nicosia government froze in the face of the crisis:

In Cyprus, and I speak with some experience of years of crisis management. We saw the usual pattern of a country in front of an impossible situation and leading to a programme.

First there is a sense of denial, which leads to delays.

Then there is a draining of funding. With Cyprus there was a loan from Russia which bought time, but was not used to implement structural reforms.

And finally, the Cyprus people were hit with a "very painful" moment when its government finally asked for help.

In other words — 'don't blame us, blame the Cypriots":

Updated at 9.48am BST

9.17am BST

Asmussen's full statement is online here.

Updated at 9.48am BST

9.10am BST

Lessons from Cyprus…

Jörg Asmussen says the lessons from the Cyprus financial crisis are that Europe needs to agree a banking union, and agree a European framework for the resolution of financial institutions

Here's the key quote:

This should include a clear set of commonly known ex ante rules for bail-in, buffers of ‘bail-inable’ assets and depositor preference.

Regarding the latter, the new framework should place depositors at the top of the creditor hierarchy and ensure that the role of DGS in resolution is limited to insuring eligible depositors. This will contribute to reducing the risks to financial stability by providing legal certainty and predictability to resolution.

Thirdly, a single resolution mechanism (SRM) should be set up. It would include a resolution fund which would allow a bank to access "temporary, fiscally neutral, public funding".

Updated at 9.48am BST

9.07am BST

Asmussen: Cyprus crisis dragged on too long

Jorg Asmussen
Jörg Asmussen today.

EC commissioner Olli Rehn and Jörg Asmussen of the European Central Bank are now appearing at the European Parliament's Committee on Economic and Monetary Affairs.

It's being streamed live here.

We're hoping to hear more details about how the Cyprus bailout was handled (and mishandled).

Asmussen is explaining the ECB's approach to Cyprus, saying that the negotiations over its aid package dragged on too long, until the ECB had no choice but to withdraw its emergency liquidity assistance unless Cyprus's banks were restructured.

He admits, too that Cyprus's banking sector is still not stabilised (with capital controls still in place).

Olli Rehn also spoke, and told MEPs that the first tranche of the Cyprus bailout will be released soon. Rehn also claimed that the EU stood by the Cypriot people — and stating that 'insured deposits' (below €100,000) must be protected in future.

8.56am BST

Dutch manufacturing slides

A sharp fall in Netherlands manufacturing production this morning has added to concerns over the Dutch economy.

Manufacturing output fell 2% month-on-month in March, on a seasonally-adjusted basis (or 5.3% if you strip out seaonal variations). That's a nasty reversal on February's 0.5% expansion.

The Dutch economy fell back into recession three months ago, as the eurozone financial crisis reached the Northern core. This doesn't offer much hope that it's returning to growth.

8.42am BST

The agenda

Two top eurozone officials, Olli Rehn and Jörg Asmussen, will be answering questions about the Cyprus bailout in the European parliament this morning.

Also coming up. we get German Industrial Production for March at 11am BST.

And interest rate decisions from Norway (1pm BST) and Poland — they could follow recent trends and cut the cost of borrowing.

Updated at 8.44am BST

8.26am BST

Chinese trade data sends Nikkei higher (again)

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

The share rally underpined by the world's accomodative central banks continues. Asian stock markets have rallied again overnight, with Japan's Nikkei closing at a new five-year high.

The latest flurry of optimism was sparked by surprisingly strong trade data from China in the early hours of the morning. It posted a 14.7% year-on-year rise in exports, and a 16.8% jump in imports, which eased fears about both the strength of its economy, and global demand generally (although some economists were rather sniffy about the accuracy of the data, as China's exports don't actually match the import data from its Asian partners – details here).

With many central banks poised to ease monetary policy if needed, the financial markets seem happy to cheer the good news, while ignoring the bad.

• Japan's Nikkei, up 105 points at 14285, + 0.74%

• Hong Kong Hang Seng, up 152 points at 23199, + 0.66%

Passers-by talk each other in front of an electronic stock board of a securities firm in Tokyo, Wednesday, April 8, 2013.
An electronic stock board of a securities firm in Tokyo earlier today. Photograph: Koji Sasahara/AP

This followed another upbeat day on Wall Street, where the Dow Jones closed above the 15,000 mark for the first time.

As Michael Hewson of CMC Markets put it:

With central banks across the globe in full blown easing mode what could possibly go wrong?

Poor economic data is shrugged off as an irrelevance, note the indifferent reaction to the ugly French manufacturing data yesterday, while positive economic data like yesterday’s much better than expected German factory orders data for March; helps make the case for some form of economic turnaround.

And in Europe the main stock markets are inching higher, in more cautious mood after the German DAX hit a record high yesterday.

But while the financial markets remain upbeat, the real European economy remains troubled.

And in the UK, we'll be watching out for the IMF. Officials from the International Monetary Fund are arriving for the start of their annual assessment of the British economy.

This could see another front opening up in the ongoing battle between those favouring a fresh economic stimulus and those committed to fiscal consolidation — though the clash will be fought behind the closed doors of the Treasury in the coming days.

As usual I'll be tracking events across the eurozone and beyond through the day…

Updated at 8.34am BST

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

 


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

8.34pm BST

Closing summary

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

Here's a flavour:

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

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

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

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

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

Here's the key points:

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

Here's the official statement

George Osborne says there's no credible alternative…

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

City analysts reacted calmly.

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

8.30pm BST

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

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

8.15pm BST

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

Reuters has the details

8.09pm BST

UK launches legal action over FTT

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

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

From Washington, Larry Elliott reports:

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

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

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

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

7.45pm BST

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

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

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

Here's the quote:

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

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

7.35pm BST

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

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

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

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

7.23pm BST

Osborne: no credible alternative

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

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

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

Osborne said:

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

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

7.08pm BST

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

Wood commented:

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

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

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

6.52pm BST

City unshaken by downgrade

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

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

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

Here's some early reaction:

Torben Kaaber, CEO at Saxo Capital Markets:

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

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

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

David Tinsley of BNP Paribas

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

Howard Archer of IHS Global Insight

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

Updated at 6.58pm BST

6.19pm BST

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

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

6.15pm BST

Ed Balls responds:

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

Here's his full response:

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

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

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

Updated at 6.32pm BST

6.12pm BST

A bad week, by George

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

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

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

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

6.00pm BST

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

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

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

Updated at 6.33pm BST

5.54pm BST

The headwinds of ‘private and public sector deleveraging’

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

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

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

Updated at 5.59pm BST

5.44pm BST

Treasury: downgrade shows Britain must tackle debts

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

A spokesman said:

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

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

5.33pm BST

Pound drops after Fitch downgrade

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

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

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

Updated at 6.33pm BST

5.23pm BST

Fitch’s statement

Fitch's statement is online here.

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

5.12pm BST

Why Fitch downgraded the UK

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

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

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

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

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

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

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

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

Updated at 5.17pm BST

5.06pm BST

FITCH DOWNGRADES UK

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

4.34pm BST

Goldbugs swarmed on bullion in April, says Royal Mint

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

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

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

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

Richard Samuels, bullion manager at The Royal Mint said:

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

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

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

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

Updated at 5.00pm BST

4.03pm BST

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

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

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

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

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

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

Updated at 4.14pm BST

3.36pm BST

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

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

Updated at 3.36pm BST

3.30pm BST

Photos: Cyprus begins inquiry into bailout crisis

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

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

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

Patsalides said:

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

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

Here's more details via Reuters:

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

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

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

Updated at 3.41pm BST

2.32pm BST

Schäuble suggests ECB should reduce liquidity

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

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

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

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

Here's the key quotes:

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

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

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

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

Here's the early reaction:

Updated at 2.39pm BST

1.25pm BST

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

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

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

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

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

Updated at 1.28pm BST

12.25pm BST

Finland approves Cyprus bailout

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

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

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

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

Updated at 1.27pm BST

11.52am BST

Arrests over Greek migrant shooting

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

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

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

Kathemerini adds:

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

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

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

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

Updated at 1.26pm BST

11.08am BST

Markets rise on G20 hopes

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

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

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

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

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

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

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

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

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

Updated at 11.08am BST

10.46am BST

German constitutional court to hear complaint against euro rescue funds

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

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

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

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

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

Updated at 1.20pm BST

10.17am BST

IMF fears ‘poisoned umbrellas’ in London

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

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

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

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

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

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

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

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

Updated at 1.16pm BST

9.47am BST

Italian industrial orders down 7.9%

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

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

Updated at 1.15pm BST

9.08am BST

Yen falls back…

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

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

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

8.51am BST

Emerging economies warn over liquidity surge

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

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

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

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

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

AFP has a full report here.

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

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

Updated at 1.14pm BST

8.27am BST

Olli Rehn: we could slow austerity down

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

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

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

Speaking to Reuters, Rehn declared:

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

There was no choice. Decisive action was taken.

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

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

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

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

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

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

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

Updated at 1.13pm BST

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