The developed nations have lately got away with throwing vast amounts of Quantitative Easing money into the system only because the results have not yet come home to roost;  but once more other people are paying the price…

Powered by Guardian.co.ukThis article titled “Quantitative easing and common sense” was written by Letters, for The Guardian on Wednesday 7th October 2015 18.34 UTC

Zoe Williams (It’s fine to print money, so long as it’s not for the people, 5 October) raises an important question about quantitative easing (QE). In the wake of the global financial crisis, it was adopted by the Bank of England. Capital markets had ceased to function. The banking system was in deep crisis. In the US and Britain, governments were driven to inject equity into the collapsing banking system. These huge outlays had to be funded by the issuance of public debt. The Bank made clear to the prime brokers (mainly the major commercial banks) that they would be offered access to zero-cost funds in order to bid in Treasury auctions. These funds were provided electronically by the Bank into the accounts of those banks held with it.

These no-cost credits enabled the prime brokers to purchase the government debt, and by agreement swap back the debt to the Bank at a modest profit. Once this happened, the electronic advances made by the Bank were cancelled. The net effect was threefold. First, the government’s solvency was preserved. Second, the prime brokers were able to secure profit from guaranteed transactions to replace more traditional forms of lending. Third – the odd bit – the Bank ultimately ended up holding the debt of the British government, not the private sector of the economy.

This reveals the “efficient secret” of central banking. The Bank is effectively financing the state through the indirect purchase of government debt. Zoe Williams asks the question: why can’t this “mechanism” be used to finance other major projects? The answer is that it could. QE involves little or no monetary expansion. It has no inflationary consequences. But these matters are not widely understood. Time for a reasoned debate on the merits of its wider use in these most unusual times.
Richard Tudway
Centre for International Economics

• Zoe Williams says “all money is created from nowhere”. She is talking through her hat. The basis of money, which is gold or, in some cases, other commodities (mainly metals) is as founded in the real world as any other product. To find, mine, refine and distribute gold requires vast amounts of human labour, which is why it is valuable – all value coming from the labour embedded in something.

Paper money and credit is simply a claim on real money, a paper or electronic token which saves carrying around bags of gold and it runs back to real money eventually. Issuing more tokens than there is gold is a large part of credit and banking, relying on everyone not turning up at the same time to claim it. It has a place and helps the world economy spin round, but detach it too far from real value (print too much) and it starts to create problems – like raging inflation, bank defaults etc.

When Richard Nixon took the dollar off the gold standard, the US was effectively bankrupt, surviving only by devaluing its debts and reneging on the agreed price for its imports. It has continued doing so ever since. Someone pays the price, and that is the developing world mainly. And eventually it collapses anyway, like it did in 2008.

The capitalist world has lately got away with throwing vast amounts of QE into the system only because the results have not yet come home to roost; but once more other people are paying, such as the Greek workers, the Middle East and, above all, China soaking up the paper money.

It cannot go on much longer. Even the Guardian routinely points out the imminence of further crisis. So, no, more of the same, however it is directed, solves nothing.
Don Hoskins
Economic and Philosophic Science Review

• How refreshing to read some common sense on macroeconomic policy. As long ago as 1948, Dudley Dillard (The Economics of John Maynard Keynes) was saying similar things: “Is there any necessity for subsidising the commercial banks by paying them huge amounts of interest to create the new money which is required for economic expansion? Is not the creation of new money properly a government function?” He clearly advocates “people’s QE”, though it is not called that. To the extent that there are underemployed resources and supply is responsive, it should not be inflationary.
John Levi
(Retired economics lecturer), Abingdon, Oxfordshire

• Zoe Williams’ article about printing money which does not grow on trees reminds me of an incident that took place in my university days. On a family visit to Cambridge, I had seen some rather expensive books which would help my studies. Over a cup of tea, I asked my father (a fruit grower, who specialised in apples) if he would kindly buy them for me. He replied that he had no money. “You must have,” I said. “You have just sold a whole cold store of apples.” He indignantly exclaimed: “Apples don’t grow on trees, you know.” I got my books.
Gillian Caddick
Peterborough, Cambridgeshire

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While jobs growth and output are rising fast in the construction industry, retail offers a more mixed picture of the UK economy. Forecasting groups have modest expectations for growth in 2014: a 2% increase in GDP following 1.4% in 2013…


Powered by Guardian.co.ukThis article titled “Construction and retail – contrasting perspectives on UK economic recovery” was written by Larry Elliott, economics editor, for The Guardian on Tuesday 5th November 2013 00.01 UTC

Construction and retailing offer contrasting perspectives on Britain’s economic recovery. On the UK’s building sites, things are looking up . The monthly construction industry health check from CIPS/Markit showed jobs growth and output rising at their fastest for six years. Although that may be more a reflection of the deep hole the sector plunged into during the recession, sentiment has certainly improved. The Government’s Help to Buy scheme has boosted house building, but Monday’s report suggests demand for commercial property is also on the up.

Tuesday’s report from the British Retailers Consortium is more mixed. After a strong summer, spending growth in the high street has cooled in the last couple of months. That could be because sales of new winter fashions have been hit by unseasonally warm weather, or it could be that consumers are saving up for a big splurge at Christmas. It could be that individuals are finding it hard to make the sums add up during a prolonged period when prices have been rising more quickly than wages. In all probability, the cautious mood is a combination of all three.

Rising consumer spending is the reason economic activity picked up in the second and third quarters of the year. There was little boost from the other components of growth -– investment, exports and the state – so the expansion was the result of higher household spending. How is this possible when real earnings are falling? In part, spending has been encouraged by rising employment. In part, it has been aided by stronger consumer confidence, which has led to people running down the precautionary savings they built up when they were more pessimistic about the future.

Clearly, consumers will be unable to continue dipping into their savings to fund their spending for ever. That’s why forecasting groups such as the National Institute for Economic Research have only modest expectations for growth in 2014: a 2% increase in GDP following 1.4% in 2013. NIESR sees little prospect of stronger investment kicking in, and with the prospects for exporters decidedly mixed that means consumers will again bear the strain.

Even so, the NIESR forecast looks too low. There will be some recovery in investment in response to stronger consumer spending. More significantly, perhaps, the housing market now has real momentum and that will lead to some further drop in the savings ratio to compensate for squeezed incomes.

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Greece ‘backsliding in democracy’ in face of joblessness, social unrest, corruption and disillusion with politicians, says thinktank. The report, commissioned by the European parliament, noted that Greece was the most corrupt state in the 28-nation bloc…


Powered by Guardian.co.ukThis article titled “Greece’s democracy in danger, warns Demos, as Greek reservists call for coup” was written by Helena Smith in Athens, for The Guardian on Thursday 26th September 2013 19.27 UTC

No country has displayed more of a “backslide in democracy” than Greece, the British thinktank Demos has said in a study highlighting the crisis-plagued country’s slide into economic, social and political disarray.

Released on the same day that judicial authorities ordered an investigation into a blog posting by an elite reservist group linked to Greece’s armed forces calling for a coup d’etat, the study singled out Greece and Hungary for being “the most significant democratic backsliders” in the EU.

“Researchers found Greece overwhelmed by high unemployment, social unrest, endemic corruption and a severe disillusionment with the political establishment,” it said. The report, commissioned by the European parliament, noted that Greece was the most corrupt state in the 28-nation bloc and voiced fears over the rise of far-right extremism in the country.

The report was released as the fragile two-party coalition of the prime minister, Antonis Samaras, admitted it was worried by a call for a military coup posted overnight on Wednesday on the website of the Special Forces Reserve Union. “It must worry us,” said a government spokesman, Simos Kedikoglou. “The overwhelming majority in the armed forces are devoted to our democracy,” he said. “The few who are not will face the consequences.”

With tension running high after a crackdown on the neo-Nazi Golden Dawn party, a supreme court public prosecutor demanded an immediate inquiry into who may have written the post, which called for an interim government under “the guarantee of the armed forces”.

The special forces reservist unit who issued the social media call – whose members appeared in uniform to protest against a visit to Athens by the German chancellor, Angela Merkel – said Greece should renege on the conditions attached to an international bailout and set up special courts to prosecute those responsible for its worst financial crisis in modern times. Assets belonging to German companies, individuals or the state should be seized to pay off war reparations amassed during the Nazi occupation.

Underscoring the social upheaval that has followed economic meltdown, the blog post argued that the government had violated the constitution by failing to provide adequate health, education, justice and security.

Insiders said the mysterious post once again highlighted the infiltration of the armed forces by the extreme right. This week revelations emerged of Golden Dawn hit squads being trained by special forces commandos.

Fears are growing that instead of reining in the extremist organisation, the crackdown on the group may ultimately create a backlash. The party, whose leaders publicly admire Adolf Hitler and have adopted an emblem resembling the swastika, have held their ground in opinion polls despite a wave of public outrage over the murder of a Greek rap musician, Pavlos Fyssas, by one of its members. Golden Dawn, which won nearly 7% of the vote in elections last year and has 18 MPs in Athens’ 300-member parliament, has capitalised more than any other political force on Greece’s economic crisis. “Much will depend on how well it will withstand the pressure and they are tough guys who seem to be withstanding it well,” said Giorgos Kyrtos, a political commentator.

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New governor tells MPs his pledge to keep interest rates at record lows for up to three years has reinforced recovery. Carney points out that he is the only serving central bank governor among the G7 countries to have increased rates while heading the Bank of Canada…


Powered by Guardian.co.ukThis article titled “Bank of England governor Mark Carney rattled as he defends forward guidance” was written by Heather Stewart, for theguardian.com on Thursday 12th September 2013 11.17 UTC

The Bank of England governor, Mark Carney, has launched a staunch defence of his pledge to keep interest rates at record lows for up to three years, claiming that it has “reinforced recovery”.

Carney faced tough questioning from the cross-party Treasury select committee of MPs about the likely consequences of the monetary policy committee’s new “forward guidance” strategy.

But he insisted: “Overall, my view is that the announcement has reinforced recovery. It’s made policy more effective, and more effective policy is stimulative at the margin.”

The new governor also stressed that despite the MPC’s expectation that rates will remain on hold for up to three years, he would be ready to push up borrowing costs if necessary.

“I’m not afraid to raise interest rates,” he said, pointing out that he is the only serving central bank governor among the G7 countries to have increased rates – in his previous post, in Canada.

City investors have pushed up long-term borrowing costs in financial markets sharply since the MPC announced its new pledge to leave borrowing costs unchanged at 0.5%, at least until unemployment falls to 7%.

But Carney, who was handpicked by George Osborne to kickstart recovery and took over in Threadneedle Street at the start of July, at times appeared rattled. He said the recent increase in long-term rates, which sent 10-year government bond yields through 3% last week for the first time in more than two years, was “benign”.

He also repeatedly refused to be drawn on whether the new approach represented a loosening of policy – equivalent to a reduction in interest rates – in itself.

Carney denied that the new framework, involving “knockouts” if inflation appears to be getting out of control, is too complex. But Andrew Tyrie, the committee’s Tory chairman, complained that Carney’s account of the Bank’s new approach would be difficult to explain “down the Dog and Duck”.

Asked about the plight of savers, whose savings are being eroded by inflation with interest rates at rock bottom, the governor said he had “great sympathy”, but the best thing the Bank could do to help was to generate a sustainable economic recovery.

“Our job is to make sure that that’s not another false dawn, and ensure that this economy reaches, as soon as possible, a speed of escape velocity, so that it can sustain higher interest rates.”

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The UK economy grows at a faster pace by 0.6% q/q in the second quarter of 2013. Construction up 0.9%, services up 0.6%. George Osborne’s view. The chancellor meets the night shift. Spanish jobless rate finally falls…


Powered by Guardian.co.ukThis article titled “UK economic growth accelerates to 0.6%, as IMF issues eurocrisis warning – as it happened” was written by Graeme Wearden, for theguardian.com on Thursday 25th July 2013 14.04 UTC

5.50pm BST

Closing summary

Chancellor of the Exchequer George Osborne meets staff at Tesco's National Distribution Centre near Rugby.
Chancellor of the Exchequer George Osborne meeting staff at Tesco’s National Distribution Centre near Rugby. Photograph: Stefan Rousseau/PA

Time to clock-off for another day. Here's a quick reminder of the key points…

Britain's economic recovery has picked up pace. Growth in the second quarter of 2013 has been estimated at 0.6%, twice as rapid as in the first three months of this year.

The Office for National Statistics reported that every section of the economy grew. However, the UK economy remains 3.3% smaller than before the financial crisis struck in 2008.

• Highlights start at 9.30am.

• Key charts from 10.02am

City economists were encouraged by the data, with some predicting stronger growth later this year. Business leaders, though, warned that more needs to be done to guarantee the recovery (see 10.30am onwards)

Chancellor George Osborne said the figures showed Britain is moving in the right direction. See 9.49am for details, and 1.12pm for video

There are also a few photos of Osborne meeting nightshift workers at 8.50am


ª The International Monetary Fund warned that more needs to be done to nurse the eurozone back to health and avoid the crisis in the region flaring up again. See 3.03pm onwards.

• Greek MPs have approved legislation that should mean it receives its next aid tranche soon. See 4.25pm

Spanish unemployment has fallen for the first time in two years. However, the jobless rate shows that more than one in four adults are still out of work, and analysts warned that seasonal factors and migration were behind the change. See 4.58pm.

Back tomorrow for more live-blogging action, probably more centred on the eurozone after today's focus on the UK.

Until then, thanks and goodnight…. GW

5.47pm BST

Britain's improved economic growth didn't generate much cheer in the City, where shares ended lower – the FTSE 100 dropped 32 points to 6587.

More details here: Shire hits new record after update but FTSE 100 fades as rally runs out of steam

4.57pm BST

4.56pm BST

This morning's drop in Spanish unemployment has been welcomed by politicians and firms, although ministers admit that the jobless rate remain far too high:

Spain's unemployment rate fell for the first time in two years and some of the country's biggest firms said on Thursday business was looking up, boosting the government's claim the economy is climbing out of recession.

The dip in the jobless figures – to 26.3% in the second quarter from 27.2% in the first – nonetheless highlighted how far the country still needs to travel on the road to full recovery. Economy minister Luis de Guindos called the figures "totally unacceptable".

More here: Spain's unemployment rate falls

While this analysis piece from Open Europe is also worth a read:

Let's have a look beyond the (rather encouraging) headline figures on Spanish unemployment

It points out that the drop in unemployment can be attributed to seasonal factors, an increase in people dropping out of the labour market, and migration out of the country.

Spanish job rate
Photograph: Open Europe

Updated at 5.12pm BST

4.49pm BST

Across to Cyprus, and Open Europe flags up that deposits in its banking sector appear to have fallen again last month.

Cypriot deposit leakage continued in June

Cyprus bank deposits
Photograph: Open Europe

It's a slightly confusing picture, due to the ongoing restructuring of the Cypriot banking sector, but as Open Europe explains:

Ultimately, money continues to leak out despite the capital controls or people continue to rapidly wind down their savings. Neither presents a pleasant prognosis for the future of the Cypriot economy.

As we have said before the real test will come when the capital controls are finally removed, although that does not seem to be on the horizon in the near future.

4.45pm BST

IMF: round-up

The BBC has a good take on this afternoon's warning from the International Monetary Fund (see 3.03pm onwards):

IMF calls for further action to solve eurozone crisis

The International Monetary Fund has called for more action to end the crisis in the eurozone.

The IMF wants greater progress made on repairing the balance sheets of banks, so that lending can be kick-started

While the Daily Telegraph flags up that the IMF also worried that the eurozone could be hit when the US Federal Reserve starts slowing its stimulus package:

IMF fears Fed tapering could 'reignite' euro debt crisis

The report warned that the onset of a new tightening cycle in the US had already led to major spill-over effects in the eurozone, pushing up bond yields across the board.
Early tapering by the Fed "could lead to additional, and unhelpfu, pro-cyclical increases in borrowing costs within the euro area. This could further complicate the conduct of monetary policy and potentially damage area-wide demand and growth. Financial market stresses could also quickly reignite," it said.

4.25pm BST

Greek MPs approve civil service job cuts amendment

A woman makes a transaction at an ATM of a Piraeus Bank branch as a man waits for his turn in Athens July 25, 2013.
A Piraeus Bank branch in Athens today. Photograph: YORGOS KARAHALIS/REUTERS

The Greek parliament has approved an amendment to its legislation bringing in job cuts across the public sector, which paves the way to unlocking its next aid tranche worth €2.5bn.

The move means Greece will hit its target of transferring 4,200 workers into its new labour pool, where they could be forced to accept a new job or be laid off.

Greece's lenders had been concerned about certain 'exemptions' which meant some workers were able to avoid being transferred to the pool. Finance ministry insiders had said that this only affected around 80 people, mainly those with university quailfications or disabilities.

Kathimerini reports;

The legislation passed on Thursday overrides a law passed last week that protects civil servants with postgraduate degrees and those with disabilities or other social needs from being forced into a labor reserve, where they have eight months to find other jobs in the public sector or face dismissal.

Eurogroup finance ministers are now expected to approve the bailout payment on Friday. Yesterday, it said Greece had met 21 of the 22 pre-conditions on the aid tranche. Today's vote should complete the set.

Updated at 5.14pm BST

3.29pm BST

The IMF also pointed to the eurozone youth jobless crisis in today's assessment of the region, saying that despite recent progress….

growth remains elusive and high unemployment persists, especially among youth.

And while politicians such as Francois Hollande are talking positively about Europe's prospects (see 1.06pm), the IMF fears any deterioration in conditions could be serious. The eurozone, it said, has little slack to cope with new problems:

Because policy space is limited, public debt ratios are very high (and still rising), and economic slack is already substantial, further negative shocks—domestic or external shocks—could severely impact growth.

3.03pm BST

IMF issues eurozone crisis warning

The eurozone crisis isn't over, and the European Central Bank needs to take fresh action now to prevent the situation deteriorating.

That's the key message from the International Monetary Fund this afternoon, as it publishes its latet assessment of the eurozone areas.

The IMF predicted that austerity programmes being implemented across the region could wipe betwen 1% and 1.25% off annual growth this year, and recommended countries should slow down.

Fiscal adjustment should be paced to avoid an excessive drag on growth.

The IMF also called for the ECB to inject more liquidity into the financial system, though massive cheap loans to the banking sector. This would repeat the Long-Term Refinancing Operations (LTRO) conducted at the end of 2011 and early 2012, credited with staving off a more severe credit crunch.

The IMF said "additional unconventional monetary support" could help reverse the current situation where it is harder and more expensive for firms in Southern Europe to borrow than the North.

It said:

Taking its current approach forward, the ECB should ensure term funding needs for weak but solvent banks through an additional LTRO of sufficient tenor.

The eurozone's stronger banks have actually been repaying their existing LTRO loans, which the ECB sees as an encouraging development….

The headquarters of the European Central Bank (ECB) on January 8, 2013 in Frankfurt am Main.
The headquarters of the European Central Bank in Frankfurt. Photograph: Hannelore Foerster/Getty Images

Updated at 3.12pm BST

2.33pm BST

Greek gloom

Today's winds of economic optimism haven't reached Greece today, with two economic surveys showing that the country where the eurozone crisis began is still suffering.

Greek household disposable income has dropped by an alarming 6.2% year-on-year,, continuing a trend which began three years ago.

Disposable income in Greece, to Q1 2013
Disposable income levels (blue) and consumption spending (red) in Greece since the start of 2006. Photograph: l/ELSTAT

And Greek bank deposits have begun falling again, as consumers and companies dip into their reserves to keep afloat.

Data released by the Greek central bank showed a 0.5% drop in deposit levels to €162.65bn. Savings levels had been rising since last summer as confidence rose in Greece following the trauma of 2012, but that trend could be reversing….

Updated at 2.51pm BST

2.05pm BST

Alexander: Don’t get too excited

Danny Alexander
Photograph: Sky News

Danny Alexander, chief secretary to the Treasury, has been touring the media studios discussing today's growth data.

And the decent growth didn't prevent Alexander from taking a pop at the previous government, when asked about the situation on Radio 4's World At One:

Here's the quotes:

These figures are encouraging.

It's good news, not just that there's been growth but in every sector we have seen improvement.

But I'd also say we shouldn't get over-excited because this country has got a long way to go to not just to clear the financial mess that we inherited from the previous government but to rebuild our competitiveness and to make sure that we do have the conditions in this country for businesses to thrive.

He then scampered to repeat the message on Sky News, where business leaders were warning that the Treasury is failing to encourage and stimulate investment.

Alexander said he wasn't aware of a report that the UK languishes in 159th place when countries are ranked by investment as a share of GDP, but would look into it.

We're a helpful lot at Guardian Towers, so politely suggest the chief secretary checks out The Economist, who covered it here: Let’s try to catch up with Mali

1.12pm BST

Video: George Osborne on today’s data

Here's a video clip of George Osborne discussing today's economic growth figures, and Britain's passage "from rescue to recovery".

The chancellor says he is encouraged that all sectors of the economy grew in the last quarter (details at 9.43am onwards), and repeated the need to rebalance Britain away from the financial sector.

The clip also includes footage of Osborne touring factories and M6 motorway improvement work last night.

Updated at 1.49pm BST

1.06pm BST

Hollande: Eurozone recession probably over

French President Francois Hollande speaks during the “Brdo Process” leaders’ meeting at Brdo Castle, in Brdo Pri Kranju north of Ljubljana, on July 25, 2013. Photograph: BERTRAND GUAY/AFP/Getty Images

The UK isn't the only place enjoying better economic data this week. Over in Europe, the president of France has declared that the eurozone recession is probably over.

Speaking in Slovenia, Francois Hollande said:

Indicators published in the last few days look as if we have reason to believe we have overcome the recession, but it is still fragile.

Hollande may have been thinking of yesterday's survey of private sector firms in the euro area, which showed growth for the first time in 18 months.

He also said there was "no reason to sound the alarm" over Slovenia's banks, whose bad loan problems have led to speculation that the country may require a bailout.

Hollande is in Slovenia for a meeting of Balkan leaders to discuss integration into the European Union, and unresolved issues from the conflict of the 1990s.

The presidents of Albania Bujar Nishani, Croatia Ivo Josipovic, France Francois Hollande, Slovenia Borut Pahor and Kosovo Atifete Jahjaga pose for a group photo prior to the meeting “Brdo Process” at Brdo Castle, in Brdo Pri Kranju today. Photograph: BERTRAND GUAY/AFP/Getty Images

12.40pm BST

11.58am BST

Larry Elliott: GDP growth is no great shakes

Our economics editor, Larry Elliott, argues that today's GDP data is "tinged with disappointment", as the UK has bounced back more Tiggerishly after previous slumps.

Larry writes:

Compared to its miserable performance over the past few years, 0.6% growth looks impressive. But in the longer term it is no great shakes. Historically, the economy has grown by around 2.25%-2.5% a year on average, so the second quarter was smack in line with that trend.

But after recessions, national output has tended to rise strongly as it makes up for the ground lost during the downturn. Given that the level of GDP is still 3.3% below its previous peak, quarterly growth rates of 1% would be more normal for this stage of the cycle. The year-on-year growth rate of 1.4% is also below par.

More here: George Osborne's 0.6% growth is good but unspectacular

Updated at 12.09pm BST

11.35am BST

Key event

The news that UK growth is accelerating will "shape the national conversation" about the economy, reckons Nick Robinson, the BBC's Politics editor.

But with real wages lagging well behind inflation, attention may shift from headline growth to living standards.

Robinson writes:

There'll be no more talk of dips – double let alone treble – as people speak of recovery and not recession.

That will have an impact on political psychology – giving Tory MPs another reason to smile on their sun loungers this summer and allowing George Osborne to believe that he has finally put that "omnishambles" Budget behind him.

However, Ed Balls and Labour will be quick to remind us that a recovery in one measure of national economic output is not the same as a recovery in living standards. Average real incomes fell by 3% last year and the independent Institute for Fiscal Studies believes they will fall again as wages are squeezed, benefits and tax credits cut and inflation increases.

The politics of 'growth versus austerity' will slowly transform into the politics of who will improve 'living standards for all'.

Duncan Weldon, the TUC's senior policy officer, makes a similar point:

The latest data shows that take-home pay is only up by around 1% year-on-year, while the retail prices index of inflation is running at 3.3%.

11.28am BST

11.25am BST

Britain is finally getting back on its feet, reckons Nida Ali, economic advisor to the EY ITEM Club, but issues such as youth unemployment must be addressed. 

The headline GDP figures were bang in line with expectations, driven by private sector expansion, signalling underlying momentum in the economy. This is very encouraging and qualifies as the right kind of growth that we have been lacking over the past couple of years.

Ali predicts that Britain will achieve growth of "more than 1% this year".

Although the consumer sector will probably play a major role in the recovery, we also expect momentum to build in business investment and exports, which should give way to stronger growth of over 2% in 2014. But with a number of weak areas in the economy, such as high youth unemployment, disappointing wage growth and low productivity, we still have a long way to go.

Updated at 11.29am BST

11.18am BST

Today's preliminary estimate of 0.6% growth is only the ONS's first stab at calculating GDP in the last quarter, as it's only based on data from April and May.

It may well be revised in the weeks ahead, as Ben Chu of the Independent flags up:

11.12am BST

BCC: UK firms are more upbeat

Plenty of optimism over at the British Chambers of Commerce, which represents UK companies.

John Longworth, the BCC's director general, reckons business confidence is rising, with many bosses planning to hire more staff later this year.

Firms are feeling upbeat and are capable of expanding. More and more are adopting a ‘have a go’ attitude when it comes to exporting, which is really encouraging as this will go a long way to driving growth further still.

But strong, sustained growth requires efforts from the government too, as businesses need an enterprise-friendly environment for the economic to go from good to great. New and existing exporters need more support to help them diversify into fast-growing markets, and access to finance for dynamic, growing businesses must be made more available.

10.58am BST

IoD: Headwinds and tailwinds

The Institute of Directors predicts that UK growth could pick up pace in the current quarter, but warns that inflation and the eurozone crisis could scupper the recovery.

Graeme Leach, the IoD's chief economist, commented:

The GDP figures are encouraging and will help to further build business and consumer confidence. For the first time since the financial crisis the economy looks and feels as if there is a tailwind behind it. We are optimistic that the current rate of quarterly growth can be maintained through the second half of 2013 and into 2014. Indeed, if one looks to the current broad money supply (the amount of cash and bank deposits) as a leading indicator of economic activity, quarterly growth might actually accelerate slightly over the next 6 months.

Second quarter GDP growth of 0.6% is in line with trend growth but not above it. Consequently there is little reason to expect an imminent change in monetary policy by the MPC. The figures won’t have changed views on the size of the output gap and the amount of spare capacity in the economy. The MPC will also be aware that despite the tailwind to growth from the money supply, significant headwinds remain. Key headwinds include the squeeze on household income from inflation running ahead of earnings, bank balance sheet reduction and the ever present threat of a return of the euro crisis.

10.52am BST

David Cameron tweets that today's data shows Britain is moving in the right direction:

Surely it's the hardworking people who are building the economy, prime minister?

10.47am BST

BNP Paribas: well balanced growth

David Tinsley of BNP Paribas says today's data shows "relatively well balanced growth" in the last three months:

Within services, distribution, hotels and restaurants rose a very solid 1.5%. That was the stand-out area of strength, most other sub-sectors averaged around 0.5/0.6%.

Overall this is a decent but not spectacular performance for the UK economy. The level of output remains 3.3% below its previous peak, which highlights there is still much work to do.

10.30am BST

Reaction (1)

Here's a round-up of the best comment and reaction from economists and City experts on Twitter:

Updated at 10.30am BST

10.23am BST

Balls: It’s still a slow recovery

Ed Balls, shadow chancellor, has responded to the news that Britain's recovery picked up speed last quarter:

After three wasted and damaging years of flatlining, this economic growth is both welcome and long overdue. But families on middle and low incomes are still not seeing any recovery in their living standards. While millionaires have been given a huge tax cut, for everyone else life is getting harder with prices still rising much faster than wages.

“This is also the slowest recovery for over 100 years. In America, where President Obama has acted to support rather than strangle the recovery, their economy has grown nearly three times faster than the UK since autumn 2010. Simply to catch up all the ground we have lost under David Cameron and George Osborne we would need growth of 1.3 per cent each quarter over the next two years.

Real risks remain. So instead of more complacency from the Chancellor, we need action to catch up all the lost ground and secure a strong and sustained recovery that everybody can benefit from.

10.10am BST

My colleague Heather Stewart writes:

Britain's recovery picked up pace in the second quarter, official figures have confirmed, with GDP expanding by 0.6%.

George Osborne, the chancellor, welcomed the fresh evidence that the economy has moved, as he has put it, "out of intensive care".

"Britain is holding its nerve, we are sticking to our plan, and the British economy is on the mend," he said, "but there is still a long way to go and I know things are still tough for families.

More here: UK GDP growth of 0.6% shows 'Britain is on the mend,' says George Osborne

10.07am BST

Chart: Service sector lead the way

As suspected, most of the growth in the last three months has come from the service sector:

UK GDP by sector
Photograph: ONS

This reflects the fact that services still makes up around three-quarters of the overall economy.

A recap on the individual growth rates:

• Services: +0.6%

• Production: +0.6%, including +0.4% for manufacturing

• Construction: +0.9%

• Agriculture: +1.1%

10.02am BST

Chart: GDP over the last decade

Chief statistician Joe Grice made the point earlier that UK GDP is still 3.3% below its alltime peak in 2008.

This chart shows why — a massive tumble in output when the financail crisis struck, followed by patchy growth from the start of 2010.

Photograph: ONS

9.49am BST

Osborne: We’re holding our nerve

Chancellor George Osborne, doubtless invigorated by his adventures last night (photos), has welcomed the GDP data.

Osborne said:

Britain is holding its nerve, we are sticking to our plan, and the British economy is on the mend – but there is still a long way to go and I know things are still tough for families.

So I will not let up in my determination to make sure we put right all that went wrong in our economy.

Unlike the unbalanced economy before the crisis, we are going to make sure that everyone benefits from this recovery.

9.46am BST

And on a year-on-year basis, UK GDP is 1.4% higher than after the second quarter of last year.

However, we need to be cautious — as Q2 2012 contained an extra bank holiday for the Queen’s Diamond Jubilee, hitting output.

9.43am BST

Firing on all cylinders

All four main industrial groupings within the UK economy – agriculture, production, construction and services – grew in the second quarter of 2013. That means the economy is firing on 'all cylinders', in City jargon.

9.39am BST

Download the report

You can see the the data yourself on the Office for National Statistics website, here: Gross Domestic Product Preliminary Estimate, Q2 2013

9.38am BST

Good news, but nothing special

Britain's growth of 0.6% over the last three months is in line with City forecasts. It's twice as strong as the 0.3% rise in GDP recorded in the first three months, and is likely to cheer the government.

Our economics editor, Larry Elliott, comments that it's "good but unspectacular". If it continued over a whole year then it would mean annual growth of just under 2.5% — which would have been unspectacular in ther years before the financial crisis struck.

9.35am BST

Key event

UK GDP. Q2 2013
Photograph: ONS

9.33am BST

Questions – why has the construction sector grown so well, 0.9%, in the last three months?

Joe Grice won't speculate, but agrees that it's a stronger performance for the industry after a difficult time.

9.31am BST

Joe Grice of the ONS explains that Britain's economy is still 3.3% below its pre-recession peak.

9.30am BST


BREAKING: Britain's economy grew by 0.6% in the second quarter of 2013. That's in line with estimates.

The service sector grew by 0.6%,

Manufacturing grew by 0.4%

Construction grew by 0.9%.

9.28am BST

Joe Grice, chief economist at the ONS
Photograph: BBC News 24

Tension is building as the Office for National Statistics prepares to announce its first estimate of GDP growth, in just a few moment time.

Joe Grice, the ONS's chief economist, is sat at the press conference in London ready to deliver the big news….

Updated at 2.35pm BST

9.13am BST

Just over 15 minutes to go until we get the first estimate of UK growth for the last three months….

A 0.6% rise in GDP (the consensus view in the City) would mean that the economy has expanded by 1.4% over the last year (unless previous data is revised). That's a lacklustre annual growth rate.

Kit Juckes of Societe Generale reckons it won't be enough to persuade the Bank of England to start tightening monetary policy:

Year-on year growth of 1.4% is only good when we comapre it to the recent past or to the Euro Zone. And bear in mnd, we saw quarters with 0.6 or 0.7% growth in both 2012 and 2011, but we also saw quarterly falls. This may be marginally better than stagnation but won't alter the prospect of super-easy money being in place for a super-long time.

8.50am BST

Photos: Osborne meets the night shift

Chancellor George Osborne prepared for this morning's GDP data by spending last night visiting some of Britain's army of night workers in and around Birmingham.

He visited a Warburton's bakery, met with construction workers toiling on the M6 motorway, and toured Tesco's National Distribution Centre near Rugby, apparently to learn about how the UK economy runs at night.

Chancellor of the Exchequer George Osborne meets staff at Warburtons Bakery in Wednesbury near Birmingham.
Upper crust? Osborne meets staff at Warburtons Bakery in Wednesbury near Birmingham. Photograph: Stefan Rousseau/PA
Chancellor of the Exchequer George Osborne meets workers  on a section of the M6 motorway near Birmingham where he saw a road management scheme being constructed whilst the road was closed
Photograph: Stefan Rousseau/PA
Chancellor of the Exchequer George Osborne meets staff at Tesco's National Distribution Centre near Rugby.
Tesco’s National Distribution Centre near Rugby. Photograph: Stefan Rousseau/PA

Updated at 8.52am BST

8.41am BST

Service sector leads the way?

Where is Britain's growth coming from? The UK government has made plenty of noise about creating the 'March of the Makers", but economists reckon that the dominant services sector is driving the recovery.

Marc Ostwald of Monument Securities predicts:

Retail spending is seen contributing just 0.1 ppt to today's report, and construction output has been sluggish, with Services presumably assumed to have done most of the 'heavy lifting'.

8.37am BST

Dr Gerard Lyons, economic adviser to Boris Johnson, the Mayor of London, cautions against getting too excited about today's UK GDP figures.

8.28am BST

Spanish jobless rate finally falls

There are signs of recovery in Spain, too, this morning.

Its unemployment rate has fallen for the first time since it entered recession almost two years ago, but remains alarmingly high. The jobless rate dropped to 26.3% in the second quarter of this year, from 27.2% in January-March.

The total number of people out of work dropped to 5.98m, from 6.20m, while the employment total increase by 149,000 to 16.8m.

The south of the country continues to suffer the greatest unemployment rates, as this image shows:

Updated at 8.34am BST

8.08am BST

UK growth figures awaited

Chancellor of the Exchequer George Osborne meets staff at Tesco's National Distribution Centre near Rugby.
Chancellor of the Exchequer, George Osborne, meeting staff at Tesco’s National Distribution Centre near Rugby on Wednesday. Photograph: Stefan Rousseau/PA

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

Are things looking up for the British economy? We'll find out this morning, when growth figures for the second quarter of 2013 are released.

City economists expect to see a rise in GDP, of perhaps 0.6%, which would be twice as strong as the growth in the first three months of this year, when Britain avoided falling back into recession.

That would be welcome news to a country that's suffered weak growth, or worse, over the last few years. A strong performance is certain to be hailed by the government as vindication for its economic strategy.

As the Guardian explains this morning:

The Treasury will try to maintain a cautious posture, but start to put the political squeeze on the shadow Treasury team by claiming its dire predictions of mass unemployment have been proved untrue.

The shadow chancellor, Ed Balls, in the US for talks with the Obama administration, has already prepared the ground for the change of economic gear by highlighting the continued squeeze on living standards.

The UK will be the first major economy to estimate growth for the April-June period. In GDP forecasting (as in sport), Britain typically beats most other countries so the data will be a handy – if perhaps inaccurate – guide to economic conditions:

A healthy rise in UK GDP could add to the optimism created yesterday by the latest survey of European firms, which suggested the eurozone may finally be leaving recession.

The GDP data is released by the Office for National Statistics at 9.30am BST sharp, followed by a press conference in London.

I'll be covering the news and reaction in the liveblog, along with other key developments in the UK, the eurozone, and beyond through the day.

Updated at 8.28am BST

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The two doves on the Bank of England’s Monetary Policy Committee, Paul Fisher and David Miles, switched their position to back new governor Mark Carney in a 9-0 vote to keep the size of the quantitative easing program unchanged at 375 billion pounds…


Powered by Guardian.co.ukThis article titled “Bank of England policymakers voted 9-0 to leave QE unchanged” was written by Heather Stewart, for theguardian.com on Wednesday 17th July 2013 09.19 UTC

Bank of England policymakers swung behind the new governor, Mark Carney, and voted unanimously against extending quantitative easing at this month's monetary policy committee meeting.

David Miles and Paul Fisher, the two MPC members who had repeatedly backed Sir Mervyn King's calls for an extension of the deflation-busting policy, decided instead to switch their votes and support Carney's plan of leaving QE unchanged, amid signs that economic recovery was becoming "more firmly established".

However, the minutes also showed that the MPC plans to use an August deadline to examine its policymaking remit, set by the chancellor, to establish "the quantum of additional stimulus required and the form it should take". That suggests Miles and Fisher may simply have decided to await next month's meeting before pushing for a fresh round of QE.

George Osborne has asked the Bank to announce next month whether it would like to adopt the policy of "forward guidance" – announcing how it expects interest rates to move to influence market expectations.

The MPC made a first foray into forward guidance at its meeting a fortnight ago, taking the unusual step of issuing a statement to financial markets warning them that interest rates were unlikely to rise.

When Carney was governor of the Canadian central bank, he pledged to keep interest rates low for 12 months, helping to calm fears in financial markets that borrowing costs were about to rise. However, some MPC members are known to be unenthusiastic about the idea.

July's meeting took place during the so-called "taper tantrum", when the Federal Reserve chairman Ben Bernanke's plan to phase out its programme of QE prompted share prices to plunge and bond yields to spike, pushing up interest rates across many economies.

The minutes show that MPC members were concerned by the "surprising" rise in UK government bond yields that followed Bernanke's remarks, and were keen to dampen expectations that interest rates were set to rise. In April, markets had not been expecting rates to go up until late 2016; by the time the MPC met, that had been brought forward to mid-2015.

"UK developments, while broadly positive, had not been enough to warrant such an upward move in the near-term path of Bank Rate," the minutes said.

Persistently weak real income growth – with high inflation more than outweighing paltry pay deals – was also highlighted as a risk to the recovery by MPC members: "Real income growth had remained weak … and it was unlikely that consumption growth could continue at its current rate without some rise in real incomes."

However, the MPC added that "developments in the domestic economy had generally been positive" and broadly in line with the moderately upbeat picture presented by the previous governor, Sir Mervyn King, at his final inflation report press briefing.

For "most members", therefore, "the onus on policy at this juncture was to reinforce the recovery by ensuring that stimulus was not withdrawn prematurely" – subject to keeping inflation on track to hit the government's 2% target.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Carney questioned by MPs, while EU leaders head to Brussels for another bout of negotiations on the trillion-euro budget at the EU Summit. The European Central Bank and the Bank of England kept their benchmark rates at record-low levels today…

Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Incoming governor Mark Carney signals Bank shakeup” was written by Josephine Moulds, for guardian.co.uk on Thursday 7th February 2013 15.03 UTC

3.03pm GMT

Meanwhile, the EU leaders are arriving for the summit, where they will discuss the trillion-euro budget.

Updated at 3.03pm GMT

2.54pm GMT

But, while Draghi remained tight-lipped on Ireland, we should get some detail from Taoiseach Enda Kenny when he address the Dail before 3pm to outline the deal the Coalition has secured from Europe on Ireland’s bank debt.

Henry McDonald reports:

At present the cost of Anglo Irish Bank’s debts is around €28 billion to the Irish taxpayer.
One source in Dublin has said there will be “no road blocks” from the European Central Bank to prevent the liquidation of the Anglo Irish Bank now renamed the IBRC.
This coming deal is the one Kenny and his government have staked their reputation in terms of managing the Irish economy out of crisis.

2.51pm GMT

So what have the markets made of noises coming out of both the Bank of England and the ECB? UK shares fell after incoming bank governor Mark Carney dashed hopes that he would ease monetary policy when he takes charge. But European shares are higher, as Draghi signals the ECB will maintain its accomodative policy.

UK FTSE 100: down 0.34%

France CAC 40: up 0.13%

Germany DAX: up 0.91%

Spain IBEX: up 1%

Italy FTSE MIB: up 0.94%

2.36pm GMT

Draghi finishes by batting away yet another question about Ireland. He says the efforts of the Irish government on the financial policy front was what was important to re-establish the credibility of Ireland in the international markets.

Someone helpfully reminds Draghi not to forget his glasses as he heads out of the room for another month.

2.31pm GMT

Draghi says Bundesbank chief Weidmann is absolutely right about being worried about central bank independence, it is a compliment to credibility.

2.29pm GMT

Draghi says the decision not to change interest rates was unanimous.

Of course there were hints and discussions on how to improve financial conditions but that’s it.

2.24pm GMT

More Draghi… he says the ECB is convinced its policies are compatible with price stability and job creation.

We foresee a gradual recovery in the second part of this year.

Weak demand could explain subdued credit levels. We continue trying everything we can to resume credit flows.

2.20pm GMT

Now he’s talking about the single supervisory mechanism for EU banks.

We can’t afford separate banking regulation, we need to converge on one rule for the euro area, maybe the EU.

The legal act on the SSM has not been approved yet. The consultation with the EU parliament is still in progress.

He says there is a lot of support for the SSM.

2.14pm GMT

He is also defending his role as head of Italy’s central bank in the supervision Banca Monte deiPaschi di Siena. He says he does not want to take sides in the upcoming Italian elections but…

You should discount much of what you hear and read as part of the noise elections produce.

2.09pm GMT

Draghi is asked yet again about the Irish promissory note swap.

We do not want to enter into details of the swap.

He says, acknowledging, at least that there is some kind of swap.

2.04pm GMT

Carney to review UK’s economic policy regime

Mark Carney, the Canadian head-hunted by George Osborne to run the Bank of England, has told MPs he expects to undertake a thorough review of the UK’s economic policy regime when he arrives at Threadneedle Street in July, writes Heather Stewart.

Appearing before the cross-party Treasury select committee, Carney, who is currently the governor of the Bank of Canada, praised the process of five-yearly reviews of how inflation-targeting works in Canada — and conceded that he had discussed with the chancellor the possibility of altering the framework.
“The flexible inflation-targeting framework should remain broadly in place, but details need to be reviewed and could be changed,” he told MPs. In more than 40 pages of written evidence submitted to the committee, he characterised his conclusion on whether to ditch the current framework as: “the bar for change is very high but review and debate can be positive”.
Carney appeared to back away from one idea he mooted in a speech in December – that the current inflation target could be replaced by a so-called “nominal GDP” target, which could force the Bank to do more to kick-start growth. But he insisted to MPs that more could be done under the current framework, which he called “flexible inflation targeting”, to stimulate the moribund economy, including offering so-called “guidance” to reassure investors that the monetary policy committee would not tighten policy until the economy has fully recovered.
The Federal Reserve has promised that it will continue with the emergency policy of quantitative easing, until the unemployment rate has fallen to 6.5% of below.

1.59pm GMT

Draghi has batted away questions about the liquidation Anglo Irish Bank, referring everyone back to the Irish government.

Reuters sources are saying his comments signal ECB approval of the move.

Updated at 2.00pm GMT

1.57pm GMT

In answer to a question about when the recovery would take place, Draghi – seemingly amused – said it was too hard to answer exactly what time that would happen.

On the euro, he was asked about the recent rise in the single currency, and whether that posed a risk to stability. He said the appreciation reflected growing signs of the return of confidence in the euro.

By and large, he said, the nominal and real exchange rate was at or about the long term average. He did say the bank would continue to closely monitor market developments.

There have been growing concerns that the strength of the euro could jeopardise any recovery.

1.50pm GMT

Merkel says EU budget positions are still quite far apart

Meanwhile we are getting some early comments ahead of the EU summit.

German chancellor Angela Merkel is quoted as saying the positions on the EU budget are still quite far apart and it is not possible to say whether there will be an agreement.

1.45pm GMT

European inflation was 2% in January, down from 2.2% in November and December, and should fall below 2% in the coming months, says Draghi.

1.43pm GMT

Draghi says economic weakness in the euro area will continue in the early part of the year but later in 2013 economic activity should start to recover. This will be helped by better external demand, easier financial market conditions and monetary policy.

There is a stabilisation of business and consumer confidence.

He emphasises several times the ECB’s “accomodative” monetary policy stance.

Updated at 1.47pm GMT

1.39pm GMT

Draghi press conference starts

Draghi has now started and the press conference can be followed here.

1.38pm GMT

Anything Mark Carney can do, Mario Draghi can do too. He is late for the ECB’s press conference.

1.35pm GMT

US weekly jobless claims fall

Meanwhile in the US, weekly jobless claims came in at 366,000, down on the previous week’s revised 371,000 and with the trend figure near a five year low.

Analysts had been expecting a slightly larger fall, to around 360,000

1.29pm GMT

Carney is asked about banks shrinking their balance sheets, and the negative effect that has on their lending to small businesses.

He says there are other ways of shrinking the balance sheet, such as through higher retained earnings or shrinking balance sheets outside the UK.

1.25pm GMT

Soros says euro problems could break up EU

Back with the euro, and financier George Soros has said in an interview there was a real danger it could break up the European Union.

Open Europe has the detail here but among other things, the man credited with making billions out of betting against the pound, compared the single currency to the Soviet Union. He said:

I am terribly concerned about the euro potentially destroying the EU. There is a real danger that the solution to the financial problem creates a really profound political problem.

Germany needs to realise that the policy it imposes on the euro area – the austerity programme – is counter-productive. It cannot actually succeed. At the moment they [the south] is being pushed – unwittingly, not with bad intentions, but the effect is that they are being pushed into a long lasting depression and that is what is happening to Europe. And it may last more than a decade, in fact it could become permanent, until the pain is so big that eventually there may be a rebellion, a rejection of the EU, and that would then be the destruction of the EU, which is a terribly heavy price to maintain to preserve the euro, which is meant to be just a servant of the EU.

And here is the Soviet Union quote. Asked whether the euro would survive, he said:

It could last quite a long time, the same way as the Soviet Union, which was a very bad arrangement, lasted for 70 years. However, I think that eventually, it is bound to break up the European Union. The longer it will take, and it may take generations, those will be lost in terms of political freedom and economic prosperity. The solution is to me a terrible tragedy for the EU. And it’s happening to the most developed open society in the world. To me it’s a terrible tragedy. It doesn’t have villains, because I don’t think that Germany is doing it with bad intentions but it’s happening out of a lack of understanding of very complex problems.

Updated at 1.32pm GMT

1.11pm GMT

My colleague Heather Stewart has just pointed out two rather sobering charts in Carney’s written evidence to the Treasury Select Committee.

The first shows how reliant the UK still is on slow-growing advanced economies, with some 66% of exports in 2011, going to these markets, and just 12.9% going to the emerging markets.

The second chart is a stark depiction of the UK’s desperate performance in exports in general.

1.02pm GMT

And here’s Neil Prothero of the Economist Intelligence Unit with a helpful summing up of Carney’s appearance at the TSC, so far.

Irrespective of who heads the Bank of England, ultra-loose monetary policy in the UK will persist in some form for a long time to come, given the structural weakness of the economy and because the government views it as a necessary counterbalance to its protracted fiscal austerity programme.

Some changes to the inflation-targeting policy framework are, however, likely to be considered once Mark Carney succeeds Mervyn King as governor in July, since the Canadian appears to hold a more optimistic view than Mr King that there is more that monetary policy can do to stimulate the economy at the “zero lower bound” (when nominal policy rates are close to 0%).

Initially, this is likely to focus on adopting a more flexible inflation-targeting framework, which could include providing more “forward guidance” on the future path of monetary policy (for example, an explicit commitment that rates would remain at 0.5% for a stated duration) and/or threshold rules similar to those recently adopted by the US Federal Reserve.

A major shake-up of the Bank’s remit in the near term, such as a move to target nominal GDP or earnings, seems unlikely, but could still occur over time. Events could well force Mr Carney’s hand, should traditional monetary policy tools (including QE) continue to disappoint and the UK economy continues to stagnate.”

12.56pm GMT

Right, Carney’s back in the hotseat. We’ll be keeping one eye on that, as well as covering the ECB press conference at 1.30pm.

12.53pm GMT

Here’s Capital Economics on the messages coming from the Bank of England and its incoming governor Mark Carney today.

Not only did the Monetary Policy Committee (MPC) leave policy on hold again today, but in his testimony to the Treasury Committee, Governor-to-be Mark Carney sounded less keen than before on a change in the monetary framework. Nonetheless, he was keen at least to review whether it needs changing, leaving the door open to a shake-up at the Bank of England when he arrives in July.

12.45pm GMT

And… the ECB has also left rates on hold at 0.75%. We’ll have more from the European Central Bank at Mario Draghi’s press conference at 1.30pm.

12.41pm GMT

And the TSC is breaking but only for five minutes. You look a fit man, says Tyrie.

12.40pm GMT

Carney is asked about helicopter money, see 8.58am.

I cannot envision any circumstance where I would support [helicopter money].

He says there is flexibility in existing tools available to the Bank of England.

12.37pm GMT

Really? It seems this is only the first half of the Carney hearing and we are merely approaching a break in proceedings. That’s quite a marathon for Carney’s first appearance in front of the Treasury Select Committee.

Still, he’s retained his calm so far and seems to have charmed the MPs.

12.28pm GMT

It’s no wonder the pound doesn’t know which way it’s going. On the one hand, the Bank of England is saying it stands ready to provide additional monetary stimulus if required. Economists at Newedge note:

This suggests more QE is possible in May if recovery stalls and/or eurozone/US risks come back.

On the other hand, incoming bank chief Carney is saying returns from QE diminish as the scale of the programme is increased.

12.23pm GMT

Just a reminder, RBS chairman Sir Philip Hampton is in the Guardian building and ready to answer readers’ questions about the £390m fine the bank is paying to settle allegations it rigged Libor.

The webchat will take place from 12.30pm. Post your questions for the RBS chairman in the comments section here

12.20pm GMT

Carney says that evidence from Bank of Canada suggests that returns have declined from the QE programme, as the scale of it has expanded.

Updated at 12.24pm GMT

12.13pm GMT

Those comments from the Bank of England appear to have hit sterling, which is now only up 0.25% on the day at $1.57.

12.12pm GMT

More from the Bank of England, which has unusually issued a statement with its interest rate decision. (Could this be the start of a more open central bank, preparing for Carney’s entry?)

It says it is appropriate to look beyond the fact that inflation is currently running above target, as removing stimulus would risk derailing the recovery.

Updated at 12.12pm GMT

12.08pm GMT

Back to Carney, who says he does not expect to say much about fiscal policy and he does not expect the government to speak about monetary policy.

Carney refutes the FT story this morning, which suggests Osborne has been putting pressure on the Bank of England over growth. He says he is not meeting with the chancellor this week.

12.05pm GMT

The Bank of England says inflation is likely to rise further in the near term and remain above 2% for the next two years.

UK economic output appears to be broadly flat. Business surveys point to muted growth in near term.

12.02pm GMT

And the Bank of England has left rates and the quantitative easing programme unchanged. No great surprise there.

The bank says it sees a slow and sustained recovery in the economy, but says the risks are to the downside (ie it’s more likely that things turn out worse than forecasts, not better).

Updated at 12.04pm GMT

12.01pm GMT

John Mann has come up with some good questions (at last). He is pushing Carney on his use of the word ‘flexible’ when talking about inflation targeting. He says the talk of flexibility is a new notion in the UK and asks whether this gives politicians scope to put pressure on the Bank of England. Carney says:

There is no question about my independence as governor of the Bank of England. There is a governance structure that has been put in place, there is an absolutely clear structure.

He says the bank will be given a remit and will execute against that remit.

No political influence will come to bear on the execution of that remit.

11.56am GMT

Overall feeling is that Carney has not been as revolutionary as some had hoped/feared.

11.55am GMT

Six minutes and counting until the Bank of England announces its decision from the most recent monetary policy committee meeting. Will it try and steal the limelight from Carney by announcing a change to monetary policy?


11.53am GMT

Carney is asked if the Bank of England should be questioing its own remit – ie asking whether the inflation target is the right target. Carney says:

The bank is very well informed on not just the conduct and the effectiveness of the current remit. The bank can play a role in informing that debate.

If the bank were invited to question its remit, it is reasonable to respond.

Active questioning of that remit can make it less effective.

Once a remit is given then the bank’s job is to execute against that.

11.49am GMT

Nominal GDP targeting can be useful in the exceptional circumstances that the UK finds itself in, says Carney. That means it is entirely appropriate for the UK to consider it. But he says,

My inclination is that flexible inflation targeting – potentially deployed in a slightly different way – would remain superior [to nominal GDP targeting].

Updated at 11.49am GMT

11.47am GMT

Carney says he is “far from convinced” that the bank should move to nominal GDP targeting, but says it is a valid part of the debate if one is looking at a framework.

Updated at 11.57am GMT

11.45am GMT

Carney confirms he has spoken to chancellor George Osborne about the merits of changing the BoE’s remit. He says:

My view is that the best framework remains flexbile inflation targeting.

But he says there are advantages to nominal GDP targeting, which could allow for higher inflation in case of a slump.

Did his flexibility over this key question help him get the job? asks C4 News’ economics editor.

11.42am GMT

Carney says if more stimulus is required when he is in office he will do his best to persuade other MPC members.

11.36am GMT

But it is not entirely clear that is his focus. His spoken comments seem to be pointing the other way.

He says the current state of the UK economy and the labour market merit considerable monetary stimulus for a considerable period of time.

That may require new tools…

It is the responsibility of the BOE to review the tools it uses and if need be for stimulus to devise new instruments.

Updated at 11.41am GMT

11.34am GMT

The pound has surged on the back of Mark Carney’s remarks, driven by suggestions in his written evidence that the central bank must exit ‘unconventional monetary policy’.

Sterling rose 0.5% on the day to $1.575.

11.29am GMT

More from our banking editor Jill Treanor, on what Carney said on the banks:

On competition in banking he thinks more needs to be done. He points out there is direct relationship between banking concentration and financial stability. Some countries (Canada, Australia) with concentrated systems proved more stable during the crisis. Others (the UK, Netherlands and Switzerland) did not.

“It is clear that concentration makes instability more costly” as the two largest lenders – Lloyds and RBS – account for 45 per cent of the total stock of lending. And both were bailed out.

Opening up the market to new competition means that barriers to entry – essentially getting authorisation from the Prudential Regulation Authority – need to be eased and that some banks will need to fail.

“With a deposit guarantee scheme and a resolution regime in place, banks, particularly smaller ones, will be able to fail without threatening the stability of the banking system as a whole. It follows that the prudential requirements on new entrants can, and should, be lighter than they have been in the past, although some minimum standards must of course be maintained.

“The PRA is therefore reforming its authorisation requirements for banks in ways that reduce barriers to entry. We all need to recognise and accept that, under this regime, new entrants to the banking market may, from time to time, fail, but that this the flipside of a market that is truly open to competition”.

11.27am GMT

My colleague Jill Treanor writes:

Carney’s written evidence covers ending too big too fail in the
banking sector. “Restoring capitalism to the capitalists” – ie
avoiding taxpayer bailouts – “discipline” in the system will increase and systemic risk reduced.

He puts much hope in new mechanisms being designed by the Financial Stability Board. “Some countries need to legislate, not merely propose,” he says.

In times of crisis he makes clear that much hinges on the relationship between the governor and the chancellor. “Effective crisis management cannot, however, be legislated. It requires contingency planning during ‘peacetime’, decisiveness if ‘war’ breaks out and, more than anything else, a good working relationship between the Bank and HM Treasury, and
ultimately between Governor and Chancellor. That will be the focus of my efforts”.

11.25am GMT

And another snippet from Carney’s written evidence. Asked whether he would consider wading into foreign exchange rates to affect the value of the pound, Carney pointed out that the MPC has that right, as part of its remit, and he would recommend exercising it in an “extreme scenario”.

11.24am GMT

Carney says bank could committ to lower rates for fixed periods

He is asked about comments he has made that communications from the central bank can help manage market expectations.

He says the view in the Bank of Canada is that in normal times policy guidance is not very helpful. It would not move market expectations.

But, he says, when the Bank of Canada had got interest rates as low as they could go, it had to consider other policy choices.

We felt we could use communication to provide the extra stimulus. It sent a message there was going to be stimulus for a set amount of time, so that people could plan and put in place if they were going to buy a house or renovate. They had time to act on this. Everybody knew about this commitment in Canada. And it had an effect.

It was a conditional commitment. In part because of the response [to the communication], we ended up raising interest rates sooner than we had said. Made the outlook conditional on inflation.

Looking at the UK, he says, there is a valid discussion to be had about the potential use of this tool.

Updated at 11.30am GMT

11.18am GMT

Is the UK’s inflation target too flexible, Carney is asked.

He says the nature of the question reinforces the point. There should be a shared understanding of the flexibility that is there. Over what period does the bank need to get back to the inflation target?

In these exceptional economic circumstances, with inflation above target, it would be useful to have a shared understanding of what is the optimal timeline to return [to the target] and why. There is merit to considering the Fed-style threshold-based guidance.

Does one make that [threshold] time-contingent, or state-contingent, [i.e.] is it around a specific economic variable?

11.15am GMT

Asked about quantitative easing… should the bank have a wider consideration of the full effects of QE? Carney says yes. He’s looking forward to contributing to the TSC’s review of QE.

There are distributional consequences of QE. All monetary policy has distributional consequences. The response to those is [someone else's job].

He says the central bank’s 12 meetings a year “verges on too many”.

11.09am GMT

Carney reiterates that he is ready for internal Bank of England members to disagree with him, and he is prepared to be outvoted.

I would like to be on the right side more often than not. I fully imagine during the course of my term I will be outvoted.

11.07am GMT

The key issue, says Carney, is the time period over which inflation must return to the 2% target.

Updated at 11.08am GMT

11.06am GMT

Carney says flexible inflation targeting is the most successful monetary framework in existence but debate should be encouraged.

The flexible inflation-targeting framework should remain broadly in place, but details need to be reviewed and could be changed.

11.05am GMT

Can we turn to monetary policy, says Tyrie, finally. Is the UK’s monetary framework – ie flexible inflation targeting – the right one, he asks. Carney:

In Canada we review our framework every five years. We have found that is an effective process. It ensures shared understanding about the ‘flexible’ word in ‘flexible inflation targeting’

In an exceptional envrionment, it is important to ensure there is buy-in to the current framework.

He says the bar to change the framework is set very high.

Updated at 11.05am GMT

10.57am GMT

Carney says others should decide if reform of the Court of the Bank of England is needed:

I hesitate as a foreigner coming in and suggesting changes to the longer traditions of the [Bank of England]. Others should make those judgments rather than me.

Updated at 10.57am GMT

10.55am GMT

Mark Carney tells MPs he won’t be an “emperor” when he’s in charge at the Bank of England.

10.54am GMT

My colleague Jill Treanor is ploughing through Mark Carney’s written evidence, which runs to 45 pages. She writes:

On the key issue of monetary policy where he caused a storm in December by suggesting banks might need to ditch inflation targets and use nominal GDP targets instead.

He says he has not “made an assessment of the merits of altering the monetary policy framework in the UK” but then goes on to a lengthy explanation on what he did in Canada which reviews its target every five years and he suggests that
it should be “debated periodically” here in the light of “current
extraordinary circumstances”

He talks about the need for the Bank to “enhance its forecasting, building on the recent Stockton review to make forecasts more accurate, transparent and better integrated with policy analysis”.

And crucially he also spells out the need to “design, implement and ultimately exit from unconventional monetary policy measures in a manner that reinforces public confidence.”

He backs the proposals by Sir John Vickers’ independent commission on banking to erect ringfences around retail and investment banks. “The implicit state subsidy for banks needs to be removed,” he said.

The Chancellor had originally wanted a governor who would serve an eight year term and justifies his decision to only agree to do it for five years.

“A five-year term is the right managerial timeline to re-launch the Bank of England with its broader responsibilities, and to develop considerable talent, undertake targeted external recruitment, and build a succession plan.

“Over the five years, we can establish the full potential of the new institutional structure, which combines monetary policy, macroprudential and microprudential regulation.” And
by 2018, when his terms end, the Vickers proposals will be in place, he argues.

Finally, from a personal perspective, there are two considerations. By the end of five years he will have been a bank boss for over a decade – “there are limits to these highly rewarding but ultimately punishing jobs”. Plus it suits the ages of his children.

And a bit of wishful thinking from Carney, who writes: “More
generally, I would like to achieve an exit in 2018 that is less
newsworthy than my entrance. That can be achieved if:

  • the Bank’s existing functions are reaffirmed;
  • its new functions are embedded and understood;
  • a strong leadership team is in place;
  • the credibility of, and trust in, the institution are entrenched;


  • there is increased recognition that while the Bank of England’s actions provide the cornerstones of British prosperity—price and financial stability—these are necessary but not sufficient conditions for growth”

More on that, as it comes in…

Updated at 11.01am GMT

10.48am GMT

He admits that the central bank is not infallible:

The Bank of England will make mistakes, all institutions make mistakes.

10.47am GMT

Carney says, given that the bank is being given extra responsibilities, that means he will have to reconfirm or adjust vision for the institution.

Says that will be his job for the first six months of his tenure.

Updated at 10.49am GMT

10.45am GMT

Some analysis of Carney’s comments coming in. Annalisa Piazza of Newedge Strategy:

Some of Carney’s comments suggest that he favours some changes in the Bank of England’s policy framework. Nevertheless, we rule out that changes will be abrupt as he sounds very keen on maintaining confidence in the institution’s credibility.

Peter Dixon, Commerzbank:

Much of it is really suggesting what central bankers around the world have already talked about, in other words price stability is the main thing to focus on. One thing people talked about ahead of the hearing was his views on nominal GDP targeting, and he says well yes it’s an option in the vent that interest rates need a bit more traction, so he’s not ruling anything out or ruling anything in.

10.35am GMT

Slightly odd line of questioning from one MP, asking Carney to define various pieces of jargon. Carney says:

Capital ratio is a ratio of the equity in an institution relative to the assets. Unwinding QE is to return the balance sheet of the Bank of England to its historic level.

Tyrie says he gets full marks, prompting a rare laugh from the packed-out room.

Updated at 10.37am GMT

10.31am GMT

Carney on his own management style:

As governor i will from time to time be in the minority. That is ‘fine’. My job is to ensure all views are heard.

It will not always be possible to have consensus on the Bank of Engalnd’s MPC and FPC.

Updated at 10.31am GMT

10.28am GMT

Tyrie notes that in the written evidence Carney talks about his management style, suggesting consensus is key. Is that in contrast to Mervyn King, he asks.

Carney says King has always been ‘consensual’ in committees he has taken part in.

10.26am GMT

Carney says inequality and persistent unemployment can be a factor in monetary policy.

He expresses real concern about long term unemployment and suggests aggressive monetary policy should be used to counter it.

Updated at 10.33am GMT

10.25am GMT

Some headlines from the written evidence…

Carney: BOE Could Intervene On Exchange Rate In Extreme Scenario

Carney: BOE Will Need To Design Exit From Unconventional Policies

10.23am GMT

He’s asked whether he would extend his term if he feels he hasn’t achieved his goals. He says ‘no’ in a very long and convoluted manner. His daughter doesn’t get a mention, although I’m sure that’s one reason. Instead he says clarity is crucial, so it’s wrong to put a question mark over what is currently a finite timeline.

10.20am GMT

Carney tries to put a line under questions about his pay…

My pay and pension is equivalent to the pay and pension of the current governor. The housing allowance relates to the fact that I am moving from one of the cheapest capitals to one of the most expensive capitals.

I would add further that the combination of the two is broadly equivalent to the pay and pension of the outgoing CEO of the FSA.

10.17am GMT

Carney’s being asked about his £250,000 housing allowance. He says it is pretty normal to equalise living standards from where he is coming to where he arrives.

And justifies it by saying he’s moving from one of the least expensive housing markets to one of the most expensive.

Updated at 10.19am GMT

10.16am GMT

Tyrie describes it as “a novelty, at least”, the fact that Carney says timing and location of his daughters’ education was crucial in his decision about taking this job.

10.15am GMT

Here’s the link to Mark Carney’s written evidence to the Treasury Select Committee. There’s a whopping 45 pages of it, but my colleague Jill Treanor is scouring it for any intriguing details. More shortly…

10.13am GMT

Carney is asked why he changed his mind over the governor job. He says he originally said no due to concerns about moving his children between schools.

Andrew Tyrie on the committee clarifies that he’s more interested in why he then changed his mind.

Carney is stumbling a bit, but says the possibility of reducing the governor’s term to five years was decisive because of his eldest daughter’s schooling needs.

Updated at 10.15am GMT

10.06am GMT

Do bank governors on £1m a year take the tube? Maybe Carney got caught out by problems on the underground this morning.

10.04am GMT

Still no sign of the Bank of England’s incoming chief over at the Treasury Select Committee. Although the live stream has started here. Looks like a full turnout from the MPs at least.

10.02am GMT

UK industrial output climbs

UK trade and industrial production figures are also in. Industrial output rose more than expected in December, although oil field shutdowns drove the biggest quarterly fall since early 2009.

Manufacturing output climbed 1.6%, after a fall of 0.3% in November

Separate data from the Office for National Statistics showed that Britain’s goods trade deficit narrowed in December.

Peter Dixon of Commerzbank said:

The key point is manufacturing output is still 1.5% lower than it was a year ago, so although it was a good month in December, the trend clearly has not been very friendly over the last 12 months. Hopefully we will get a little more strength in the course of 2013 as the eurozone crisis begins to normalise, but obviously it’s going to be a slow haul for the manufacturing sector.

9.53am GMT

Spain’s borrowing costs rise on political uncertainty

Just in, Spain has sold €4.61bn worth of bonds compared with a target of €3.5bn-€4.5bn.

Borrowing costs rose, with the maximum yield on the March 2015 bond at 2.889% compared with 2.587% on January 10.

That is no doubt a reaction to the growing political instability in Spain, following allegations of corruption in the ruling PP party.

9.49am GMT

Back to Carney, it will also be intriguing to see how the Canadian reacts to the typically aggressive questioning of the Treasury Select Committee…

9.46am GMT

IMF chief hails liquidation of Anglo Irish Bank

Before we head over to the Thatcher Room for the Treasury Select Committee, there are some better economic signs from Dublin. My colleague Henry McDonald reports:

Liquidating the Anglo Irish Bank can only improve Ireland’s economic situation, the former deputy chief of the International Monetary Fund said this morning.

Last night both houses of the Irish Parliament rushed through legislation to close down the now nationalised bank that almost bankrupted the Republic.

It meant that Ireland will avoid having to pay a punitive IOU to Anglo Irish Bank bondholders of more than €3bn at the end of next month. That debt will now be spread over into a long term government bond.

Speaking on RTE’s Morning Ireland, former IMF deputy director Donal Donovan said it would reduce the amount the government had to find every year to pay back the the debt.

“By reducing the €3.1bn principal repayment, pushing it out, we are doing two things: first of all we’re reducing the amount the government has to find every year to borrow from the markets in order to come up with this €3.1bn – it’s not going to be zero, but it’ll be likely to be much less,” Mr Donovan said.

“Second, by pushing it out, we are giving the opportunity for the country to grow and for recovery to take place, so that when we do start to repay this down the road, the cost is not going to be so great. That’s not a trivial thing.”

The move requires approval from the European Central Bank, which may be endorsed in Frankfurt later today.

The historic Anglo Irish Bank debt had been costing Irish taxpayers €3.1bn each year.

Although 800 jobs are at risk as a result of liquidating Anglo which was renamed under state control the IBRC Irish government sources said many of these posts could be saved by re-directing towards the National Assets Management Agency – the body which is in charge of toxic, debt ridden assets banks owned and later had to hand over to the Irish state.

Updated at 9.50am GMT

9.39am GMT

It will be interesting to see how the MPs treat Mark Carney at his first Treasury Select Committee hearing in about a quarter of an hour from now.

The Bank of Canada’s appointment was warmly received when it was announced last year. But, Simon Nixon argues in the Wall Street Journal, that “some of the Carney gloss is coming off”. He writes:

It is fair to say that in the two months since his appointment, some of the gloss has come off Mr. Carney’s reputation—and that some of this damage is self-inflicted.

First, he notes that Carney’s decision to seek a pay package worth more than £1m, will make his job harder as it risks reinforcing the perception that he is a globe-trotting hired gun with no deep commitment to the UK. That will only inflame hostility towards him if and when the central bank is forced to take unpopular decisions.

But, writes Nixon, the governor-elect has also made his life more difficult by questioning the Bank of England’s prized inflation target.

The more puzzling self-inflicted wound was Mr. Carney’s decision to float the idea that the BOE might drop its inflation target in favor of a nominal GDP target. This piece of kite-flying, which appears to have been coordinated with the Treasury, has been almost universally dismissed by market economists and fellow central bankers.

Adam Posen, a former U.K. rate-setter with a reputation as a “dove” who consistently played down inflation concerns and favored greater central-bank stimulus, told Parliament last month that abandoning the inflation target would be a “grievous error” that would raise unnecessary concerns over the U.K.’s commitment to sound money. Another former U.K. rate-setter and arch-dove, David Blanchflower, has pointed out that even if nominal-GDP targeting was a good idea in theory, it is a bad idea in practice because nominal GDP is hard to measure and prone to large revisions.

Updated at 9.51am GMT

9.17am GMT

Merkel in Paris ahead of budget talks

Back to the EU budget talks, which will be discussed late into the night tonight, with no decision expected until tomorrow morning at the very earliest.

It seems German Chancellor Angela Merkel was preparing the ground last night, with a trip to Paris where she tried to strike a deal with French President François Hollande ahead of the talks (while taking in the football).

My colleague Ian Traynor writes:

 A senior German official said the differences between [France and Germany] were slight and they expected to agree on a “common direction” for EU spending.

Hollande said on Tuesday his bottom line was €960bn for the 2014-2020 period, a figure which coincides with Berlin’s marker of 1% of EU GDP. That figure refers to “commitments” in EU parlance, meaning legally binding budget pledges for EU projects.

Britain, meanwhile, is pushing for a lower figure. Ian Traynor dissects the different countries’ positions in an excellent preview here.

Updated at 9.40am GMT

8.58am GMT

Looking ahead to Mark Carney’s appearance before MPs this morning, Ed Conway of Sky notes the growing political influence on central bankers around the world.

He says this could, in turn, raise the prospect of so called ‘helicopter money’. This refers to pure money financing of the deficit. For example, the government may send every family in the country a one-off ‘bonus’ of £1,000, directly financed by money created by the Bank of England.

Carney is unlikely to broach such a controversial topic in his hearing this morning, but it will be interesting to see whether he refers to expanding the central bank’s arsenal in tackling crises.

Updated at 9.46am GMT

8.41am GMT

Quiz RBS chairman on Libor: live at 12.30pm

Also on the Guardian website today, the chairman of Royal Bank of Scotland will be appearing live to answer readers’ questions about the £390m fine the bank is paying to settle allegations it rigged Libor. The webchat will take place from 12.30pm GMT on 7 February.

Post your questions for the RBS chairman in the comments section here

Updated at 9.43am GMT

8.32am GMT

Where does your money go?

As the EU leaders gear up for the budget talks, we look at how much each individual European citizen ‘gives to’ or ‘takes from’ the European project.

Flick through our budget interactive: to find out where your money goes. How much do French farmers benefit from you personally? What about a Polish justice project? Calculate your own contributions to European initiatives in different countries.

Updated at 8.43am GMT

8.21am GMT

Then we’ve got decisions from both the Bank of England and European Central Bank, following their monthly meetings to discuss interest rates and any stimulus measures.

The Bank of England is likely to hold rates steady and any decision on expanding the quantitative easing programme will be left until after the latest inflation report, which is out next week.

The bank might, however, announce what it plans to do with proceeds of £6.1bn of gilts maturing early next month,

The ECB is also expected to retain the status quo. But all eyes will be on Mario Draghi when he gives a press conference at 1.30pm. Questions will likely focus on the strength of the euro and what, if anything, he intends to do about it.

Updated at 9.45am GMT

8.06am GMT

BoE’s Carney faces MPs

But first up, we’ve got the central bankers. At 9.45 this morning, we’ll be hearing from Mark Carney, incoming chief of the Bank of England, when he faces a panel of MPs at the Treasury Select Committee. We will be live-blogging the hearing, which you can also watch online.

Among other things, the MPs are likely to ask Carney whether he thinks the central bank should be doing more to drive the UK economy. His response either way could move the markets, as investors anticipate a new regime at Threadneedle Street.

Carney has made references to targeting nominal GDP, rather than inflation, which could allow for higher inflation during a slump. Markets will be looking to see whether he expands on that theme, but he is likely to keep details to a minimum before he takes the reins in June.

Updated at 9.01am GMT

7.35am GMT

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

EU leaders will be heading to Brussels today for what is likely to be another gruelling summit to discuss the region’s trillion-euro budget. The talks will pit Britain against France, after French president François Hollande singled out the UK as the biggest obstacle to a breakthrough agreement.

This week’s summit follows a failed first attempt to reach a deal on the budget in November, with the British arguing for further reductions of at least €30bn (£26bn) on the overall package of €973bn proposed by Herman Van Rompuy, the summit chair.

My colleague Ian Traynor reports:

European leaders are inching towards a deal on the EU’s new seven-year trillion-euro budget that should allow David Cameron to argue he has succeeded in forcing a real cut in Brussels spending.

The figures, exploiting a big gap between pledged spending and a more accurate estimate of what probably will be spent, will be fiercely contested at a two-day summit opening on Thursday in Brussels. The signals on Wednesday evening, however, were that two separate sets of spending forecasts would be confected enabling the main players to claim victory from very different positions.

EU leaders failed to agree on the new seven-year budget in November and a fresh failure over the next few days is likely to throw EU medium-term spending plans into acute disarray

We’ll have his full preview up online shortly.

Updated at 8.03am GMT

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UK economy contracts more than anticipated by 0.3% in the last quarter of 2012 and is not expected to regain peak level for another two years, marking slowest recovery in a century. A triple-dip recession will occur if the economy contracts again in Q1 2013…

Powered by Guardian.co.ukThis article titled “Britain heading for triple-dip recession as GDP shrinks 0.3% in fourth quarter” was written by Phillip Inman, economics correspondent, for guardian.co.uk on Friday 25th January 2013 12.09 UTC

Britain could be on course for its third recession in four years after the economy shrank 0.3% in the last three months of 2012.

The figures were worse than expected and could put pressure on the government to consider a “plan B” that would stimulate demand.

A fall in manufacturing output dragged down the economy, countering a small rise in construction between October and December, according to the Office for National Statistics. The economy achieved zero growth for the year as a whole.

Sterling dived on the news, reflecting fears the UK will lose its AAA credit rating and status as a haven economy, though the stock market shrugged off the news, remaining at a four-year high.

George Osborne said he would not “run away” from the problems facing the UK economy: “We have a reminder today that Britain faces a very difficult economic situation. A reminder that last year was particularly difficult, that we face problems at home because of the debts built up over many years and problems abroad with the eurozone, where we export most of our products, in recession.”

The shadow chancellor, Ed Balls, called on Osborne to introduce policies which will “kickstart our flat-lining economy”. “A plan B now should include a compulsory jobs guarantee for the long-term unemployed and a temporary VAT cut to boost family incomes and our struggling high streets,” said Balls.

The Trades Union Congress (TUC) general secretary, Frances O’Grady, said the chancellor’s austerity plan had “pushed the UK economy to the brink of an unprecedented triple-dip recession”.

A triple-dip recession will occur if the economy contracts again in the first quarter of 2013. The economy remains 3.5% below its peak in 2007 and is not expected to regain its previous level for at least another two years, making it the longest recovery in 100 years.

“We are now midway through the coalition’s term of office and its economic strategy has been a complete disaster. We remain as dependent on the City as we did before the financial crash,” O’Grady said.

In the 10 quarters since the election, manufacturing has contracted by 0.4% and the construction sector has shrunk by 9%, the TUC said.

The contraction in GDP in the fourth quarter followed a near 1% rise in the third quarter when the economy was boosted by the Olympics.

A survey of economists had predicted a 0.1% drop in GDP in the fourth quarter, though several prominent analysts had forecast a bigger contraction after a series of surveys last year showed the manufacturing industry suffering from a downturn in exports.

The ONS data showed that within the manufacturing sector, mining and quarrying output suffered its biggest decline since records began because of maintenance on North Sea oil and gas fields.

In the powerhouse services sector activity ground to a halt in the fourth quarter due to the absence of the London Games boost in the previous three months.

The only bright spot was construction, which delivered a 0.3% rise in output. A post-Olympic cut in spending on sport and recreational facilities pushed down the index for government and other services by 0.7%, after an increase of 1.6% in the previous quarter. All Olympic ticket sales were counted in the previous quarter, giving the ailing economy a one-off boost.

Despite the contraction in the economy, employment has remained resilient, with figures this week showing that almost 30 million adults were in a job in the quarter to November, up by more than half a million on the previous year.

The Bank of England governor, Sir Mervyn King, said this week the UK had been slower to recover than most other countries. But he insisted there were signs of a “gentle recovery” under way and asked Britons to be patient.

Lee Hopley, chief economist at EEF, the manufacturers’ lobby group, said there was little positive news from the figures. “Even assuming some unwinding of activity from the Olympics boost in the previous quarter, this still leaves no real signs of underlying growth in the economy. The news from industry was particularly weak, with November’s sharp drop on output contributing to a rather grim fourth quarter and leaving the overall picture for manufacturing in 2012 the weakest since 2009.”

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U.K. manufacturing is down, construction is struggling, exporters are having a torrid time – and then there’s the eurozone recession. Here is a view of the current conditions in the U.K. manufacturing, housing, construction and banking sectors…

Powered by Guardian.co.ukThis article titled “UK economy: the problem sectors” was written by Phillip Inman, economics correspondent, for The Guardian on Friday 7th December 2012 20.32 UTC


Industrial output is now at its lowest level since May 1992 and manufacturing is 20% down on its peak. Latest figures showed a month-on-month fall of 0.8%, far worse than economists had expected and the 16th consecutive month when manufacturing output was lower than the same month a year earlier.

The Office for National Statistics found most areas of manufacturing were on the slide, with chemical production and wood and paper manufacture leading the downturn.

A fall in the value of the pound and the opening up of new destinations for UK exports – such as Indonesia and Columbia – have failed to lift the sector, which is far more dependent on trade with the euro area than ministers would like. The British Chambers of Commerce said the sector remained well managed and prepared for an upswing, but needed more government help to boost exports to fast developing countries.


There may be plenty of cranes on the London skyline, but the construction sector outside the capital is dead. Commercial building, the lifeblood of most large firms, has failed to recover from the financial crisis. The hole in the heart of Bradford, where a Westfield shopping centre is already four years late, is an example of building projects that have remained strictly on the drawing board.

Civil engineering has suffered from a lack of infrastructure improvements after a near-£30bn cut in public investment spending. The CBI has urged the government to use the downturn to upgrade the road and rail network. The Treasury encouraging upgrades to the broadband network has failed to counteract falls in investment elsewhere.


The Bank of England has become increasingly frustrated at the unwillingness of banks to increase their lending to businesses and households. In the summer it set up an £80bn Funding for Lending scheme that allows banks to offer cheaper loans to customers. Banks have reported using the money to lower mortgage rates, but anecdotal evidence suggest older, more creditworthy customers have gained while first-time buyers remain on the sidelines. More importantly, many economists argue the loans on offer are small in comparison to the size of the problem.

The UK’s major banks remain in a dire financial situation and need to build up their capital reserves to protect themselves against another financial crash. The central bank governor, Sir Mervyn King, insisted earlier this month that UK banks were well-capitalised but said it would be “sensible” to improve their resilience further. He warned “an erosion of confidence” was damaging economic activity, creating “a spiral characteristic of a systemic crisis”.


British exporters are having a torrid time battling the headwinds of the slowing Chinese economy, the eurozone crisis and uncertainty in the US over the fiscal cliff (the tax rises and spending cuts timed for January which could halt US economic progress in its tracks).

According to the latest figures from the ONS, in the three months to October the country racked up its biggest trade deficit since records began. The trade gap widened to a record £28bn, from £25bn in the quarter ended July, the ONS said, as sales of goods into the rest of the European Union declined sharply.

George Osborne promised more help for exporters with loan and credit guarantees through the government’s UKTI export arm. But the sums remain small compared to the size of export orders and firms seem reluctant to take risks in the current economic environment.


Housebuilders have largely shed the debts acquired in the crash and become profitable again. But building remains at historic lows. The last time the UK built so few homes was in 1931.

MPs and business groups have called for a 1930s-style house building boom, but with no success so far. Ministers are planning to rip up planning rules to allow developers a clear route on greenfield sites, but even if this plan goes ahead, it will be some time before there are any spades in the ground.

Developers, which already have several years of plots on their books with planning permission, have refused to increase the number of new homes while customers are constrained by high mortgage borrowing costs. They blame the banks for withholding credit or charging too much for credit as the main reason for their inactivity.

Prices are slipping, putting another brake on investment in the sector. Halifax said prices are likely to stay flat next year after a 1.3% fall in 2012. Most families are unwilling to buy homes in a market where prices are falling, though buy-to-let investors have snapped up thousands of homes since the downturn, increasing the size of the rental market.

The eurozone

The machine at the heart of the eurozone is spluttering: the Bundesbank has sliced more than 1 percentage point off its forecast for economic expansion in Germany next year – highlighting severe aftereffects of the sovereign debt crisis.

The German central bank revealed the crushing blow to confidence and growth that has struck the euro area when it cut its projection for growth in 2013 from the 1.6% it had expected six months ago to a grim 0.4%. It also said the German economy, Europe’s largest, will grow only 0.7% this year, down from its previous forecast of 1%. The downgraded forecast shows Germany is no longer immune from the downturn in the rest of the currency bloc.

Separately, the German finance ministry said industrial output fell 2.6% in October, while manufacturing crashed by 2.4%, providing “further evidence that the economy’s backbone is quickly losing steam,” said the ING analyst Carsten Brzeski.

Without an expansive and confident Germany, it is almost certain the eurozone’s double-dip recession will continue into 2013, dragged down by severe contractions in the southern states.

There is also a feedback loop into UK trade should Germany suffer a prolonged fall in demand. Germany and the rest of the EU still comprise over 50% of UK exports, despite the government’s emphasis on redirecting trade elsewhere to rapidly developing economies in Asia, Africa and South America.

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