uk

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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USA 

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

 

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

Wall Street opens lower

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

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

Markets fall

Markets fall. Photograph: Reuters/Reuters

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

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

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

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

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

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

McCafferty.

McCafferty. Photograph: Rex Features/Rex Features

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

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

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

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

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

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

Twitter announces job cuts

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

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

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

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

Updated

David Drumm, former head of Anglo Irish Bank.

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

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

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

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

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

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

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

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

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

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

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

Global rich are getting richer

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

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

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

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

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

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

Credit Suisse’s chief executive Tidjane Thiam says:

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

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

Credit Suisse wealth report 2015
Credit Suisse wealth report 2015

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

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

Credit Suisse wealth report 2015
Credit Suisse wealth report 2015

Updated

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

Hedge fund manager Gertjan Vlieghe

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

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

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

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

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

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

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

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

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

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

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

The “headwinds” were:

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

But on the plus side:

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

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

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

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

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

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

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

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

Patrick McLoughlin told MPs that:

“They have behaved in an appalling way,”

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

Pre-election giveaways expected in Irish 2016 budget

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

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

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

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

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

VW emission scandal hits German morale

german flag

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

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

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

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

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

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

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

VW to slash investment by €1bn/year

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

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

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

“The Volkswagen brand is repositioning itself for the future.

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

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

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

Updated

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

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

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

Updated

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

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

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

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

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

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

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

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

Updated

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

Osborne: This isn’t damaging deflation

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

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

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

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

The three reasons why UK inflation is negative again

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

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

The ONS says:

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

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

Over to the ONS again:

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

UK inflation, the detail, September 2015

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

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

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

UK inflation

Clothing and fuel prices push inflation negative

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

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

UK in negative inflation again

Here we go! UK inflation has turned negative again!

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

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

More to follow

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

Pound vs dollar

Pound vs US dollar today Photograph: Thomson Reuters

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

Updated

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

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

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

Inflation, a preamble

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

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

My colleague Katie Allen explains:

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

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

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

Here’s her preview:

Hedge fund manager Gertjan Vlieghe

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

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

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

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

Clarke told Bloomberg:

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

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

Mining stocks hit by Chinese gloom

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

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

FTSE 100 fallers

FTSE 100 fallers Photograph: Thomson Reuters

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

Conner Campbell of SpreadEX explains:

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

Updated

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

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

SAB Miller shares

SAB Miller shares this morning Photograph: Thomson Reuters

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

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

Updated

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

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

Pound vs US dollar

Pound vs US dollar today Photograph: Thomson Reuters

Updated

AB InBev and SABMiller agree terms on £68bn deal

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

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

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

Here’s the statement issued to the City.

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

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

More here:

Updated

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

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

He said (via Bloomberg)

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

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

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

Updated

Chinese imports slump 20% as slowdown continues

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

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

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

Reuters has more details:

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

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

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

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

Updated

Introduction: Has UK inflation turned negative again?

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

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

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

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

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

Also coming up…

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

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

Updated

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A £500m rise in cars shipped abroad fails to ease prospects of huge UK trade deficit in third quarter fueled by strong pound plus eurozone woes and declining oil industry. The significant improvement seen in Q2 now considered as “only temporary”…

 

Powered by Guardian.co.ukThis article titled “Car exports cut monthly UK trade deficit but quarterly gap is growing” was written by Phillip Inman Economics correspondent, for theguardian.com on Friday 9th October 2015 11.47 UTC

A rise in car exports helped improve Britain’s trade deficit in August, according to official figures.

The monthly shortfall in the trade balance for goods narrowed to £3.3bn from £4.4bn in July. However, the UK was still heading for a huge deficit in the third quarter of the year after an upward revision to July’s shortfall.

Paul Hollingsworth, UK economist at Capital Economics, said: “Even if the trade deficit held steady in September, this would still leave the deficit in the third quarter as a whole at around £11bn, far higher than the £3.5bn deficit recorded in the second quarter.”

He said this suggests that net trade is probably making “a significant negative contribution to GDP” at the moment.

Hollingsworth warned that the strong pound and weakness in demand overseas as the US economy stuttered and the eurozone remained in the doldrums meant the government’s hopes of a significant rebalancing towards manufacturing exports would be dashed in the near term.

Alongside the £500m rise in car exports in August, the chemicals industry sent more of its production to the US, the ONS said. Total goods exports increased by 3.5% to £23.6bn in August 2015 from £22.8bn in July 2015.

But this positive news was offset by the continued decline in Britain’s oil industry, which has been a major factor holding back progress this year.

Lower production and the lower oil price have dented exports, and though oil imports are likewise cheaper, they continue to rise in volume.

The mothballing and subsequent closure of the Redcar steel plant could also have had an impact as the export of basic materials dived in August by more than 10%.

The services sector recorded an improvement in its trade balance, but the ONS pointed out that the UK continued to rely heavily on the financial services industry to pay its way in the world.

Figures for the second quarter showed that the surplus on trade in services was £22.8bn, of which almost half – £10.1bn – was contributed by banks, insurers and the fund management industry.

David Kern, chief economist at the British Chambers of Commerce, said the narrowing of the deficit in August was welcome, but taking the July and August figures together pointed towards a deterioration.

“This confirms our earlier assessment that the significant improvement seen in the second quarter was only temporary.

“The large trade deficit remains a major national problem. This is particularly true when we consider that other areas of our current account, notably the income balance, remain statistically insignificant.”

Kern urged the government to adopt measures that will “secure a long-term improvement in our trading position”.

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Britain’s economy remains fragile but ‘improvements are beginning to be seen’ says OECD chief economist. According to OECD, the UK is expected to show annualised growth of 0.5% in the first quarter, and 1.4% in the second quarter of 2013…

 


Powered by Guardian.co.ukThis article titled “UK economy should avoid triple-dip recession, OECD forecasts” was written by Josephine Moulds and Phillip Inman, for The Guardian on Thursday 28th March 2013 20.17 UTC

Britain's economy is getting stronger and should avoid a triple-dip recession, according to the Organisation for Economic Co-operation and Development. The Paris-based thinktank sounded a positive note as official figures showed that the services sector, which contracted at the end of last year, returned to growth in January.

Barring changes in government policy, the UK is expected to have grown at an annual rate of 0.5% in the first quarter and to grow at 1.4% in the second.

Pier Carlo Padoan, the OECD's chief economist, said: "The situation [in the UK] is still fragile. I think the policy course, both in terms of monetary and fiscal policy, is going in the right direction and improvements are beginning to be seen."

Until recently, the OECD and the International Monetary Fund had been warning George Osborne that his austerity policies risked prolonging the longest economic depression in 100 years. Padoan had called on the chancellor to relax spending cuts and put forward growth policies, in a shift to a Plan B for the economy.

But the more upbeat outlook from the OECD was reinforced by a survey of the UK's services industry that showed an improvement during January, offsetting a weakening picture in the construction and manufacturing sectors. The Office for National Statistics said the services sector, accounting for three-quarters of economic activity, expanded by 0.3% on the previous month and was 0.8% ahead of the same month a year earlier.

Unfortunately for ministers hoping to see an improvement across the private sector, the strongest element of the services index in recent years has proved to be government spending. The financial services sector has almost recovered to its pre-recession peak, along with business services, leaving the distribution, hotels and restaurants, transport, storage and communication sectors well below their high-water mark.

Chris Williamson, chief economist of financial data provider Markit, said the services data combined with strong retail sales would persuade the Bank of England to stay its hand when it meets next week.

Capital Economics said an increase in quantitative easing from the current £375bn the Bank of England had pumped into the economy would probably need to wait until at least the autumn, when incoming governor Mark Carney would have established a new remit focused on growth.

The OECD said activity was picking up in many major economies, with the global outlook improving since its last update in November. It expected the US to rebound in the first three months of this year, while Japan had been boosted by a new growth strategy and stimulus package. But it said improvements in financial markets around the globe had not been fully reflected in real economic activity, in part because confidence remained low.

Padoan warned that the flood of cheap money into the system, via generous stimulus packages, had also led to some "excessive risk-taking". "We have now learned that imbalances build up in a way we tend to ignore," he said. "Let's watch prices of assets going up which are not warranted by fundamentals. Let's be very careful. At the same time, let's be careful of not putting a brake on the recovery that is slowly materialising. It's a delicate balancing act."

The OECD said a meaningful recovery in Europe would take longer than in the rest of the G7. It blamed this on a deteriorating jobs market, which had depressed consumer confidence. "Especially in Europe, the rise of long-term unemployment, with more of the unemployed moving off unemployment insurance on to less generous social benefits, is worsening poverty and inequality," it said.

The thinktank also highlighted the growing divergence between Germany, which it expects to pick up strongly in the first half of this year, and other economies, which are forecast to either contract or show minimal growth.

Germany is expected to grow by 2.3% on an annual basis in the first quarter, and then 2.6% in the second. By contrast, France is forecast to shrink by 0.6% on an annual basis in the first quarter, followed by 0.5% annualised growth in the second quarter.

Growth in emerging markets is still much faster than in the G7 and these countries will drive the global economy this year. The OECD said annualised growth in China was expected to continue to be well above 8% in the first half of 2013.

US economy perking up

The number of Americans filing new claims for unemployment benefits rose last week, but not enough to suggest the labour market recovery was taking a step back.

Other data showed the economy expanded at an annual rate of 0.4% in the fourth quarter, more than the government had estimated.

The reports reinforced the view that the US economy perked up in the first quarter, although it still appeared vulnerable to fiscal austerity measures that kicked in early in the year.

"The underlying growth trend is showing some encouraging signs, but the key risk is how much fiscal tightening we'll see this year," said Laura Rosner, economist at BNP Paribas in New York.

While jobless claims increased more than expected last week, they have trended lower this year and remain near five-year lows. Last week, initial claims for state unemployment benefits increased 16,000 to a seasonally adjusted 357,000, the labor department said.

The four-week moving average for new claims, a better measure of labour market trends, rose 2,250 to 343,000.

Still, for many economists a trend reading below the 350,000 level points to a firm pace of hiring in March. Reuters, Washington

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In the broadcast today: What Does Cyprus Mean for the EUR Future? In light of the proposed bank deposits levy and its rejection by the parliament in Cyprus, we examine the impact of the recent events in the small island nation and explore how they could continue to dictate the future direction of the euro, we analyze the latest trend developments in the EUR/USD currency pair, we keep an eye on the bounce higher of the GBP vs USD, we continue to monitor the USD/JPY pair, we highlight the market’s reaction to the attempts to secure a new bailout for Cyprus, the statement by the European Central Bank, the Bank of England Meeting Minutes, and the U.K. Jobless Claims and Unemployment Rate, we discuss new forecasts from Bank of New York-Mellon and Commerzbank, and prepare for the trading session ahead.

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Britain’s factory output drops 1.5% unexpectedly painting a grim picture of the economy. Greek international lenders to discuss reforms with Samaras. Carney meets treasury officials to discuss bank remit. Cyprus and the Troika negotiate a small bailout…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: UK manufacturing slump raises risk of triple-dip” was written by Josephine Moulds and Nick Fletcher, for guardian.co.uk on Tuesday 12th March 2013 16.19 UTC

4.16pm GMT

Cyprus and troika reportedly negotiating small bailout

Meanwhile Cyprus and the troika are negotiating a smaller bailout package, Dow Jones is reporting:

Earlier of course German finance minister Wolfgang Schaeuble was saying the Bundestag could vote on a bailout package for Cyprus next week. If the deal gets done this week, that timetable looks plausible.

Updated at 4.19pm GMT

4.09pm GMT

Samaras and troika meeting reportedly delayed

Still with Greece, the meeting between prime minister Antonis Samaras and visiting troika officials, due to take place this evening has now apparently been postponed until tomorrow…

3.59pm GMT

ECB funding to Greek banks rises in January

Greek banks turned to cheaper ECB funding in January, new figures have shown.

ECB funding to the country’s banks rose from €19.35bn in December to €76.22, while emergency liquidity assistance from Greece’s central bank fell from €101.85bn to €31.42bn. Tapping European Central Bank funds is around 2 percentage points cheaper than the ELA.

3.27pm GMT

Germany’s second largest bank, Commerzbank, is preparing a capital increase of between €700m and €800m, according to a report in Manager Magazin.

Updated at 3.35pm GMT

3.23pm GMT

Germany could vote on Cyprus package next week

Germany could vote on an aid package for Cyprus as early as next week.

That is what finance minister Wolfgang Schaeuble has told conservative politicians, although that is dependent on a decision from eurozone finance ministers that the country require financial assistance.

The Bundestag lower house of parliament would be deciding on a €17bn aid package for Cyprus, mainly to help recapitalise its banks.

Updated at 3.27pm GMT

3.01pm GMT

And with that I’ll hand the blog over to my colleague Nick Fletcher.

3.01pm GMT

UK GDP forecast to drop by 0.1% in February

Respected forecaster NIESR estimates that the UK economy declined by 0.1% in February. That would point towards a 0.1% decline in GDP over the three months to February.

But the thinktank would not be drawn on whether the economy will shrink over the three months to March and therefore slide into a triple-dip recession.

Simon Kirby of NIESR said:

It’s going to be a very close run thing. The obsession with triple-dip distracts us from the more important point that the UK has been effectively flat for over two years. The real risk for the economy is an absence of growth throughout 2013. It’s the risk that this trend of stagnation will continue through 2013.

He said the trade figures today may have looked positive but, in fact, demonstrated the weakness of imports, which highlighted the lack of domestic demand.

NIESR defines a period of depression as one in which the economy languishes below its pre-recession peak, which they pinpoint as January 2008. The UK economy is still 3.25% below that level and NIESR says this period of depression is likely to continue until 2015.

But he notes the disputes over the term ‘depression’.

Quite often people think about a depression in terms of a very, very, very severe recession, like the experience of Germany in 1930s. That is quite clearly not the case for the UK at the moment.

Updated at 3.28pm GMT

2.15pm GMT

Greek PM gears up for meeting with troika

Over in Greece, our correspondent Helena Smith says officials are putting on a brave face ahead of prime minister Antonis Samaras’ crunch meeting with visiting troika mission chiefs.

She writes:

Ahead of the talks, which begin at 6pm local time, Greece’s technocrat finance minister Yannis Stournaras today held back-to-back meetings with technical teams representing foreign lenders at the EU, ECB and IMF.

As the debt-stricken country’s next €2.8bn installment of aid depends on the outcome of tonight’s discussions, the rush to reach consensus on a series of outstanding issues has assumed what one official described as “dramatic proportions.”

Although the climate between Greece and its creditors has much improved since the conservative-led coalition assumed power last June, more divides the two than unites them, say analysts who agree that a breakdown would be a severe blow.

Far away from the optimism expressed by Stournaras in his interview with the Guardian, few observers in Athens believe the eurozone’s weakest link has overcome the crisis. Most see the autumn as a make-or-break time following general elections at the end of September in Germany.

Taxes, debts and public sector lay-offs have topped the list of disagreements with visiting troika inspectors. Creditors are pushing for the highly controversial property tax, levied through electricity bills, to be extended through 2013.

At a time when liquidity has all but dried up and Greece is undergoing a form of internal default, with no one paying anyone else, the prospect of the measure being prolonged has been met with protests and derision.

Auditors are also demanding faster implementation of civil servant staff reductions – a demand that has elicited fierce opposition from Samaras’ two junior leftwing partners at a time when unemployment is nudging towards a European high of 27%. What compromises are made – and more importantly how they are made – will determine tonight’s result.

Updated at 3.28pm GMT

1.40pm GMT

Banking union vital for eurozone – ECB board memeber

A banking union is “vital” for better financial integration of the eurozone, ECB board member Benoît Coeuré said today.

A highly integrated financial system is necessary to ensure that the impulses coming from our monetary policy diffuse homogeneously through financial markets across the euro area as a whole.

He said a “strong and independent supranatural supervisor” for the banking sector would help the monetary union function more smoothly and aid the restoration of confidence in the banking sector.

Regaining such confidence, in turn, is also key to reversing financial fragmentation and restarting fully functioning cross-border markets.

You can read the full speech here.

Updated at 1.42pm GMT

1.30pm GMT

Carney meets UK treasury official to discuss bank remit

The incoming governor of the Bank of England, Mark Carney, has met the UK treasury’s top civil servant to discuss changes to the central bank’s remit, according to Bloomberg.

Carney and Nicholas Macpherson are reported to have discussed the options in Ottawa ahead of the budget next week, when it is thought chancellor George Osborne may announce changes to the Bank of England’s role. (Cynics might suggest this would be an interesting diversionary tactic.)

Theophilos Argitis of Bloomberg reports:

Carney has signaled support for allowing the bank more flexibility in meeting its 2% inflation goal and promoted the idea of issuing guidance on longer-term policy.

In a speech in December, Carney put forward the idea of targeting nominal GDP rather than inflation. He then said in a treasury select committee.

The benefits of any regime change would have to be weighed carefully, not only against the potential risks but also against the effectiveness of other unconventional monetary measures under the proven, flexible inflation-targeting framework.

This was particularly notable as Carney was the first to suggest the inflation-targeting framework was “flexible”.

12.04pm GMT

UK industrial production hits lowest point in two decades

Despite the focus on today’s manufacturing data out of the UK, it is worth pointing out just how bad the industrial production figures were, falling to their lowest level since May 1992, a near 21-year low.

11.59am GMT

UK in danger of falling into depression – economist

With all the talk of the UK dropping into an economic depression in the comments below, it may be worth looking at how significant a threat this is.

First off, Investopedia defines an economic depression as follows:

A depression is a sustained and severe recession. Where a recession is a normal part of the business cycle, lasting for a period of months, a depression is an extreme fall in economic activity lasting for a number of years.

Shaun Richards, an independent economist who writes the blog Mindful Money, says the UK is in danger of falling into a depression and blames it on “a clear policy error in the UK to emphasis monetary policy as a response to the credit crunch”.

The “quick fix” has not worked and indeed it cannot now be quick and it plainly is not working either. Splashing money into the system and devaluing the currency are not working and yet we get more of it.

He cites the possible expansion of quantitative easing, plans to put Funding for Lending on steroids, and the decline of the pound. Instead, he says, the government should be concentrating on reforming the banks.

11.30am GMT

EC’s Rehn accuses Krugman of lying

The claws are out. The EU’s top economic official Olli Rehn has hit back at critics of austerity and called US economist Paul Krugman a liar in the process.

The fight between the two bubbled up last month when the European Commission published forecasts showing the recession in southern European countries applying tough austerity policies would be deeper and last longer than previously projected.

At the time, Krugman accused the commissioner for economic and monetary affairs of a “Rehn of Terror” for arguing that EU countries’ austerity policies had restored market confidence.

Rehn responded in an interview in a Finnish newspaper this morning, using a parliamentary euphemism for a lie:

Krugman put words in my mouth that would be termed in the Finnish Parliament a modified truth.

Reuters reports that Rehn said Krugman and other critics had distorted the findings of an International Monetary Fund study published last year on so-called “fiscal multipliers” and the consequences of austerity policies to attack European policies.

In the paper, IMF economists acknowledged they may have underestimated the impact of government spending cuts in dampening growth.

Rehn said:

It is essential that the IMF paper does not give rise to the conclusion that economic adjustment would not be desirable.

He added that Brussels and the IMF agree on the importance of structural economic reforms to boost growth.

Responding to those who argued for a slower pace of fiscal consolidation to ease the pain on citizens, Rehn said that might have been possible if unlimited cheap funding had been available from either the private sector or other euro zone countries.

What I don’t understand is where on earth the stimulus money could have come from,” he said, adding: “I sincerely hope that people who are cleverer than me will suggest alternative ways of getting credit flowing into Europe.

So far, distinguished economic experts had not suggested any financially or politically realistic alternatives, Rehn was quoted as saying.

Updated at 2.22pm GMT

11.12am GMT

UK data – Guardian wrap

Here’s our economics correspondent Philip Inman on the UK data.

The UK’s third recession since the financial crash is almost certain after a dive in manufacturing in January.

According to official data, a sharp fall in the production of pharmaceuticals and building materials pushed manufacturing 1.5% lower than December and 3% lower than the same month last year.

A wider measure of industrial production fell 1.2% compared with a poll of economists for Reuters that showed they expected a 0.1% rise.

Alan Clarke, UK economist at Scotia Bank said only a strong rise in the services sector could rescue the economy from a triple dip recession. “It is looking unlikely,” he said.

Critics of the government’s economic policies blamed the fall on a slump in demand that followed the UK and continental Europe’s pursuit of austerity before growth has regained momentum.

Manufacturing employers group EEF warned that many firms were holding back production and investment while customers at home and abroad remained “jittery”.

The figures are likely to increase pressure on the Bank of England to inject further funds into the economy. Last month the central bank’s monetary policy committee balked at boosting the total spent as part of its quantitative easing policy from £375bn.

Full story here.

11.09am GMT

Spanish borrowing costs fall

While Italian borrowing costs are rising (see 10.12am), Spain’s have dropped to their lowest level since April 2010 – just before the international rescue was announced for Greece.

The Spanish treasury sold €5.8bn of six and 12-month treasury bills, beating the target amount of €5.5bn.

The one-year debt came in at an average yield of 1.363% – compared with 1.548% in February.

Six month-debt came in at an average yield of 0.794%, compared with 0.859% a month earlier.

Jose Luis Martinez at Citi said:

It was a very positive auction, with strong underlying demand… with lower yields. What more can you ask for?

10.56am GMT

Trends in the UK trade balance

This is interesting. Markit shows how the increase in the UK’s trade of services has been more than offset by the decline in the UK’s trade of goods since the year 2000, with little sign of a change in the trend any time soon.

10.45am GMT

Bank of England under pressure to do more QE – economist

There’s a growing chorus of economists calling for more stimulus from the Bank of England and the government, following the poor UK data.

Here’s Chris Williamson of Markit:

The data will pile more pressure on the Bank of England, to inject more stimulus into the economy at its next policy meeting, and on the chancellor, to accept that more needs to be done to boost growth in next week’s budget. With such a weak start to the year, the economy is facing an increased risk of falling into a triple-dip recession and the much-vaunted rebalancing remains elusive. In fact, recent data suggest the UK is moving in the opposite direction: away from goods production and is becoming ever-more dependent on consumer spending.

10.40am GMT

UK needs export strategy – BCC

Britain needs a national export strategy says the British Chambers of Commerce, following poor manufacturing data.

David Kern chief economist BCC said:

More effective action is needed to ensure that the considerable untapped potential of many British exporters can be used to drive a sustainable recovery. The government must implement the measures it has already announced to support companies seeking to break into new markets. We clearly need a national export strategy that focuses on key areas such as trade finance, promotion, and insurance, and would enable British companies to compete in the global arena.

Updated at 10.40am GMT

10.34am GMT

German central bank chief says inflation risks declining

Meanwhile, the head of Germany’s central bank says the risk of inflation in the eurozone is declining.

Germany is seen as the main impediment to the European Central Bank cutting rates because of its fear of inflation. But Jens Weidmann, who is a member of the ECB’s governing council, said in a statement this morning there was no reason to stir up concerns about inflation.

In the short term, we in the euro area have, if anything, declining inflation risks.

He said Germany’s economy is still shaken by the eurozone crisis, which poses the biggest risk to the outlook for the country’s economy.

Only some of the confidence lost as a result of crisis has been recovered so far.

But he expects Germany’s growth to strengthen as the year progresses.

10.25am GMT

UK manufacturing down but trade balance improves – Reuters wrap

Here’s the Reuters report on the UK data:

British manufacturing output fell in January at the fastest pace since June, wiping out the previous month’s gains and reinforcing fears that the economy made a weak start to the year.

Manufacturing output dropped 1.5% on the month, the Office for National Statistics said on Tuesday, noting that snowy weather at the end of January had had little impact.

The wider reading of industrial output, which includes energy production and mining, fell 1.2% after a 1.1% rise in December, partly due to a shutdown of a North Sea oil field that typically accounts for 3%-6% of Britain’s oil production.

Economists had predicted broadly steady readings for both manufacturing and industrial production. The latest figures will worry finance minister George Osborne as he prepares to deliver his annual budget to parliament next week.

The sluggish trend may persist. A survey of purchasing managers revealed earlier an unexpected contraction in the manufacturing sector in February, raising the risk that Britain is entering its third recession since the 2008 financial crisis.

However, separate ONS data released at the same time showed a rare improvement in Britain’s trade position. The goods trade deficit shrank to £8.195bn in January from £8.738bn in December, versus forecasts for a modest deterioration to £9bn.

10.20am GMT

Here’s a graph of the plunge in sterling on the UK data, courtesy of CMC Market’s Michael Hewson.

10.14am GMT

The change in the UK’s inflation basket (see 9.46am) prompts the inevitable horsemeat jokes…

10.12am GMT

Italy’s borrowing costs rise

Over to Italy, where there is more bad news. Hit by the political instability in the country, its borrowing costs have risen in the latest auction of one-year debt.

Italy paid a yield – effectively the interest rate – of 1.28% in an auction of €7.75bn of one-year debt, the highest rate since December.

But it could be a lot worse. After an initial shock, the markets recovered and appear relatively sanguine about the current political impasse.

10.07am GMT

British manufacturing slides back

Here’s a chart from the ONS that shows the slide in industrial production and manufacturing, despite the odd bounce.

10.03am GMT

Here’s Howard Archer of IHS Global Insight on the “worrying” set of UK data.

The manufacturing figures are awful even if it is possible that the snow had more of a negative impact than the Office for National Statistics indicate and are a real blow to first quarter growth prospects.

A rebound in manufacturing output in December and some reasonable survey evidence for January had lifted hopes that the manufacturing sector could be emerging from a torrid time but the January output figures and a poor purchasing managers’ survey for February indicate that manufacturers are still finding life very tough.

On the face of it, the sharply reduced trade deficit in January is better news for hopes that the economy can grow in the first quarter. But even here the headline figure masks some worrying trends as the reduced deficit occurred because UK imports fell more than exports. This indicates that UK exporters are currently still finding life very tough while domestic demand is weak

All in all, a pretty worrying set of data for both the Bank of England and the Chancellor to contemplate.

Updated at 10.24am GMT

10.02am GMT

UK sliding towards triple-dip – economist

David Tinsley at BNP Paribas, meanwhile, says the UK is headed for its third recession in four years.

They are extremely disappointing manufacturing production numbers. Perhaps the story is not the weather behind the overall picture and it’s not just down to oil output that has led to distortions in the data over the last six months or so. Basically it’s a very bad start to January and therefore the first quarter. Unless the service sector delivers solid growth, we are likely to see a contraction in the first quarter.

Updated at 10.02am GMT

10.01am GMT

Osborne under pressure to deliver stimulus – economist

Here’s Philip Shaw of Investec on the “appalling” manufacturing data, which he says piles pressure on George Osborne to announce some kind of stimulus in next week’s budget.

The manufacturing figures are appalling. They represent a very poor start to 2013 for the factory sector. This may be a snow story once again, but one should be wary about putting too much of the blame onto weather conditions.

Our view is that the UK will probably avoid a triple-dip recession but these figures hardly inspire confidence in that view.

The softness of the numbers, irrespective of special events really puts the pressure on the chancellor to deliver some sort of stimulus to the economy.

Clearly on the fiscal side, there is no room to relax policy, either by cutting taxes or raising spending. What he seems likely to do would be to give the monetary policy committee more licence to be aggressive on policy as suggested by newspaper headlines last week. And there remains the question of trying to channel credit to SMEs.

Updated at 10.23am GMT

9.58am GMT

Britain’s trade position improves but points to weak demand

To recap, UK manufacturing output fell in January at its fastest pace since 2009 (ignoring the Jubilee weekend last year), wiping out December’s gains.

Separately, the ONS said Britain’s trade position showed a rare improvement in January, driven by a drop in oil imports.

Some instant reaction to the data, courtesy of Reuters:

James Knightley economist at ING:

With the February PMI manufacturing index coming in so weak and with orders numbers also disappointing it looks as though this sector is going to be a major drag on growth in the first quarter of 2013.

We have already has poor construction numbers for the start of the quarter so the prospect of yet another return to technical recession is very real.

This will intensify the pressure on the Bank of England to do more to help support the economy, given government officials suggest they have no intention of letting up on austerity.

Admittedly the trade balance has improved, but this is more to do with weakness in imports than a pick-up in exports. As such it underlines the weak domestic demand story in the UK.

9.50am GMT

FTSE rises on hopes of more stimulus

The UK stock market rose on the poor data, which commentators put down to hopes that the Bank of England will pump more money into the economy to revive the economy, via its quantitative easing programme.

9.46am GMT

Blueberries drop into the inflation basket

On a lighter note, the Office for National Statistics has updated the basket of goods it uses to calculate inflation.

In come… ebooks, set-top boxes, white rum, hot chocolate, deli type meats and blueberries, and packets of daily disposable contact lenses

Out go… on-sale champagne and (inexplicably) basin taps.

Updated at 9.47am GMT

9.40am GMT

Steve Collins of London & Capital Asset Management notes that the last time UK manufacturing was this bad was a result of the many bank holidays over the Jubilee weekend. Ignoring that, this is the worst showing from the sector since the dark days of 2009.

9.38am GMT

Pound tumbles on poor UK data

The pound dropped to a new two-and-a-half year low on the miserable UK data, down by half a cent against dollar to $1.4854 (and still falling).

9.35am GMT

UK industrial output misses forecasts

Taking a closer look at the figures, the 1.5% month-on-month decline in manufacturing output is the steepest drop since June last year.

Industrial output also missed forecasts of a 0.1% increase, to drop 1.2% in January.

9.31am GMT

UK manufacturing slump raises prospect of triple-dip

UK manufacturing figures are in and they look bad. Economists were expecting factory output to be flat in January, but instead it dropped 1.5%, according to the Office for National Statistics.

January was blighted by snow, but these figures will all be fed into the GDP calculator and suggest the UK could be headed for its third recession in four years.

Just to recap, the UK economy shrank by 0.3% in the last quarter of 2012. A technical recession is defined as two consecutive quarters of contraction, so a decline this month would push the UK into a dreaded triple-dip.

The news will come as a blow to the chancellor, George Osborne, who is due to present his budget next week.

We’ll have analyst reaction on those figures as it comes in.

Updated at 10.20am GMT

9.12am GMT

Stournaras says Greece is out of the woods

The Greek finance minister Yiannis Stournaras says Greece is close to overcoming its financial crisis and can look forward with optimism, in the Guardian this morning.

Speaking to our correspondent in Athens, Helena Smith, Stournaras said:

To a large extent, Greece is out of the woods. No one talks about Grexit now – even economists who advocated Grexit have apologised for it.

As far as fiscal adjustment is concerned, we have covered two thirds of the goal. As far as competitiveness is concerned, we have covered three quarters of the distance to the goal. Greece has paid a very high price in terms of austerity … But I think the worse is behind us and we can look at the future with hope.

Prompting some derision on Twitter…

Updated at 10.19am GMT

9.06am GMT

Denmark’s triple-A status confirmed

Denmark’s triple-A rating was confirmed this morning by ratings agency Fitch, with a stable outlook.

Fitch said Denmark merited the top-notch rating because of its…

Track record of macro-financial stability reflected in low and stable inflation, current account surpluses and the stable banking sector despite a high level of household indebtedness and weakening housing market.

Eurozone outsider, Denmark is one of the few European countries to retain its triple-A rating. But the country of bicycles crime dramas has not been completely impervious to the crisis. The Danish economy shrank more than expected at the end of last year, putting government forecasts for growth in doubt.

A burst property bubble hit confidence and private consumption and put the banking sector under pressure. Sluggish exports also hampered economic recovery, as demand in the eurozone stayed weak.

Fitch remained unworried, saying this morning:

Concerns for the banking sector arising from the bursting of the
housing bubble in 2008 and the global financial crisis in 2009 have eased, and large Danish banks in particular have improved balance sheets and capitalisation.

Though it notes the country’s sensitivity to the eurozone crisis, as a potential risk.

As a small open economy with extensive trade and financial linkages to the rest of the world and eurozone, a material worsening of the global economic outlook and/or intensification of the eurozone crisis would affect Denmark’s economic recovery and potentially place pressure on public finances and the financial sector.

8.33am GMT

German inflation hits two-year low

Inflation in Germany slowed to its lowest level in more than two years in February, according to official data.

The statistics office confirmed previous estimates that the cost of living in Germany increased by just 1.5% on a 12-month basis this month, down from 1.7% in January.

That could help pave the way for an ECB rate cut. IMF chief Christine Lagarde said last week that the ECB should cut rates and noted that restoring the balance in the EU might mean allowing somewhat higher inflation and wage growth in countries like Germany.

8.17am GMT

Hollande hits the road

In France, embattled president François Hollande is attempting to reverse a vertiginous decline in his popularity with a road trip around the country.

Our Paris correspondent Angelique Chrisafis reports:

François Hollande tried today to reverse his record unpopularity by embarking on old-fashioned, lingering trips to the provinces in the style of Charles de Gaulle, whose made-to-measure bed he will pointedly be sleeping in on his first trip in Dijon.

Several polls have shown Hollande’s approval ratings to be the lowest of any modern French leader 10 months into a presidency. French military intervention in Mali, which the Socialists hoped would improve his presidential stature and neutralise the right’s charges of dithering, produced only a slight, short-lived bounce.

The latest TNS-Sofres poll found only 30% of French people had confidence in him to solve France’s problems. An Ifop poll for Paris Match found only 37% of the French approved of his politics.

Hollande’s unpopularity is linked to the growing economic crisis and rising unemployment. No French leader has ever managed to climb in the popularity stakes while joblessness was rising fast. French unemployment is at a 14-year high and has steadily grown for almost two years. It threatens soon to reach the 1997 record of 3.2 million without work.

Updated at 8.19am GMT

7.57am GMT

Today’s agenda

We’ve got industrial and manufacturing data out of the UK today. And respected thinktank NIESR will make its estimate of UK GDP in February, which will be closely watched for indications that the economy is sliding into a triple-dip recession.

As Michael Hewson of CMC Markets notes:

With the pound continuing to sink on the currency markets and investors continuing to focus more on the UK’s fragile fundamentals every piece of economic data is being subject to greater and greater scrutiny ahead of next week’s budget, as the pressure continues to build on the Chancellor to come up with some creative measures to help boost the UK’s struggling economy.

  • Germany inflation (February): 7am
  • France current account (January): 7.45am
  • UK industrial and manufacturing data (January): 9.30am
  • UK trade balance (January): 9.30am
  • Germany Bundesbank’s annual report for 2012: 10am
  • UK GDP estimate from NIESR (February): 3pm

In the debt markets, Spain and Italy are selling short-term debt, and Germany is selling €1bn of a bond due in 2023.

Updated at 10.15am GMT

7.54am GMT

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

Greek prime minister Antonis Samaras will meet the troika mission chiefs in Athens this afternoon in an attempt to agree on key reforms. The result of the meeting will decide whether Greece’s international lenders release the next installment of the country’s €173bn bailout.

The meeting comes at the end of a marathon visit from the troika, which has been extended after officials got bogged down in a spat over public-sector layoffs.

Greece has promised to cut the civil service by 150,000 workers by the end of 2015. So far, it is on track to meet that target through attrition but the government has yet to actually sack anyone.

We’ll have updates on that meeting later today and other economic events from around the world.

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EU officials agree bonus cap against UK opposition. Mixed data from Spain reflects uncertainty. Berlusconi investigated for corruption. US jobs data points to recovery, GDP revised higher to show 0.1% growth in the final quarter of last year…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Bankers face cap on bonuses after EU deal” was written by Josephine Moulds and Nick Fletcher, for guardian.co.uk on Thursday 28th February 2013 14.38 UTC

2.29pm GMT

Italy uncertainty should not hit Ireland’s bond issue plans

Speaking of the Italian election, Ireland does not believe the uncertainty over the outcome should derail its plans to issue bonds this year.

The country aims to sell a new benchmark 10-year bond in the first half of the year, the chief executive of its National Asset Management Agency John Corrigan told Dow Jones. He said:

Italy is obviously going through a difficult time following the election and that has some impact on European capital markets, but our judgement is it won’t knock us off course in relation to our return to the market.

Updated at 2.38pm GMT

2.24pm GMT

Here’s the Economist’s view of this week’s Italian election result (no comment needed):

2.14pm GMT

Rehn says UK should not sit on European sidelines

Olli Rehn has now turned his attention to the UK, saying it should remain involved in the EU.

He says if he were a British citizen, he would not want his country sitting on the European sidelines. It is firmly in Britain’s interest to use its energy to reform Europe rather than undo it.

Not a fan of a referendum then, it would seem.

As one of our former colleagues notes:

Rehn has added that there is a need to urgently complete the repair of the banking system.

Updated at 2.19pm GMT

2.04pm GMT

And with that I’ll pass you over to my colleague Nick Fletcher.

2.02pm GMT

EU’s Rehn confident Italy will find its way

Back to London, where Olli Rehn, the European Commissioner for economic and monetary affairs, is expressing his confidence that Italy will swiftly find its way forward.

Speaking at a Policy Network conference, he says it is important that Italy pursues reform for sustainable growth.

More generally, he says high debt countries have only one option, to restore sustainability to finances. Surplus countries, meanwhile, should use reforms to boost domestic demand.

He says fiscal consolidation needs to proceed at a careful but steady pace.

1.50pm GMT

Mixed data out of Spain reflects uncertainty

The mixture of good and bad news from Madrid today reflects the uncertainty hanging over Spain’s economy as the government boasts about almost meeting EU-set deficit targets while austerity deepens recession. My colleague Giles Tremlett reports:

The 6.74% budget deficit – just 0.4% off target – will be welcomed in Brussels, though the figure surprises some observers. It is still possible that, as with the 2011 deficit, it will increase as more reliable figures appear over coming weeks. Most impressively, assuming the figures are accurate, is the way regional governments – once the rogue elephants in Spain’s public finances – have slashed deficits close to government-set targets.

But a final quarter drop in GDP of 0.8% – more than double the previous quarter’s shrinkage – bodes badly for a country where unemployment is already officially at 26%, as consumer spending falls even while Spaniards save less.

Early (and incomplete) figures for this quarter point to “continued contraction of activity, in a context of marked apathy in internal consumption,” according to the Bank of Spain.

Mariano Rajoy’s government hopes it will be rewarded for good behaviour – and for not being Italy – with a relaxation of this year’s Brussels-set deficit target, which is currently at 4.5%. It is also predicting a return to growth at the end of the year.

But the biggest fear in Madrid today is that a predicted fragile recovery that is still more than six months away will be thrown off track if Italy provokes a return to euro jitters – with Spain first in line to suffer contagion.

1.34pm GMT

US jobless claims point to recovery

Sticking with the US, jobless claims dropped 22,000 last week to a seasonally adjusted 344,000. That was better than expected and suggests the jobs market in the US is picking up.

1.32pm GMT

US GDP revised up but misses expectataions

US GDP has been revised up to +0.1% for the fourth quarter of 2012 from an original estimate that GDP actually fell by 0.1%.

Still this was not as big a revision as some had forecast, with analysts betting that the economy had in fact grown by 0.5%.

(Just to clarify, the US GDP figures are annualised, so they show the value that would be registered if the quarterly rate of change were maintained for a full year.)

Updated at 1.41pm GMT

1.24pm GMT

Nerves about Italy should not be overdone – ECB’s Nowotny

There has been a clear improvement over the past year in Europe’s economic situation but there is more work to be done to lift the southern economies out of trouble, ECB policymaker Ewald Nowotny said today.

With masterful understatement, he noted the nervousness about Italy’s inconclusive election results but said it should not be overdone.

Of course everyone’s a bit nervous. One should keep things in perspective. I do not think there will be fundamental change in the politics in Italy because there are just economic necessities that you have to follow.

There was a bond auction yesterday that went quite well. One shouldn’t overdo it.

1.13pm GMT

EU bonus cap ‘deluded’ says Boris Johnson

London mayor Boris Johnson expresses his opposition to the EU bonus cap, in his inimitable style.

This is possibly the most deluded measure to come from Europe since Diocletian tried to fix the price of groceries across the Roman empire.

It would be interesting to know what people abroad think of Boris. Clown or comedy genius?

12.32pm GMT

Cyprus election result boosts chances of deal with lenders – Moody’s

Meanwhile the election of pro-bailout candidate Nicos Anastasiades in Cyprus has boosted the chances of a deal with international lenders, says Moody’s

But the ratings agency said the results of the weekend’s other eurozone election did not alter its assessment the island could eventually default. It said:

Domestic banks’ recapitalisation needs remain uncertain and we anticipate Cyprus’ debt burden will rise dramatically, reaching an unsustainable level. There is a 50% chance that the sheer size of Cyprus’ anticipated debt load will eventually compel authorities to pursue every avenue for debt reduction, including private sector losses on Cypriot debt.

12.08pm GMT

Van Rompuy confident Italy will stick with euro

More assurances that Italy will stick with the euro project. The faster they come the weaker they sound.

Here’s European council president Herman Van Rompuy, who this morning expressed his full confidence that Italy will continue to remain a stable and strong member of the European Union and of the eurozone.

Van Rompuy met outgoing Italian prime minister Mario Monti today to discuss the upcoming council, which will discuss growth and job creation.

12.02pm GMT

Despite the UK government’s opposition to the EU bonus cap, MEPs from both Labour and the Tories broadly welcomed the deal.

Labour MEP, Arlene McCarthy, said:

These rules are designed to make banks safer, more accountable and ensure they focus on lending to the real economy.

It’s a shame that the UK government has sought to defend this broken bonus culture by acting as the trade union for a minority of highly paid traders. The coalition government says they want reform of the banking sector yet they are the only member state to defend the status quo by maintaining the current flawed bonus culture.

Conservative MEP, Vicky Ford, said:

I do fear that a cap on bankers bonuses is a blunt instrument but I was pleased to sharpen it by including elements that encourage bankers to take long-term decisions, otherwise they risk their bonuses being clawed back.

Of course some top bankers will be affected by the bonus cap but I feel that we have managed to produce a deal that will strike the right balance for the majority of bankers who take responsible decisions. If the bonus cap is shown to cause bankers to begin relocating outside the EU then we will have the ability to swiftly look again at the provisions in place through an early review.

11.52am GMT

Bonus cap could make banking more attractive

The EU cap on bonuses (see 7.32am and following) could alter the way the City works and for the better, says another commentator from the Cass business school.

Andre Spicer, professor of organisational behaviour, said:

The new EU curbs on bankers’ bonuses will force banks to rethink how they motivate their star performers. For some time banks have relied on super-sized bonuses to attract and retain star performers.

Some of the alternatives to large bonuses will include longer-term incentives which are linked to performance of the institution over five or 10 years. It might include soft incentives such as better working hours, more supportive work environments, more opportunities for self-actualisation and more interesting design of jobs. This could lead to workplaces where bankers are no longer willing to put up with 364 days of stressful work and one good day when bonuses are paid. This will mean banking is likely to be a more attractive job for a wider range of people.

The cap on bonuses will also mean that banks need to rethink their business models. Until now banks have relied on a few stars in small units of investment banking to make significant chunks of the bank’s profit. Now banks will need to think about ways of harnessing the talent of the vast majority of their employees who don’t receive giant bonuses. This could see the large banks returning to older style banking.

But, he writes, the cap could drive bankers into more lucrative posts at hedge funds or private equity firms.

Updated at 12.33pm GMT

11.45am GMT

Spain’s deficit comes down to 6.7%

Spain will miss its target for deficit reduction this year, but not by too much.

The public deficit has come down to 6.74% in 2012, from 8.9% in 2011. That misses the target of 6.3% agreed with Europe, but should be enough to appease the markets.

The European Commission is said to be happy with Spain’s performance and is expected to give the country another extension on shrinking the deficit to below 3%. At present, that target is set (somewhat ambitiously) for next year.

Spain’s treasury minister Cristobal Montoro said there was no need for new budget cutting measures, and that strict rules on autonomous regions’ spending are working.

11.34am GMT

Just to confirm the EU bonus cap has been written specifically for the financial industry, so it will apply to bankers’ and their ilk, not other industries. Thanks to laasan for the question in the comments below.

11.24am GMT

Osborne on the ropes

Why do they do it? Surely by now politicians are so afraid of the damaging headlines, they should know not to be photographed in bizarre poses.

But apparently not. The Evening Standard is running a picture of embattled chancellor George Osborne skipping… even as he grapples with the loss of the UK’s triple-A rating, a rising deficit, and an economy struggling to show any kind of growth. Post your captions in the comments below.

Updated at 11.26am GMT

11.10am GMT

EU bonus cap ‘ludicrous’ – London-based commentator

Here’s Pete Hahn of Cass Business School, on the bonus cap.

Much of banking and economics are cyclical and the basis of bonuses was to address cyclicality. Certainly, bonus payments lost that purpose and need to be reoriented. Yet, the current proposal appears aimed at ludicrously legislating the economic cycle and creating ever higher fixed salaries and perks for those leading the largest banks. Those worried about Europe’s growth might think about how high fixed pay packages with limited upside might influence senior bankers to increase risk taking or not.

11.06am GMT

City of London lashes out at ‘counterintuitive’ bonus cap

There’s more reaction coming through on the EU cap on bonuses agreed overnight (see 7.23am). Unsurprisingly, there are dissenting voices in the City. Mark Boleat, policy chairman at the City of London Corporation, said:

This bonus cap risks placing the EU at a competitive disadvantage to other international financial centres in Asia and the US. The devil will be in the detail but removing flexibility from pay arrangements in this highly cyclical industry would seem counterintuitive – especially if it leads to higher fixed salaries.
In recent years, much work has been undertaken to tie remuneration and incentives more closely to sustainable, long-term performance. This has included introducing a right of claw-back, payment in shares with only a limited cash element and deferred payment, and greater transparency over the packages paid to the highest earners in a business. This is already changing the culture across the industry to ensure pay reflects performance.

The MEP who negotiated the deal for the European Parliament, Othmar Karas, this morning tried to downplay the impact of the cap in Germany. But, as AP’s Brussels correspondent notes, any effect felt there will be multiplied in London.

11.00am GMT

No risk of contagion from inconclusive elections – Italian president

Back to Italy, where the president Giorgio Napolitano said he sees no risk of wider European contagion from the Italian political situation.

Reuters reports him saying there is a difficult path ahead but that he is convinced Italy’s future is in Europe. He says he is confident that Italy will continue to take its responsibilities and accept sacrifices needed to continue the European project.

The Italian people have made a democratic choice that must be respected, he says. The constitution does not allow the process of forming a new government to be accelerated.

10.22am GMT

Eurozone inflation drops to 2%

Eurozone inflation eased in January to 2%, paving the way for a possible rate cut from the European Central Bank.

Eurostat said the annual inflation rate came down from 2.2% in December. That brings the 12-month average to 1.9%, just below the ECB’s inflation target, which could let the central bank cut rates in a bid to boost activity.

Howard Archer of IHS Global Insight said:

The ECB currently seems reluctant to take interest rates lower than the current record low level of 0.75%, but the bank could be forced into reconsidering its position if the eurozone fails to show clear signs of economic improvement over the coming weeks or if the euro strengthens anew to reach new highs. Downside risks to the eurozone outlook could mount if protracted political uncertainty in Italy leads to a renewed intensification of sovereign debt tensions.

Updated at 10.45am GMT

10.12am GMT

Berlusconi investigated for corruption

Reports are emerging that Silvio Berlusconi – who won a sizable portion of the vote at the Italian elections – is being probed in Naples for suspected corruption and illegal party funding.

Italian news agency ANSA said the case regards money allegedly paid to Senator Sergio De Gregorio – who defected from the centre left to join Berlusconi’s party some years ago – citing judicial sources.

The news prompted little surprise on Twitter at least.

Updated at 10.16am GMT

9.56am GMT

EC president says confidence returning to Europe

Over in Ireland, EC president Jose Manuel Barroso is sounding upbeat. Speaking to a business conference, he said there are signs that confidence is returning to Europe, but the situation is still “fragile”.

The banking debt crisis exposed the uneven performance of competitiveness across Europe and the region must now implement reforms for businesses to get the most out of the single market, he said.

And, for his Irish audience, he praised the country’s progress under the bailout programme.

He was appearing alongside Irish prime minister Enda Kenny, who said the country has to deal with the ‘issue of high unemployment’.

Figures out yesterday showed Irish unemployment falling, but still high at 14.2% in the fourth quarter of last year.

Kenny also had warm words about European politics.

9.43am GMT

It’s no wonder Monti agreed to keep his commitment at the European Commissions Competition forum. He clearly wanted a bit of love after Sunday’s humiliating defeat.

9.25am GMT

Mario Monti, outgoing PM, concludes with the following…

The message I would like to leave with you, in 2013 Italy will have a close to zero structural deficit. There is an accompanying strategy at the EU level that needs to be pursued, unless we passively allow that simplistic, some would say populistic (I do not pass judgment on the Italian elections) tendency to have the EU policies derailed.

He gets rapturous applause and a standing ovation. But it’s got to be said it was a very dry speech. Against the likes of Beppe Grillo, it’s no great surprise he didn’t get the votes at home.

9.17am GMT

If you do the right policies and don’t get the recognition (ie rates don’t come down), there is a political backlash, says Monti.

9.15am GMT

9.13am GMT

Monti says there are delays between when a good reform is brought in and when the benefits are felt.

The benefits in terms of growth tend to take more time than the benefits to the financial markets.

9.12am GMT

Back to outgoing Italian prime minister Mario Monti, who is speaking in Brussels.

He is defending his record, saying the market situation in 2011 left no choice but to cut the budget and push through reforms, despite low growth.

9.04am GMT

German unemployment down in February

We’ll keep one eye on that. Meanwhile, German unemployment fell in February, although slightly less than forecast (in seasonally adjusted terms).

The number of people out of a job dropped by 3,000 to 2.9m in February, while economists were expecting it to fall by 5,000.

The unemployment rate held steady at 6.9% (after January’s rate was revised up to 6.9%).

The closely watched jobless total (which is not adjusted) remained above the 3m mark.

8.56am GMT

So far, the focus is very much on competition and it does not look like he will be taking questions.

Italy has felt the benefits of competition with new high-speed rail links, says Mario Monti (who is still being billed as Italy’s prime minister, despite being the clear loser in Sunday’s elections).

Updated at 8.57am GMT

8.54am GMT

Monti speaks in Brussels

Over to Brussels, where Mario Monti is giving the keynote speech at a Competition Conference. You can watch it live here, he’s speaking in English.

8.36am GMT

Markets rise on hope of central bank support

Over to the stock markets, which are looking up on the hope that central banks will step in again to support the economy, although Italy is lagging behind amid the political uncertainty.

UK FTSE 100: up 0.4%, or 27 points, at 6353

Germany Dax: up 0.8%

France CAC 40: up 0.6%

Spain IBEX: up 0.8%

Italy FTSE MIB: up 0.1%

8.29am GMT

Bankia posts biggest loss in Spanish corporate history

Sticking with Spain, one of the country’s nationalised banks today posted a loss of €19bn, by far the largest loss ever reported in Spanish corporate history.

The bank has undertaken a major operation cleaning its balance sheet of soured property loans and other loss-making activities over the past year.

Investors were expecting a big number after Bankia warned of huge losses when it was bailed out late last year.

The Bankia chairman Jose Ignacio Goirigolzarri said in a statement that the bank’s priority is…

To make Bankia a profitable institution in order to return to the community the support it has given us.

8.21am GMT

Spanish fourth quarter GDP drops 0.8%

There is some miserable data out of Spain this morning, which saw its GDP figures revised down to -0.8% for the final quarter of last year, from an initial estimate of -0.7% That means the Spanish economy shrank by 1.9% over the year.

That is the sixth straight quarter that Spain’s economy contracted and the downturn appears to be speeding up, with GDP dropping at its fastest quarterly pace since mid-2009.

Updated at 8.29am GMT

8.10am GMT

German finance minister ‘never said the crisis was over’

Still nothing has been settled in Italy after Beppe Grillo – the ex-comedian whose Five Star Movement broke through in spectacular style at the elections – ruled out backing a government led by the centre left.

Though European markets are settling down after the inconclusive election results, there is still plenty of nervousness out there. And eurozone policymakers are falling over themselves to point out they never said the crisis was over.

German finance minister Wolfgang Schauble said that Italy’s inconclusive weekend election had raised the risk of market turmoil spreading to other euro countries and urged Italian politicians to form a stable government quickly. He told Reuters:

The election result in Italy has sparked doubts in the market that a stable government can be formed. When such doubts arise there is a danger of contagion. We saw this last year when elections in Greece led to political uncertainty. Other countries are then infected.

I never said the euro crisis was over. I only said that we have made significant progress. We need to continue on this path, but we will have setbacks.

7.51am GMT

Bonus cap morally right – think tank

Sony Kapoor, managing director of the Re-Define think tank, meanwhile says it is economically sound and morally right. He writes:

This will help tackle the culture of excessive risk-taking and the bending of rules that has now become endemic to banking. Undertaking this at an EU-wide level will also limit any large-scale migration of the so-called ‘talent’. It will reduce the risks borne by tax-payers and go a long way to rehabilitate the industry, making it focus on serving the real economy again.

7.47am GMT

Fears that bonus cap will push up salaries

But there are concerns the move will be counterproductive. This from the chief economist at the Economist Intelligence Unit…

Updated at 7.52am GMT

7.32am GMT

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

Overnight, EU leaders agreed to introduce what will amount to the world’s strictest curbs on bankers’ bonuses, railroading opposition from the UK Treasury.

The basic agreement will cap bankers’ bonuses at a year’s salary. While it still needs approval from EU governments, the main points could become law as early as next year.

And the UK cannot veto it. This will rock the City of London, where bonuses can sometimes be as much as 12 times a bankers’ salary.

My colleague Ian Traynor reports from Brussels:

The UK financial sector was dealt a withering blow on Wednesday night when the European Union agreed on moves to slash the bonuses that may be paid to bankers, defeating strong Treasury opposition to the new rules.

A meeting of officials from the 27 countries of the EU with MEPs and the European commission agreed to cap bankers’ bonuses broadly at a year’s salary, with the proviso that the bonus could be doubled subject to majority shareholder approval.

The agreement has still to be approved by EU governments before coming into force next year. While details may still be tweaked, it is expected that the main points will become EU law.

Britain, strongly opposed to the new legislation, will not be able to veto it as it will be carried by a qualified majority vote of the EU member states.

The deal will be another blow for Chancellor George Osborne who strongly opposed the deal. The FT reports:

Tensions were so high that George Osborne, at one point snapped and said defending the package would make him “look like an idiot”.

Updated at 7.34am GMT

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In the broadcast today: Is there Further EUR Weakness to Come? In the aftermath of the uncertain outcome of the Italian election which has raised the prospects of a hung parliament, we examine the factors weighing on the euro and ponder if there might be further weakness to come for the single currency, we analyze the latest trend developments in the EUR/USD currency pair, we continue to monitor the sell-off in the GBP/USD pair, we note the first signs of a corrective pattern in the USD/JPY currency pair, we highlight the market’s reaction to the Italian election results, the Fed Chairman’s testimony to the Senate, the U.S. Consumer Confidence, Richmond Fed Index and New Home Sales, we discuss new forecasts from Bank of New York-Mellon and UBS, and prepare for the trading session ahead.

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PMIs from the euro-zone’s largest economies point to widening gulf between France and Germany. Grim outlook for France’s economy. UK public finances better than expected. US jobless claims rise and existing homes sales inch higher…



Powered by Guardian.co.ukThis article titled “Eurozone crisis as it happened: French economy worsens as Germany powers ahead” was written by Josephine Moulds, for guardian.co.uk on Thursday 21st February 2013 15.02 UTC

2.58pm GMT

And with that I’m afraid we’re going to close the blog early today. Thanks for all your comments.

2.57pm GMT

Markets hammered by French data

European markets have been hammered today, on the back of data showing the French economy continues to falter, and fears that the US could switch off its stimulus programme.

  • UK FTSE 100: down 1.64%, or 105 points, at 6290
  • France CAC 40: down 1.87%
  • Germany DAX: down 1.68%
  • Spain IBEX: down 1.72%
  • Italy FTSE MIB: down 2.81%

2.47pm GMT

UK public finances disappointing – IFS

Back to the UK’s public finance data again (see 9.40am and following), which the highly-respected Institute for Fiscal Studies says will be a disappointment for George Osborne

Rowena Crawford at the IFS said:

As the chancellor prepares for his budget next month, he will likely be disappointed by today’s public finance figures. January is an important month for receipts but, although growth in income tax receipts was strong, this was partially offset by very weak growth in corporation tax receipts. Together this leaves tax receipts running below the growth forecast for the year as a whole. Spending continues to run higher than forecast, due to strong growth in spending on both welfare benefits and on the delivery and administration of public services.

As a result borrowing is now on course to be almost £7bn higher this year than the OBR forecast in December. Therefore borrowing is more likely to be slightly higher rather than slightly lower than last year’s level, although much uncertainty remains and things could still change in the final two months of the year.

What matters more than the level of borrowing this year is the outlook for revenues and spending in the medium term. Some of the extra borrowing so far this year is due to Whitehall departments underspending by less than assumed. This may not persist and therefore might not concern the chancellor – in particular if the money is being spent well.

Potentially more concerning is the low growth in tax receipts and the high growth in spending on welfare benefits: were these to persist into future years then the large planned fiscal tightening might need to be increased.

Updated at 3.02pm GMT

2.42pm GMT

Dutch consumer morale hits a low

There are clouds gathering over the Netherlands, with reams of data out today showing it could struggle to hold onto its prized triple-A credit rating. An unholy trinity of releases showed:

  • Consumer confidence hit its lowest point since records began in 1986, at -44 points
  • Unemployment hit its highest level in around 16 years
  • House prices dropped at their sharpest rate over a year since 1995

Updated at 2.44pm GMT

2.12pm GMT

Growth in US factory activity slows slightly

And here comes US manufacturing PMI data, which looks pretty good. The pace of growth of the factory sector slowed in February, but remained near a nine-month peak thanks to strong domestic demand.

Markit’s manufacturing PMI came dropped back to 55.2 from 55.8, still comfortably above the 50 mark that separates growth from contraction.

But job creation in the sector hit a three-month low. Chris Williamson at Markit said:

While the survey therefore paints an encouraging picture of the manufacturing sector, helping to drive a return to growth for the economy as a whole in the first quarter of this year, firms still need to see greater confidence in the longer-term economic outlook for employment numbers to pick up again.

2.06pm GMT

Ireland looks to issue 10-year bond before summer

Back to Ireland, which is apparently looking to issue a 10-year bond in the first half of this year.

Reuters reports that Irish finance minister, Michael Noonan, who is on a visit to London, said Ireland wanted to prove it is ready to exit its bailout programme.

I think the issuance will be 10-year and that will be one of the serious tests of market conditions and of our ability to get back into the market. I would like that we would be back in the markets fully by 2014… and at present I think we are on track.

2.02pm GMT

Panic-driven austerity could lead to eurozone breakup, say economists

Panic-driven austerity in the eurozone produced the double-dip recession and could have even more dire consequences, write two economists on the VOX blog.

Paul De Grauwe of the London School of Economics and Yuemei Ji of the University of Leuven argue that fear and panic led to excessive, and possibly self-defeating, austerity in the south while failing to induce offsetting stimulus in the north.

The conclude that resistance to austerity measures could once again raise the spectre of countries wishing to leave the eurozone.

The intense austerity programs that have been dictated by financial markets create new risks for the eurozone. While the ECB 2012 decision to be a lender of last resort in the government bond markets eliminated the existential fears about the future of the eurozone, the new risks for the future of the eurozone now have shifted into the social and political sphere. As it becomes obvious that the austerity programmes produce unnecessary sufferings especially for the millions of people who have been thrown into unemployment and poverty, resistance against these programs is likely to increase. A resistance that may lead millions of people to wish to be liberated from what they perceive to be shackles imposed by the euro.

Updated at 2.39pm GMT

1.52pm GMT

US jobless rise more than expected

More US data reveals that jobless claims across the Atlantic rose more than expected last week, but remain at levels consistent with a steady improvement in the jobs market.

Initial claims for unemployment benefits rose 20,000 to a seasonally adjusted 362,000, compared with forecasts of 355,000.

Ryan Sweet, a senior economist at Moody’s Analytics, told Bloomberg:

Businesses just seem to be sitting tight with regard to layoffs, which is reason for optimism. If we get through these hurdles over the next couple months the job market should begin to improve more noticeably.

Updated at 1.55pm GMT

1.47pm GMT

US inflation unchanged

US inflation was unchanged in January, which should make it easier for the Federal Reserve to maintain its ambitious stimulus programme.

Official data showed that weak petrol and food prices helped suppress annual inflation, which came in at 1.6%, down from 1.7% in December.

1.24pm GMT

French minister fights back

The French minister who recieved a letter lambasting the “lazy” French (see 8.50am) has retaliated, reports the Telegraph. Arnaud Montebourg, minister for industrial renewal in France, told Maurice Taylor, chief executive of US tyremaker Titan:

Your comments, which are as extremist as they are insulting, display a perfect ignorance of our country, France.

He pointed out that since Titan is “20 times smaller” than “French technology leader” Michelin, which is “35 times more profitable”, Taylor “could have learned and gained enormously from a French base.”

Updated at 2.10pm GMT

12.06pm GMT

UK back in the currency wars, says economist

The pound regained some ground today against the dollar, after the better-than-expected public finances data. But it is expected to stay weak, as a result of signs the Bank of England could expand the quantitative easing programme.

Sterling was down 0.1% on the day at $1.5223, recovering for a two-and-a-half-year low it hit earlier in the day.

But, says Nick Beecroft of Saxo Bank, the UK is very much back in the currency wars.

When the UK economy hit the doldrums in the wake of the credit crunch in 2008, authorities were left with two main weapons to fight their way out of recession: low interest rates and a weaker sterling to help boost exports. Given that, historically, low rates have failed to boost consumer spending by alleviating households’ debt burden, UK policy makers will be tempted to manipulate their currency.

When asked about the perceived potential benefits of QE, central bankers of the US, UK and the Eurozone will wax lyrical about some combination of improved monetary transmission, improved sentiment through higher asset prices, cheaper government bond rates, leading to lower mortgage rates and project discount rates, and fear of inflation which promotes near term consumption, but the one benefit that dare not speak its name is currency debasement. We’ll never hear an explicit admission from any of those central banks, that a major corollary benefit of their QE programme is a decline in the value of their currency. That would be tantamount to a declaration of economic war – a trade war – such as the one which so damagingly extended and deepened the 1930’s Depression.

The trouble is that, with the political uncertainty about the future of the UK’s relationship with the EU hampering investments and British export performances since 2000 being the worst among the G20 nations, achieving economic growth will be difficult. The question is: how long will the Bank of England be able to keep its powder dry and refrain from currency devaluation.

Updated at 12.25pm GMT

11.38am GMT

UK factory orders better than expected

Back to the UK, where factory orders improved more than expected in February.

The CBI’s industrial trends survey rose to -14 from -20 in January, beating expectations of a reading of -15.

Of the 436 manufacturers, 15% responded that total order books were above normal and 29% said they were below, giving a balance of -14%

The export order book balance also rose to -20 from -29.

Anna Leach of the CBI said:

The rebound in manufacturing orders and expectations for output growth provide some further signs of improvement in the outlook for the UK economy. However, exports order books are likely to remain relatively weak until global conditions, especially in the eurozone, improve more markedly.

11.28am GMT

Irish finance minister sees compromise on EU bonus talks

Sticking with Ireland, Irish finance minister Michael Noonan says he expects a compromise to be secured on a proposal to cap bankers’ bonuses.

His view is of particular interest as Ireland currently holds the European Union’s rotating presidency.

Negotiations to introduce a cap on bankers’ bonuses in the European Union stalled on Tuesday after EU countries and the bloc’s parliament clashed over how far to go in curbing pay for the industry’s top earners.

Noonan said on Bloomberg TV:

We think there is a median where a settlement can be reached without upsetting the cost base in the city of London or without depriving people of rightfully earned bonuses. But is has to be done in a new formulation.

Updated at 11.32am GMT

11.16am GMT

Spain bond sale sees good demand

Over to the debt markets, where Spain has sold more bonds than targeted, thanks to strong demand.

Madrid sold €4.2bn of debt due in 2015, 2019 and 2023, compared with a target of €3bn-€4bn, and borrowing costs eased.

The bond due in 2019 had an average yield of 4.275%, almost 2.5 percentage points lower than yields paid at its last outing in July, at the height of worries about the eurozone.

The bond due in 2015 had an average yield of 2.54%, compared with 2.82% in February.

The bond due in 2023 sold at a yield of 5.2%, in its first auction since it was introduced.

But traders said the sale was helped by the amount of money central banks are pumping into markets. Lyn Graham-Taylor at Rabobank said:

This is a strong set of results and continues the theme of decent demand for Spanish debt. We still believe this to be largely driven by the large amount of central bank liquidity in the system rather than an improvement in the fundamentals of Spain and major progress towards fiscal union being made by the eurozone.

Ireland, meanwhile, sold €500m of three-month Treasury bills at a yield of 0.24% – close to the lowest levels it has reached since Ireland returned to the debt markets last year.

Updated at 11.31am GMT

10.36am GMT

UK public finances flattered by one-offs, says economist

Here’s David Tinsley of BNP Paribas on the UK public finances data. It seems the longer the economists have taken to digest the figures, the gloomier they are…

The UK public sector finances get more confused with reclassifications by the month. But looking through the smoke, things don’t look too jolly.

The figures are being flattered by one-offs, but the big picture is the consolidation effort stalled in 2012/13. Indeed, the underlying deficit actually rose a little. The best one can say is that it is against a backdrop where the economy showed zero growth, so at least the rise wasn’t larger. But there may be a storm brewing if the economy doesn’t show some growth soon.

Updated at 10.39am GMT

10.29am GMT

EU parliament president tells Italians how to vote

The president of the European parliament has told Italians not to vote for Silvio Berlusconi in this weekend’s elections, in what looks like an unwise move that could easily backfire.

Martin Schulz – once compared to a Nazi concentration camp guard by Berlusconi – urged Italian voters to ‘make the right choice’. He said:

Silvio Berlusconi has already sent Italy into a tailspin with irresponsible behaviour in government and personal escapades.

Much is at stake in the forthcoming elections, including making sure that the confidence built up by (prime minister) Mario Monti is not lost. I am very confident that Italian voters will make the right choice for their country.

The fear is that his comments will prompt a backlash in Italy.

Updated at 10.34am GMT

10.11am GMT

Here’s Chris Williamson on the public finances data, which he says makes it likely the UK will lose its triple-A rating.

The government’s borrowing target for the year of £108.5bn is still looking unrealistic. Borrowing for the year is now looking likely to come in around £5-10bn higher than the government was hoping, and could easily end up higher than the £120bn seen in 2011-12 if tax revenues continue to disappoint.

With borrowing rising and the economy stagnating over the past year, the UK’s AAA credit rating is looking increasingly at risk. The spring budget will need to address the concern that more stimulus is needed besides central bank action in order to get the economy on a sustainable recovery path. Without a credible plan from the government to break the vicious circle of a sluggish economy, low tax revenues and rising public sector borrowing, the credit rating agencies are likely to lose their patience.

Updated at 11.14am GMT

10.02am GMT

QE ‘profits’ reduce UK deficit less than hoped

It should be noted, the UK public finances data enjoyed a £3.8bn boost from ‘profits’ from the Bank of England’s holdings in the gilt market, as a result of the quantitative easing programme.

But the ONS estimates that this interest income will only reduce the deficit by £6.4bn, significantly less than the £11.5bn the government’s independent budget watchdog estimated in December.

Reuters writes that this is because the ONS would not allow the full amount transferred to count towards reducing the budget deficit.

Updated at 10.10am GMT

9.58am GMT

UK data cuts threat of AAA downgrade – economist

The UK could escape the embarrassing fate of losing its prized triple-A credit rating, writes James Knightley of ING, following better than expected public finances data (see below).

This may be perceived as lowering the threat of an imminent AAA rating downgrade from one of the major ratings agencies and so is going to be a short term positive for sterling.

But George Osborne still faces a difficult decision at next month’s budget, writes Capital Economics:

With borrowing still very high and fiscal progress appearing to have ground to a halt, the dilemma faced by the Chancellor at next month’s Budget over whether to tighten fiscal policy, or loosen and go for growth, remains acute.

9.51am GMT

But UK borrowing still higher than last tax year

But it is still not clear whether the UK chancellor will be able to say that deficit reduction is on track when he presents his budget in less than a month.

Borrowing since the start of the tax year in April 2012 came to £93.8bn, excluding a one-off boost from the transfer of Royal Mail pension assets.

That is 1.6% higher than at the same point in the 2011/12 tax year, and Osborne faces a tough task to meet his target to bring full-year borrowing down to £108.5bn, from around £120bn in 2011/12.

Marc Otswald of Monument Securities says, leaving aside the slightly larger than expected monthly surplus, there is nothing to comfort Osborne in the data. He points out some of the low lights of the ONS report (citing figures for the tax year to date, compared with the same period in the previous tax year):

- Income Tax receipts a little lower but that is no surprise given
a weak economy

- Corporation Tax still very weak £36.8bn vs. £40.5bn

- VAT receipts up: £85bn vs. £83.8bn, but that is in fact
less than the pace of inflation… so weak

- Outlays – horrible, net departmental outlays £476.9bn vs.
£466.3bn, with some offset from Interest payments due to fall
in Gilt yields – so much for getting the budget under control

9.40am GMT

UK public finances show big surplus in January

There was good news for George Osborne this morning, with Britain’s public finances showing a bigger than expected surplus in January.

The government’s preferred measure of public borrowing, which strips out some of the effects of its bank bailouts, showed a surplus of £11.4bn in January.

That is up from £6.4bn pounds in January 2012 and above analysts’ forecasts of a surplus of £8.15bn. January is typically a good month for tax receipts, as it marks the deadline for self-assessed tax returns to be paid.

9.21am GMT

Eurozone data could push ECB to cut rates

The ECB’s bond-buying programme may have improved sentiment but it has not lifted economic activity, says Howard Archer of IHS Global Insight.

The purchasing managers survey reinforce concern that while the eurozone economic environment has been helped by a marked reduction in sovereign debt tensions, lower bond yields and improved business confidence since late-2012 (largely due to the ECB unveiling its bond buying policy) this is still not really feeding through to lift economic activity.

He says the data could push the ECB to cut rates.

The relapse in manufacturing and services activity in February puts renewed pressure on the ECB to cut interest rates, especially given the recent strength of the euro. We suspect that the ECB will remain reluctant to trim interest rates for now, but it could buckle if the eurozone continues to falter.

9.18am GMT

Here’s Capital Economics on the eurozone data.

The fall in the composite eurozone PMI in February puts a dent in hopes that the region would emerge from recession in the first quarter. On past form, the index points to a quarterly fall in GDP of about 0.3%, after Q4’s 0.6% fall….

The fall in the French PMI is more worrying – at face value the index is now consistent with a 1% quarterly fall in GDP. In all, then, the latest PMI number supports our view that the improvement in the financial markets will not be enough on its own to kick start an economic recovery.

Updated at 9.38am GMT

9.16am GMT

Eurozone services data dash hopes of recovery

Ouch. Eurozone PMIs do not look good, with services dropping in February, dashing hopes that the region could emerge from a recession soon.

The flash services PMI – one of the earliest monthly indicators of economic activity in the region – dropped from 48.6 to 47.3 in February, a big miss from analyst expectations of a rise to 49.

Chris Williamson of Markit highlighted the growing divide between Germany and France.

Digging into the data shows increasing schisms within the eurozone. National divergences between France and Germany have widened so far this year to the worst seen since the survey began in 1998. Germany is on course to grow in the first quarter. In contrast, Frances’s downturn is likely to deepen, bringing the euro area’s second-largest member more in line with the periphery than with the now solitary-looking German ‘core’.

9.06am GMT

Grim outlook for Europe’s second largest economy

Here’s Markit’s graph showing just how bad it looks in France. The composite PMI, which usually preempts GDP data fairly accurately, is sliding dramatically.

This morning the French media suggested the EU Commission is expected to cut its already grim forecast for France’s economy and budget deficit this year, citing a report due out Friday.

Le Monde and Le Point reported that the commission’s economic experts have reduced their forecast for France’s economic growth this year to 0.1% from 0.4%.

The country’s deficit is now forecast at 3.6% of GDP, up from a prior estimate of 3.5%, which would miss the Maastricht treaty target of 3%.

France is the second largest economy in the eurozone and problems there signal problems right at the very heart of the currency bloc.

8.50am GMT

French work ethic attacked

One man will be unsurprised by the miserable data out of France (see 8.20am) and that is Maurice “Morry” Taylor Jr, the head of US tyre company Titan International, which yesterday launched a blistering attack on the French work ethic.

My colleague Kim Wilsher in Paris reports:

Taylor, a 1996 US Republican presidential candidate, revealed he was no loss to the international diplomatic service in his letter to the minister, who had suggested he might like to take over a Goodyear tyre factory in the economically struggling industrial heartland of northern France, near Amiens.

“Do you think we’re stupid?” Taylor wrote to Montebourg in the letter, which was made public on Wednesday. “I’ve visited this factory several times. The French workers are paid high wages but only work three hours. They have one hour for their lunch, they talk for three hours and they work for three hours. I said this directly to their union leaders; they replied that’s the way it is in France.

8.39am GMT

Markets hit by Fed split

Over to the markets, which are suffering after minutes released last night showed signs of a split over the US Federal Reserve’s stimulus programme.

  • UK FTSE 100: down 1.2%, or 80 points, at 6314
  • France CAC 40: down 1.2%
  • Germany DAX: down 1.2%
  • Spain IBEX: down 1.75%
  • Italy FTSE MIB: down 2%

8.35am GMT

German data points to economic rebound

German business activity, meanwhile, increased for a third straight month in February, adding to signs the region’s largest economy is rebounding after GDP declined in the fourth quarter.

The data points to a widening gulf between it and the region’s second largest economy, France, which continues to flounder.

The German composite PMI, which accounts for more than two thirds of the economy, stood at 52.7 in February. That was down from January’s 54.4, but still comfortably above the 50 mark that separates growth from contraction.

Tim Moore at Markit said:

Despite the slight loss of momentum since January, the survey suggests that Germany can still be relied upon as an engine for the eurozone.

Updated at 8.52am GMT

8.29am GMT

The six problems with Italy and how to solve them

While we wait for Germany’s PMIs, check out the Guardian’s spread on Italy in the paper this morning.

My colleague Lizzie Davies in Rome numbers the six things wrong with Italy and how to solve them, starting with the effects of austerity.

She goes on to highlight the plight of women in the country run for years by Silvio Berlusconi, a man better known for his bunga bunga parties than anything else. She writes:

Held back by ingrained cultural attitudes, inadequate public services and political under-representation, they may have better educational qualifications than their male counterparts but they are significantly less likely to be in paid work.

8.20am GMT

French services sector shrinks at fastest rate in four years

The French data is predictably bad. The French services sector shrank in February at its fastest rate in nearly four years, suggesting it is far from a turnaround.

The services PMI came in at 42.7 in February, compared with 43.6 last month. The manufacturing index ticked up to 43.6, but remains well below the 50 mark that separates growth from contraction.

The composite PMI, which accounts for roughly two-thirds of French economic output, dropped to 42.3 from 42.7 in January.

Chris Williamson at Markit said:

There is a fairly consistent picture showing that the French business sector is suffering its worst downturn since the height of the financial crisis.

Updated at 8.22am GMT

8.13am GMT

Today’s agenda

A quick look at today’s agenda, before we plunge into the French PMIs.

  • France PMIs for February: 7.58am
  • Merkel addresses the Bundestag on the EU budget: 8am
  • Rajoy speaks in State of Nation debate: 8am
  • Italian election candidates hold press conference: 8.10am
  • Germany PMIs for February: 8.28am
  • Eurozone PMIs for February: 8.58am
  • UK public sector borrowing for January: 9.30am
  • UK CBI trends for February: 11am
  • US inflation for January: 1.30pm
  • US weekly jobless claims: 1.30pm
  • US PMIs for February: 1.58pm

In the debt markets, the UK is selling a £2.25bn of a 10-year gilt; while Spain is selling €3bn-€4bn of bonds maturing in 2015, 2019 and 2023.

8.05am GMT

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

The state of the French economy will be in focus this morning, with eurozone PMIs set to show a widening gulf between France and Germany.

UK chancellor George Osborne will also be in the spotlight when the public sector borrowing figures are released. These could offer some relief after the miserable 4G auction proceeds, as January is traditionally a strong month for tax receipts.

Later in the day, we’ve got a Spanish 10-year bond auction, as Mariano Rajoy’s government continues to take advantage of lower rates. And there’s a key UK gilt auction, which could suffer from the news that Mervyn King voted for more QE at the Bank of England’s last meeting.

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Five-day strike by Spanish airline workers enters day two. Hollande meets Greek leaders in Athens. Eurozone crisis conference in Bratislava with ECB. ZEW sentiment from Germany better than expected. Can Sterling recover? Opinions remain divided…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Day two of Iberia strikes after clashes with police” was written by Simon Neville and Nick Fletcher, for guardian.co.uk on Tuesday 19th February 2013 15.10 UTC

3.10pm GMT

US home builder confidence slips in February

Over in the US, a weaker than expected housing market indicator.

Confidence among American home builders dipped slightly in February after reaching a seven year high the previous month.

The National Association of Home Builders/Wells Fargo index slipped from 47 in January to 46, below expectations of a rise to 48. The NAHB said the decline came amid uncertainties about jobs and rising costs for building materials.

This has not stopped the Dow Jones Industrial Average from adding nearly 50 points in early trading, after its Presidents Day break on Monday.

(And apologies by the way that putting my byline on the blog has removed Simon’s picture after this morning’s interest.)

2.17pm GMT

Greece’s one Ferrari

While Greece’s current account deficit may be reducing, times are still certainly tight in the country.

According to the latest car figures, only one new Ferrari was registered in Greece throughout 2012.

Good luck to that driver getting around.

By comparison, 21 new Ferraris were registered in 2007.

And with that, I’ll hand over to my colleague Nick Fletcher.

Updated at 3.03pm GMT

1.44pm GMT

Iberia strike paralyses airport

Iberia workers continue their second day of strikes, which will see 1,022 flights cancelled by Friday.

Here are some pictures coming in from the airport today, with scenes far calmer than yesterday, when riot police dragged out protesters after they stormed Madrid’s main airport.

Just to remind everyone, the strikes are over plans to cut 3,807 jobs and reduce routes in an attempt to stop losses which totalled €262m in the first nine months of 2012.

1.33pm GMT

Currency wars – Bundesbank chief wades in

In an interview with Frankfurter Allgemeine Zeitung newspaper, Bundesbank boss, and ECB policymaker, Jens Weidmann said:

The G20 countries share the opinion that devaluation races know no winners.

Also in the future, protectionism and currency manipulation should not be used to fight against the difficult economic situation in some countries. That is an important signal.

Updated at 1.33pm GMT

1.17pm GMT

Poland could delay euro entry

Poland could delay its entry into the eurozone after the PM Donald Tusk said the country would need to change its constitution first.

Less than a third of Poles are in favour of joining the euro and Tusk thinks he will have a tough time pushing the changes through parliament.

He said:

It is essential to have a constitutional majority to take this decision.

There will be no such majority, unless there is a widespread belief that this is good for Poland.

Now compare this with what he said last year, and it seems he has cooled to the idea of joining.

He said in December:

In front of us is a decision on whether we want to be part of the heart of Europe […] with the common currency at its core, or a peripheral state with its own currency.

The president Bronislaw Komorowski has said the country should wait until after the 2015 elections before making any decision.

Poland is obliged to join the single currency as part of its agreement on entering the EU.

12.12pm GMT

Greek current account deficit falls

Greece’s current account deficit narrowed last year to its lowest level since joining the euro.

The gap narrowed by 73% in 2012 to €5.58bn helped by falling imports and lower interest payments after a sovereign debt cut, according to the Greek central bank.

It shrank from 9.9% of GDP in 2011 to 2.9% of GDP in 2012 and is a long way of historic highs of 14.7% of GDP in 2008.

Due to austerity measures the Government hopes to eliminate the current account deficit by 2014.

11.37am GMT

Sterling remains steady, for now

Sterling ticked up slightly, away from seven-month lows of yesterday against the dollar, but only up by 0.1% to $1.5482, as some investors cash in on the recent falls by closing their short positions.

Some have suggested there will be little movement ahead of tomorrow’s release of the most recent minutes from the Bank of England MPC meeting.

However, chances of a boost are unlikely, with hedge funds selling the pound in anticipation of looser monetary policy from incoming Governor Mark Carney.

Valentin Marinov, head of European G10 currency strategy at Citi told Reuters:

It feels like the sterling move we have seen has occurred very quickly and that could encourage some investors to take some profit, but it will only be a pause.

Ahead of the BoE and Fed minutes tomorrow, risks could be still on the downside, especially if we see evidence that the FOMC (Federal Open Markets Committee) members discussed reducing the pace of its asset purchases if the US recovery is sustained.

11.14am GMT

Hollande and Samaras meet as journalists go on strike

The French president posed with PM Samaras for pictures, but little coverage on the event is expected by Greek media, who are staging a 24 hour strike ahead of a nationwide strike tomorrow.

Greek news websites have not been updated, and rolling state news channels are showing footage of Hollande’s arrival, but providing no commentary on the trip.

Greece’s government were furious that journalists chose today to strike to coincide with the arrival of Hollande.

A spokesman blamed the opposition party, telling AP:

The journalists’ union leadership succumbed to the usual party aims and Syriza’s plan to cause a media blackout during the visit of French President Francois Hollande.

He added that the opposition party “does not hesitate to damage the country’s international image.”

11.03am GMT

GDP in OECD countries falls in Q4 2012

Our economics editor Larry Elliott writes

The world’s richest countries saw their economies contract for the first time in almost four years during the final three months of 2012, the Organisation for Economic Cooperation said.

The Paris-based think tank said gross domestic product across its 34 member states fell by 0.2% – breaking a period of rising activity stretching back to a 2.3% slump in output in the first quarter of 2009.

All the major economies of the OECD – the US, Japan, Germany, France, Italy and the UK – have already reported falls in output at the end of 2012, with the think tank noting that the steepest declines had been seen in the European Union, where GDP fell by 0.5%. Canada is the only member of the G7 currently on course to register an increase in national output.

The 0.2% decrease followed a 0.3% expansion in the third quarter, and resulted in a slowdown in the annual rate of growth in the developed world. GDP growth in the OECD was 0.7% higher in the fourth quarter of 2012 than it was a year earlier, down from the 1.2% annual pace of expansion in the year to the third quarter of 2012.

Among the major seven economies, the US showed the fastest annual growth, expanding by 1.5% between the fourth quarter of 2011 and the fourth quarter of 2012. Italy was the weakest performer, contracting by 2.7% over the same period.

For 2012 as a whole, GDP growth in the OECD stood at 1.3%, down from 1.9% in 2011.

10.35am GMT

A brief flick through the readers comments, I see KhakiSuit asks:

I haven’t been around for a while, but who is this faceless “Simon Neville”? And why does a young Zyzz look-a-like (‘mirin brah?) and a woman advertising online lingerie come up when I google him?

Therefore, to appease him/her and other curious parties a picture has now been added. I can assure all readers I am not said lingerie model.

10.30am GMT

But for some, the ZEW figures are meaningless.

10.25am GMT

ZEW index reaction

Reaction coming in for the better-than-expected ZEW index results.

Carsten Brzeski at ING Bank NV said:

The ZEW index has not the best track record when it comes to predicting German economic activity. In fact, since 2006, the index had a tendency to “miss” the periods of strong growth. Since mid-2011, however, the components of the ZEW and the Ifo have broadly stayed in tune. With this in mind, we could see another increase of Germany’s leading confidence indicator, the Ifo index, at the end of this week.

Without any single hard data for the year 2013, the prospects for the German economy look promising. Even if the real economy only lives up to half the expectations recently created by soft indicators, any fears of a technical recession should turn out to have been unjustified.

Over at IG, Alastair McCaig added:

This morning’s German ZEW economic sentiment figures should ensure that the market is given a sense of direction, and it will be interesting to see if it can be as strong as it was last month.

10.10am GMT

German economic sentiment at 34-month high

The ZEW sentiment indicator index was up to 48.2 vs 31.5 in January, with current conditions index at 5.2 points vs 7.1 points in January.

It found market experts think business activity may pick up speed moderately and two=thirds of respondents expect no change to the ECB rates for at least six months. The rest expect an increase during that time.

Sentiment is at the highest level since April 2010.

For those uninitiated with the ZEW, it is data complied by the German firm, the Center for European Economic Research, which questions financial experts throughout Europe every month, making a medium-term forecast about Germany ‘s economic situation.

They are asked to weigh up the current situation and predict the future direction of the economy. For all components of the survey, responses are restricted to positive, negative, or unchanged.

Questions range from a qualitative assessment of the direction of inflation, interest rates, exchange rates and the stock market in the next six months.

10.02am GMT

Hollande arrives in Greece

Over to Greece where our correspondent Helena Smith says the French president Francois Hollande has arrived in Athens and is making his way with prime minister Antonis Samaras to his downtown office.

She writes:

Government officials are holding much in store in the French president’s flying visit. Like Angela Merkel’s similar six-hour stopover, four months ago, Hollande’s tour is highly symbolic visit with officials describing it as vital to shoring up confidence in debt-choked country.

“By coming here, at this moment in time, Hollande sends a very important message to markets and EU states that Greece is not a lost case and will make it,” one official in the tripartite coalition government told me.

“It is essential, right now, that we are given political support to get investments moving. As one of the two pillars of the EU, Hollande can give high-profile political support. He can appeal to his public and send a message to other EU publics that now is the time to invest in Greece because its economy has stabilised.”

Unlike Merkel’s visit which was marred by massive demonstrations no protests are planned – even if opposition parties say the visit is more about Paris securing arms deals with Greece.

Instead, Hollande is seen as the leader who best embodies the desire to see “anti-austerity and growth” replace the constant budget cuts that have predominated since the crisis erupted in Athens three years ago.

Updated at 10.02am GMT

9.55am GMT

Spain bond sales hit top end of target

Sticking with Spain for the moment, the Government sold €4bn of three and nine month bonds – the top end of its sales target.

The yield on the nine-month bills was 1.144% and the three-months at 0.421%, which was slightly lower than the 0.441% yield on previous sale in January.

8.58am GMT

Spanish real estate giant collapses

Real estate business Reyal Urbis has filed for insolvency after failing to renegotiate its debt levels with lenders.

Shares were suspended, having fallen 99% since 2007 at the height of Spain’s property boom. The company has until Saturday to reach a last-ditch agreement before going under.

The collapse is the second biggest in Spanish history, after Martinsa, another building company, fell at the start of the crisis.

Chairman and majority shareholder, Rafael Santamaria, said he was confident an agreement with the banks could be reached.

8.44am GMT

Good morning and welcome to another day of our rolling coverage of the eurozone crisis.

Today we turn our attentions back to Spain following clashes late yesterday afternoon with Spanish police and striking airline workers for Iberia for day two of a five day strike.

We also look toBratislava for the eurozone conference “shaping a genuine economic and monetary union” including a speech from ECB member Jörg Asmussen.

While over in Athens, French president Francois Hollande is meeting with his Greek counterparts president Karolos Papoulias and PM Antonis Samaras

And finally, in Zurich, the Swiss National Bank chairman Thomas Jordan speaks at the Swiss Institute of International Studies

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