BoE has slashed its forecast for wage growth this year, warned that geopolitical risks are rising, and said contingency plans for financial upheaval over Scottish independence are ready. Here are key points from the Bank’s Quarterly Inflation Report…


Powered by Guardian.co.ukThis article titled “Business Liveblog: Bank of England cuts wage growth forecast, and reveals Scottish contingency plans” was written by Graeme Wearden, for theguardian.com on Wednesday 13th August 2014 12.51 UTC

US retail sales miss forecasts, with no growth in July

Over in America, a disappointing set of retail sales figures have just raises concerns over the strength of its recovery.

Retail sales were flat in July, the worst performance in six months, having only risen by 0.2% in June.

Car sales fell, and demand for electronics and home appliances was weak — not a great sign of consumer confidence.

Core retail sales, which strips out cars, gasoline, food services and building materials, rose by just 0.1% in July, and June’s figure was revised down from 0.6% to 0.5%.

Ahha! On page 29 of the BoE’s Inflation report is a bar chart, showing how most new jobs created in the last six months have been in ‘low skill’ professions.

This may help explain the low growth in average earnings in recent months, if more new hirers are taking lower paid positions.

Hat-tip to Jeremy Warner of the Telegraph for flagging it up:

Labour: Weak wage growth shows economy isn’t fixed

Chris Leslie MP, Labour’s Shadow Chief Secretary to the Treasury, has seized on the news that the Bank of England has slashed its forecast for wage growth this year, to just 1.25%.

He says:

“The inflation report shows why this is no time for complacent and out-of-touch claims from Ministers that the economy is fixed and people are better off.

“While the economy is finally growing again and unemployment is falling, working people are still seeing their living standards squeezed. Pay growth is at a record low and lagging behind inflation and the Bank of England has halved its forecasts for wage growth this year.”

As covered earlier this morning, the latest unemployment data showed earnings growth faltering,

Total wages (including bonuses) have shrunk for the first time since 2009. And stripping out bonuses, average earnings rose by the lowest since records began in 2001, up just 0.6%.

Michael Izza, chief executive of ICAEW (which represents accountants) says the Bank of England’s new, lower wage growth forecasts are a concern:

The numbers of self-employed and part-time workers, together with those on zero-hours contracts are contributing to a flexible labour market that is keeping wages down. In addition, auto-enrolment means that employers are having to fund pensions from somewhere, and wages are suffering as a result.

David Kern, chief economist at the British Chambers of Commerce, says the Bank of England is giving out “mixed messages” on the outlook for interest rates.

The higher growth forecast for 2014 and the lower estimate for the amount of slack in the economy may be seen as a signal to bring forward interest rate rises.

However, Governor Carney’s comments will reassure businesses that the MPC will not rush any increases in rates. He also acknowledged that the rising supply of labour in the economy may provide new sources of economic capacity.

An early UK interest rate rise looks a little less likely, reckons Neil Lovatt, director of financial products at Scottish Friendly.

He says:

“To read between the lines, the message today is that rates are still destined to rise, but when that will be is still up for debate. The fickle nature of the UK economy seems to keep everyone guessing.”

“Any rate rises will be small, but even very small rises in interest rates will have a significant effect on what is still a fragile economy. That said, savers thinking that the ‘good old days’ of high interest rates will return are going to be sorely disappointed and the sooner we adapt to this environment the better.”

Those new BoE forecasts

Berenberg Bank have kindly wrapped up the changes to the Bank of England’s forecasts:

  • Growth up. The BoE raised its growth forecasts to 3.5% in 2014 and 3.0% in 2015, both up by 0.1ppts from their previous forecast. Although they cut their 2016 forecast to 2.6% from 2.8%
  • Inflation up in 2014 but down in 2015 and 2016. The BoE now forecasts 1.9%, 1.7% and 1.8% inflation for 2014, 2015 and 2016, compared to 1.8%, 1.8% and 1.9% in their previous forecast.
  • Unemployment down. To 5.9%, 5.6% and 5.4% in 2014, 2015 and 2016, from 6.3%, 6.0% and 5.9% in the previous forecasts.
  • Pay growth cut in the near term but raised later in the forecast. Specifically, the BoE now forecasts wage growth of 1.25%, 3.25% and 4% in 2014, 2015 and 2016 from 2.5%, 3.5% and 3.75%.
  • Slack now estimated at 1% of GDP, compared to 1-1.5% in the second quarter.

So, good news on growth and unemployment, but bad news on pay.

As Berenberg’s UK economist, Rob Wood, puts it, there’s “something for everyone”.

This fan chart shows the new growth forecasts:

One more key point — the Bank of England flagged up that geopolitical dangers (think Ukraine or the Middle East) are a growing threat to Britain’s recovery.

Carney said:

“Markets have been remarkably resilient to some of these geopolitical events and we’re only beginning to see the first advance signs of the middle through some of our major export markets such as Germany and the movements of some of the confidence indicators.”

(thanks to Reuters for the quote)

Bank of England’s quarterly inflation report – the key points

Quick recap.

1) The Bank of England has slashed its forecasts for wage growth, conceding that the recovery has still not fed through to people’s pockets.

The BoE now expects earnings to rise by just 1.25% this year, down from 2.5% previously. It admitted that there appears to be more slack in the economy than it realised, although it is also being eaten up at a faster rate.

Governor Mark Carney said the UK was experiencing “strong output growth”, but this has not been matched by a material pickup in productivity, or wages.

2) The prospects of an early rise in UK interest rates appear to have faded.

The pound tumbled on the news, shedding one cent against the US dollar to $1.6714 as investors calculated that an early rate rise is less likely than before.

The Bank also hammered home that interest rate rises will be gradual and limited, when the time comes to end Britain’s long period of record-low borrowing costs.

3) “Contingency plans” have been drawn up in case Scotland votes for independence.

Carney said:

”Uncertainty about the currency arrangements could raise financial stability issues….We have contingency plans.”

4) During an occasionally barbed press conference, Carney denied that the Bank was increasingly clueless about the UK economy.

He argued that rising geopolitical risks mean there is naturally more uncertainty about the situation, and denied that his precious forward guidance policy has been a muddle.

5) Europe remains a big worry. The BoE says that:

Eurozone growth continued to disappoint, net lending has been falling and inflation has stayed low.

And deputy governor Minouche Shafik warned that the UK can’t rely on the eurozone to drive its recovery.

Eurozone industrial production hits recovery hopes

Incidentally, we had further confirmation this morning that the eurozone is struggling — a poor set of industrial production numbers.

My colleague Jo Moulds reports:

Factory output in the eurozone contracted unexpectedly in June, further damaging hopes of a strong recovery.

Industrial production dropped 0.3% on the month following a 1.1% drop in May, hit by the ongoing conflicts in the Ukraine, Iraq and Gaza.

Production was flat compared to the same time last year. Economists had been targetting a 0.1% rise on the year. The annual reading was the lowest since August 2013.

Bank of England: we can’t rely on the Eurozone for our recovery

Britain can’t rely on the eurozone economy to drive our recovery, warns the Bank of England’s new deputy governor, Minouche Shafik.

Asked about the impact of the European Central Bank’s new stimulus measures (including hundreds of billions of cheap loans for banks), Shafik urged caution, saying the new impact of this LTRO programme will become clear over time.

The eurozone still faces low growth and low inflation, Shafik says, and we need to see whether the ECB’s measures lead to stronger credit growth and a stronger recovery.

The UK can’t rely on a eurozone recovery to lift our recovery. It would be good if the eurozone could drive us forwards, as it’s such an important export market, that’s not very likely, she concludes.

And that was the end of the press conference. Summary and reaction to follow…


Asked about the rise in self-employed workers (as covered earlier in the blog) deputy governor Ben Broadbent plays down the suggestion that it’s a risk. This isn’t necessarily a bad thing for productivity, he claims.

The Bank of England is tweeting some of the key points from today’s briefing, including a rather dashing (and slightly menacing?) photo of the governor:

Carney treats a question about his ‘muddled’ forward guidance policy with some distain.

Asa Bennett of the Huffington Post points out that the initial pledge (no rate rise until unemployment has fallen below 7%), has evolved into a broader measure based on slack, wage growth, and the like. Was it a muddle, or a learning process?

Not an unfair question, frankly, if a little mischievous.

But Carney doesn’t look pleased, claiming that Bennett is the muddled one, and that his guidance has been entirely consistent across many inflation reports and MPC minutes.

It’s consistent, it’s boring, but what’s what you get, he smiles.

The audience aren’t smiling, though:

Mark Carney: Bank of England has contingency plans for Scottish independence

Mark Carney has revealed that the Bank of England has drawn up contingency plans in case Scotland votes for independence next month.

Asked for his views on the prospect of ‘sterlingisation’ (that Scotland would use the pound without a formal currency union), Carney reveals that that BoE is preparing for all eventualities, as “uncertainty” over Scotland’s currency arrangements could hit financial stability.

He concedes that

He says:

We have contingency plans…. but it’s never a good idea to talk about them in public apart from to say that you have them.

Carney says that in terms of the Bank’s responsibilities for financial stability, we have “a wide range of tools and plans”. And the BoE isn’t the only body with responsibilities here — some are shared with the Treasury.


Back on the markets…. Carney says he is “encouraged” that the financial markets are more responsive to the latest data.

James Macintosh of the Financial Times takes up Larry’s point, that the Bank is looking increasingly clueless (on a spectrum between certainty and cluelessness).

Mark Carney replies; if we can agree that the range is between perfect certainty and perfect uncertainty, it’s fair that there is more uncertainty, mainly around the issue of productivity.

Here’s a link to the inflation report (sorry for the delay #hectic)

Ah, the Scotland question — is it time for Alex Salmond to produce a Plan B on an independent Scotland’s currency?

Mark Carney takes a cautious line; the Bank will implement whatever policymakers decide, but it has “noted” the statements from the three main UK political parties that they would not enter a formal currency union with iScotland.

He also points out that the Bank has a responsibility for financial stability across the UK, and will keep discharging those duties until circumstances change.


Could the Bank of England raise interest rates by as little as 0.125%, or would that be the equivalent of ‘boiling the frog’, asks Szu Ping Chan of the Telegraph.

Carney chuckles at the analogy, but doesn’t suggest such a small rise is on the agenda.

Ed Conway of Sky invites Mark Carney to comment on the financial markets’ expectations for UK interest rate rises (harking back to his Mansion House speech in June, when he suggested they were too dovish).

Carney plays the ball deftly, saying that the overall shape of market expectations are consistent with an adjustment that is both gradual and limited.

Deputy governor Ben Broadbent chips in, saying that it’s a “false dichotomy” to suggest the Bank should either be completely certain about everything, or completely clueless.

Larry Elliott, the Guardian’s economics editor, isn’t impressed by today’s report:

Doesn’t today report show that the Bank “really hasn’t got a clue, the MPC is divided, and that anyone taking out a mortgage or an overdraft would be ill-advised, as anything you say must be taken with a very large pinch of salt?”, Larry politely suggests.

Governor Carney defends his record, suggesting rather archly that Larry should try speaking to a lot of firms around the country*. The firms I speak to insist that business have understood the Bank’s ‘forward guidance’, he adds.

Interest rates will go up as the economy improves, they will go up to a limited extent, ands gradually, Carney says. But there are geopolitical dangers, and we may need to react to them.

* – Like in Rochdale, perhaps, Governor?

How much spare capacity is left to be absorbed in the UK economy?

Carney says there is “tremendous uncertainty” about the degree of slack, among policymakers on the Bank’s monetary policy committee (the overall view is that there’s 1% of capacity to mop up).

That’s not hugely reassuring, given the importance that the Bank now puts on the issue when setting monetary policy.


Alex Brummer of the Daily Mail wants more details about the Bank’s worries about geopolitics.

Carney replies that there is a “slight downturn skew” to today’s growth forecasts.

Bank of England press conference – Q&A session begins

Onto questions — Ben Chu of the Independent asks why the Bank has lowered its forecasts for productivity growth.

Mark Carney explains that firms have been taking on workers rather than investing in new equipment, as labour is cheaper than capital.

That process should end once cheap labour has been mopped up, meaning workers demand higher wages, and encouraging firms to invest in new equipment that will boost productivity. That process is taking longer than thought.

Pound hits 10-week low against the US dollar

The pound has hit its lowest level against the US dollar since last May, as the markets digest the inflation report (and the jobless data).

Sterling is down by 0.45% today, at $1.6732.


On interest rates, Mark Carney again reiterated that borrowing costs will rise in a “small, slow” manner, when the appropriate moment comes.

The economy is returning to a semblance of normality, Carney concludes.

Carney says that the amount of spare capacity in the economy has fallen somewhat in the last quarter, but the Bank also reckons there was more slack in the UK than before.


Bank of England slashes forecast for wage growth.

Over at the Bank of England, governor Mark Carney is unveiling the Quarterly Inflation Report.

He is declaring that the Uk recovery is “on track”…. “Robust growth” has taken output above the pre-crisis peak, and the Bank has revised its near-term forecast for growth up.

But the Bank has also slashed its forecast for wage growth in the UK.

  • It now expects wages to rise by just 1.25% in 2014, down from 2.5% previously.
  • It sees growth picking up to 3.25% in 2015, down from 3.5% before.
  • And in 2016, it reckons wages will rise by 4%, up from 3.75% previously.

Carney is also warning that Britain faces rising geopolitical risks, while the eurozone economy remains weak.

And the persistent strength of sterling is also a worry.

You can watch the press conference live here (right-click to open in a new tab).


So much for the year of the pay rise

Today’s report have cast a shadow over hopes that 2014 will be “the year of the pay rise.”, says the Resolution Foundation.

Adam Corlett, their economic analyst, comments:

“Once again a strong employment performance is to be welcomed but concerns remain over wages. There is still good reason to expect that real pay will start increasing during 2014 but today’s disappointing performance pushes the wages recovery further down the road.

It’s now almost impossible for average real pay in 2014 as a whole to exceed last year’s unless we see an unprecedented surge in wages during the rest of the year.

The number of people receiving the Jobseekers Allowance could soon fall below the one million mark:

The Press Assocation reports:

The claimant count fell for the 21st month in a row in June, by 33,600 to 1.01 million, according to today’s data from the Office for National Statistics.

If the trend continues, the number of Jobseeker’s Allowance claimants will fall below a million next month for the first time since September 2008.

See the report yourself

Nearly forgot… you can see the full labour market report here (as a pdf).

Iain Duncan Smith: Long-term plan is working

Work and Pensions Secretary Iain Duncan Smith has claimed that his changes to the welfare system have helped heal the labour market.

Here’s his official response to the jobless figures:

“In the past, many people in our society were written off and trapped in unemployment and welfare dependency. But through our welfare reforms, we are helping people to break that cycle and get back into work.

“The Government’s long-term economic plan to build a stronger economy and a fairer society is working – with employment going up, record drops in youth unemployment and hundreds of thousands of people replacing their signing-on book with a wage packet.

“This is transformative, not only for these individuals and their families, but for society as a whole. That is why we have set full employment as one of our key targets – bringing security and hope to families who have lost their jobs and others who never had jobs, we put people at the heart of the plan.

“The best way to help even more people into work is to go on delivering a plan that’s creating growth and jobs.”

However….critics, such as our own Polly Toynbee, are less impressed with Duncan Smith’s performance, given the stuttering start to his universal credit project:

Iain Duncan Smith’s delusional world of welfare reform

Today’s slump in real wages are a blow to hopes that the cost of living squeeze was easing — readers may remember that four months ago there was chatter that the squeeze was over, after pay rises (briefly) burst above inflation.

Could Britain’s falling real wages be partly due to changes in the composition of the labour market, with more people taking lower-paid jobs?

Newsnight’s economics correspondent, Duncan Weldon, reckons so:

Britain’s youth unemployment total has fallen:

The ONS reports that there were 767,000 unemployed people aged from 16 to 24 in April-June 2014; 102,000 fewer than for January to March 2014 and 206,000 fewer than for a year earlier.

These were the largest quarterly and annual falls in youth unemployment since comparable records began in 1992.


The recovery in the labour market has partly been driven by Britain’s army of self-employed people, which swelled by almost 10% over the last year.

The ONS reports that, since April-June 2013,

  • The number of employees increased by 447,000 to reach 25.77 million.
  • The number of self-employed people increased by 408,000 to reach 4.59 million.

UK unemployment, the key charts:

These two charts show what a bizarre jobs recovery the UK is experencing.

On the one hand, the employment rate is close to its highest level on record, as jobless falls and more people find work (820,000 in the last year).

But yet, real wages are shrinking – with the gap between earnings and inflation widening alarmingly (whether you include volatile bonuses or not)

One reason for caution — pay packets were boosted a year ago, because many bonuses were held back until after the UK top tax rate fell to 45%, in April 2013.

The ONS points out that “some employers who usually paid bonuses in March paid them in April last year.”

But if you strip out bonuses, pay is still up a measly 0.6% year-on-year, the lowest on record.


This chart from Bloomberg confirms that UK wages have suffered their first fall since the depths of the financial crisis:

Here are the key points on today’s unemployment data, from the ONS:

  • For April to June 2014, there were 30.60 million people in work, 167,000 more than for January to March 2014 and 820,000 more than a year earlier.
  • For April to June 2014, there were 2.08 million unemployed people, 132,000 fewer than for January to March 2014 and 437,000 fewer than a year earlier.
  • For April to June 2014, there were 8.86 million economically inactive people (those out of work but not seeking or available to work) aged from 16 to 64. This was 15,000 more than for January to March 2014 but 130,000 fewer than a year earlier.
  • For April to June 2014, pay including bonuses for employees in Great Britain was 0.2% lower than a year earlier, but pay excluding bonuses was 0.6% higher.

UK unemployment rate drops to 6.4%, but wages fall

Breaking News: Wage growth in the UK has hit its lowest level on record, and actually contracted if bonuses are included.

The Office for National Statistics reports that average earnings, excluding bonuses, rose by a mere 0.6% in the three months to June.

That means pay packets lagged well behind inflation — which hit 1.9% in June.

Including bonuses, total pay packets actually contracted by 0.2% during the quarter, the first fall since 2009.

In brighter news, the overall unemployment rate fell to 6.4% in April-June, which is the lowest since the end of 2008. And the claimant count fell by 33,000, showing that the labour market continues to recover.

But that recovery still isn’t reaching people’s pockets.

More details and reaction to follow


Nearly time for the UK unemployment data to hit the wires….

Reminder — economists expect another rise in employment, and a drop in the number of people claiming benefits.

But a crucial issue is whether earnings are picking up, after years of low pay rises.

As my colleague Katie Allen reports, many employees have been hit hard:

Angela Chicken was still in hospital with her newborn son when she was made redundant. She had been earning £11 an hour as a graphic designer. Ten years on, the 52-year-old single mother makes around £8 an hour working part-time at her local Sure Start children’s centre in Southampton.

With the cost of living rising faster than her pay, Chicken’s wages have fallen even further in real terms, a pattern likely to be reflected across the country in the latest official labour market figures today. After bills and housing costs, Chicken is left with £108 a week to feed herself and her son, buy clothes and anything else they need. They eat well, she said, but there is little left for treats or outings.

“We don’t really have enough money to go on holiday … I don’t get haircuts, I very rarely buy any clothes,” she said. “What I have had to do is pull myself back over the last 10 years to a position that isn’t as good as it was because I got knocked off my perch.”

More here:

In low-wage economy employers paying well make sound investment


Most of Europe’s stock markets have risen this morning, despite the worrying economic news from Asia overnight (details).

Germany’s DAX is leading the way, up 77 points or 0.86% at 9147.

Insurance group Swiss Re has cheered investors by posting a 3.5% jump in profits.

In London the FTSE 100 is flat (dragged back by a few companies going ‘ex-dividend’).

The Bank of England may admit this morning that it was too optimistic about wage growth, reckons Bloomberg’s Emma Charlton:

We also have confirmation that the eurozone has slipped worryingly close to deflation last month.

Fresh data this morning showed that Spain’s consumer prices index fell by 0.3% year-on-year in July, the biggest drop in almost five years. Month-on-month they slipped by 0.9%.

In France, prices were up by a meagre 0.5% last month compared with July 2013, and also fell on a monthly basis, down 0.3%.

Japan’s GDP shrinks by 6.8%; Chinese new lending slumps

Global economy watchers have two big pieces of economic data from Asia to digest today.

1) Japan has suffered its biggest contraction since the 2011 tsunami, in a blow to efforts to revitalise its economy.

Japanese GDP fell at an annualised rate of 6.8% between April and June (meaning it shrank by 1.7% during the quarter). The slump is being blamed on the recent hike in Japan’s sales tax, from 5% to 8%, which encouraged firms and households to bring forward their spending to January-March.

The government remains relaxed, saying the economy is recovering. But critics of prime minister Abe’s stimulus plan suggest he may have to postpone plans to raise the sales tax again in December.

2) The news from China isn’t too rosy either. The broadest measure of new credit has dropped to the lowest since the global financial crisis, suggesting many banks are cutting back on new lending.

Economists are concerned, as Chinese banks also face the impact of the property market downturn. Beijing may need to unleash further stimulus measures to avoid growth weakening. fastFT has a round-up of analyst comments.


Analysts at ING will be combing the inflation report for signs that the Bank of England’s monetary policy committee was divided last week, when it voted to leave interest rates unchanged.

They say:

The Bank will release new forecasts and update its forward guidance which will leave the door open for a rates rise this year. Any hints of dissent at the August meeting will boost the case for a November hike.

Inflation report: what to watch for

The Bank of England inflation report will be scrutinised for hints over interest rate rises, the latest assessment of ‘slack’ in the economy, wage growth (or lack thereof), and the outlook for growth (could possibly be revised up) and inflation (might be revised down).

Mark Carney can also expect a few questions about the UK housing market.

Here’s Angela Monaghan’s preview:

Bank of England inflation report – what to watch for

City analyst Michael Hewson of CMC Markets predicts that today’s data will show another welcome drop in the jobless rate, but an unwelcome drop in wage growth.

He writes:

The latest ILO unemployment numbers for June are expected to see a drop from 6.5% to 6.4%, while jobless claims in July are expected to show another drop of 30k, slightly lower than the 36.3k drop seen in June.

Wages growth continues to be the economic head scratcher and is the Bank of England’s biggest problem when it comes to deciding when to raise rates. If we continue to see the gap with inflation widen out then it becomes increasingly difficult to see how the Bank could even contemplate a rate rise this year.

Expectations are for flat wage growth for the 3 months to June, down from the 0.3% rise in May.

* – The wages figures are skewed by the cut in Britain’s top rate of income tax back in April 2013. That prompted some firms to hold back bonus payments until then, making comparisons trickier.

UK unemployment and Bank of England inflation report in focus

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

We’re tracking two big events in the UK this morning. First, the latest unemployment figures, due at 9.30am BST. They are expected to show another drop in the number of people out of work.

But that labour market recovery has come at a price — low wage growth, and today’s figures are likely to show pay rises lagging behind inflation again.

That would mean real wages are still falling; taking the shine off Britain’s economy recovery.

That data will set the scene for the Bank of England’s latest quarterly Inflation Report, released at 10.30am.

This is the Bank’s latest health-check on the UK economy, including forecasts for growth and inflation.

But the big issue is whether the BoE has moved closer to hiking interest rates — Governor Mark Carney will probably be quizzed on this during the press conference.

The key issue is whether the Bank thinks most of the spare capacity, or ‘slack’, in the economy has now been mopped up. Carney will probably reiterate that the Bank is watching wage growth closely – showing whether employers are having to pay more for talent, and whether households could cope with higher borrowing costs.

As Ian Williams of Peel Hunt explains:

Formal changes to the forecasts are likely to be minimal; the overall assessment of the degree of slack, especially regarding the labour market, will be the focus of investor interest.

Elsewhere, European stock markets are expected to rise modestly, despite ongoing geopolitical tensions [the Russian aid convoy chugging towards the Ukraine border could be the next flashpoint].

And in the euro area, investors are digesting yesterday’s slump in German investor confidence, and fretting about how bad tomorrow’s growth figures for the April-June quarter could be.

I’ll be tracking the key events though the day….


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In the broadcast today: EUR, GBP and JPY Outlook ahead of ECB, BOE & BOJ Meetings. Ahead of the upcoming European Central Bank, the Bank of England and the Bank of Japan meetings, we explore what could be the next moves of these major central banks and examine the outlook for  the EUR, the GBP and the JPY, we list the Top 10 spotlight economic events that will move the markets next week, we examine the consensus forecasts for the upcoming economic data, we analyze the tests of important support levels in the EUR/USD and the GBP/USD currency pairs, we take a look at the renewed strength of the USD vs JPY, we highlight the market’s reaction to the Japanese CPI, the Euro-zone Manufacturing PMI and Unemployment Rate, the U.K. Manufacturing PMI, and the U.S. ISM Manufacturing Index, we discuss new forecasts from Bank of New York-Mellon, Bank of Tokyo-Mitsubishi and Citigroup, and prepare for the trading session ahead.

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Euro falls below $1.30 to 2013 low on record high unemployment and another month of contraction in the region’s manufacturing sector. Euro jobless rate now at 11.9%. Grillo attacks Bersani again. US manufacturing expands more than expected…

Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Record unemployment and shrinking manufacturing drive euro down” was written by Graeme Wearden, for guardian.co.uk on Friday 1st March 2013 15.48 UTC

3.39pm GMT

US manufacturing sector beats foecasts

America’s manufacturing sector has, once again, outperformed other nations.

The US ISM index jumped to 54.2 in February from 53.1 in January, which means that growth is accelerating.

That’s the fastest rate in 20 months, and makes the contractions in the UK (PMI of 49.7) and the eurozone (PMI of 47.9) look even worse.

Amna Asaf of Capital Economics commented:

US manufacturers were undeterred by the fragile recovery in overseas manufacturing activity, for now at least.

Updated at 3.48pm GMT

3.08pm GMT

Exclusive: M5S’s Casaleggio on the party’s future

Gianroberto Casaleggio, joint founder of the Italian Five Star Movement, has given an exclusive interview to the Guardian in which he states there is no chance of the group joining the country’s next government.

But… speaking to John Hooper, our Southern Europe editor, Casaleggio also suggests that the party could provide limited support for a minority government, on policies which M5S agreed with.

Casaleggio, the man who helped mastermind the movement’s rapid growth using the power of the Internet, explained:

If a government is put together, formed by other parties, the Five Star Movement will vote for everything that forms an integral part of its programme.

Significantly, Casaleggio also says the party will remain on the sidelines as president Napolitano tries to build a coalition over the coming days. That, John says, is a new, tougher line from M5S.

Here’s the story: M5S says it will not help form Italian government

Definitely worth a read, as Casaleggio opens up about the party’s long-term ambitions, and about how digital democracy will fundamentally reshape politics around the globe.

What is happening in Italy is just the beginning of a much more radical change. It’s a change that is going to touch all democracies.

2.42pm GMT

Pound falls below $1.50

The pound just slipped below the $1.50 mark for the first time since early July 2010, a fall of 1.5 cents against the US dollar today.

Sterling has been suffering since this morning’s weak manufacturing data was released, fueling fears of a triple-dip recession.

Kit Juckes of Societe Generale reckons the pound could soon be as low as $1.40.

Since, as I’ve argued plenty of times before, a weaker pound won’t really help UK exports (of planes, lawyers and investment bankers) as much as they hurt consumes’ real incomes, the UK’s de facto weak pound policy won’t work well, so will continue for a long time.

There is no other path.

1.42pm GMT

Italy’s president has challenged the German government to do more to help the eurozone out of its economic crisis, on the final day of his trip to Germany.

President Giorgio Napolitano told an audience in Berlin that Germany had shown leadership in the crisis. However, he then appeared to chide its government for not stimulating its domestic economy more vigorously to help its neighbours:

Napolitano said:

I don’t want to simplify the problem, but it would be reasonable to expect an expansive impulse from Germany to contribute to a real, not just proclaimed, recovery in growth and employment in Europe.

(quote via Reuters).

Today’s manufacturing data showed that Germany’s factories are enjoying rising output, while most other countries are still suffering the impact of the euro recession.

The Italian president also dampened speculation that the election could be rerun soon, telling reporters that “I’m not interested in a new vote”, and that his successor (Napolitano’s term ends in May) is unlikely to want more instability either.

Napolitano’s trip had already been marred by the diplomatic spat after the SPD’s candidate for the chancellorship, Peer Steinbrück, over his comment that two clowns had won the election.

1.00pm GMT

Italy has missed its deficit reduction target for 2012 – but the good news is that it didn’t exceed the 3% target limit set by the European Commission.

Italy’s deficit came in at 3.0%, rather higher than Mario Monti’s most recent forecast of 2.6%. But it still low enough for the country to extract itself from the EC’s ‘excessive deficit’ procedure.

This pushed the total national debt to a new record high of 127% of GDP.

12.29pm GMT

Euro hits lowest level of 2013

The euro has fallen to its lowest level of 2013, following the latest record unemployment levels and weak manufacturing data.

The euro just dropped through the $1.30 mark for the first time since last December, to a low of $1.2987.

Traders are blaming fresh fears over the health of Europe’s economy, with eurozone jobless rate now at 11.9% (see 10.06am) and factory output falling sharply in Italy and France (see 9.32am)

The ongoing uncertainty over Italy, following Beppe Grillo’s latest attack on the centre-left (see 11.50am), isn’t helping the euro either.

12.16pm GMT

Economist Megan Greene suggests that the solution to the deadlock in Italy could be for Bersani to step down and be replaced by Matteo Renzi, who was defeated for the leadership of the centre-left late last year.

Renzi, mayor of Florence, had pledged to be loyal to Bersani – but Beppe Grillo’s repeated personal attacks on the Democratic Party leader are adding to the pressure for a change.

11.50am GMT

Grillo: hands off my senators!

Back to Italy, and Beppe Grillo has just tried to sink Pier Luigi Bersani’s efforts to become the prime minister of a minority government.

In a new blog post (see it here), Grillo accused Bersani and his Democratic Party of acting like “vulgar predators” by trying to persuade some his Five Star Movement’s new senators to work with him.

Grillo pointed out that everyone who stood as a M5S candidate had agreed not to “associate with other parties or coalitions or groups except for voting on shared points”.

Grillo declared that:

M5S, its elected officials, its activists, its voters are not for sale.

and added that Bersani does not realise he is “out of history”.

This looks like a blow to Bersani’s hopes of persuading president Napolitano that he can build a consensus with M5S (see 8.47am).

The stalemate continues…

Updated at 12.21pm GMT

10.54am GMT

Eurozone inflation drops below 2%

Inflation in the eurozone has fallen below the 2% mark, giving the European Central Bank some leeway to cut interest rates.

The consumer prices index dropped to 1.8% in February, from 2.0% in January. The ECB’s goal is to have the cost of living rising by a little below 2% per year – so there’s now more leeway for a rate cut…

10.42am GMT

Table: Latest jobless rates

And here’s each country’s unemployment rate (as that picture at 10.14am is a little blurry).

  • Eurozone: 11.9%
  • European Union: 10.8%
  • Belgium: 7.4%
  • Bulgaria: 12.%
  • Czech Republic: 7.0%
  • Denmark: 7.4%
  • Germany: 5.3%
  • Estonia 9.9%
  • Ireland: 14.7%
  • Greece: 27%
  • Spain: 26.2%
  • France: 10.6%
  • Italy: 11.7%
  • Cyprus: 14.7%
  • Latvia: 14.4%
  • Lithuania: 13.3%
  • Luxembourg: 5.3%
  • Hungary: 11.1%
  • Malta: 7.0%
  • Netherlands: 6.0%
  • Austria: 4.9%
  • Poland: 10.6%
  • Romania: 6.6%
  • Slovenia: 10.2%
  • Slovakia: 14.9%
  • Finland: 7.9%
  • Sweden: 8.0%
  • UK: 7.7%

10.31am GMT

10.14am GMT

Jobless rates across the EU

As usual, the highest jobless rates are being suffered in Spain (26.2%) and Greece (27%).

Austria (4.9%) and Denmark (5.3%) enjoy the lowest unemployment levels.

Updated at 10.46am GMT

10.06am GMT

Eurozone unemployment hits record high again

It’s official: Eurozone unemployment has hit a new record high of 11.9%, as the economic downturn forces more people out of work.

That’s up from a new estimate of 11.8% for December (which has been revised up).

That means that 18.998 million men and women were out of work in the euro area, and a total of 26.217m people across the European Union.

The statement’s online here:

More to follow

9.55am GMT

Much gloom in the City following the news that Britain’s manufacturing sector shrank in February (see 9.50am).

9.50am GMT

Britain’s manufacturing sector has also suffered a grim February, with Markit reporting the first contraction since last November.

The UK manufacturing PMI skittered down to 47.9, from 50.5 in January. Economists had expected a rise to 51, and the pound had swiftly shed one cent against the US dollar, to $1.505.

Markit warned that the manufacturing sector will be ‘a drag on economic growth’ this quarter, unless we see a big recovery in March. The triple-dip recession remains a risk.

9.39am GMT

…and this graph shows how German and French manufacturers are now experiencing diverging fortunes:

9.32am GMT

The slump in Italian and French manufacturing output reported this morning could show the region will continue to suffer recession this quarter.

The eurozone manufacturing PMI for February, which measures activity across the region, crept up to 47.9 vs 47.8 in January. That means it still shrank, despite Germany hitting growth again.

Howard Archer of IHS Global Insight commented:

While Eurozone economic activity appears to have bottomed out around last October, it looks highly possible that the single currency area will still suffer a fourth successive quarter of contraction in the first quarter of 2013.

9.21am GMT

When we say ‘record high’ – the Italian jobless data goes back to 1992, so this is the worst unemployment situation in at least 21 years. Certainly since the euro was created.

9.11am GMT

Record unemployment in Italy too

And another blow for Italy: its jobless rate has jumped to a new record high.

Unemployment across Italy is now running at 11.7% of the population, up from 11.3% in January. The youth unemployment rate also rose to a new record high, with 38.7% of young people out of work.

Rising unemployment was a big factor in the Italian election, particularly among parties arguing against Mario Monti’s economic reforms. This will surely bolster their argument.

We get overall eurozone jobless date in just under an hour’s time (10am GMT) – and it could also be another record high (from 11.7% last month).

Updated at 9.12am GMT

9.04am GMT

Italian manufacturing output slides

Economic data just released shows that the Italian economy is in a bad way – manufacturing activity has fallen for the 19th month in a row, and by more than expected.

The monthly PMI survey came in at a mere 45.8 for February, down 47.8 in January — which means the country’s manufacturing sector is shrinking at a faster pace [any number below 50 means contraction].

Other European economies are also reporting PMI data – and it shows that Germany continues to outperform weaker members of the eurozone.

German manufacturing PMI rose to 50.3, from 49.8 in January – meaning it returned to growth.

But France manufacturing sector is still shrinking, but at a slower pace (with a PMI of 43.9, up from 42.9 in January).

8.47am GMT

Bersani says ‘no deal with Berlusconi’

Good morning, and welcome to our rolling coverage of the eurozone financial crisis, and other key events in the world economy.

Italy remains in a state of political flux this morning. Pier Luigi Bersani, the centre-left leader whose hopes of winning this week’s general election were dashed, has this morning ruled out a Grand Coalition with the centre-right.

In an interview with the La Repubblica newspaper, Bersani insisted that he can become Italy’s next leader without getting into bed with Silvio Berlusconi.

He declared:

I want to spell it out clearly: the idea of a grand coalition does not exist and will never exist.

Instead, Bersani hopes to persuade Italy’s president, Giorgio Napolitano, that he could govern without a majority in the Senate (having narrowly won control of the lower house). He has drawn up a seven or eight-point plan to present to Napolitano next Wednesday.

Asked if his goal was to be prime minister in a minority government, Bersani said:

Call it what you want: a minority government, a government of purpose, I do not care.

I call it a government of change, which I assume the responsibility of guiding.

The full interview is online at Bersani’s web site (in Italian).

With Beppe Grillo ( refusing to back Bersani in a vote of confidence, a deal with Berlusconi was the only way the centre-left could get a majority in the Senate.

Some political analysts have questioned whether Napolitano would agree to a minority government, given the implicit instability. We’ll find out next week….

In the meantime, the rest of Europe watches the events in Italy with interest. And one German politician has raised the possibility of the country abandoning the euro.

Klaus-Peter Willsch, a member of Angela Merkel’s CDU party, has even declared that Italy should leave the eurozone, rather than hold fresh elections, if a majority of the population will not support the measures needed to support the eurozone.

Willsch told the “Handelsblatt” newspaper that:

A monetary union will survive only if it benefits all of its members.

It’s a little early to be discussing Italy’s exit from the single currency, I’d suggest – but Willsch‘s comments do show how much concern Italy has created.

As usual we’ll be tracking the action through the day….

Updated at 8.49am GMT

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Eurozone unemployment stuck stubbornly at 11.7% in December. US non-farm payrolls rose 157K in January, while the unemployment rate edged higher to 7.9%, following a revised 196,000 advance in the prior month and a 247,000 surge in November…

Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Unemployment woes continue in euro area” was written by Josephine Moulds, for guardian.co.uk on Friday 1st February 2013 14.32 UTC

2.30pm GMT

More from Joe Weisenthal of Business Insider, who gives a pithy summing-up of the US jobs report:

One of the big concerns that the market faces is this idea that the Fed might tighten prematurely.

But the unemployment rate is one of the primary datapoints the Fed uses to determine appropriate monetary policy, and unemployment ticked higher.

So we got a fine current number, great backward revisions, and no improvement in unemployment, putting no pressure on the Fed.

Updated at 2.30pm GMT

2.27pm GMT

US job creation still weak compared with previos recessions

Back to the US and a troubling chart, which compares the trajectory of job losses and recoveries in various recession since WWII.

Thanks to Bill McBride at Calculated Risk.

Updated at 2.32pm GMT

2.21pm GMT

Greece sells bit of Corfu

Back to the eurozone, after that flurry of excitement over US data. It seems Greece has sold a portion of Corfu to US private equity fund NCH Capital for a whopping €23m.

The deal is part of a wider plan to sell off assets in order to pay down the stricken country’s huge debt pile. Athens has raised about €2bn since 2010 and is targeting proceeds of about €11bn by the end of 2016.

For its money, NCH Capital will get the rights to 490,000 square metres of land in Kassiopi Corfu for 99 years. Greece’s privatisation agency said the group intends to spend €75m to develop the land for tourism, creating hundreds of jobs.

2.09pm GMT

US jobs data suggest it’s not at risk of recession – analyst

Here’s Chris Williamson on the US non-farm payrolls.

A solid gain in US employment provides welcome reassurance that the US economy is healthier than the surprise fall in fourth quarter GDP indicated and is not at risk of a renewed recession. However, policymakers will no doubt remain unimpressed at the pace of the job market recovery, suggesting there is no end is in sight for Fed stimulus.

2.06pm GMT

US factory sector expands

Now for the US manufacturing PMI, which is definitely good news.

US manufacturing grew in January at its fastest pace in nine months and looks likely to drive economic growth in the first three months of this year.

Markit said US manufacturing PMI rose to 55.8 in January from 54 in December.

Chris Williamson of Markit said:

[This] suggests the underlying health of the industrial sector continues to improve and rising production will help the economy return to growth in the first quarter, providing there are no set-backs in coming months.

2.02pm GMT

A pretty chart to display the US jobs data from David Yanofsky on Quartz. Follow the link for interactive data.

1.58pm GMT

As one fund manager notes, the jobs data is probably pretty good news for the stock markets, as they point to a relatively healthy economy but isn’t so strong that the Fed considers halting its quantitative easing programme.

But it’s bad news for the man on the street.

1.54pm GMT

Market reaction to the US jobs data has been confusing, as Trend Macrolytics strategist Lorcan Roche Kelly notes.

1.53pm GMT

Key revisions to previous months’ non-farm data

Crucially, the report made significant upward revisions to November and December’s data.

November was revised from +161,000 to +247,000.

December was revised from +155,000 to +196,000.

Joe Wiesenthal of Business Insider writes:

These both have turned out to be impressive months.

That means that right in the teeth of the Fiscal Cliff fight, amid all of the “uncertainty”, employment was much hotter than expected.

The uncertainty myth is nonsense.

1.49pm GMT

A quick look at the foreign exchange markets, where the dollar extended its losses against the euro following the weaker-than-expected jobs data.

The euro moved from $1.3636 before the release of the data, to trade as high as $1.3658 afterwards.

1.46pm GMT

My colleague Dominic Rushe, out in the US, reports:

The US has now added jobs for 28 months in a row but the pace of job creation remains historically weak compared to recoveries after other recessions.

The news comes amid fresh signals of the fragility of the US’s economic recovery. On Wednesday the Commerce Department announced that the US’s economic recovery went into reverse in the final quarter of 2012. US gross domestic product declined 0.1% on an annual basis at the end of 2012, dragged down by the largest cuts in defense spending since the end of the Vietnam war and by businesses cutting back on inventories. GDP had risen 3.1% in the previous quarter.

On Thursday the Labor Department reported a surge in the number of people filing first time claims for unemployment benefits. Initial jobless claims increased by 38,000 to 368,000 in the week ending January 26. It was the largest rise since the spike that followed Hurricane Sandy. The number remained below 400,000, the level at which most economists argue the jobs market is worsening.

Deep government spending cuts, agreed as part of the fiscal cliff debate, are set to start on March 1. The military’s budget will be cut by 7.3% this year and discretionary government programmes by 5%. Both are likely to have an impact on the jobs market in coming months.

Economists said Washington’s deadlock over the fiscal cliff had impacted the GDP figure as businesses scaled back.

1.41pm GMT

Taking a look at all the key figures from the US January jobs report:

  • Change in nonfarm payrolls: +157,000 vs. expectations of +165,000 (+155K in December)
  • Change in private payrolls: +166,000 vs. expectations of +168,000 (+168K in December)
  • Change in manufacturing payrolls: +4,000 vs. expectations of +10,000 (+25K in December)
  • Unemployment rate: 7.9% vs. expectations of 7.8% (7.8% in December)
  • Average hourly earnings: +0.2% vs. expectations of+0.1 percent month-over-month, +2.1 percent year-over-year, in line with expectations (versus +0.3 percent and +2.1 percent in December)

1.37pm GMT

1.36pm GMT

Some immediate reaction from Twitter…

1.31pm GMT

US non-farm payrolls +157,000

US non-farm payrolls have come in at +157,000 and unemployment has ticked up to 7.9%.

That is below expectations of 165,000, while the 7.9% figure will be a nasty surprise for the vast majority expecting joblessness to stick at 7.8%. We’ll have all the reaction here, as it comes in.

Updated at 1.33pm GMT

1.02pm GMT

Rajoy to speak on tax allegations tomorrow

Spanish prime minister Mariano Rajoy will speak on Saturday about the allegations the ruling PP party ran a double-accounting system to evade tax.

At a weekly news conference deputy prime minister Soraya Saenz said Rajoy’s conduct had always been exemplary, reports Reuters.

But the accusations have sparked protests against alleged tax cheating. (see 9.55)

Updated at 1.02pm GMT

12.20pm GMT

US non-farm payrolls preview

So the big-news this afternoon is the employment data out of the US, in the form of the non-farm payrolls.

This measures the monthly change in employment, excluding the farm sector and is considered the most comprehensive measure of job creation in the US.

The US jobs data is particularly significant as it appears to be driving Federal Reserve policy at the moment.

Matthew Boesler of Business Insider reports:

The Fed has stated that it will not consider raising benchmark interest rates until the unemployment rate drops to 6.5 percent. Most don’t expect this until 2015 or 2016.

On the other hand, the Fed could end quantitative easing much sooner. FOMC members have said an unemployment rate around 7 percent by the end of 2013 may be sufficient to halt bond purchases.

He provides a round-up of consensus forecasts, as follows.

  • Change in nonfarm payrolls: +165,000 (versus +155K in December), with estimates ranging from 115,000 to 230,000
  • Change in private payrolls: +168,000 (versus +168K in December)
  • Change in manufacturing payrolls: +10,000 (versus +25K in December)
  • Unemployment rate: 7.8 percent (versus 7.8 percent in December)
  • Average hourly earnings: +0.1 percent month-over-month, +2.1 percent year-over-year (versus +0.3 percent and +2.1 percent in December)

11.51am GMT

Analysts unfazed by low LTRO repayment number

Here’s Marc Ostwald of Monument Securities on the LTRO repayments.

I am very unsurprised, it never appeared likely to me that banks would take a piecemeal approach, but rather register for repayment on the first date, with the rest being “drips and drabs” until the first repayment date for the €530bn second tranche on February 22nd.

11.44am GMT

LTRO repayments lower than forecast

Today saw the second announcement from the ECB about the early repayment of money it lent at super cheap rates at the height of the crisis.

Bond market followers will remember last week saw the announcement that a whopping €137bn would be repaid, beating most market expectations. But this week the number fell short of forecasts of €20bn, coming in at just €3.5bn. 

Gary Jenkins of Swordfish Research said the number itself did not mean a great deal and the estimates even less.

Most economic forecasts are based upon prior history and data that in some way influences the figure you are estimating. The LTRO payback has no real history, there is no data we can look at that has an influence on it, so it’s just people guessing.

The euro fell on the news from $1.3667 to $1.3640.

11.06am GMT

Greek unions call general strike for February 20

Over to Greece, where the unions have called for a general strike on February 20 to protest against austerity measures.

In what seems like a never-ending cycle of walk-outs in different sectors, Greek seaman continued their 48-hour strike today, keeping ferries docked at ports across the country.

Updated at 11.07am GMT

10.57am GMT

Unemployment still at record high in eurozone

But Capital Economics remains downbeat about the unemployment figures.

Data published today showed that eurozone unemployment rose by 16,000 in December. While this was the smallest rise since April 2011, it still left the unemployment rate at a record high of 11.7%.

Despite the recent rises in the survey-based measures of business activity and sentiment, note the surveys of firms’ employment intentions have shown few signs of improvement and suggest that further falls in employment are likely.

10.50am GMT

Eurozone data could open door to ECB rate cut – economist

Here’s Howard Archer on the economic data out of the eurozone this morning.

By recent eurozone standards it has been a relatively encouraging day for economic news with unemployment rising at a much reduced rate in December and the purchasing managers reporting manufacturing activity contracted at the slowest rate for 11 months in January.

Meanwhile, Eurozone consumer price inflation moderated to a 26-month low of 2% in January, which will help consumers’ purchasing power. It will also give the ECB increased scope to lower interest rates should Eurozone economic activity fail to pick up over the coming months.

The ECB appeared to shut the door to any near-term interest rate cut at its January meeting, as it was encouraged by recent improved financial markets and some better Eurozone surveys. Further improved survey evidence for January reinforces already strong belief that the ECB will sit tight at its 7 February policy meeting.

However, if the euro continues to rise and starts to threaten Eurozone recovery prospects, the ECB may have to re-think its plans and an interest rate cut could re-appear on the agenda

10.31am GMT

Taking a break from the economic data, it seems the Netherlands has nationalised SNS Reaal at a cost of €3.7bn, after a private rescue of the a bank and insurance group collapsed.

Thomas Escritt and Anthony Deutsch of Reuters report:

Another state rescue of a financial group will lead to a worsening in the Dutch budget deficit this year – which is already forecast to exceed European Union targets – and is likely to prompt a public outcry given the billions of euros of budget cuts and austerity measures in recent years.

It is also a sign of how many European banks, five years on from the height of the global financial crisis, are struggling to turn a corner amid weak economies and tougher regulations. French bank Credit Agricole announced over $5 billion of charges on Friday, a day after Deutsche Bank also unveiled big writedowns.

The Dutch government paid out nearly 40 billion euros to rescue the domestic financial sector in 2008 when it provided capital injections for ING, Aegon and SNS Reaal, as well as nationalising ABN AMRO.

SNS Reaal, the fourth-biggest financial institution in the Netherlands with about 134 billion euros in assets last year, was hit by losses at its property unit and has been trying for months to sell assets and secure additional funding.

The emergency bailout was necessary after SNS Reaal failed to meet a Jan. 31 deadline to come up with a rescue, Finance Minister Jeroen Dijsselbloem told a press conference.

10.26am GMT

Eurozone inflation eases to 2%

Inflation in the eurozone, meanwhile, fell more than expected in January, as companies slashed prices in a bid to draw in cash-strapped customers.

Consumer price inflation in the euro area fell to an annual rate of 2% in January. That puts it near the ECB’s target of close to, but below 2%, and gives the central bank room to cut rates again to drive the economy.

10.26am GMT

Youth unemployment crisis continues

Youth unemployment remained a major issue in the EU with only Germany and Austria recording jobless rates among young people of less than 10%.

In December 2012, the youth unemployment rate was 23.4% in the EU and 24.0% in the eurozone. That compares with 22.2% and 21.7% respectively in December 2011.

10.15am GMT

Eurozone unemployment steady at 11.7%

The eurozone unemployment figures are not, in fact, as bad as expected. But the jobless rate across the region remained stubbornly high at 11.7% in December.

The official data from Eurostat showed the rate in the wider EU was 10.7%.

Huge disparities between the members of the euro persist, with the lowest unemployment rates in Austria (4.3%), Germany and Luxembourg (both 5.3%) and the Netherlands (5.8%). While Greece (26.8% in October 2012) and Spain (26.1%) remain mired in a job market crisis.

Updated at 10.17am GMT

9.55am GMT

Spain protests against ruling party after tax allegations

There were protests in Spain last night, after allegations in El País that the ruling PP party ran a double-accounting system to evade tax.

Although the PP denied the allegations forcefully, the Spanish people remained unconvinced and hundreds gathered at the headquarters of the PP in Madrid to show their disgust that those who are now busy hiking taxes and cutting spending are alleged tax cheats.

9.42am GMT

UK factory sector grows modestly

Abandoning the eurozone briefly, the UK’s manufacturing sector grew modestly in January and output powered ahead at its fastest pace since September 2011.

The Markit/CIPS PMI inched down to 50.8 from a downwardly revised 51.2 in December, just short of forecasts for a reading of 51.

The data will provide some solace to chancellor George Osborne, who faced heavy criticism last month after data showed the economy shrank in the final three months of 2012. If it shrinks again in the first three months of this year, the UK will fall into its third recession in four years.

But manufacturing only accounts for 10% of the British economy and Markit said the impact of these figures on first quarter GDP would be limited.

Rob Dobson of Markit said:

The survey will do little to assuage fears of a triple-dip recession unless accompanied by an improvement in the services sector. A small gain in employment suggests that firms are less focused on cost reduction amid signs of improved order books, which should lead to further production growth in February.

Sterling’s weakness, plus indications of firmer demand in key export markets such as the eurozone, notably Germany, and emerging markets such as China should also help lift sales in coming months.

9.33am GMT

The growing gulf between France and Germany is particularly stark when you look at Markit’s output index.

9.26am GMT

Eurozone manufacutring turns a corner

And for the overall eurozone manufacturing PMI, the data shows factories in the region had their best month in nearly a year in January. The news prompted analysts to herald a turnaround in the currency bloc’s fortunes.

The PMI rose to an 11-month high of 47.9 from December’s 46.1, while the output index rose to a 10-month high of 48.7. Overall it suggests the downturn in manufacturing has passed its nadir.

Howard Archer of IHS Global Insight said:

The January manufacturing PMI adds to the mounting evidence that eurozone economic activity turned the corner late in 2012, although a further modest decline in manufacturing output remains possible in the first quarter of 2013 after an apparent sharp drop in production in the fourth quarter of 2012.

Manufacturers appear to be benefiting increasingly from a sustained easing of sovereign debt tensions (underpinned by the establishment of the European Central Bank’s Outright Monetary Transactions programme) reducing uncertainty and lifting business confidence. If this continues, businesses should become increasingly more prepared to place manufacturing orders that have been delayed or cancelled. It may also start to foster a pick-up in business investment.

9.22am GMT

Back to Rome, where our correspondent John Hooper says market complacency over the Italian elections could be misplaced.

The markets seem to take it as a given that Silvio Berlusconi cannot win the Italian general election campaign on February 24-25. Earlier this week, the government auctioned the latest batch of bonds at the lowest rates in more than two years.

The universal assumption seems to be that the centre-left, led by Pier Luigi Bersani, will top the poll and that, even if he fails to
get an outright majority in the upper house (where the system allows for a hung chamber), well there’s always good old Mario Monti with whom to form a coalition.

In fact, says the common investor wisdom, that would be even better. Monti could be finance minister (even though he has said that he won’t join any future government except as prime minister) and apply business-friendly liberal policies (even though Bersani’s coalition partner, Nichi Vendola, is dead against them).

Well, today, for the first time since the start of the Italian
election campaign, a poll was published showing Berlusconi’s alliance is less than five percentage points behind the centre-left. The man whose hesitancy and backsliding took the eurozone to the brink of disaster is on a roll.

As recently as January 13, the same pollster showed the gap between the two main coalitions was almost 12 points. If he were to continue to catch up at this rate over the rest of the campaign, by my calculations, he’d win by a comfortable 4% margin. That is still unlikely, but the odds on a near-tie are shortening (well, everywhere but in the markets).

What has made the difference? Whatever his faults as a steward of Italy’s debt-laden economy, Berlusconi is a campaigner of genius.

But the biggest factor seems to have been the scandal involving Italy’s biggest ‘red’ bank, Monte dei Paschi di Siena.
It may not help Berlusconi directly, but it does send disillusioned voters into the arms of the Five Star Movement, fronted by the ex-comedian Beppe Grillo whose central message is that all the traditional parties are the same – and equally corrupt. The effect can be seen here.

9.10am GMT

Greek manufacturing mired in three-and-a-half year slump

It was a very different story from Greece, where the factory sector remained mired in its more than three-year slump.

The Markit PMI for Greek manufacturing – which accounts for 15% of the economy – ticked up to 41.7 in January from 41.4 in December.

The fall in new orders came close to the worst reading in the survey’s history, which dates back to 1999.

Phil Smith at Markit said:

A new year failed to bring any evidence that Greece’s manufacturing sector might be heading for a recovery. January data suggested the downturn may worsen before it eases.

9.05am GMT

German PMI points to GDP growth

In a sign of the growing disparity between the eurozone’s two largest economies, data out of Germany suggests its economy is picking up again, after shrinking in the last quarter of 2012.

The German manufacturing PMI rose to 49.8 in January, from 46 the previous month. So the sector contracted very slightly but output and new business grew.

Tim Moore at Markit said:

Germany’s manufacturing sector saw a huge turnaround in momentum at the start of the year. A return to growth in manufacturing production is perhaps the strongest signal yet that Germany’s economy has already swung back into expansion after the fourth quarter drop in GDP.

9.00am GMT

French manufacturing slump deepens

But France’s data is dire. The French manufacturing PMI dropped to a four-month low of 42.9 in January, down from 44.6 in December.

New orders fell at the fastest pace since March 2009, when much of the world was mired in recession.

Jack Kennedy of Markit said:

The fact that new orders fell at the sharpest rate for nearly four years is a particularly concerning development and suggests further steep falls in output are likely as we progress throughout the first quarter. Confidence seems to have evaporated in the face of an increasingly uncertain economic environment, leading manufacturers to make sharper cuts to employment, purchasing and input stocks.

Manufacturing accounts fora botu 11% of France’s economy and has long been its weakest spot.

The data will fuel fears that France is set to be the eurozone’s next big casualty. As our economics editor Larry Elliott noted in this morning’s paper:

Should the eurozone crisis flare up again over the coming months, there is a real risk that its second biggest economy will be added to the list of countries where the public finances are deemed unsustainable.

8.53am GMT

Italian manufacturing sector improving

Over to Italy, where the factory sector continued to contract but again, at a slower pace. It was, in fact, its slowest pace since last March.

The Markit/ADACI PMI rose for the second month to 47.8 in January from 46.7 in December.

8.37am GMT

Swiss manufacutring grows on weaker franc

Back to the manufacturing, and now to the Swiss. Reuters reports:

Swiss manufacturing grew for the first time in 17 months in January, suggesting companies were benefitting from a fall in the franc’s value against the euro as hopes rise that the eurozone can ride out its debt crisis.

The Swiss PMI rose to a seasonally adjusted 52.5 points in January, from a revised 49.2 in December last year.

8.29am GMT

And for a brief respite from the manufacturing figures, there are troubling signs in Italy that Berlusconi is gaining in the polls just three weeks ahead of the elections.

We’ll have more on that shortly.

8.26am GMT

Spanish factory sector weak but could be worse

And over to Spain, where the news is (predictably) bleak but there are signs of improvement since December.

Spanish manufacturing activity declined for the 21st month in a row in January, but at the slowest pace since June 2011 thanks to a boost in overseas business.

The PMI came in at 46.1, still languishing below the 50 mark that separates growth from contraction but a significant improvement from December’s reading of 44.6.

Andrew Harker of Markit said:

The PMI data suggest that growth remains some way off, with the turning of the new year having provided little respite for firms.

New orders fell for the 21st consecutive month but at a slower pace. Markit said this reflected a surge in exports, while the domestic market continued to flounder. Harker again:

Higher exports are the one bright spot for the sector currently, but the recent rises have been insufficient to support a wider expansion.

8.13am GMT

Irish manufacturing shows sluggish growth

So to Ireland’s PMI, which showed growth in its manufacturing sector slipped to a nine-month low in January, as new orders contracted for the first time in a year.

Just to recap, the purchasing managers’ index summarises the opinions of purchasing managers in the sector, who gauge future demand and adjust orders for materials accordingly.

The Irish economy has been doing better since its bailout from the EU, IMF and ECB, but the recovery remains fragile.

The NCB manufacturing PMI dropped to 50.3 in January from 51.4 in December last year.

Philip O’Sullivan at NCB Stockbrokers said:

While output remains in postivie territory and new export orders grew for a foruth successive month, other areas showed signs of weakness. Tying it all together… today’s release points to a sluggish start to 2013.

8.06am GMT

US extends debt ceiling… again

It seems it’s not only European policymakers who like to kick the can down the road. Last night, the US senate passed a bill to extend the debt ceiling by three months to May 19th.

AA Stocks Financial News reports:

The US Senate gave its green light to holding the country’s debt ceiling unchanged temporarily and the bill will be endorsed by President Barack Obama. The approval meant the US government can avert default at least for a short while.

The Senate agreed to keep the debt ceiling unchanged at US$16.4 trillion for three more months through May 19, which will enable the government to continue borrowing money for spending.

8.01am GMT

China’s factory sector looks ‘shaky’

There were some mixed messages out of China overnight.

Government data showed its vast factory sector grew slower-than-expected in January.

The official purchasing managers’ index came in at 50.4, down from December’s 50.6 and short of forecasts for a nine-month high of 50.9. The reading is also edging closer to the 50 mark that separates contraction from expansion.

But, the HSBC PMI, which is also closely-watched, rose to a two-year high of 52.3.

Overall, the data suggests China’s vast factory sector managed only a weak rebound at the start of the year, as feeble foreign demand dragged on sales. Alistair Thornton at IHS Global Insight in Beijing said:

January’s PMI does raise some red flags about the state of the economy. Things look a little shaky.

8.01am GMT

Today’s agenda…

… is full.

  • China manufacturing PMI (January): 1am
  • Ireland manufacturing PMI (January): 6.58am
  • Spain manufacturing PMI (January): 8.13am
  • Switzerland manufacturing PMI (January): 8.30am
  • Italy manufacturing PMI (January): 8.43am
  • France manufacturing PMI (January): 8.48am
  • Germany manufacturing PMI (January): 8.53am
  • Eurozone manufacturing PMI (January): 8.58am
  • Greece manufacturing PMI (January): 8.58am
  • Italy unemployment (December): 9am
  • UK manufacturing PMI (January): 9.28am
  • Eurozone CPI (January): 10am
  • Eurozone unemployment (December): 10am
  • US non-farm payrolls (January): 1.30pm
  • US manufacturing PMI (January): 1.58pm
  • US ISM manufacturing (January): 3pm

7.40am GMT

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

We are going to be deluged with data today, giving us an idea of the state of the manufacturing sector in Europe, and the unemployment situation in the eurozone and the US.

Fears are that the jobless crisis in the currency bloc will worsen, while the US jobs market is expected to stay roughly the same.

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There are now 18.49 million people without jobs in the 17 countries sharing the euro. More than one in four people out of work in Greece and Spain as jobless rate rises to 11.6%. 25.751 million men and women were without jobs last month…

Powered by Guardian.co.ukThis article titled “Eurozone unemployment hits new high” was written by Julia Kollewe, for guardian.co.uk on Wednesday 31st October 2012 12.34 UTC

Unemployment in the eurozone has risen to a new high, with Spain recording the highest jobless rate with more than one in four out of work.

There are now 18.49 million people without jobs in the 17 countries sharing the euro, European statistics office Eurostat said on Wednesday, with an extra 146,000 joining the ranks of the unemployed last month. The jobless rate increased to 11.6% in September, the highest on record, from a revised 11.5% in August.

“With surveys suggesting that firms are becoming more reluctant to hire, the eurozone unemployment rate looks set to rise further, placing more pressure on struggling households,” said Ben May, European economist at Capital Economics.

The lowest unemployment rates were recorded in Austria (4.4%), Luxembourg (5.2%), Germany and the Netherlands (both 5.4%), which are near full employment. Spain (25.8%) and Greece (25.1% in July) had the highest unemployment in the eurozone, while France looks much like Italy (both at 10.8%), with a steady rise in joblessness. August data for Greece will be published next week, although the true picture is probably worse, as a growing number of Greek workers remain nominally employed but have not been paid for some time.

Howard Archer, chief European economist at IHS Global Insight, said the jobless data was “dismal”, adding: “Eurozone labour markets remain under serious pressure from ongoing weakened economic activity and low business confidence.”

Youth unemployment also hit a new high in Spain with 54.2% of under-25-year-olds out of work, up from 53.8%.

Across the whole European Union, 25.751 million men and women were without jobs last month – an increase of 169,000 from August – while the unemployment rate stayed at 10.6%.

By comparison, the unemployment rate was 7.9% in the UK, 7.8% in the US and 4.2% in Japan in September.

There was some good news for the eurozone though – inflation eased to 2.5% in October, from 2.6%. Energy prices continued to rise, by 7.8%, but by less than the month before, when they climbed by 9.1% year-on-year. Food became dearer, however, with prices up 3.2% compared with 2.9% in September.

Economists expect the European Central Bank to cut interest rates again before the year is out from the current record low of 0.75% to support the flagging economy, which probably slumped back to recession in the third quarter.

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