Rolling coverage of the latest economic and financial news, as Bank of England governor Mark Carney appears before the Treasury committee
- Latest: Carney on sterling rebound
- Pound fell sharply yesterday, then recovered after vote
- Carney: China’s economy is decelerating
- Experts: Brexit uncertainty is rising
- Introduction: Carney at parliament
Christopher Smart, head of macroeconomic & geopolitical research at Barings, thinks Mark Carney is right — the markets do believe the Brexit date could be extended, and that a hard Brexit can be avoided.
“Theresa May has been the Energizer Bunny of British politics. She just keeps going, in spite of all obstacles. Everyone hates her plan, but they hate the alternatives even more. Lots of people want her job, but they don’t want it now.
With this vote, however, she may be coming to the end of her rope. Even if she wins the confidence vote tonight, it’s just hard to imagine that in consultation with other party leaders she can develop a fresh approach that will garner broad support.
This chart shows the pound’s rebound last night which Carney alluded to.
As you can see, sterling weakened steadily through Tuesday as the meaningful vote loomed, only to bounce back off the mat once the scale of May’s defeat became clear.
Uh oh…. Mark Carney is now talking about potential problems in the financial system.
This includes the growth in leveraged loans and loan securitisation (bundling debt into new securities – a popular and dangerous practice that led to the 2008 crisis).
Mark Carney said he’s “concerned” about leveraged loans: “This is very clear evidence of a steady decline in underwriting standards.”
@bankofengland Mark Carney, taking about potential for sub-prime crisis repeat, makes important point that UK and #euro banks must retain a portion of any loans securitised and sold on. In US, lending originators “don’t have any skin in the game” once loans are sold. US at risk!
Conservative MP Colin Clark turns to the trade dispute between the US and China.
Q: Has the UK already been hurt by the trade war?
Q: What’s a bigger threat – Brexit, or China’s slowdown?
Alex Brazier, BoE executive director for risk, says the Bank doesn’t rank them — it trie to ensure that the financial system is strong enough to cope with both.
Brexit isn’t the only risk facing the UK economy, of course.
Mark Carney is now outlining how an economic shock in China could hurt Britain, as it’s such an open economy.
We are looking to avoid a situation where the financial system makes the next downturn worse, Carney says.
He points out that the Bank has forced commercial banks to hold more capital (through its counter-cyclical capital buffer). That cash is effectively on standby for an economic shock, and could be released to support lending.
Labour MP Catherine McKinnell is quizzing Mark Carney over the Bank’s predictions that interest rates could rise sharply if Britain crashes out of the EU without a deal.
The governor explains, at some length, that the bank’s “mechanical formulae” models how such a shock would ripple through the system, and the actions policymakers should take.
We have confidence that the core of the system is resilient to the kinds of shock we could see.
Nice to see that @catmckinnell isn’t buying the @bankofengland line that it would jack up interest rates in the midst of a no-deal #Brexit. Mark Carney says it would save the banks. But neglects to say it exacerbates the dive in GDP, rise in unemployment and home repossessions
Just in: UK inflation has fallen to its lowest level in almost two years — giving households some relief as they brace for possible Brexit upheaval.
The consumer prices index shows that prices rose by 2.1% year-on-year in December, down from 2.3% in November, thanks to falling fuel costs.
*U.K. DECEMBER INFLATION RATE FALLS TO 2.1%, AS FORECAST
Bank off England governor Mark Carney has told the Treasury select committee the markets reacted positively to last night’s Government defeat because they anticipate the Article 50 process will be extended.
Carney adds that he wouldn’t put ‘too much weight’ on short-term market moves.
Mark Carney begins his session by talking about the financial markets’ reaction to last night’s Brexit vote.
The governor says that market sentiment across a range of markets are affected by Brexit developments, particularly in parliament.
Public market commentary, consistent with our market intelligence, that rebound appears to reflect some expectation that the process of resolution would be extended and that the prospect of no-deal may have been diminished.
Pound sterling plummets then rallies as Commons overwhelmingly rejects PM Theresa May’s Brexit deal | The Independent https://t.co/j9GyDN5RQQ
The markets, like the country, are looking to parliament for direction, and one could expect continued volatility.
Mark Carney’s hearing is underway now. It’s being streamed live here.
Newsflash: Environmental threats, and politicians inability to tackle them, are the biggest risk to the global economy, the World Economic Forum has warned.
WEF’s annual global risks report, just released, cites extreme weather events, natural disasters, and failure to address climate change as the three biggest threats.
Is the world sleepwalking into a crisis? Global risks are intensifying but the collective will to tackle them appears to be lacking. Instead, divisions are hardening…
Nine out of 10 respondents expect worsening economic and political confrontations between major powers this year. Over a ten-year horizon, extreme weather and climate-change policy failures are seen as the gravest threats.
The pound is calm now, but may rally if Theresa May wins today’s no-confidence vote, called after last night’s historic Brexit deal defeat.
Kit Juckes of French bank Société Générale says:
The UK voted for Brexit, markets priced it in (to a large degree) and now are watching, slack-jawed, as the Government tries to find a path to the exit which it can rally politicians behind.
Today’s confidence vote isn’t quite a done deal and so if the Government survives, sterling should get a bit of a lift.
Credit rating agency Moody’s isn’t considering cutting the UK’s credit rating, yet anyway, following the Meaningful Vote on the Brexit deal last night.
The outcome of the vote further extends the period of uncertainty over the UK’s relationship with the EU, a credit negative for many rated debt issuers.
However, the vote against the deal is not, in itself, sufficient grounds for Moody’s to shift its base case to a no-deal scenario in which the rating agency would formally review the UK’s credit profile and other affected issuers
City analysts and fund managers have been scrambling to update clients on the Brexit situation, after Theresa May’s withdrawal deal was resoundingly rejected by MPs.
David Lafferty, chief market strategist at Natixis Investment Managers, says the drubbing highlights the PM’s weak position:
“From our view, the most likely outcome is that May acquiesces and either delays or revokes article 50, effectively pushing the ‘pause button’ just before the train flies off the tracks. UK businesses and consumers should expect to live under continued uncertainty for quite a while longer.
It is important to recognize that the Brexit referendum was about an ideal – a United Kingdom independent of the EU. So far, that ideal has not been matched by a realistic plan or process to deliver it. Until such a plan emerges, the withdrawal process will probably be put on hold.”
At this stage we do not advocate taking directional views on sterling and UK assets. The reaction of the pound following the vote would suggest that markets are not currently increasing the risk of an adverse outcome.
For the time being, we expect that uncertainty will remain high and UK markets will stay volatile. Within portfolios, exposure to sterling-denominated assets should be maintained at benchmark levels until more clarity emerges.”
As Mrs May licks her wounds after last night’s humiliating defeat what matters now is how hard she tries to build a consensus on the basis that a large majority in the Commons including half her ministers (and possibly herself but she is not saying) are determined to avoid ‘no deal’. She has her work cut out as nobody really trusts her competence or veracity any more (ironically, rather like Mr Trump, whom she no doubt fastidiously disdains as her mirror image).
She may genuinely be taken aback by the intensity of division both in Parliament and amongst voters but as Prime Minister she has to deal with it responsibly in order to limit the economic and social damage.The scale of the defeat means there is little point in her persisting with the current deal as Europhile MPs who loyally supported her yesterday will now feel able to go their own way. This, in turn, means that Brexit will not take place on 29 March, if at all.
Mark Carney will be quizzed today about the Bank of England’s latest Financial Stability Report, released at the end of November.
That report predicted that the UK banking sector could survive a disorderly Brexit, thanks to the Bank’s work since June 2016 (if only the rest of the system had worked as efficiently….)
The FPC has reviewed a disorderly Brexit scenario, with no deal and no transition period, that leads to a severe economic shock.
Based on a comparison of this scenario with the stress test, the FPC judges that the UK banking system is strong enough to continue to serve UK households and businesses even in the event of a disorderly Brexit.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Unable to command her party or parliament, Theresa May limps on, sustained by #Brexit policy chaos on all sides, lack of an obvious replacement. But her options & time running out. Also hard to see her surviving a 2nd referendum scenario. #BrexitVote