, , , ,

Inflation at 2.6% as Bank of England leaves rates untouched

pound-414418_1920
The Bank of England has decided to leave interest rates at 0.25% in a 6-2 split decision, and announced that inflation is at 2.6% for June, up from 2.3% in March.

Governor Mark Carney also outlined an analysis of Brexit and options available to the bank’s Monetary Policy Committee (MPC). “The UK economy is beginning the process of adjusting to a new, as yet uncertain, economic relationship with the European Union,” he said today.

“Monetary policy cannot prevent the weaker real incomes likely to accompany the move to new trading arrangements with the EU, but it can influence how this hit to incomes is distributed between job losses and price rises. And it can support UK households and businesses as they adjust to such profound change.”

Carney also said that markets, households and businesses reacted in different ways to the referendum outcome, with markets expecting poorer UK economic performance, households being slow to react but eventually slowing their spending, and businesses investing “less aggressively”.

“In the MPC’s central projection, GDP growth remains sluggish in the near term as the squeeze on households’ real incomes continues to weigh on consumption,” he said. “Growth then picks up to just above its reduced – or modest – potential rate as net trade and business investment firm up and consumption growth gradually recovers in line with modestly rising household incomes.”

The MPC expects inflation to peak around 3% in October and to remain around 2.75% until early next year, Carney also predicted.

“Conditional on the current market curve, which implies that bank rate will rise by half a percentage point over the next three years, inflation is projected to remain a little above the target at the end of the forecast period – an overshoot that reflects entirely the effects of the referendum-related fall in sterling.”

 

, , , , , ,

FCA plans certification rollout to all financial services firms

notes-1199516_1920
The Financial Conduct Authority, the City’s regulatory authority, has outlined a proposed expansion of its Senior Managers & Certification Regime (SM&CR).

The proposals will extend the FCA’s rules to all financial services firms, and a consultation period on the 312-page document is open until November. It aims to “reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence”, according to the authority.

“Culture and governance in financial services and its impact on consumer outcomes is a priority for the FCA,” explained Jonathan Davidson, Executive Director of Supervision – Retail and Authorisations. “The extension of the Senior Managers and Certification Regime is key to driving forward culture change in firms.

“This is about individuals, not just institutions. The new conduct rules will ensure that individuals in financial services are held to high standards, and that consumers know what is required of the individuals they deal with. The regime will also ensure that senior managers are accountable both for their own actions, and for the actions of staff in the business areas that they lead.”

, , ,

Sports Direct profits slashed as Ashley promises ‘Selfridges of sport’

sports-direct-logo
Sports Direct has reported a 58.7% drop in profits before tax, with founder and CEO Mike Ashley blaming a weak pound sterling.

The news came amid the retailer’s preliminary results for the year ended April 30th, and also saw group revenue rise by 11.7%. Net debt rose to £182.1m, up from £99.7m in the previous year.

“Sports Direct is on course to become the ‘Selfridges’ of sport by migrating to a new generation of stores to showcase the very best products from our third-party brand partners,” said Ashley. “We have invested over £300m in property over the last year, and I am pleased to report that early indications show that trading in our new flagship stores is exceeding expectations.

“We will continue to invest and make decisions for the long term, whilst trying to conservatively manage the currency volatility that is reflected in our full year results. As previously announced, the devaluation of sterling against the US dollar has led to a significant impact on EBITDA and profits in FY17. We have put in place hedging arrangements to minimise the short-term impact of currency volatility, but like many UK retailers we remain exposed to medium/long term currency fluctuations. Our results were also impacted by provisions and depreciation charges.

“I would like to thank all our people at Sports Direct for ensuring that we continue to move forward together whilst elevating our retail proposition.”

The group has spent much of the year in the headlines for its treatment of workers and Ashley’s colourful conduct as reported in recent High Court proceedings.

, , , , , ,

Britain ‘weary’ of austerity, says Hammond in Mansion House speech

pexels-photo
British voters have tired of austerity and the health of the UK’s economy depends on the outcome of Brexit negotiations, UK chancellor of the exchequer Philip Hammond said in his Mansion House speech on Tuesday.

The annual event, delayed due to last week’s Greenfell Tower disaster, saw the chancellor lean towards a ‘soft’ Brexit with economic matters to the fore.

“Britain is weary after seven years of hard slog repairing the damage of the great recession,” said Hammond. “Funding for public services can only be delivered in one of three ways: higher taxes; higher borrowing; or stronger economic growth. And only one of those three choices is a long-term sustainable solution for this country in the face of the inexorable pressure of an ageing population.”

Hammond addressed Brexit in milder terms than he did on the BBC’s Andrew Marr Show in which he said “no deal would be a very, very bad outcome for Britain” on Sunday.

“The future of our economy is inexorably linked to the kind of Brexit deal that we reach with the EU,” he said yesterday.

“Our departure from the EU is underway. But ensuring that it happens via a smooth pathway to a deep and special future partnership with our EU neighbours, one that protects jobs, prosperity, and living standards in Britain, will require every ounce of skill and diplomacy that we can muster.

“Yesterday was a positive start. It will get tougher. But we are ready for the challenge,” he said.

Brexit negotiations, led by Brexit secretary David Davis and EU negotiator Michel Barnier, opened in Luxembourg on Monday.

, ,

UK GDP grows to beat predictions

bank-20795_1920
Gross domestic product grew by just over half a percent in the fourth quarter of 2016, according to figures released today by the Office of National Statistics.

The result edges out the 0.5% predicted by some economists, as well as fears of a post-Brexit slump. “The initial ONS data show the economy ended 2016 with steady growth of 0.6% for the third consecutive quarter,” explained ONS Head of GDP Darren Morgan.

“Strong consumer spending supported the expansion of the dominant services sector and although manufacturing bounced back from a weaker third quarter, both it and construction remained broadly unchanged over the year as a whole.”

Chancellor of the Exchequer Philip Hammond welcomed the news in the context of Brexit. “Every major sector of the economy grew last year, which is further evidence of the fundamental strength and resilience of the UK economy,” he said.

“There may be uncertainty ahead as we adjust to a new relationship with Europe, but we are ready to seize the opportunities to create a competitive economy that works for all.”

, ,

Tesco pulls Unilever products in pricing row

supermarket-shopping-trolley-419237_1280
Unilever products have been removed from Tesco website after Brexit symptom pricing row

Tesco has pulled dozens of Unilever products from sale on its website after a disagreement on pricing. The consumer goods supplier wanted to raise prices to counteract the effect of the sterling slump and a standoff had developed with retailer Tesco.

The Guardian reported Unilever wanted to raise prices by about 10%. Unilever wanted to implement the price change across a wide range of goods stocked in the big four supermarkets – Tesco, Sainsbury’s, Asda and Morrisons – in order to offset the higher cost of imported commodities, two people with knowledge of the situation told Reuters.

As of last night Unilever products including Marmite spread, Ben & Jerry’s ice cream, Lynx body spray and PG Tips tea were no longer available on Tesco’s website, but the shortage had not yet affected stores, a Tesco spokesman said.

Shares in Tesco were down 1.6% while Unilever was down 1.4%.

 

 

, ,

Stay calm, say investment strategists after sterling nosedive

sun-1616384_1280
The pound is pounded but investors urged to avoid knee-jerk reactions

The pound might have been taking a pounding in recent days, but investors should avoid knee-jerk responses, warns a leading analyst at one of the world’s largest independent financial advisory organisations.

tom-elliott-hi-res-webTom Elliott, International Investment Strategist at deVere Group, is speaking out following sterling’s nosedive of 6 per cent in two minutes in an overnight ‘flash crash’ late last week.  On Friday morning, at its nadir, the pound was being traded at $1.1841, which is its lowest since 1985.

Mr Elliott observes: “Currency markets are reacting to three things.

“First, the realisation that British Prime Minister, Theresa May, has opted for a risky ‘hard’ Brexit strategy.

“Speeches at the Conservative Party conference last week suggested that the UK government will be willing to sacrifice membership of the single market, and possibly the E.U’s free trade area, in order to ‘take back control’ of immigration and end ‘meddling from Brussels’ on a range of issues.

“A hard Brexit carries a much greater risk of economic dislocation as investment plans are put on hold by UK businesses, and by foreign ones considering investment in the UK, as they wait to see what tariffs and conditions will apply to UK/EU trade once the Brexit negotiations are completed. Consumer confidence may weaken, with purchases of big-ticket items put off if consumers fear a slowing economy and a rise in unemployment. A weaker economy usually is bad news for a currency.

He continues: “Second, the UK runs the largest current account deficit in the developed world.

“The UK current account deficit (which is the total of these) is -5.4% of GDP (£162bn). It is-2.6% for the U.S, and +3.2% for the eurozone. This means the UK relies on foreigners to buy their debt, equity, buildings, factories and so on to the tune of £162bn each year in order for the books to balance. There is a real risk that with slower growth and Brexit uncertainty increased, these inflows shrink. Then sterling must fall in order to bring the current account deficit and matching inflows into balance.”

He goes on to say: “And third, there is the possibility of higher U.S. interest rates and possibly lower ones in Britain.

“Interest rate trends currently favour the dollar over other currencies, as the Federal Reserve is clearly itching to raise rates. Slower growth in the UK as a result of a hard Brexit may lead to the Bank of England cutting interest rates again, down to zero.   A widening interest rate differential against the dollar will lead to a weaker pound, everything else being equal.”

Mr Elliott concludes: “What should investors do? For the moment: Sit still and avoid knee-jerk responses. Recent economic data from the UK has been stronger than had been expected in the wake of the 23 June referendum. Doom and gloom forecasters may continue to be proved wrong as a hard Brexit is negotiated.”

,

Are we facing a sterling crisis?

money-sterling-web-351078_1280-2
Volatile, falling and unstable, sterling evokes prior UK and emerging FX crises
reutersforweb

LONDON, Oct 7 (Reuters) – Sterling’s slump to its lowest in more than 30 years against the dollar this week in increasingly volatile trading has raised fears Britain’s exit from the European Union could yet trigger a currency crisis like those of 1967, 1976 or 1992.

By some measures, such as the speed of the losses and volatility of its market trading, the pound is showing crisis-like symptoms. Most market observers expect it to fall further on the foreign exchanges before it stabilises.

But for a classic ‘currency crisis’ to unfold, sterling losses would have to choke off the foreign portfolio investments critical to balancing the economy’s massive external payments deficit. That risks a spiral of selling of UK bonds and stocks, sinking the currency further, stoking inflation and complicating the central bank’s ability to ease credit more if needed to support the real economy.

For investors fearing such a vicious circle there were worrying signs on Friday that overseas holders of UK assets may be losing their nerve. The last three days have seen UK government bonds and domestically-exposed mid-sized stocks fall in tandem with the pound for the first time since the immediate aftermath of the Brexit referendum.

The selling has not yet turned into a rout, however. Few observers are flagging a match with prior sterling crises just yet, even if the economic, political and financial uncertainty unleashed by Brexit is likely to cast a dark cloud over the currency for some time.

The crisis in 1967 saw sterling come off the gold standard and devalue; in 1976 Britain was forced to seek a multi-billion dollar aid package from the International Monetary Fund; and in 1992 billionaire investor George Soros famously “broke the Bank of England” when Britain was ejected from the Exchange Rate Mechanism, the pre-cursor to the euro.

Market veterans reckon for the current turmoil to turn into a crisis, there would have to be clear evidence foreign funds and central banks were losing faith in the UK economy and policy framework, and offloading their UK assets accordingly.

Britain has the biggest current account deficit in the developed world at nearly 6 percent of its annual economic output. In the words of Bank of England governor Mark Carney, it relies on the “kindness of strangers” to fund the gap.

If that flow of capital from abroad dries up, Britain has a problem. This has been the root cause of most emerging market currency crises in recent decades, notably in Mexico in 1995, Thailand in 1997 and Brazil in 1998.

“This is not a sterling a crisis, but it has the potential to become one,” said Nick Parsons, global co-head of FX strategy at National Australia Bank, and a 30-year veteran of the currency market.

David Bloom, global head of FX strategy at HSBC, agreed, noting that overseas investors have not called time on UK Plc.

“Foreign holders of UK assets will not be worried, at least not yet. This is an adjustment. Nobody should be surprised. Adjustments can be smooth or they can be rocky,” he said. “But policymakers will be concerned.”

Sterling plunged to a fresh 31-year low of $1.14 from $1.26 early on Friday before quickly recovering most of that ground. The Bank of England said it is investigating the cause of the short-lived fall.

WORST IN THE WORLD

The volatility comes at the end of a tumultuous week, kicked off by Prime Minister Theresa May saying said she would trigger the process to leave the EU by the end of March. Markets took fright, interpreting this to mean there will be a “hard” Brexit with Britain having less access to the European Single Market.

Investors were also taken aback when May criticized the “bad side effects” of the BoE’s low interest rates and bond-buying. Aides said she was not trying to influence Carney but some saw the comments as a warning to the Canadian who is in the process of deciding whether to extend his governorship of the BoE beyond his scheduled departure in 2018.

The yield on benchmark 10-year British government bonds shot up above 1 percent from 0.70 percent a week ago, still low by historical levels but reflecting investors’ fears that the weak exchange rate will fuel an inflation boom.

Inflation expectations as measured by the so-called five-year, five-year forwards jumped to 4.5 percent, the highest since the June 23 Brexit referendum.

Alan Clarke, an economist with Scotiabank in London, said sterling’s post-referendum fall was set to add up to 2 percentage points to consumer price inflation, which he now thought would peak at 2.6 percent in November 2017. Inflation was 0.6 percent in August.

The pound is one of the worst-performing currencies in the world this year. Since the referendum, it has fallen 17 percent against the dollar and euro. On a trade-weighted basis, it is down 18 percent this year, putting it on course for its second biggest annual fall since the 1970s.

So far, the BoE has sat on the sidelines and allowed sterling to find its own level. Many argue that the Bank’s post-referendum interest rate cut and revival of its quantitative easing bond-buying programme has turbo-charged the pound’s fall.

UK finance minister Philip Hammond said on Friday that the pound’s fall this week reflected investors’ realisation that Brexit is a cold, hard reality. He expects more “ups and downs”.

“A crisis is when there is a sense that the falls in sterling reflect a lack of confidence about the UK’s economic prospects and/or the economic policy framework, rather just a benign – i.e. stabilising – response to shocks,” said Charlie Bean, former chief economist at the Bank of England.

It’s hard to imagine the Bank intervening directly in the FX market now to prop up the pound like it did in 1992. Then, it blew billions of its FX reserves in its ultimately futile battle against Soros and the market.

BoE deputy governor Broadbent said this week that the Bank could, “in principle”, reverse its ultra-loose policy and raise rates if sterling’s fall was sufficiently steep and rapid. But few analysts believe that is on the cards.

Sterling’s all-time low against the dollar is around $1.05, struck in 1984. That’s around 15 percent from current levels and as the last three months show, it’s not out of reach. Parity against the dollar or euro would certainly ring alarm bells for the government and the Bank of England.

“When the pound is worth less than a dollar or less than a euro, there’s no doubt that is a sterling crisis,” Parsons at NAB said.

(Reporting by Jamie McGeever; Additional reporting by William Schomberg; editing by Mike Dolan and Peter Graff)

Copyright(c) Thomson Reuters 2016.

,

Sterling trading near a five-week low

coins-uk-sterling-william-warby-1024x768
Sterling continues to fall after Johnson’s “divorce” comments last week

reutersforweb
LONDON, Sept 26 (Reuters) – Sterling was weaker on Monday, trading near a five-week low, as lingering worries over Britain’s exit from the European Union drove investors to sell the currency that has steadily lost ground in the past three straight weeks.

Sterling was knocked down late on Thursday after British Foreign Secretary Boris Johnson said he expected formal divorce proceedings between Britain and the EU to begin early next year, and that two years may not be needed to negotiate a deal.

It continued to fall through Friday, losing more than 1 percent to touch $1.2915 – just over a cent higher than the three-decade low of $1.2798 that sterling hit in July, in the wake of June’s shock vote for Brexit.

On Monday, it was down 0.2 percent at $1.2947 despite a subdued greenback. Against the euro, the pound was down 0.2 percent at 86.72 pence, having hit a five-week low of 86.78 pence earlier in the day.

“The comments from Johnson around the timeframe for Article 50 to be invoked and that the Brexit negotiations do not need to take two years have had a detrimental impact on sterling,” said Jameel Ahmad, chief market analyst at FXTM.

Investors worry that an exit from the single market will drag the UK into a recession and blow out Britain’s ballooning current account deficit, already amongst the highest in the developed world at around 5 percent of gross domestic product. A wider current account deficit tends to lead to a lower currency.

On Thursday, Britain will release second quarter current account deficit data and forecasts are for a slight narrowing the gap.

“The current account data may underline once again that a demand side economic rebound increases external funding risks should the supply side of the British economy weaken from here,” Morgan Stanley said in a morning note.

“This may happen should Brexit talks not focus on the UK maintaining full market excess to the EU. Slower business investment tends to hit an economy with a delay given the multiple months’ lag between business investment and execution.”

Sterling had gained around 5 percent from its July low as of early September, as data showed the economy holding up relatively well after the Brexit vote. But after parliament returned from its summer recess, Brexit worries have come back into investors’ radar and has weighed on sentiment.

(Reporting by Anirban Nag. Editing by Toby Chopra)

Copyright(c) Thomson Reuters 2016.

,

Senior bank official supports code of conduct for currency markets

currency-web
Bank of England’s Chris Salmon believes banks and financial institutions will adhere to new code of conduct

reutersforweb
LONDON, Sept 23 (Reuters) – Adherence to a new code of conduct for currency markets will be voluntary but signing public attestations that they are keeping to it will focus the minds of senior managers at banks and other institutions, a senior Bank of England official said on Friday. Attempts by banks to rig currency markets prompted regulators to revamp and strengthen codes of conduct for forex dealers. In a speech made to the ACI association of currency dealers in London on Wednesday, the bank’s executive director for markets, Chris Salmon, also pointed to the “supportive” nature of UK banking regulators’ new senior managers regime for implementation of the new global guidelines. But he stopped short of saying that managers would be held legally accountable for their firms keeping to the code, drawn up by a working group of the Bank for International Settlements over the past year. “A sceptic might question the prospects for the success of this initiative,” Salmon said in his speech that was released to the media on Friday. “In a market where information asymmetries have been exploited for selfish motives – what good can a voluntary code of conduct really achieve?” He laid out several reasons why he believed banks and financial institutions would keep to the code in years to come, including the UK Senior Managers and Certification Regime, soon to be extended beyond banks to all of Britain’s regulated firms. He said firms should be able to demonstrate publicly that their behaviour and practices in the FX market are in line with the Code’s principles. That might include the development of an industry kite-mark which firms would have to earn. “The widespread use of a common public attestation could be a powerful tool in this respect,” he said. “It would provide a strong signal of a firm’s commitment to following good practices and help focus the mind of the firm’s senior management who would be asked to sign the attestation.”

(Writing by Patrick Graham)

Copyright(c) Thomson Reuters 2016.