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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Pound dips on BoE deputy governor’s rate hike caution; eurozone PMI growth slows –as it happened

Deputy Governor of the Bank of England Jon Cunliffe.
Deputy Governor of the Bank of England Jon Cunliffe. Photograph: Jonathan Brady/AFP/Getty Images

And finally, here’s our latest Brexit dashboard, showing the state of the UK economy. It’s not a very cheery picture this month:

And on that note, it’s time to wrap up. Thanks for reading and commenting. GW

A quiet day in the City ended with the FTSE 100 up just 20 points.

Mining firms had a good day, led by Antofagasta which gained 2.8%.

Whitbread led the fallers, though, after the slowdown at its Costa Coffee chain disappointed analysts. Some were also concerned that the occupancy rate at its Premier Inn hotel chain had slowed.

The pound has also lost ground, and is now down 0.5% against the US dollar at $1.3128.

Updated

Wine at the Vinexpo, the world’s biggest wine fair, in Bordeaux

Bad news 2: World wine production has dropped to a 50 year low, after spring frosts and summer heatwaves ravaged Europe’s tender vines.

Bad news 1: Britain’s mountain of consumer debt is reaching dangerous levels, according to credit rating agency S&P.

Updated

Back to gender equality in the City, or rather the lack of it.

My colleague Jill Treanor reports that two of the world’s biggest banks - Goldman Sachs and JP Morgan- haven’t yet signup to the government’s new charter aimed at addressing the issue....

Newsflash from America: US companies are growing at a faster rate this month.

Data firm Markit’s manufacturing PMI, which tracks activity at US factories, has jumped to 54.5 in October, from 53.1 last month.

The services sector also picked up pace, with its PMI rising to 55.9 from 55.3.

That implies that the US economy continues to grow at a healthy rate.

Over in Moscow Cyprus’ head of state Nikos Anastasiades is holding talks with president Vladimir Putin on the second day of an official visit aimed at strengthening economic ties between the two countries.

Cyprus is without doubt Russia’s friendliest EU member state and this afternoon the Greek Cypriot president Nicos Anastasiades went out of his way to make the point.

“I may say that this visit is in the framework of those fine relations between the Republic of Cyprus and the Russian Federation,” said Anastasiades making his third visit to Moscow since becoming president.

“We want to inform the Russian leadership about recent developments in the Cyprus issues, discuss issues related to ties with the European Union and Russia, essential regional issues and the possible role of Cyprus in solving them.”

The Greek Cypriot leader is expected to sign a number of treaties with Putin raising the total number of bilateral agreements to 67. A joint action plan for the period 2018-2020 will seek to reinforce, political, economic, defence and energy ties between the two with ministers from both countries signing pacts on maritime and road transport, communications and information technology.

The Cypriot government is also seeking to raise the number of Russian tourists from 900,000 to one million over the coming year. “We are constantly striving towards improving air connectivity between our two countries, which in principle is one of the major priorities of my government, and also focusing on enhancing the experience for Russian tourists by offering more and more qualiuty services,” Anastasiades said.

More than 40,000 Russian citizens live permanently on Cyprus, prompting the community to field a Russian party in presidential elections due early next year.

Caterpillar’s strong results have helped to send the US stock market to fresh record highs, once again....

Caterpillar creeps to record high after strong results

Caterpillar, the machinery and construction giant, has smashed Wall Street forecasts.

The firm, famous for its yellow diggers, hiked its profit forecasts and announced that revenues had surged by 25% to $11.4bn in the last quarter.

Caterpillar, which is a good barometer for the global economy, reported growing strength in a number of areas, including China’s construction sector and North America’s oil and gas industry.

Matt Arnold, an analyst at Edward Jones & Co, says:

“Results were better than expected across the board, with construction, mining, energy all strong,”

This has sent the company’s shares up by over 6%, to a new all-time high.

John Mann

John Mann MP has now issued a statement, criticising the Bank of England for not appointing more women to top jobs (an issue raised earlier).

He argues that the BoE should widen its recruitment pool - perhaps even adding a trades union leader such as Frances O’Grady to the monetary policy committee....

Mann says:

“Last week, the appointment of Sir Dave Ramsden to the Deputy Governorship at the Bank of England was confirmed. It is shameful that when so many talented women are at the forefront of the private sector, the trade union movement and the academic world, institutions like the Treasury and the Bank of England keep turning to the same group of men to fill their appointments.

I hope to see an increasingly diverse range of nominees come before the Treasury Committee as new vacancies arise”

In the Bank’s defence, it has appointed several women to the MPC in recent years, such as Kristin Forbes and Minouche Shafik. Both have since left, though, leaving the Bank’s top committees looking terribly male (apart from the newly appointed Silvana Tenreyro, of course).

Greek bailout review begins with optimism (yes, you read that right)

Syntagma Square in Athens, Greece.
Syntagma Square in Athens, Greece. Photograph: Alkis Konstantinidis/Reuters

Speaking of Greece.... the country’s third bailout review began in earnest today.

And, for once, the visit by international monitors appears to have got off to a good start!

Helena Smith reports from Athens.

A first round of talks between inspectors representing debt-stricken Greece’s international creditors and finance ministry officials has begun in optimistic mood.

A senior finance ministry source said the country’s projected primary surplus would well exceed 1.75% of GDP in 2017. That would underline how fiscal indicators have improved – and boosts hopes that the review will be wrapped up without negotiations becoming tortuous or prolonged.

Greek government sources have welcomed the European Stability Mechanism’s announcement that a decision will finally be made on Thursday as to whether Athens should receive a remaining bailout disbursement of €800m in aid.

Release of the funds will ultimately depend on progress the Greek state had made in clearing arrears. Late Monday the normally acerbic Eurogroup chairman Jeroen Dijsselbloem echoed the optimism telling an audience in Ireland that Greece’s bailout programme was back on track and that fellow eurozone members were prepared to do more to manage the county’s staggering debt mountain if called for.

Dijsselbloem declared:

“We have managed to help the debt burden, a lot has been done there. We stand ready, if they do their part, to do more if necessary. At the end of the programme in the summer next year, we will look again at how sustainable the debt is.”

Updated

German finance ministry staff give Schäuble the big zero

Over in Berlin, Wolfgang Schäuble has formally stepped down as Germany’s finance minister and taken up a new position as president of the Bundestag.

And to mark the occasion, hundreds of finance ministry staff assembled themselves into a big fat zero for a photo which was presented to Schäuble last night.

That may sound like a curious move - but it’s really a tribute to Schäuble’s determination to balance Germany’s budget and deliver a zero deficit.

Countries who suffered badly during the eurozone crisis might feel a different send-off is in order, given Schauble’s opposition to Greece getting debt relief.

Marcus Walker of the Wall Street Journal reckons there’s a hidden meaning behind the photo.

Updated

Sir Jon Cunliffe isn’t the only BoE policymaker sounding wary of raising interest rates next month.

Last week, fellow deputy governor Sir Dave Ramsden revealed that he wasn’t in the majority of MPC members who felt, in September, that a rate rise was close.

The Bank, which hasn’t raised interest rates for a decade, will remember the experience of the European Central Bank; it hiked, prematurely, in 2011, and was later forced to cut into negative territory to stimulate the economy.

UK and eurozone rates

But, having insisted several times that a rate hike is coming, can governor Mark Carney really fail to deliver?

He already has a reputation as an ‘unreliable boyfriend’, having abandoned his earlier forward guidance on when rates would go up.

As Bloomberg’s David Goodman puts it:

Carney also has to worry about credibility. He has previously come under fire for hinting at rate increases that never arrived, with one lawmaker branding him an “unreliable boyfriend” in 2014. That label has stuck with him ever since, and, even though he has stuck resolutely to the MPC’s “coming months” language in recent comments, he’s under pressure to deliver this time.

Pound dips after Cunliffe's caution

Sterling has fallen a little this morning, following BoE deputy governor Sir Jon Cunliffe’s cautious words about interest rates.

The pound has lost a quarter of a cent against the US dollar, to $1.317, and a similar amount against the euro to below €1.12.

Traders are taking note of Cunliffe’s hint that he might not vote to raise borrowing costs at next month’s meeting, as UK growth is weak and real wages are falling.

Paresh Davdra, CEO of RationalFX, says Cunliffe’s comments have put the pound under pressure:

Analysts have typically favoured the pound as the likelihood of a rate rise increases, and so any signals to the contrary could weigh on sterling.

Incidentally, this chart shows how the pound’s slump after last year’s EU referendum caused a spike in inflation, and a long-term impact on prices too....

Virgin Money boss Jayne-Anne Gadhia also told the Treasury committee about how sexism used to be rife in the financial sector.

She explained that during her time at Royal Bank of Scotland....

“There was a very male culture and I’ve talked previously about part of that being the sort of win-lose culture.

“Undoubtedly there was a pervading sexism where I remember a very senior woman being very upset one day telling me that she was expected to sleep with her boss.

“That sort of thing of course means that there are issues for women in progressing through financial services.”

The BBC has more details.

Jayne-Anne Gadhia also suggested there was no excuse for the Bank of England not to have a decent number of women in senior positions.

Currently the Financial Policy Committee is entirely male, while Silvana Tenreyro is the only woman on the Monetary Policy Committee.

But, Gadhia tells the Treasury Committee, women such as (IMF chief) Christine Lagarde and (Fed chair) Janet Yellen have proved that gender is no barrier.

John Mann MP agrees....

Updated

How to tackle gender imbalances in finance

Jayne-Anne Gadhia

Over in parliament, Jayne-Anne Gadhia, the CEO of Virgin Money, has been discussing how to tackle gender imbalances in Britain’s financial sector.

She told the Treasury committee that Virgin Money have used blind recruitment processes to give all applicants a fair chance, and training to help staff avoid their own ‘unconscious biases’.

She argues that a senior manager, such as the chief executive, needs to be held accountable for helping address gender imbalances, and pay disparities.

Here’s her four-part plan:

  • A clear strategy for tackling workplace inequality
  • Make it measurable
  • Make someone responsible for it — at 70% of firms it’s the CEO
  • Attach someone’s bonus to it

Gadhia says that she asks for ‘balanced recruitment lists’ for senior positions, to give a roughly equal number of men and women to choose between.

Gadhia adds that the companies who are tackling gender inequality best are those who treat it as a business issue, not simply an HR one - and implement policies such as flexible working.

This is an important issue for Gadhia, who was appointed the government’s gender diversity Champion last year.

She says she’s pleased that the Bank of England has just signed the government’s Women in Finance Charter. Some major firms still aren’t on the list, though, she adds....

Newsflash: The eurozone’s collective government debt pile has shrunk, as a percentage of the region’s economy.

Eurozone government debt was equal to 89.1% of GDP at the end of June, down from 89.2% in the first quarter of 2017.

That’s despite a rise in the annual deficit in the second quarter of the year:

Eurozone PMIs: What the experts say

Today’s purchasing managers report shows that Europe’s recovery is still strong, says economist Rupert Seggins:

Jon Ferro of Bloombeg points out that manufacturing is leading the way:

But the team at Sigma Squawk are concerned that the service sector slowed this month:

Eurozone private sector growth slows

Newsflash: Companies across the eurozone are growing at a slower rate than expected this month.

The Composite Purchasing Managers Index has dropped to 55.9, down from 56.7 in September. That’s a weaker reading than expected, but still shows solid expansion (anything over 50 shows growth).

Europe’s factory sector is having a good month - with the manufacturing PMI accelerating to 58.6, from 58.1. That suggests that activity is rattling along.

But the services PMI dropped to 54.9, from 55.8 - a weaker reading than forecast.

Markit reports that Germany and France were the “growth drivers”, while peripheral countries lagged behind.

Whitbread’s claim that Britain is entering a third wave of coffee drinking, and happy to pay more for more complicated brews, might amuse their rivals at McDonalds.....

“How much”

Whitbread hit by Costa slowdown

A Costa coffee shop in Mapperley, Nottingham,.
A Costa coffee shop in Mapperley, Nottingham,. Photograph: Joe Giddens/PA

Whitbread shares have fallen by over 4% in early trading, as traders react to the slowdown in sales and falling profits at its Costa Coffee chain.

Like-for-like sales at Costa only rose by 0.1% in the three months to 31 August, in “tough market conditions”, the company reported this morning.

That’s a pretty sharp slowdown -- sales grew by 1.1% in the previous quarter.

And it hit the bottom line -- statutory pre-tax profit at Costa fell by almost 10% in the last six months, from £65m to £59m.

This has sent Whitbread sliding the bottom of the FTSE 100 leaderboard, despite reporting a 7% rise in underlying profits across its business (which includes Premier Inn hotels).

Nicholas Hyett, Equity Analyst at Hargreaves Lansdown, says Whitbread is suffering from rising cost pressures and a slowing economy:

Whitbread will be well aware of the pressures facing the purses of UK consumers. Weaker like-for-like numbers this time round will add to worries that customers are feeling the pinch.”

So, is Britain’s love affair with coffee (yum yum!) fading? Not according to Whitbread; they reckon we’re entering the ‘third wave’, which is...

a period in which consumers’ preferences for coffee become more sophisticated and are willing to spend more per cup for higher quality and innovative drinks.

Updated

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Besides the key news headlines that you’d expect, there’ll be an at-a-glance agenda of the day’s main events, insightful opinion pieces and a quality feature to sink your teeth into each day. Sign up here.

Cunliffe: City of London can't be replicated.

Sir Jon Cunliffe also warned European cities that they won’t knock London off its perch as the region’s financial centre, despite Brexit.

He told the Western Mail that some City banks will move operations over the Channel, or even the Atlantic, once Britain leaves the European Union.

That could be bad news for jobs and tax receipts down the line.

But this doesn’t mean that Frankfurt, Paris or Dublin can supersede London, Cunlifee argues:

We have an expertise in financial services and we have a critical mass of talent and deep knowledge and those sort of big economic agglomerations and economic activity exist because they add value and they reduce costs.

“It may be that some activities that are carried out in London have to move to the continent. And maybe some activities carried out in London no longer become efficient, and rather than moving to the continent, they just go back to New York or somewhere else, or maybe they don’t happen at all.

“But I don’t see London as a financial centre being replicated on the continent anytime soon as it takes an awful lot of critical mass of expertise and knowledge.”

BoE deputy governor: November rate rise is an 'open question'

The Bank of England in London, Britain.

One of the Bank of England’s top policymakers has cautioned against assuming that UK interest rates will rise next month.

Sir Jon Cunliffe, deputy governor at the BoE, says that with the UK economy suffering weak growth it is an “open question” whether the Bank will raise borrowing costs in November.

Speaking on a trip to Wales, Cunliffe told the Western Mail that UK workers are suffering falling real wages (due to the spike in inflation since the Brexit vote).

And while interest rates are certain, in his view, to be higher in three years time - there’s no guarantee that the first hike in a decade is imminent.

BrexitSir Jon Cunliffe.
Sir Jon Cunliffe. Photograph: PA

Mr Cunliffe told the Western Mail that the UK economy has “clearly slowed”, and that any rate rises will be gradual. As he put it:

“In our August forecast we forecast that rate of growth [GDP] of about 1.5% a year, and it is going to continue for the next two to three years. And pay is going to gradually pick up from around 2% to around 3.5% by the end [three year forecast period].

“And that is going to put some domestic pressure on inflation, as the imported inflation eases off. Now if that forecast comes to pass over the forecast period, interest rates will need to go up.

“They will not need to go up by as far and as fast as they did before the crisis, but over the forecast period of three years rates will need to rise. The exact timing of when that starts? Well, that for me is a more open question.”

The Bank’s Monetary Policy Committee’s next meeting is on November 2nd.

Back in the summer, we got several hints that the MPC was close to voting to raise rates from their record low of 0.25%. But, with Brexit uncertainty weighing on companies, and wages only rising by 2.1% per year (compared to inflation at 3%), perhaps the committee is having second thoughts....

The agenda: Eurozone growth check

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

Today we get our first insight into how Europe’s economy is performing this quarter, with the ‘flash’ survey of purchasing managers at companies across the eurozone.

City analysts expect to learn that Europe’s factories and service sector companies are still expanding steadily this month. The headline eurozone composite PMI is expected to come in at 56.5 for October, down slightly on September’s 56.7, but still showing strong growth.

Analysts at Royal Bank of Canada explain:

The PMIs ended the second quarter higher than they begun it, suggesting some pick-up in momentum toward the quarter’s end and the continued strength of new orders in both the manufacturing and services sectors suggests that should continue into the third quarter.

Over in parliament, the Treasury Committee is holding an inquiry into women in finance (why there aren’t more of them, and why more don’t rise to the top). Jayne-Anne Gadhia, the CEO of Virgin Money, will give her insight.

After yesterday’s profits warning from UK car dealer Pendragon, the City is chewing through results from hotels and coffee chain Whitbread, packaging firm Bunzl, carpet seller Carpetright and publishing group Bloomsbury.

There don’t seem to be any shockers, although Whitbread has only reported a small rise in sale at Costa Coffee.

Financial analyst Chris Bailey has helpfully summarised the details:

Any ideas?...

Here’s the agenda

  • 8am BST: French ‘flash’ manufacturing and services PMI for October.
  • 8.30am BST: German ‘flash’ manufacturing and services PMI for October.
  • 9am BST: Eurozone ‘flash’ manufacturing and services PMI for October.
  • 9.15am BST: UK Treasury Committee hearing on Women in Finance, with Jayne-Anne Gadhia, CEO of Virgin Money.
  • 2.45pm BST: US ‘flash’ manufacturing and services PMI for October.

Updated

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