And finally, here’s our Larry Elliott on the Bank’s forecasts:
The Bank of England has warned the economy is on course for its weakest year since the global financial crisis, as evidence suggests Brexit jitters are spreading from companies to consumers.
In its latest quarterly health check, the Bank cut its growth forecast for 2019 from 1.7% to 1.2%, blaming a slowing global economy as well as Brexit uncertainty for the sharp downward revision, and said there was a 25% chance of a recession this year.
Threadneedle Street said its gloomier forecast assumed the UK’s departure from the EU in seven weeks goes smoothly. If the prediction comes true, it would be the slowest growth since the economy contracted by 4.2% in 2009, during the financial crisis.
Mark Carney, the Bank’s governor, said: “The fog of Brexit is causing short-term volatility in the economic data and, more fundamentally, it’s creating a series of tensions.”
More here:
Goodnight! GW
No-deal Brexit: UK exporters risk being locked out of world's harbours
In a stark example of what Brexit fog looks like, UK exporters preparing to send goods to the other side of the world RIGHT NOW run the risk of bring locked out.
Business leaders have told us that a ship departing a British port for, say, the Antipodies could arrive to find Britain has crashed out of the EU without a deal - leaving them unable to unload their cargo due to tariff confusion.
My colleague Richard Partington explains:
The Confederation of British Industry, the EEF manufacturers’ lobby group and trade experts said exporters could be dispatching goods from UK ports imminently which would not arrive until after the 29 March deadline – raising the prospect of goods being stuck in ports or facing hefty additional costs in the event of a disorderly Brexit.
The maximum shipping time to anywhere in the world is about 50 days – with the furthest being Australia and New Zealand – meaning cargoes sent from this weekend could face disruption when they arrive around the 29 March deadline.
More here:
The Bank of England’s gloomy outlook has added to market anxiety over the health of the global economy.
Most European stock markets are deep in the red this afternoon, as fear shoves greed out of the way.
Weak factory data from Germany and Spain this morning, and growth downgrades from the EC, have raised fears that growth is faltering...and central banks may not be able to stop it.
Connor Campbell of SpreadEx explains:
The Bank of England – keen to hammer home the cost of the UK’s Brexit uncertainty – added to the dour tone set off by the European Commission earlier in the session.
Hours after the EC put the UK’s 2019 growth at 1.3%, the Bank of England painted an even more depressing picture, cutting its own forecasts to just 1.2%. Mark Carney made clear, however, that the ‘fog’ of uncertainty currently cloaking the country’s economy means growth, and inflation, could easily be much higher or lower than that estimate dependant on what happens after March 29th. There was also the warning that a no-deal Brexit would greatly increase the chance of a recession; nothing particularly new, then, but nevertheless a sharp reminder of what is at stake.
Guy Foster, head of research at Brewin Dolphin, suspects the Bank of England could raise interest rates twice this year -- IF Britain secures a soft Brexit.
“With inflationary challenges still present, the Bank of England has reoriented its focus toward growth challenges as concerns build over the threat of a global economic slowdown. In a similar fashion to China and the US, UK policymakers are tacking to a more accommodating stance, communicating additional patience on the delivery of future interest rate hikes.
Of course, Brexit remains the elephant in the room and, should an orderly outcome transpire, we would expect the Bank to flip back to a marginally more hawkish bias – perhaps delivering as many as two interest rate hikes before year end.”
Not for the faint-hearted....
This was the stand out (grim) chart from the @bankofengland Inflation Report for me. What the Bank thinks the Brexit referendum has done to UK business investment...: pic.twitter.com/zjfAon9P6O
— Ben Chu (@BenChu_) February 7, 2019
Several experts are concerned that the BoE has slashed its 2019 growth forecast to a measly 1.2%.
John McDonnell MP, Labour’s Shadow Chancellor, says it shows the risk of leaving the EU without a deal:
“The Bank of England downgrading it’s 2019 growth forecast shows that people are increasingly worried about this Government’s stewardship of the economy.
“The Government must be stronger in averting a no-deal Brexit, and act now to protect the economy.”
Rain Newton-Smith, CBI chief economist, fears the economy is already “seizing up” from uncertainty:
The Bank’s forecasts, when put together with recent business surveys, illustrate the harmful impact on the economy the longer that this goes on.
Brexit uncertainty has kept interest rates on hold this month, and the near-term outlook for the UK economy is also weaker. However, in the event of a smooth Brexit, the Bank expect a lift to economic growth and business investment further ahead, as greater clarity unlocks pent-up demand.”
James Smith, research director at the Resolution Foundation, has warned that such weak growth would hurt living standards across the UK.
“The Bank has today put a major health warning on the UK economy as ongoing Brexit uncertainty and weaker global growth combine. Such a slowdown, should it materialise, is not just about abstract GDP figures but slower earnings and income growth for households all over the country.
“Today’s report should remind politicians across parliament that the stalemated Brexit process comes with a very real price tag. Everyone should be focused on the action that sits within the hands of UK policy makers to deliver stronger growth than the frankly awful forecasts published today by the Bank.
Summary: Bank of England fights fog of Brexit
The broad message from Mark Carney today is that growth has weakened since the last Inflation Report three months ago, Brexit fog is clouding the economy, and the risk of a no-deal Brexit has intensified.
On growth, the BoE now expects UK GDP to only rise by 1.2% this year, down from 1.7%. That would be the weakest growth since 2009, when Britain was reeling from the financial crisis.
Most of the damage will be done in the first half of 2019. If Britain secures a soft Brexit, growth could then pick up - perhaps faster than the Bank expects.
Governor Carney warned:
The fog of Brexit is causing short term volatility in the economic data, and more fundamentally, it is creating a series of tensions in the economy, tensions for business.”
On the upside, the economy still looks to be in OK shape:
The fundamentals of the UK economy are sound. The financial sector is resilient. Corporate balance sheets are strong, and the labour market is tight.”
But the downside is that leaving the EU without a deal would hurt the economy - and Mark Carney believes it’s more likely than before. He warned that a No-Deal would raise the chances of “negative quarters” of growth. Two or more negative quarters would be a recession.
He also warned that half of UK firms simply aren’t ready for a no-deal Brexit, saying:
“Although many companies are stepping up their contingency planning, the economy as a whole is still not yet prepared for a no-deal, no transition exit.
In terms of our agent surveys, most recent surveys, of businesses and their preparedness, half of them say they are not ready. And the half that say they are ready... ready means ‘we’ve done all we can’.
Economy as a whole is "not yet prepared" for a no-deal #Brexit - Mark Carney gives details of current UK economic uncertainty https://t.co/SgOUA5Sloi pic.twitter.com/PI5hR8wCZw
— BBC Politics (@BBCPolitics) February 7, 2019
Carney also criticised European Council chief Donald Tusk, over his claim that a “special place in hell” awaits the leaders of the Brexit campaign. Carney said he was “surprised” by the comments (which have created quite a biblical storm in the UK), and quoted from the Gospel of Matthew:
If one wants to be theological, “Do not judge because you too will be judged.”
And asked whether he woke up every morning, regretting extending his tenure as BoE governor to help with Brexit, Carney ruefully revealed that the crisis has been interfering with his beauty sleep:
“I don’t wake up in the morning any more....I wake up in the middle of the night.
“No, the reason I extended was to remain here during a period that could be slightly more volatile or could involve a slightly more difficult transition ..., so obviously I don’t regret it all.”
[Thanks to Thomson Reuters for the quotes]
Updated
I think we can all sympathise with Mark Carney’s disrupted sleep....
Asked at a presser if he wakes up each morning regretting that he's the @bankofengland governor in the age of Brexit, @markcarney1 replies: "I don't wake up in the morning any more ... I wake up in the middle of the night." @Brexit
— Cam Simpson (@CamSimpsonNews) February 7, 2019
Q: Isn’t there a danger that Brexit uncertainty will persist for longer than you expect, hurting the economy, especially as you think it will take four years to agree a UK-EU trade deal?
Some uncertainty will linger around, yes, Mark Carney replies. But it would be “substantially less” if the UK leaves with a withdrawal agreement.
That’s the end of the press conference. Reaction to follow.....
Q: Have you considered copying the Federal Reserve, and holding press conference more frequently?
Carney says the Bank has already been making changes to communicate better with households. And as Brexit is such a big issue, the people responsible with handling Brexit should be the ones front and centre right now.
Carney asked if he ever wakes up in the morning and wishes he’d left the BoE in 2018 as originally planned. Jokes: “I don’t wake up in the morning any more - I wake up in the middle of the night!”
— Ben Chu (@BenChu_) February 7, 2019
Q: Are you worried about disruption at Barclays, where activity investor Ed Bramson is trying to shake up the bank and get a seat on the board.
Carney says its important to maintain responsible banking and safe lending standards, and they won’t be compromised for anyone.
Q: When you arrived as governor, you intended to leave by last summer. We’re all absolutely delighted that you stayed on longer, but do you ever wake up in the morning and wish you’d stuck to plan A, asks my colleague Larry Elliott mischievously.
Fighting off a fit of the giggles, Carney replies that he doesn’t wake up in the morning any more, he wakes up in the middle of the night.
But obviously he doesn’t regret agreeing to extend his stint at the BoE, and it’s a privilege to do the job, he replies sincerely (I think!).
The rebalancing of the UK economy has paused, Carney warns. Consumption is providing the bulk of the growth again as business investment takes a Brexit hit.
BOE'S CARNEY SAYS POSITIVE REBALANCING OF UK ECONOMY AWAY FROM CONSUMPTION HAS PAUSED || SAYS UK INVESTMENT SHORTFALL SINCE REFERENDUM IS AN ABSOLUTE OUTLIER BY INTERNATIONAL STANDARDS
— First Squawk (@FirstSquawk) February 7, 2019
Q: Back to Brexit.. is no-deal more likely, and do you think the departure date could be extended?
Yes, Mark Carney replies, the probability of a no-deal Brexit has gone up. There are seven weeks until the Brexit data, and there still are a lot of possibilities.
He says some senior cabinet ministers have speculated about delaying Brexit beyond 29 March, and that some parliamentary experts have speculated that there isn’t enough time to get all the legislation through.
But Carney adds that Theresa May has been adamant that the UK will leave the EU on 29 March.
Q: Your new forecasts only project one interest rate hike over the forecast horizon. So, given the weak growth outlook, should we prepare for an interest rate cut?
No, Mark Carney insists. The message is that people shouldn’t expect a sharp move in interest rates.
Q: You’ve just delivered the worst growth forecasts in a decade - how is that manifesting itself, and how would a no-deal Brexit make it worse?
Governor Carney reiterates that the Bank’s central view is that in a form of soft Brexit, the economy will pick up, firms will hire and invest, wages will rise, inflation will rise too, and “we’ll move forwards”.
That’s the core expectation, and monetary policy is set accordingly. But at present, the economy has slowed - partly due to a weaker world, and a weaker Europe, but also due to Brexit uncertainty.
Q: What’s your message to the MPs who say we can leave the EU, painlessly, without a deal?
Arms crossed firmly, governor Carney points out that half of the UK businesses say they’re not ready for a no-deal Brexit (see here).
And for others, being ready simply means they’ve done all they can.
Mark Carney is asked whether he sympathises with Donald Tusk’s claim that there is a “special place in hell” for Brexit campaigners who didn’t draw up a plan for Britain’s exit from the EU.
No, the governor replies. “I was surprised by those comments yesterday”.
And showing a theological bent, Carney adds:
Do not judge because you too will be judged.
Updated
Q: What economic damage has Brexit caused?
UK GDP is 1.5% below where we expected to be today in June 2016, Mark Carney replies.
We do not know what the Brexit outcome will be, Mark Carney insists, adding that there are almost as many possible outcomes as on the morning after the EU referendum.
Q: Did you expect the Brexit negotiations to turn out this way?
Carney explains that the Bank saw a no-deal Brexit as a low-risk probability, but it has prepared for it in case it happened. That’s why the core of the financial system is ready for whatever happens.
BOE CARNEY: NO-DEAL BREXIT WOULD INCREASE RISK OF UK RECESSION
— *Walter Bloomberg (@DeItaOne) February 7, 2019
Carney: No-deal Brexit would raise risk of recession
Q: Your forecasts show a one in four chance of a recession before the summer - would a no-deal Brexit affect that?
Mark Carney says households and businesses are “increasingly” taking notice of Brexit uncertainty, and that is affecting the economy.
That, and the weaker global growth, is why the Bank has cut its growth forecasts (from 1.7% to just 1.2% in 2019).
When the economy is growing more slowly, the chances of a negative quarter or two goes up, the governor explains.
So if there is a shock.... such as a no-deal, no-transition Brexit, that further increases the risk of quarters of negative growth, he adds.
Updated
Carney: Parliament is taking its time over Brexit
Onto the Q&A, and a tricky poser about the impact of Brexit uncertainty on households.
Mark Carney replies that household real incomes have been growing, with a “steady pick-up” in real wage growth.
But Brexit is clearly a drag.
This is a time of considerable uncertainty about one of the biggest issues facing the UK, the governor says, adding archly:
It’s important that parliament gets it right, and they’re taking their time to do that.
That is affecting businesses, and we’re seeing it creep into household spending, he adds.
But, if there is clarity on the Brexit deal soon, then the economy should pick up.
Important that parliament gets it right on #Brexit, and it is taking its time to get there, Carney says
— Anna Isaac (@Annaisaac) February 7, 2019
With a final meteorological blast, Carney promises that “whatever the weather”, the Bank will do its best to keep inflation close to our 2% target.
If Brexit uncertainty dissipates faster than the Bank thinks, annual growth could be 0.5% percentage points higher, says Carney, with inflation 0.4% higher.
But if the fog gets thicker, growth and inflation could go the other way.
Carney must've said #FogOfBrexit at least 88 times in his opening statement
— Jesse Cohen (@JesseCohenInv) February 7, 2019
The Bank expects business investment and economic growth to soften in the near term, and then pick up as “the fog clears”, Mark Carney continues.
But the only thing that’s certain is that the economy won’t evolve exactly as the Bank expects, he adds. The timing of the Brexit deal, and its implementation time, could change - for example.
Plus, the global economy can’t be taken for granted either:
Whatever form Brexit takes, the world will still turn and its outlook will change.
The "fog of Brexit" is creating tensions and Britain's economy isn't ready for a no-deal split, Mark Carney says https://t.co/3CCU0yxQuf pic.twitter.com/yqvZZ37qQN
— Bloomberg Economics (@economics) February 7, 2019
Carney points to 'fog of Brexit uncertainty'
Given the “historic resilience” of the UK consumer, and rising wages, household spending is an “upside risk” to our forecasts, Carney continues.
He adds that the fog of Brexit uncertainty is also hitting the financial markets.
It would be remarkable if sterling and other asset prices currently reflect the final outcome of the Brexit negotiations, he continues (a hint that there will be wild swings, one way or the other).
Mark Carney's press conference begins
Governor Mark Carney has arrived for his press conference.
He starts by reminding us of the (apocryphal) story of the UK newspaper headline: “Fog in the channel, continent cut off.”
Cutting off the continent is not the intention of Brexit, he adds, but the fog of Brexit uncertainty is causing some problems in the economy.
Carney points out that business investment has fallen, and that some firms are stockpiling products in preparation for supply chain disruption.
Consumers are also being hit, with demand for cars and houses down (and house prices now flat, as we reported this morning), and retail sales down.
Updated
Bank: Many UK companies not ready for no-deal Brexit
The Bank says it has surveyed 200 UK companies across the UK, and found that around half of them feel they’re not ready for a ‘no deal, no transition’ Brexit.
However, the other half think they are ready, and have done what they can.
Of those, around a quarter were not making contingency plans — either because they did not think that they would be affected, or because they were waiting for more clarity about the outcome of a ‘no deal, no transition’ Brexit. The bulk of the remainder had started implementing plans that had been agreed or were being developed.
Our economics editor Larry Elliott has been locked in the Bank of England this morning, digesting today’s news. They’ve let him out now, so here’s his take:
Minutes of the MPC’s interest rate decision meeting said that over the past three months “key parts of the EU withdrawal process had remained unresolved and uncertainty had intensified.
“Businesses had appeared increasingly to be responding to Brexit-related uncertainties, and there were some signs that those uncertainties might also be affecting households’ spending and saving decisions.”
The minutes added that consumer confidence, particularly the view households took of the general state of the economy, had weakened significantly.
Growth is now forecast to be 0.2% in each of the first two quarters of 2019, down from the 0.4% in each period pencilled in by the Bank in November. Activity is expected to pick up towards the end of the year, although the Bank stressed that the performance of the economy would depend on how Brexit unfolded.
“The economic outlook will continue to depend significantly on the nature of EU withdrawal, in particular: the new trading arrangements between the EU and the UK; whether the transition to them is abrupt or smooth; and how households, businesses and financial markets respond.”
More here:
There she goes again....
Pound falls as Bank of England says Brexit damage to Britain's economy has risen https://t.co/EWjIRa9ZoM pic.twitter.com/OXfMsSyxrY
— Bloomberg Brexit (@Brexit) February 7, 2019
The pound has fallen further against the US dollar, on the back of the Bank of England’s announcement.
Sterling is now down over half a cent at $1.2877, a two-week low. Investors are concluding that UK interest rates will remain low for many months to come:
Short sterling futures now only fully pricing in one 25bps increase in the BOE's base rate between now and June 2020
— WorldFirst (@World_First) February 7, 2019
The Bank has also flagged up that business investment has been hurt by Brexit uncertainty, even though it’s historically cheap to borrow money to invest.
Interest rates are still significantly lower than before the financial crisis. https://t.co/AM3JoznhwV #InflationReport pic.twitter.com/lh2pU9xl3G
— Bank of England (@bankofengland) February 7, 2019
Investment by businesses has fallen over the past year. They say it’s mainly because of uncertainty about Brexit. https://t.co/AM3JoznhwV #InflationReport pic.twitter.com/h8n6EoK2rW
— Bank of England (@bankofengland) February 7, 2019
The Bank of England has reiterated that it could cut interest rates, or raise them, after Brexit - depending on how it plays out.
That’s because the Bank could (in theory) cut borrowing costs to help the economy, or hike them to protect the pound and fight inflation.
It all depends whether Brexit turns into a demand shock (hurting businesses), or a supply shock (in which consumers and firms are fighting over whatever scarce resources make it into the UK).
Or, as the Bank puts it:
The economic outlook will continue to depend significantly on the nature of EU withdrawal, in particular: the new trading arrangements between the European Union and the United Kingdom; whether the transition to them is abrupt or smooth; and how households, businesses and financial markets respond.
The appropriate path of monetary policy will depend on the balance of these effects on demand, supply and the exchange rate. The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction.
Bank minutes: the key points
The minutes of the Bank’s Monetary Policy Committee meeting show that it is worried about Brexit, and the wider global economy.
On the world economy, the Bank says that the US-China trade war is hurting:
The world economy has continued to slow over recent months, with a broad-based softening across all regions. That deceleration reflects the past tightening in global financial conditions, as well as the initial impact of trade tensions on business sentiment.
Global growth is expected to dip below trend in coming quarters, weighing on UK net trade, before rising to around potential rates
It also fears that the UK economy has weakened in recent months:
UK economic growth slowed in late 2018 and appears to have weakened further in early 2019. This slowdown mainly reflects softer activity abroad and the greater effects from Brexit uncertainties at home.
These uncertainties could lead to greater-than-usual short-term volatility in UK data, which may therefore provide less of a signal about the medium-term outlook. Heightened uncertainty and elevated bank funding costs are assumed to subside over time, as greater clarity on future trading arrangements is assumed to emerge.
Bank of England latest 2019 GDP forecast slashed to 1.2%, down from 1.7% in November on back of much weaker than expected business investment due to no-deal Brexit fears - would be the worst annual GDP performance since 2009 recession
— Ben Chu (@BenChu_) February 7, 2019
We have kept interest rates at 0.75%. Find out why in our visual summary: https://t.co/jXRdChLwsM #InflationReport pic.twitter.com/LyDNKvu3sX
— Bank of England (@bankofengland) February 7, 2019
Bank: UK faces weakest growth since financial crisis
The Bank of England has also cut its growth forecasts, warning that Britain faced its weakest economic growth in 10 years in 2019.
It now expects GDP to increase by just 1.2% - down from a previous forecast of 1.7%. That’s even worse than the EC’s forecasts (+1.3%) this morning.
The bank’s policymakers say:
“UK economic growth slowed in late 2018 and appears to have weakened further in early 2019.
“This slowdown mainly reflects softer activity abroad and the greater effects from Brexit uncertainties at home.”
For 2020, the UK growth outlook has been cut to 1.5% from 1.7%, before picking up to 1.9% in 2021.
Bank of England interest rate decision
Newsflash: The Bank of England has voted to leave UK interest rates unchanged at 0.75%.
It’s a unanimous decision - all nine members of the monetary policy committee decided (with Brexit looming) not to move borrowing costs today.
More to follow....
Mihir Kapadia, CEO of Sun Global Investments, can’t see any reason for the Bank to surprise us with a rate hike today:
With continued uncertainty surrounding Brexit and its final outcome, many industries and sectors have been in a period of stagnation, with property and housing being particularly affected. It is expected that interest rates will unchanged by the BoE.”
We’ll find out if he’s right in about eight minutes...
Here’s a quick summary of the latest UK data which will have influenced the Bank of England’s thinking this month (although Brexit overshadows everything, really).
Bank of England announcement in 30 min. Here’s a look at how the economy changed since last meeting. BK members - Live trading starts in 15 min pic.twitter.com/nBvrGNVqOf
— Kathy Lien (@kathylienfx) February 7, 2019
Over in Greece fears are mounting over the state of the country’s “zombie” banks amid warning that taxpayers may have to foot the bill of recapitalising lenders struggling with unprecedentedly high levels of bad debt.
Our correspondent Helena Smith reports from Athens:
In what some have interpreted as preparation for the inevitable, the deputy prime minister Yannis Dragasakis has again warned that the time might be approaching for a fresh recapitalisation of banks. As a result of almost ten years of austerity, non-performing Greek loans account for almost 50 percent of total loans in the banking system – by far the highest in the EU.
In recent days Dragasakis has increasingly spoken of the need for banks to come up with a plan to resolve the problem – in addition to foreclosures and auctions of repossessed assets that lenders are pursuing.
He told parliament:
“If we are not careful we may …. force banks to necessitate new funds.”
Most of the bad debt has accrued as a result of depositors defaulting on mortgage payments during Greece’s long-running debt crisis.
The “zombie” state of banks (so described by prime minister Alexis Tsipras) has been blamed for impeding growth in a country that desperately needs investment after exiting its third bailout programme last summer and is still regarded as the euro zone’s weakest link.
Budget airline easyJet has just updated its shareholders on its Brexit preparations.
They include:
- putting in place new operating airlines in Austria and the UK;
- ring-fencing those operations so that there is no reliance on existing EU traffic rights by the UK airline;
- transferring over 1,000 pilots, re-issuing 3,300 cabin crew licences and re-registering 133 aircraft from the UK to Austria;
- putting in place the relevant safety certificates in Austria;
- and creating a second spare parts “hub” in the EU to limit exposure to any logistical supply chain risks between the EU and the UK.
EasyJet has also confirmed that it could force some non-EU shareholders to sell up to EU-based investors after Brexit. This would allow it to meet EU ownership rules, which say at least 50% of shares must be owned by EU nationals to qualify for an EU Air Operating Certificate.
EasyJet has already raised its ownership by nationals (excluding UK) from the European Economic Area (EEA) to about 49%, and set up its new sister company in Austria, in preparation for Brexit.
Just an hour to wait until the Bank of England’s interest rate decision (although policymakers actually voted yesterday).
Fawad Razaqzada, market analyst at Forex.com, says we shouldn’t expect any fireworks from the BoE, given the Brexit uncertainty.
He points out that the latest employment and inflation data has been better than expected, but purchasing manager surveys from companies have been weaker, suggesting the economy is stagnating. That’s a good reason to leave interest rates on hold at 0.75%.
Razaqzada writes:
Domestically, Brexit is obviously the biggest risk facing the economy right now and we have seen the latest business surveys pointing to a slowdown in economic activity. Purchasing managers have reported falling activity in all three sectors of the economy — manufacturing, construction and services — in January.
What’s more inflation has started to ease back over the past few months and the headline consumer price index has fallen near the Bank’s 2% target, at 2.1%, while core CPI has remained somewhat more stable around 1.9%. Crucially, though, with inflation easing a little and nominal wages including bonuses rising at a faster clip of 3.4% in the three months to November compared to a year earlier — the biggest increase since July 2008 — real wages have increased by a good 1.1%. On top of this, employment has remained robust and the unemployment rate has remained near historic lows around 4.0%.
Quite a gloomy message from the EC today:
Commissioner @pierremoscovici sums up the five key messages of the winter #ECforecast to the press. Growth to moderate in 2019 to 1.3% in euro area, 1.5% in EU pic.twitter.com/hoRSnGDPpb
— Philip Tod 🇪🇺 (@TodPhilip) February 7, 2019
The EC has also predicted that Britain will be the joint third-slowest growing (current) EU member this year - alongside France, Belgium and Sweden, but not as slow as Italy and Germany.
Growth 2019 #ECForecast:
— European Commission 🇪🇺 (@EU_Commission) February 7, 2019
🇲🇹5.2
🇮🇪4.1
🇸🇰4.1
🇷🇴3.8
🇧🇬3.6
🇵🇱3.5
🇭🇺3.4
🇨🇾3.3
🇸🇮3.1
🇱🇻3.1
🇨🇿2.9
🇪🇪2.7
🇭🇷2.7
🇱🇹2.7
🇱🇺2.5
🇬🇷2.2
🇪🇸2.1
🇫🇮1.9
🇳🇱1.7
🇵🇹1.7
🇦🇹1.6
🇩🇰1.6
🇪🇺1.5
🇸🇪1.3
🇫🇷1.3
🇧🇪1.3
🇬🇧1.3
🇩🇪1.1
🇮🇹0.2
Learn more → https://t.co/VBy3qmh5nB
Updated
EU slashes growth forecasts
Newsflash: The European Commission has just downgraded its growth forecasts, and Italy is in the firing line.
It now expects the eurozone to grow by just 1.3% this year, down from a previous forecast of 1.9%. It has also trimmed its 2020 growth forecast to 1.6%, from 1.7%.
Commissioner Pierre Moscovici is blaming the US-China trade war, and weakness within Europe.
After its 2017 peak, the EU economy’s deceleration is set to continue in 2019 to growth of 1.5%. This slowdown is more pronounced than expected last autumn, especially in the euro area, due to global trade uncertainties and domestic factors in our largest economies #ECForecast pic.twitter.com/DQQJYh0z2X
— Pierre Moscovici (@pierremoscovici) February 7, 2019
Germany’s 2019 growth forecast has been dramatically cut, from 1.8% to just 1.1%.
And as for Italy? It’s a shocker; GDP is now expected to only increase by 0.2% this year, not 1.2%.
The Commission is blaming Italy’s new populist coalition, which battled Brussels last year as it tried to raise spending and cut taxes.
“While the initial [Italian] slowdown was largely due to less dynamic world trade, the recent slackening of economic activity is more attributable to sluggish domestic demand, particularly investment, as uncertainty related to the government’s policy stance and rising financing costs took its toll.”
As well as Brexit, and a cooling housing market, the Bank of England also needs to worry about the eurozone.
With Italy in recession, and Germany worryingly close, a slowdown over the Channel is another headache for the UK’s central bank.
And just this morning, weak industrial production data could have sent governor Carney reaching for the Nurofen. Factories in Germany and Spain have both reported that production declined in December, as 2018 ended with a whimper.
More German gloom: Germany’s Industrial Output declines, feeding doubts over rebound. Production dropped 0.4% in December; median estimate 0.8% gain. https://t.co/ar5owq7Vd6 pic.twitter.com/8vlkYUNfqt
— Holger Zschaepitz (@Schuldensuehner) February 7, 2019
It seems like the world almost stopped in December. #Spain is the next country to report very sluggish production numbers. YoY industrial production fell a whopping 6.2%, biggest decline in six years! pic.twitter.com/WElwB2sHMX
— jeroen blokland (@jsblokland) February 7, 2019
Overnight, we’ve learned that housebuilding declined sharply in London and the Midlands last year as Brexit worries hit the housing market.
My colleague Julia Kollewe explains:
The number of new homes in London registered by housebuilders with the National House Building Council (NHBC) in 2018 fell 10% from the previous year to 16,069, the biggest annual drop since 2016. In the east Midlands and West Midlands, registrations were also down 10%, to 13,447 and 13,087 respectively following two strong years.
Total new home registrations fell by 0.5% to 159,617 in 2018, indicating that housebuilding slowed a little.
Expert: Brexit isn't only factor
Gary Barker, CEO of Reapit (supplier of CRM and accounting software to estate agents) has confirmed that buyers and sellers are shunning the property market, especially in London.
But he believes stronger demand outside the capital should support prices.
“With Brexit negotiations still in deadlock, it is unsurprising that the property market continues to stagnate, with just 0.8% annual house price growth, and a monthly fall of -2.9%. Little progress was made in January, and Reapit’s data shows that a lack of clarity has caused buyers and sellers to abstain from engaging the market. Exchanges are now down by 16% across Greater London, with 27% fewer new listings in December 2018 compared to the same period in 2017.
“However, there are other factors at work beyond Brexit: reasonable affordability, rising levels of employment and wage growth in the North and Midlands have attracted investors and first-time buyers alike, who are retreating from higher property prices in the Southern market. While growth in the South has slowed, we cannot ignore that growth remains elsewhere.
“Until Brexit is clarified, limited housing stock and strong growth in the North and Midlands will buoy the market, preventing any outright falls.”
Britain’s housing market has been sent into a spin by political uncertainty, and low supply of houses, says Lucy Pendleton, director of independent estate agents James Pendleton.
She adds:
“The long-term holding pattern in prices ahead of Brexit is abundantly clear and overall measures of consumer confidence have been scraping five-year lows.
However, if the UK does enjoy a good EU exit, then a relief rally could be in store given the plentiful government support for buyers, cheap borrowing and rising wages coupled with low supply.”
Halifax’s data also show that prices are actually lower than a year ago - another sign that the housing market has cooled.
Mark Harris, chief executive of mortgage broker SPF Private Clients, believes Brexit uncertainty is dragging the housing market back.
Here’s his take on the Halifax’s house price data:
‘Flat growth is probably the best we can hope for given the current tricky political situation we find ourselves in. Brexit has caused a slowdown in purchase activity as would-be buyers sit on their hands, waiting for the outcome before committing to something as major as buying a new home.
Fewer transactions has meant less business for lenders, yet they remain keen to lend. They run big operations and need their staff to be busy, so have two options - change their risk profile or mortgage pricing. The latter is easier, which is why many lenders have reduced their mortgage rates, and is great news for borrowers who are ready to make a move.
Halifax: House prices slumped 2.9%
Newsflash: UK house prices slumped by 2.9% in January, according to Halifax Bank’s monthly survey.
That’s a lot worse than the 0.5% decline which economists expected, and leaves the average price at £233,691.
On an annual basis, prices were just 0.8% higher in the last quarter than a year ago. Again, that’s weaker than expected, and down from 1.3% annual growth rate recorded in December.
UK Jan Halifax House Prices MM
— DailyFX Team Live (@DailyFXTeam) February 7, 2019
Actual: -2.9%
Forecast: -0.7%
Previous: 2.5%
3M YY
Actual: 0.8%
Forecast: 1.50%
Previous: 1.30%
House prices fell 2.9% over the month but climbed 0.8% over the year says @AskHalifaxBank
— simon read (@simonnread) February 7, 2019
Some caution is needed - these monthly house price surveys are rather volatile. But over the last quarter, prices are down 0.6%.
📢 Latest housing market snapshot from @AskHalifaxBank. 📉 pic.twitter.com/Cii5ERAQ1W
— Henry Pryor (@HenryPryor) February 7, 2019
The big picture is that the housing market is clearly cooling, in the face of political uncertainty, despite real wages finally picking up. That could clearly bolster the Bank of England’s reluctance to raise interest rates.
Economist Rupert Seggins shows the full picture:
UK average house prices up 0.8%y/y in January according to Halifax. Compares with 0.1%y/y from Nationwide & 0.4%y/y from Rightmove. LSL & ONS/LR still to publish Jan figures, but one thing the various measures are in agreement on is that house price growth is steadily fading away pic.twitter.com/oUsXuDZces
— Rupert Seggins (@Rupert_Seggins) February 7, 2019
Updated
Pound drops as Brexit anxiety builds
Sterling has hit a two-week low this morning, as traders fret about Brexit ahead of the Bank of England meeting.
The pound has shed 0.3 of a cent against the US dollar to $1.29, its lowest point since January 22nd.
Theresa May is heading to Brussels today in an attempt to reshape the Brexit deal. The latest word, though, is that she doesn’t actually have a firm proposal - dampening any hopes of a breakthrough.
Am told PM will not put a specific proposal to eu on backstop but will seek eu acceptance that backstop has to change.
— norman smith (@BBCNormanS) February 7, 2019
Neil Wilson of Markets.com suspects that EC president Donald Tusk’s ‘place in hell’ attack has alarmed traders:
“Sterling opened on the back foot, falling to a fresh two-week low, as Brexit risks heighten and the Bank of England looks set to stand pat on rates.
The move lower in sterling seems more about Brexit than the BoE, although as described above it seems the Bank is not about to offer a hawkish boost to sterling bulls. It does rather look like Tusk’s bizarre outburst betrayed deep frustration among the EU that Britain is heading for the exit, not least because they had probably held out some vague aspirations that the UK would seek a second referendum and ultimately stay.
Bloomberg has predicted that the Bank’s monetary policy committee will probably vote unanimously to leave interest rates unchanged.
But....you can’t rule out one or two hawkish members jumping the fence and voting to hike. Chief economist Andrew Haldane or external member Michael Saunders are the most likely candidates.
CNBC’s Joumanna Bercetche says there are three reasons for the Bank of England to leave interest rates unchanged -- recent economic data has been patchy; inflation has fallen; and we still don’t know what’s happening with Brexit.
On the other hand, average weekly earnings are currently rising by 3.4%, the biggest jump in a decade. In normal times, that could justify a rate hike.
And the Bank of England should probably follow in dovish footsteps later.
— Joumanna Bercetche (@CNBCJou) February 7, 2019
Quick check why:
- economic growth data & PMIs ❌
- headline inflation ❌
- brexit clarity ❌
- wage growth ✅ https://t.co/HMezUttLD3
If Brexit uncertainty wasn’t casting such a dark cloud over the UK, the Bank of England could easily be raising interest rates today.
So savers and borrowers should listen out, for any hints about how rates could move in the months ahead.
Capital Economics says:
With the outcome of Brexit as unclear as ever, it is likely that the Bank of England’s Monetary Policy Committee (MPC) will keep rates unchanged at 0.75% on Thursday. However, the meeting’s accompanying Inflation Report may provide some clues to how keen the MPC is to change rates once Brexit has been resolved. So long as a deal is eventually struck, we think interest rates will rise more quickly than is widely anticipated.
Introduction: Bank of England Super Thursday
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
While Brexiteers get a special place in Hell, economics journalists must settle for a special place at the Bank of England today, as the central bank sets interest rates and releases its latest economic forecasts.
Yes, it’s the final Super Thursday (as they’re known in the City) before Brexit day. Investors, business leaders, consumers and politicians should all pay attention to what governor Mark Carney has to say about the risks of a no-deal Brexit, and the state of the UK and global economies.
BoE policymakers are expected to leave UK interest rates alone, at 0.75%. With Brexit uncertainty at new heights, this isn’t the moment to tighten monetary policy -- especially as inflation has dropped back to just 2.1%, close to the official target.
The Bank’s economists may also cut their growth and inflation forecasts, given weakness in the global economy since their last meeting in November. So it should be a fun-packed press conference at lunchtime, when Carney takes questions from the media. Will he take the opportunity to issue any fresh Brexit warnings?
Fiona Cincotta of City Index says:
With Brexit clouding vision the central bank has their hands tied as far as policy is concerned. We expect further warnings over a no deal Brexit and the one hike a year mantra until Brexit uncertainty has cleared.
Also coming up today
Halifax Bank is releasing their latest UK house price data - it may confirm that prices are levelling off.
The European Commission will publish its latest economic forecasts this morning. They could slash growth forecasts for some euro area members, such as Germany and Italy, given recent weak data. That could spark a new row with Rome, just days after the Italian economy slumped into recession.
EC set to slash Italy's 2019 growth forecast to 0.2%-sources https://t.co/RcusxdoDMP via @Agenzia_Ansa
— News from Italy (@newsfromitaly) February 6, 2019
The agenda
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8.30am GMT: Halifax survey of UK house prices for January
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10am GMT: EC publishes its latest economic forecasts
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Noon GMT: Bank of England interest rate decision & quarterly Inflation Report
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12.30pm GMT: BoE governor Mark Carney holds press conference
Updated
