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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Brexit crisis: Pound hits $1.30, property funds frozen, and Bank of England eases capital rules

Bank of England’s Brexit plan is working, insists Mark Carney

Here’s an early peek at tomorrow’s Guardian:

The pound’s tumble is the lead story in tomorrow’s Telegraph business section:

The economic consequences of the Brexit vote make the front page of tomorrow’s FT:

Closing summary

A late update... our full news wrap of today’s events is now live.

Here’s a flavour:

The fallout from the Brexit vote reverberated through the markets on Tuesday as two more City property funds barred investors from withdrawing their cash and the Bank of England warned that risks to the financial system had begun to “crystallise”.

City watchers warned that further property funds would be forced to bar withdrawals as investors race for the door amid fears of a plunge in the values of office blocks and shopping centres in post Brexit Britain.

The suspensions came on another day of drama on the financial markets, 11 days after the vote to leave the EU wrong-footed investors and sparked political turmoil. Developments included:

  • The pound plunging to a new 31-year low against the dollar, falling 2% to $1.30 at one point.
  • A closely watched survey of the services sector coming in worse than expected, indicating a sharp slowdown in the wider economy.
  • The Bank of England easing regulations on banks to allow them to release up to £150bn worth of loans to households and businesses.
  • Chancellor George Osborne held a summit with the heads of the major high street banks, who pledged to avoid a new credit crisis by making loans available.

Here’s the full tale:

Updated

The City is now closed for the night, so I’m going to wrap up.

Here are our latest stories on the property fund freeze, and the Bank of England’s attempts to calm the Brexit crisis.

Goodnight, and thanks for reading and commenting. GW

Expert: This isn't a repeat of 2008

Pedestrians walk past an Aviva logo outside the company’s head office in the city of London, Britain, March 5, 2009. REUTERS/Stephen Hird/File Photo

Although the UK property sector is undoubtedly in a serious situation, it doesn’t look like we’re careering into a repeat of the 2008 financial crisis.

Jason Holland, managing director of City advisers Tilney Bestinvest, explains that it’s different this time, partly because the Bank of England has been so proactive:

The uncertainty around Brexit is undoubtedly a challenge for the property sector but this is not a post Lehman Brothers style moment when the whole financial system faced collapse and the supply of credit - key to property transactions - was in doubt.

The Bank of England has set out its readiness to provide vast amounts of liquidity and interest rates look set to be cut. Talk is moving decisively in favour of a pro-growth rather than a tax hiking Budget. The stock market has weathered Brexit bettered than many predicted and successful corporate bond issues this week from British American Tobacco and Brown Forman (the producers of Jack Daniels) suggest the Sterling credit market remains open for business.

Sign up for US jobs report alerts

The Brexit crisis has been causing angst across the global economy, with investors worried that it could hurt world economic growth.

On Friday, we’ll get an early insight into the damage cause by the EU referendum when the latest US jobs report is released.

And we are looking for readers to join an experimental group of users who will receive notifications about the report, from the Guardian Mobile Innovation Lab.

At 1.30pm BST on the day the jobs report is released each month, we’ll be sending a series of alerts about the report’s numbers and what they mean. Web notifications are currently only available on Chrome, so if you have an Android mobile phone (Samsung, included!), we hope you’ll sign up.

Click here to sign up for the experiment.

Pound hits $1.30

There she goes! The pound has just slid to the $1.300 mark for the first time in over three decades, having shed 2% today.

Pound vs US dollar
Pound vs US dollar Photograph: Thomson Reuters

Here’s a list of the biggest property funds in the UK, kindly provided by Laith Khalaf of Hargreaves Lansdown:

  • M&G Property Portfolio £4255.0m *REDEMPTIONS SUSPENDED TODAY*
  • Henderson UK Property £3477.2m
  • Aberdeen UK Property £3424.2m
  • Standard Life UK Real Estate £2911m *REDEMPTIONS SUSPENDED YESTERDAY*
  • Legal & General UK Property £2494.7m
  • Aviva Investment Property Trust £1842.4m *REDEMPTIONS SUSPENDED TODAY*
  • BlackRock Global Property Securities Equity Tracker £1053.7m
  • Schroder Global Real Estate Securities £588.3m
  • Kames Sterling Property Income £500.8m
  • Royal London Property £402m

Laith adds a word of caution: some of these funds invest in shares of property companies, which are obviously easier to sell than actual offices and shops.

The pound is now hitting fresh 31-year lows.... and getting close to the $1.3000 mark for the first time since 1985.

So, what happens next?

Well, one hedge fund expert has tweeted that investors will now be anxiously wondering which funds might be frozen next, and getting their money out:

Sometimes, though, it can be best to sit and wait:

FOHF = fund of hedge funds, an investment vehicle which puts money into various hedge funds.

Updated

It’s been another grim day in the markets.... unless you’re the FTSE 100, which has closed 0.3% higher.

A good reminder that the Footsie, which is packed with international companies, is not the best barometer of the UK economy.

M&G’s property fund owns an office block near Heathrow airport, several shopping centres, and a bunch of warehouses in Northampton.

M&G SUSPENDS ITS PROPERTY FUND

NEWSFLASH: M&G has now suspended its property fund after experiencing a surge of withdrawal requests.

And like Standard Life and Aviva, M&G blames the Brexit uncertainty for driving investors to the exits (which are now locked)

This is significant, as M&G’s is the biggest property fund in the UK.

Here’s the statement from M&G, which is part of Prudential:

M&G SUSPENDS TRADING IN M&G PROPERTY PORTFOLIO AMID BREXIT UNCERTAINTY

London, 5th July 2016 - M&G Investments (M&G) announces a temporary suspension of trading in the shares of the M&G Property Portfolio and its feeder fund.

Investor redemptions in the Fund have risen markedly because of the high levels of uncertainty in the UK commercial property market since the outcome of the European Union referendum.

Redemptions have now reached a point where M&G believes it can best protect the interests of the funds’ shareholders by seeking a temporary suspension in trading.

This will allow the fund manager time to raise cash levels in a controlled manner, ensuring that any asset disposals are achieved at reasonable values.

The decision to suspend was taken in agreement with the Fund’s Depositary and the Financial Conduct Authority has been informed. Orders placed after 12pm on 4th July 2016 will not be processed until the suspension is lifted. M&G will review the suspension every 28 days.

The Property Portfolio is a broadly diversified fund which invests in 178 UK commercial properties across retail, industrial and office sectors on behalf of UK retail investors. The Fund, which managed assets of £4.4 billion as at 30 June 2016, has no borrowings.

Updated

Afternoon summary: Brexit crisis hits property sector

To help anyone just tuning in, here’s a quick recap of the key points today:

Aviva, the UK investment group, has become the second company to suspend withdrawals from its property fund, following the Brexit vote.

Aviva followed Standard Life, which shuttered its fund last night after experiencing a wave of redemption requests from nervous investors.

It’s the latest signal that last month’s EU referendum result is now hitting confidence in the UK economy.

An Aviva spokesperson blamed “extraordinary market circumstances”, adding that freezing the fund will protect all investors.

Suspension of dealing will give Aviva Investors greater control in managing cashflows and conducting orderly asset sales in order to meet our obligations to investors wishing to redeem their holdings.”

Otherwise, it would have been forced to start selling its assets (which include supermarkets and offices across the UK) to raise funds.

Analysts believe other funds will come under pressure too, if investors begin to worry that commercial property values are going to tumble in the aftermath of Britain’s decision to leave the EU.

The move came just a couple of hours after the Bank of England took new steps to tackle the consequences of the Brexit vote. Britain’s central bank relaxed the capital rules imposed on UK lenders, meaning firms and households will get access to an extra £150bn of potential credit.

Banks, who met with chancellor George Osborne today, have just announced that they will make the extra capital available to the real economy.

But Bank governor Mark Carney also issued a warning that the risks around Brexit are now ‘starting to crystallise’,

“The UK has entered a period of uncertainty and significant economic adjustment.

The efforts of the Bank of England will not be able fully and immediately to offset the market and economic volatility that can be expected while this adjustment proceeds.”

Governor of the Bank of England Mark Carney speaking today.
Governor of the Bank of England Mark Carney speaking today. Photograph: Dylan Martinez/AFP/Getty Images

Carney also urged borrowers to be prudent, and warned that Britain’s current account deficit with the rest of the world was a key risk in the post-Brexit world, as foreign investors may lose faith in the UK.

Earlier, new economic data showed that UK service sector growth slowed last month.

Fresh fears over Brexit are gripping the markets again. The pound has been rocked, hitting a new 31-year low around $1.305 against the US dollar.

And the FTSE 250 index, which includes many small UK firms, is currently down 2.1% today.

Q&A: What the commercial property fund freeze means for you

My colleague Jill Treanor has rattled out a Q&A about Aviva and Standard Chartered’s decision to block investors from cashing out of their property trusts.

Here’s a flavour:

What are commercial property funds?

They are funds that allow people to invest in commercial property developments such as office blocks and shopping centres – projects that normally rely on money from major professional investors.

How much money is invested in them?

Around £35bn, around 7% of the total investment in UK commercial property, is invested in these property funds.

Could this affect the residential property market?

It is not immediately clear how this this feeds through into residential properties, although a hit to sentiment in the commercial property industry can quickly feed through to homebuyers, who might decide to pull out of transactions.

The Bank of England is concerned that if these funds all seize up at once that it could amplify any fall in commercial property prices....

Could this affect the broader UK economy?

Around75% of small businesses use commercial property as collateral for loans so they could face problems with their banks if prices fall too sharply. Banks also use commercial property to count towards their capital buffers; around 55% of their core capital – their main safety net in a crisis -– at the end of 2015 was based on commercial property....

More here:

Earlier today, JP Morgan gave a pithy warning of the dangers of Brexit:

Property shares are sliding again

Investors are bailing out of Britain’s building and property companies today, as evidence mounts that Brexit fears are now hitting the sector.

Housebuilders Barratt, Taylor Wimpey and Berkeley Group are leading the fallers on the blue-chip FTSE 100 index, down around 6% each.

The FTSE 100 is still up a bit, thanks to the plunge in the pound (which helps big exporters).

But Mark Carney told us this morning to watch the smaller FTSE 250 index instead, to see what the City really thinks about the UK economy. And that index has fallen by 2.5% this morning.

Two challenger banks, Shawbrook and Virgin Money, have tumbled by 12% each. they are both acutely sensitive to UK consumer confidence, and spending.

According to investment site Trustnet, the Aviva Property Trust holds commercial property assets across the UK.

Roughly a third of its assets were in London and the South East (as of 31 May), including offices in the centre of the capital.

It also owns shopping centres in Edinburgh, Manchester and Exeter, and offices in Birmingham.

Aviva's Property Trust
Aviva's Property Trust

It will also have invested in shares of UK property companies, which have fallen sharply since the referendum.

Updated

Here’s our news story about Aviva locking down its UK property fund to prevent investors selling up, after the Brexit vote.

Other property funds will probably come under pressure to follow Aviva and Standard Life’s lead, if their customers decide to pull money out.

Emma Bewley, head of funds at Connection Capital in London, told Bloomberg that:

The potential impact of a high-profile liquid fund suspending redemptions shouldn’t be underestimated, particularly given the uncertain environment.

While asset managers will seek to avoid suspending redemptions, they may have to use additional liquidity facilities.

Why UK property slowdown could really hurt the economy

Aviva has suspended redemptions from its property fund just three hours after the Bank of England spelt out the potential implications of such funds to the overall market.

In its half-yearly assessment of risks to the financial markets, the Bank flagged up that:

“Since the referendum, share prices of UK real estate investment trust have fallen sharply, highlighting the risk of future adjustments in commercial retail estate prices.

It then warned that:

“Any adjustment in commercial real estate markets could be amplified by the behaviour of leveraged investors and investors in open-ended commercial property funds. Any such amplification of market adjustments could affect economic activity by reducing the ability of companies that use commercial real state as collateral to access finance”

These funds account for 7% - or around £35bn - of the investment in commercial property, and had already experienced significant outflows before the referendum.

Commercial property prices matter because around 55% of their core capital bases are aligned to the loans in the sector and 75% of small businesses use commercial property as collateral for loans.

It is the smaller banks which have greater exposure, the Bank said, after the major players reduced their exposure after the 2008 crisis. The Bank pointed out it had conducted stress tests in 2014 and 2015 on the major lenders to assume a 30% fall in property prices. Its own staff have calculated that for every 10% fall in commercial property prices there is a 1% fall in wider economic investment.

The Financial Times has some good early reaction to Aviva’s move:

Mike Prew, analyst at Jefferies, the investment bank, said it was “inevitable” that further funds would halt redemptions in a “vicious circle of value destruction” that would also affect listed real estate investment trusts.

A fund manager who monitors flows across the market said that outflows since the vote had been driven by discretionary wealth managers moving large chunks of investors’ money into other asset classes.

More here: Aviva becomes second UK property fund to halt redemptions

Aviva and Standard Life are trying to protect the interests of all investors in their property funds by refusing to allow clients to take money out.

Otherwise, they would be forced to sell property assets at firesale prices to fund redemption requests. That would drive down the value of the fund, encouraging more investors to cash out, creating a vicious circle.

Instead, people with money in these funds must now sit and wait.

The pound hasn’t been this weak since September 1985:

The pound vs the US dollar since 1980
The pound vs the US dollar since 1980 Photograph: Thomson Reuters

It has shed almost 2 cents today.

Global traders are baulking at the news that two UK property trusts (so far) are now refusing to allow investors to pull their money out:

Hat-tip to Giles Wilkes of the FT for the chart skills.

Updated

Correction... the pound has actually fallen through $1.31 (so i’ve updated that last entry).

Aviva’s decision to suspend its property trust has sent the pound reeling to a new 31-year low.

Sterling slumped to $1.3098 against the US dollar, down 1.8 cents, to a level not seen since 1985.

Updated

Aviva suspends property fund redemptions after Brexit vote

NEWSFLASH: Aviva, the savings and investment group, has suspended redemptions from its £1.8bn property fund.

It took the decision following the Brexit vote, which triggered a surge of requests from investors to pull their money out of its UK Property Trust.

That’s because the EU referendum could hurt the property sector, driving down the value of office blocks, supermarkets and factories.

Aviva blamed “extraordinary market circumstances”, a day after Standard Life became the first firm to freeze its property fund.

An Aviva spokesperson said:

“We have acted to safeguard the interests of all our investors by suspending dealing in the fund with immediate effect.

“Suspension of dealing will give Aviva Investors greater control in managing cashflows and conducting orderly asset sales in order to meet our obligations to investors wishing to redeem their holdings.”

Laith Khalaf, senior analyst at City firm Hargreaves Lansdown, reckons more investment firms will freeze redemptions soon.

‘The dominos are starting to fall in the UK commercial property market, as yet another fund locks its doors on the back of outflows precipitated by the Brexit vote. It’s probably only a matter of time before we see other funds follow suit.

Updated

George Osborne has repeated his support for Mark Carney’s decision to ease the funding rules, allowing banks to lend more.

He’s told Sky News that the government’s financial reforms, making the banks ‘part of the solution in the UK economy, not part of the problem’ are paying off.

George Osborne
George Osborne Photograph: Sky News

Economics professor David Blanchflower, a former Bank of England policymaker, has given Mark Carney full marks for today’s performance:

Snap Summary: Mark Carney tackles the Brexit crisis

BOE Financial Stability Report press conferenceepa05408653 Deputy Governor of the Bank of England (BOE) for Financial Stability Jon Cunliffe (L-R), BOE Governor Mark Carney, advisor to the Governor of the Bank of England Jenny Scott, and CEO of the Financial Conduct Authority (FCA) Andrew Bailey, during a press conference on the BOE’s Financial Stability Report in London, Britain, 05 July 2016. Carney and the Bank of England released an extra amount of lending money to tackle the effects of the Brexit referendum. EPA/SEAN DEMPSEY
BOE Financial Stability Report press conference today. Photograph: Sean Dempsey/EPA

Resigning from high office (or not-so-high office) is in fashion this summer. So it’s nice to see one senior official actually knuckling down and doing his job.

Today’s press conference had one key message – Britain’s economy is suffering from the Brexit vote (as predicted), and its central bankers are on the case.

1) Bank of England governor Mark Carney has warned that the risks posed by the UK’s referendum on EU membership have “begun to crystallise”, and posing new dangers to the economy.

Presenting the BoE’s latest financial stability report, Carney said:

The UK has entered a period of uncertainty and significant economic adjustment.

The efforts of the Bank of England will not be able fully and immediately to offset the market and economic volatility that can be expected while this adjustment proceeds.”

2) The BoE isn’t sitting on its hands. Slashing the ‘counter-cyclical capital reserves’ will help banks to pump £150bn of extra lending into the economy.

But Carney also warned that this will only work if businesses and individuals actually want to borrow. And despite the slide in the pound (which could help exporters), there are clear signs that the the economy is slowing.

3) Prudence used to be a Gordon Brown favourite, before the former chancellor and PM was engulfed by the financial crisis of 2007-08.

But she has a new friend today. Asked for his advice to the UK, Carney declared that people must remain prudent:

If you are taking out a mortgage, at some stage, during the life of that mortgage, conditions will be difficult.

So you want to be sure, as a household or an individual, that you can repay that mortgage - you don’t want to lose your house or flat.

4) The bank is watching closely for signs that Britain’s most indebted households are struggling post-Brexit vote.

There could be casualties out there...

We have been concerned for some time about these issues,the interplay between high levels of household indebtedness and the housing market and the possibility that there will be more vulnerable households.”

5) Carney reiterated that Britain’s financial sector is in much better shape than before the financial crisis, so we should avoid another credit crunch.

The core of this system is very strong, we may see some volatility, we may see things move around, but the system is going to be there for someone who wants to buy a house or a business person with a viable plan.”

6) ....but the same can’t be said of the current account deficit, which has widened to record levels.

UK current account deficit
UK current account deficit Photograph: Bank of England

Carney warned that a weaker pound won’t magically solve Britain’s balance of payments woes (the fact we import more than we export). The danger is that overseas investors now shun the UK.

In the governor’s words:

In and of itself, the movement in sterling should be beneficial for the current account.

But... the pace of investment will also be quite important in terms of where the balance is going over time.

7) Carney has little time for those who point to the recovery in the FTSE 100 index (now above its pre-vote levels).

It’s better to look at the index of smaller firms, the FTSE 250 index, he says:

“In terms of the equity markets I would focus a little bit more on the domestically-focused stock, the FTSE 250 or the component of FTSE 100 that is principally serving this economy.

8) Politics is for politicians.

Carney was long rumoured to fancy a shift to Canadian politics, before a certain Justin Trudeau took the Liberal party to victory.

Today he faces criticism from Leave campaigners, who will have their hands on (or at least near) the levers of power in the UK.

But the governor brushed them aside, saying the Bank will keep doing its job and work with whoever is in power.

Mark Carney.
Mark Carney. Photograph: Dylan Martinez/AP

Updated

Carney: We'll work with Brexiters

Last question goes to my colleague Nils Pratley.

He asks Mark Carney about the criticism piled on the Bank from Leave campaigners such as Andrea Leadsom (now in the running to become prime minister).

Carney replies that “we’re not asking people to make our lives easier”

This is a technocratic institution. We’ll work with whoever is in government.

In short, the Bank will keep sticking to its remit, publishing the reports expected under its remit. And that includes flagging up threats to the UK economy.

That’s the end of the press conference.

Q: Could the Bank of England really ease monetary policy much lower - some economists suggest new quantitative easing (buying bonds with new money) wouldn’t have much impact?

Carney declines to comment on monetary policy – as today’s meeting is about financial stability.

Q: Is the Bank of England worried about the prospect of Scotland breaking away from the UK?

That’s a double hypothetical, Carney says - there’s no 2nd referendum yet, let alone a decision.

Back to the Bank of England press conference:

Q: What discussions have you had with other central banks about the referendum?

We have had close contact with them, Carney replies, especially in the run-up to the vote. This was effective in building mutual understanding of the risks posed by Brexit, he says.

He points to the ‘currency swaps’ which allows central banks to share dollars, euros, pounds, yen etc with each other.

And the global economy faces ‘notable’ spillovers, he adds.

Government meeting with major banks about Brexit risks today

UK chancellor George Osborne has welcomed the BoE’s decision to ease bank capital rules.

He also reveals that major bank bosses are heading to his offices this morning, to discuss the crisis

The decision to cut the counter-cyclical capital buffers is one of several Brexit u-turns, tweets The Sun’s political editor:

Hang on, though, didn’t The Sun back Brexit??!!

Updated

Some key points from Mark Carney’s briefing:

Q: Does the Bank of England actually have the capacity to handle Britain’s exit from the EU?

Mark Carney insists that yes, the BoE has the staff capacity to cope once Article 50 is triggered.

But until that actually happens, the financial rules do not change.

City watchdog in 'very close touch' with real estate firms

Q: How worried is the Bank about Standard Life’s decision to lock down its property fund last night? (to prevent investors bailing out)

Andrew Bailey, the next head of the FCA (the city watchdog), says Standard Life has taken a ‘sensible move’ to suspend redemptions.

It prevents a stampede of money out of property funds while the underlying assets are revalued (which can take time). It would be wrong for investors at the front of the queue to get their money back, while those at the back lose out, Bailey says.

The FCA is also in “very close touch” with firms in the sector, he reveals.

Q: How low could the Bank of England cut interest rates (they’re currently 0.5%)?

Carney declines to speculate much, as the Monetary Policy Committee is due to take a decision next week.

Any measure to stimulate the economy must be well-aimed and focus on the domestic economy.

We must also consider ‘unintended consequences’, he adds. [ultra-low interest rates make it hard for banks to achieve profitability, for example]

Q: What impact will the slump in the pound have on the UK economy?

Mark Carney says that it should help with Britain’s current account deficit (reminder, it’s worryingly high)

Updated

Carney's message to Britain: Be prudent

Q: What is your advice to people who are wondering about taking out a loan or mortgage, asks our Jill Treanor?

We are advising people to be prudent, governor Carney smiles.

If you are taking out a mortgage, at some stage, during the life of that mortgage, conditions will be difficult.

So you want to be sure, as a household or an individual, that you can repay that mortgage - you don’t want to lose your house or flat.

But this is classic central bank advice, he adds. We’d tell you to be prudent if we were in the 10th year of a boom (whenever THAT happens)

Updated

Carney says the Bank wants to avoid a repeat of the 2007-2008 conditions, when it was out of question to seek credit.

Q: Do you regret allowing banks to pay dividends in the run-up to June’s referendum?

Mark Carney insists that UK banks are financially stable.

Q: How many UK households are vulnerable to an economic slowdown?

Carney flips this question to deputy governor Jon Cunliffe.

Cunliffe says the Bank are watching the ‘cohort’ of vulnerable households closely.

Households who are highly indebted tend to cut their consumption drastically, when hit by an interest rate shock or earnings shock, Cunliffe says.

But the Bank did restrict the availability of high loan-to-value mortgages in 2014, to limit the number of highly vulnerable households, he adds.

Q: Is the Bank worried about a crash in the buy-to-let market?

Carney says the Bank is watching the buy-to-let sector carefully.

He points out that the bank included a housing crash in its latest Stress Tests -- and the current environment is not a serious as modelled in those tests.

The core of the UK financial system is very strong, and it will be there for home-buyers and businesses, he insists.

Carney: UK more risk averse after Brexit vote

Q: Is the Bank seeing signs of a slowdown in credit demand?

Carney says this is a crucial point -- the credit market will be driven by demand, not supply.

We are seeing signs that the environment is becoming more ‘risk averse’, he says. And that’s why the Bank has decided to relax credit rules, to encourage banks to lend.

But demand for credit will be governed by the level of uncertainty over Britain’s future, and its relationship with the EU.

Updated

Q: The Monetary Policy Committee warned that Britain might fall into recession after a Brexit vote, but might the fall in the pound actually be a stimulus?

Carney replies that there is “growing evidence” that the economy was slowing, even before the referendum.

And it is probably experiencing a “material slowing”, despite the foreign exchange moves.

Bank of England governor Mark Carney takes his seat for a news conference at the Bank of England in London
Bank of England governor Mark Carney takes his seat for a news conference at the Bank of England in London. Photograph: Dylan Martinez/Reuters

Onto questions

Q: The FTSE 100 has recovered its early post-Brexit falls and the pound has stabilised, so aren’t markets less stressed than feared?

Mark Carney replies that markets are functioning “pretty well”, although sterling volatility did hit a record high.

He says sterling has moved in the way that was “necessary” to allow the economic adjustment that is needed. [by which he means that a cheaper pound should help exporters and cut imports, in theory.....]

Governor Carney adds that the FTSE 250 index gives a sense of investor expectations on the direction of the economy.

[The FTSE 250, which contains smaller companies, has fallen much more than the FTSE 100, and is down 2.6% today]

Mark Carney says there will be no immediate changes to UK financial regulations, until Britain has actually left the EU.

The law is the law, and the rules are the rules.

He is pledging to take whatever action is needed ensure monetary stability, and support the real economy.

But the Bank can only do so much.....

Mark Carney confirms that the Bank of England has decided to cut the ‘counter-cyclical capital buffer’ on UK banks.

This means banks need to keep less capital on their books, and can pump up to £150bn more into the economy.

This will “immediately” give banks greater flexibility to lend to UK businesses and households, declares the BoE governor.

He adds:

Those businesses and households who want to seize viable opportunities in the post-Brexit world can be confident that they will be supported by the financial sector.

Carney also declares that regulators will make sure that banks don’t use this flexibility to boost bonus payments, or dividends.

Mark Carney begins his press conference by reminding us that the Bank identified the referendum as the biggest threat to the UK economy.

That warning is now being borne out, the governor says, pointing to the plunge in the pound since June 23rd.

He singles out UK’s current account deficit (as mentioned a few minutes ago).

There is growing evidence that the referendum has delayed major investment decisions, Carney adds.

But on the upside, financial markets have responded well to the volatility after the referendum result, rather than adding to stress.

And banks are much better capitalised than before the Lehman crisis.

Mark Carney's press conference begins

The Financial Stability Report press conference is beginning now. We’ve added a live feed to the top of this blog - you might need to refresh to see it.

Alternatively, It’s also being livestreamed here (right-click to open in a new tab).

You can see the report yourself, here:

Financial Stability Report, July 2016

More snap reaction:

The Bank of England is also concerned about the United Kingdom’s large current account deficit, following the Brexit vote.

This deficit, between what Britain imports and exports, is “high by historical and international standards”, says the Bank.

Indeed.... -->

UK current account deficit
UK current account deficit Photograph: Bank of England

The Bank is worried that the flow of capital into the UK could now slow, making this deficit even bigger....

The financing of the deficit is reliant on continuing material inflows of portfolio and foreign direct investment, which have been used to finance the public sector deficit and corporate investment, including in commercial real estate.

A sudden shift in the supply of foreign capital and in the current account deficit would be associated with a sharp increase in risk premia and adjustment in sterling.

The BoE also points out the pound suffered a record fall after the referendum vote:

Pound vs dollar...

.

The Bank of England has also warned Britain’s banks not to splurge cash on payments to shareholders, or bonuses to staff:

Bank of England eases bank lending rules to fight Brexit panic

The Bank of England in the City of London.
The Bank of England in the City of London. Photograph: Daniel Leal-Olivas/AFP/Getty Images

Newsflash from London: Britain’s central bank has warned that the risks posed by the Brexit vote are “starting to crystallise”.

In it latest financial stability report, just released, the Bank of England warns that:

“There is evidence that some risks have begun to crystallise. The current outlook for UK financial stability is challenging,”

The BoE has also taken action to fight the looming threat of recession, by relaxing the capital control rules on UK banks.

That is meant to encourage lenders to keep providing credit to the UK economy.

Back in March, the BoE has announced that the so-called counter-cyclical capital buffer would rise to 0.5%. It has now reversed that decision, potentially freeing up an extra £150bn for lending, the BoE said.

And the Bank also pledged to do more to help the economy, saying:

“The Financial Policy Committee stands ready to take actions that will ensure that capital and liquidity buffers can be drawn on as needed, to support the supply of credit and in support of market functioning.”

We’ll hear more from governor Mark Carney at 11am.

In five minutes, the Bank of England will publish its latest Financial Stability report...and may just announce some measures to prop up the UK economy (as explained earlier)

Updated

Mark Priest of ETX Capital says Standard Life’s decision to freeze its property fund last night has spooked the City, and helped to drive down the pound.

Standard Life’s decision to close redemptions on its open-ended property fund is vitally important and shows just how precarious the situation is right now.

This seems to have precipitated some pretty big selling in property stocks and asset managers, with Legal & General and Aberdeen Asset Management suffering nasty falls this morning. Barratt Developments and Taylor Wimpey are down 5% again.

Investors are getting very nervous now as they fear Standard Life may not be the only fund that will close its doors. The last time we saw this kind of action was in the financial crisis.

Updated

Bad news for British holidaymakers....sterling has also hit a two-and-a-half-year low against the euro, at €1.1787.

Pound hits Bowie/Jagger levels....

The last time the pound was this low, in 1985, David Bowie and Mick Jagger were topping the charts with Dancing In The Streets.

If the pound loses another cent, we’ll be back to 1984 levels, when Frankie Goes To Hollywood were encouraging the nation to Relax.

Frankie Goes To Hollywood, Los Angeles.
Frankie Goes To Hollywood, in Los Angeles in 1984 Photograph: Sipa Press/REX

Click on this tweet to see more....

Updated

Pound hits 31-year low

Boom! The pound just hit a new 31-year low against the US dollar.

Sterling slumped by 1.5 cents to $1.3113 following the news that UK service sector growth was hit by Brexit angst last month.

That’s below the levels hit after the referendum vote, and back to the sterling crisis of the mid-1980s.

The pound vs the US dollar
The pound vs the US dollar Photograph: Thomson Reuters

UK services growth slows: what the experts say

Analysts are concerned that growth in Britain’s dominant services sector slowed last month, but relieved that it didn’t actually contract:

Economist Rupert Seggins has helpfully put the service sector report into context:

UK service sector hit by Brexit worries

Breaking! Growth in Britain’s service sector has hit a joint-38-month low, indicating that economic growth has slowed.

Data firm Markit reports the UK’s services companies suffered a fall in new business last month. And employment rose at the slowest rate since August 2013.

It’s the latest sign that Brexit uncertainty has hurt the economy, even before the vote itself (89% of the survey was conducted before June 24)

Markit reports:

Growth over the second quarter as a whole was the weakest since the first quarter of 2013 when the current upturn began. Moreover, the 12-month outlook was the darkest since December 2012.

Companies often reported that uncertainty linked to the EU referendum had weighed on workloads and incoming new business.

This dragged the service sector PMI down to 52.3 in June, down from 53.5 in May. That matches April’s 38-month low and signals a relatively weak rate of growth in UK services output.

On the upside, it’s still above the 50-point figure that splits expansion from contraction (yesterday, the construction PMI plunged to just 46)

UK service sector PMI

But....it suggests Britain’s economy weakened in the last three months. And there could be worse to come.

Chris Williamson, chief economist at Markit, explains:

“The PMI surveys indicate that the pace of UK economic growth slowed to just 0.2% in the second quarter, with a further loss of momentum in June as Brexit anxiety intensified.

“Hiring has also clearly been hit as firms lack clarity on the economic outlook. Business optimism in the vast service sector is down to a three-and-a-half-year low.

“A further slowing, and possible contraction, looks highly likely in coming months as a result of the uncertainty created by the EU referendum.

Updated

A drive way at a Persimmon Plc residential property construction site.

Shares in UK property firms are sliding this morning.

Investors are racing for the hills, after Standard Life froze redemptions from its £2.9bn property fund last night following a surge of redemption requests after the Brexit vote.

Building firms Taylor Wimpey, Berkeley Group and Barratt Developments are all down 6%.

Persimmon are close behind (-5.7%) despite telling the City this morning that it is still confidence about its prospects.

Land Securities, one of the UK’s largest commercial property owners, has fallen 5%.

Kit Juckes of French bank Societe Generale says “the mood has soured again”.

The announcement that fund manager Standard Life had stopped retail investors from pulling out of one of the largest UK property funds is one catalyst for the downturn in sentiment, though not the only one. Concerns about Italian banks are growing, too.

Eurozone service sector growth hits 17-month low

Just in....growth in Europe’s service sector slowed last month, as firms watched Britain head to the polls in the EU referendum.

The eurozone services PMI, which measures activity across the sector, has fallen to 52.8 in June, down from 53.3 in May. That’s the lowest reading since January 2015.

  • Germany had another good month, with its services sector PMI rising to 53.7 from 53.2.
  • Italy’s service sector returned to growth, with the PMI jumping to 51.9 from 49.8.
  • But France’s private sector contracted again.

And if you factor in the latest manufacturing data, you see that growth has dropped to its weakest level since the last quarter of 2014:

Chris Williamson, chief economist at Markit, fears the eurozone economy is faltering.

“The eurozone economy failed to gain momentum in June, rounding off a disappointing second quarter. Faster manufacturing growth was countered by a slowdown in the service sector, leaving the overall pace of expansion of business activity unchanged since May.

“The survey is signalling GDP growth of just 0.3%, similar to the sluggish trend recorded over the past year. The data suggest that the strong upturn seen in the official GDP data at the start of the year will have overstated the underlying health of the economy, and that growth will have slowed in the second quarter.

And that’s before the Brexit shock....

Jeremy Cook, chief economist at currency trading firm World First, agrees that Mark Carney is likely to relax capital rules today, following the Brexit vote.

But he also fears that banks might not lend more to customers.

Here’s why:

Mark Carney’s Bank of England is expected to flex the muscles of their newest counter-cyclical capital buffer today and lower the levels of capital banks are forced to hold in their coffers.

This should allow banks to increase the volume of loans they’re extending to the private sector as they look to put the capital to work which, in turn, supports the credit markets and small businesses reliant on bank funding. However, history isn’t particularly supportive of this theory. Mervyn King’s Bank of England had a torrid time trying to get UK banks to issue credit for one key reason – the demand for loans simply wasn’t there.

In times of political and economic uncertainty, appetite for credit among SMEs falls through the floor, and understandably so.

Dan Davies of Frontline Analysts reckons the markets look pretty edgy, given the drops on the FTSE 100 and FTSE 250.

Nervous investors are piling into the Swiss government debt this morning, in their search for a safe haven.

They have driven prices to record highs.

And amazingly, the yield on 50-year Swiss debt is now negative -- meaning investors are paying for the chance to lend to Bern until 2066!

All is not well out there.....

European stock markets are falling in early trading, as investors fret about the global economy.

The French and German indices are both down around 1%.

London’s FTSE 100 is only down 0.3%, thanks to the weakening pound (which helps internationally-focused firms).

But the smaller FTSE 250 has lost 1.8% in early trading, following a 2% slide yesterday.

European stock market this morning
European stock market this morning Photograph: Thomson Reuters

Survey: UK businesses much more pessimistic after Brexit

London’s financial district.

Confidence among British businesses fell sharply following the vote to leave the European Union, according to a new survey.

Almost 50% of firms are now pessimistic about the UK economy, the survey by YouGov and the Centre for Economics and Business Research found. That’s up from 25% before the referendum.

It suggests that Britain has suffered “a significant shock reaction (to Brexit),” according to Scott Corfe, director at Cebr.

He adds:

“Not only are businesses feeling much more pessimistic in general about the state of the economy, but their own expectations for domestic sales, exports and investments over the next 12 months have gone off a cliff.”

This will alarm the Bank of England, and encourage policymakers to consider measure to prevent the UK falling into recession.

Sterling falls ahead of Financial Stability Report

The pound is dropping in early trading, as investors await the Bank of England’s financial stability report.

Sterling has dropped by over one cent, to $1.3174 against the US dollar.

That’s not far from the 31-year low plumbed after the Brexit vote ($1.3118 is the magic number).

The pound vs the US dollar over the last three months
The pound vs the US dollar over the last three months Photograph: Thomson Reuters

In theory, a weak pound is good for exporters -- but only if demand for their products isn’t dented by a global downturn.

And it won’t fix the UK economy’s underlying weaknesses....

Introduction: Bank of England financial stability report

Governor of the Bank of England Mark Carney delivers a speech about murdered MP Jo Cox before the Dinner to the Bankers and Merchants at The Mansion House in London, Britain June 16, 2016. REUTERS/Neil Hall
Governor of the Bank of England Mark Carney. Photograph: Neil Hall/Reuters

Cometh the hour, cometh the man, again?....

With Brexit fears gripping Britain’s economy, the public and the City are crying out for guidance and help. So as Westminster is rather pre-occupied by leadership contests, the responsibility will fall to Bank of England governor Mark Carney today.

The BoE will released its latest Financial Stability report at 10.30am this morning, assessing the state of the UK’s economy. It looks rather more unstable than two weeks ago, of course, since the EU referendum vote turned politics on its head, and put business confidence on its knees.

Then at 11am, Carney will hold a press conference to explain the Bank’s thinking, and any new measures it is taking to tackle the crisis.

This will be Carney’s second set piece event in a week; last Thursday, he all-but promised interest rate cuts and more stimulus measures this summer.

So what could he do today?

The Bank could choose to relax the capital rules imposed on banks, to give them more leeway to handle the fallout from Brexit. That would be a symbolic move to ease pressures on the City; it’s only six months since the BoE tightened those rules, which are meant to protect us from a financial crisis.

Carney could also signal that more credit will be thrown at the economy, by beefing up the existing Funding for Lending. That would also help to prevent a credit crunch clogging up the economy.

Here’s our preview:

There are already signs that last month’s referendum is having a damaging impact on the economy. As we liveblogged last night, Standard Life has been forced to stop investors withdrawing from its real estate fund, after being deluged by redemption requests.

That may herald some nasty times in the property sector....

Also coming up today....

We get a flurry of economic data today, showing how service sector companies in the UK, the eurozone and America performed in June.

Analysts will be looking for signs that the Brexit crisis hit growth, after some shockingly weak construction data yesterday

  • 9am BST: Eurozone service sector PMI
  • 9.30am BST: UK services sector PMI
  • 2.45pm BST: US ISM service sector report
  • 3pm BST: US factory orders.

And in the City, building firm Persimmon and brewery chain Young & Co are reporting results.

Updated

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