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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Mark Carney's Brexit stimulus plan hits pound but FTSE 100 soars - as it happened

The governor of the Bank of England Mark Carney
The governor of the Bank of England Mark Carney Photograph: Matt Dunham/AP

And here’s your Friday Guardian.....

PPS: Mark Carney gets a nice show on the front page of tomorrow’s Financial Times:

Traders on the floor of the New York Stock Exchange today.
Traders on the floor of the New York Stock Exchange today. Photograph: Andrew Gombert/EPA

A late PS...... Over in New York, shares have continued to recover their Brexit losses.

The prospect of more stimulus from the Bank of England drove money into equities.

The Dow Jones industrial average jumped 235.31 points, or 1.3%, to 17,929.99, only 90 points below its high before the UK referendum.

The S&P 500 climbed 28.09 points, or 1.4%, to 2,098.86, while the Nasdaq Composite gained 63.43 points, or 1.3%, to 4,842.67.

We’ll be back later with the close of Wall Street.

But otherwise, thanks for reading and during another highly dramatic day that is best summed up by this tweet:

Mark Carney’s pledge to take action to support the UK economy has been welcomed on Wall Street, where the Brexit crisis is being closely watched.

The main US stock indices are all up around 1% this afternoon.

Specialist trader Michael Pistillo yells out a price for traders on the floor of the New York stock exchange today.
Specialist trader Michael Pistillo yells out a price for traders on the floor of the New York stock exchange today. Photograph: Brendan Mcdermid/Reuters

S&P downgrades EU's credit rating

Newsflash: Standard & Poor’s has downgraded the European Union’s credit rating from AA+ to AA, the third-highest rating.

The move comes three days after S&P stripped the UK of its final triple-A rating.

S&P took the move following Britain’s Brexit vote, saying that it will lessen the EU’s fiscal flexibility and weaken political cohesion in the region.

The agency says:

We think that, going forward, revenue forecasting, long-term capital planning, and adjustments to key financial buffers of the EU will be subject to greater uncertainty.

It also predicts that wealthier EU members will have to pay a larger share into the EU budget, to cover the UK’s lost contributions.

The downgrade is mainly symbolic -- most EU borrowing is conducted by member states, of course. But it’s a signal that Europe is going to be harmed by the UK’s departure.

Updated

The FTSE 250 index of medium-sized UK firms has also rallied today.

It is up 1.7%, which still leaves it below its pre-referendum level.

Record low interest rates is particularly bad news for savers.

Most savers tend to be older people. More older people voted to leave the European Union than remain in it.

So, intentionally or not, they’re going to cover some of the cost of the crisis:

Here’s Gerard Lyons, one of the economists who campaigned for Britain to leave the UK:

The governor of the Bank of England Mark Carney today
The governor of the Bank of England Mark Carney today Photograph: Matt Dunham/Reuters

Amid the chaos of UK politics, Mark Carney has emerged as one policymaker with a clear strategy to tackle the crisis.

Ranko Berich, head of market analysis at Monex Europe, says:

British politics may have deteriorated from House of Cards to Monty Python this week, but Mark Carney did an admirable job of communicating that the BoE is one institution with a post-Brexit plan.

Aside from a big hint towards future rate cuts, no policy measures were announced today, but that was not the point of the speech. Carney was out to reassure markets that there was no impending financial crisis, even though the UK economy is facing huge uncertainty. He performed exceptionally well in this regard, and refused to be drawn into Britain’s escalating political turmoil.

The first negative-yielding gilt has appeared in the UK following Carney’s speech today (as flagged a few minute ago).

A gilt maturing in March 2018 traded at -0.003%, as expectations for further easing from the Bank increased.
According to Mitul Patel, head of interest rates at Henderson Global Investors:

“The market now expects interest rates to fall to close to 0%, and whilst Carney has previously stated a dislike of negative interest rates, nothing can be taken off the table.”

He added that interest rates “are unlikely to go up for several years following the EU referendum result.”

Full story: Interest rate cut likely after Brexit vote, says Mark Carney

Here’s Katie Allen’s story on Mark Carney’s speech, for anyone just tuning in:

The Bank of England is likely to have to cut interest rates over the coming months to cushion the blow to the economy from the Brexit vote, its governor, Mark Carney, has said.

Carney used a speech a week after Britain voted to leave the EU to reassure business leaders and investors that the Bank’s contingency plans were “working well” and that it was considering more measures to safeguard financial stability.

He gave the strongest indication yet that the Bank’s reaction to the market turmoil and uncertainty caused by the Brexit vote would be to cut interest rates from the current record low of 0.5%, perhaps as soon as July.

The pound tumbled by 1.5¢ to $1.326 against the US dollar following Carney’s speech on the prospect of a new stimulus package, as traders anticipated a cut in rates.

The Bank’s nine-member monetary policy committee faces a tradeoff between stabilising inflation, which could be stoked by a weaker pound, and shoring up growth and jobs, Carney said. But he erred on the side of supporting growth with lower borrowing costs.

“In my view, and I am not prejudging the views of the other independent MPC members, the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer,” Carney said in the speech to bankers and business leaders.

“The committee will make an initial assessment on 14 July and a full assessment complete with a new forecast will follow in the August inflation report. In August, we will also discuss further the range of instruments at our disposal.”

More here:

Investors are also diving into UK government debt, which is a sign they expect weak growth and ultra-low interest raters.

They are now paying MORE than the face value of two-year UK bonds, which means the interest rate on those bond is now negative.

More reaction to the governor’s speech:

Ben Brettell, senior economist at Hargreaves Lansdown, reckons the BoE will cut rates at its August meeting (rather than next week)

The Bank will update its forecasts and make a full assessment of the economic picture in its August Inflation Report. This probably leaves August as the likeliest date for a rate cut, though swap markets are pricing in a July cut as more likely than not (a 57% probability), and a 73% chance of a rate cut by August.

He also explains that Carney and colleagues will be worried that the weak pound will push inflation higher, but they might ignore that and ease monetary policy anyway.....

Carney and his MPC colleagues could face a delicate balancing act over the coming months, balancing higher inflation caused by the weaker pound with the need to stimulate growth. If history is anything to go by, growth will be the priority – remember the Bank was willing to ‘look through’ elevated inflation in the first phase of the financial crisis and cut rates to their current lows.

The prospect of UK interest rates being cut to fresh record lows has wiped two cents off the pound, which is now trading at $1.322.

That’s only one cent above Monday’s 31-year low.

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

Caxton FX analyst Nicholas Laser-Ebisch says Carney didn’t give traders any reasons to buy sterling:

Sterling dropped by more than 1% across the board as Carney admitted that “some monetary policy easing” was likely required as a response to the Brexit vote, acknowledging the risk that taking action would have, both on individuals and businesses.

Market participants were watching this impromptu press conference for signs of reassurance, but the BOE governor’s speech inspired no confidence.

The weak pound drove up the share price of companies with large overseas operations -- as the dollars and euros they earn will be worth more.

So, the top risers on the FTSE 100 included drinks firm Diageo, and mining groups Antofagasta and Anglo American.

The top risers on the FTSE 100 tonight
The top risers on the FTSE 100 tonight Photograph: Thomson Reuters

Alarmingly, though, banks shares fell again today. A rate cut would make it even harder for them to make a profit.

Building companies are also still under pressure, with Berkeley Homes and Barratt both among the top fallers. Traders are still calculating that the Brexit vote is bad for the demand in the housing sector.

The top fallers on the FTSE 100 tonight
The top fallers on the FTSE 100 tonight Photograph: Thomson Reuters

Britain’s millions of savers face more pain

Savings rates had been falling anyway, even though the Bank of England base rate has been static at 0.5% since 2009, and now it seems almost inevitable that they will continue to plummet to new lows.

According to financial website Moneyfacts.co.uk, the average easy-access cash Isa rate has fallen by 0.11% in six months to just 0.98%, the first time on record it has fallen below 1%. In May the website recorded 18 savings rate rises and 156 cuts.

Spokeswoman Charlotte Nelson says:

“It’s not a good time to be a saver in today’s market,”

The link between the base rate and savings rates has already been cut - though that does not mean banks and building societies will not reduce rates if and when the base rate is cut to, say, 0.25% or zero.
Nelson said that if there was a base rate cut, “it gives cause for them to cut rates, and makes it almost acceptable to do so.
On 1 June Nationwide became the latest big-name provider to cut rates on many of its accounts.
As to what savers should do, one way of achieving a secure income is to opt for a fixed-rate savings bond. But some may feel that the rates on these are paltry: even bonds on sale today that involve locking your money away for five years are only paying an average of 2.05% - down from 2.1% on the day of the referendum, 23 June. New one and two-year fixed-rate bonds are paying an average of 1.17% and 1.41% respectively.

What will a rate cut mean to your mortgage?

If you are on a ‘tracker’ deal, then the impact of a Bank of England rate cut is instant.

For example, Nationwide building society has just under 600,000 people on its ‘base mortgage rate’ which is 2% above Bank of England base rate. “There is no floor, so if the Bank Rate was cut then the rate would reduce” says a spokeswoman.

Someone with a £150,000 Nationwide mortgage would see their repayments cut from £673 a month to £654 if Carney cuts base rates to 0.25. If he slashes them to zero, then the mortgage costs drops to £636.

The impact is even bigger if the borrower has an interest-only mortgage, although these have largely disappeared since the credit crunch. They would see the cost of servicing a £150,000 loan drop from £313 a month to £281 at base rate of 0.25%, dropping to £250 once rates hit zero.

Anyone on a fixed-rate mortgage will see no change. But in the coming week banks and building societies are expected to line up cheaper deals reflecting the new money market rates, with plenty more sub-2% fixes available, even for those with a relatively low deposit.

Carney's speech: Expert reaction

Bloomberg’s Jeff Black was impressed by Mark Carney’s performance:

Jamie McGeever of Reuters points out the UK faces huge challenges:

Anna Stupnytska, global economist at Fidelity International, says Carney had a clear message:

And the FT’s Sarah O’Conner sums up Carney’s key message:

Mark Carney sends FTSE 100 to 10-month high

The prospect of more monetary stimulus has acted like Class A catnip in the City.

Shares have soared, as soon as Mark Carney hinted that the Bank of England will ease monetary policy this summer - probably by cutting interest rates or through a new QE programme.

The FTSE 100 index has hit its highest level since last August, up 144 points at 6504:

The FTSE 100 over the last year
The FTSE 100 over the last year Photograph: Thomson Reuters

There is a proviso - the slump in the pound means that the FTSE 100 is worth rather less in dollar terms.

But still, it shows that investor are expecting the BoE to take significant action this summer:

Joshua Mahony, market analyst at IG, says:

The FTSE has broken to the highest level since August 2015 today, with the UK 10 year yield hitting an alltime low after comments from Mark Carney provided a new dovish bias upon monetary policy going forward

However....

Mark Carney has delivered a somewhat downbeat assessment of UK economic hopes today, with the BoE governor stating that we are likely to see some form of easing over the summer. The worries that had impacted investment decisions prior to the vote are now likely to intensify and whilst Carney said he was willing to act, the ability of monetary policy to fix these problems are of course limited.

UKIP leader Nigel Farage has criticised Mark Carney....

...and been slapped down by the US economics editor of The Economist....

...and others:

Carney: We were right to point out risks

Finally, another question about Mark Carney’s clashes with the Leave campaign.

Governor Carney patiently explains that he was doing his job by pointing out the risks in leaving the EU.

Britain is now prepared, so the task of adjusting to Brexit will be easier.

And he insists that he is not planning to leave the Bank.

Carney declines to say whether he agrees with his predecessor, Lord King, that the Remain campaign’s economic warnings were over the top.

Carney insists that the Bank has a range of options on the table (or in its monetary toolkit).

So, it has cut interest rates and boosted quantitative easing (buying bonds with new money) in the past, but it it might do something different this time....

Q: Did the Bank of England intervene in the markets last Friday to calm the crisis?

Carney says there were some “pretty big moves” in the currency, as should be expected. The markets functioned well, and there was no liquidity shortage - so the pound moved on investors’ views.

And when markets are functioning well, you don’t want to get in the way. So, that’s a no.

Q: Is a recession likely?

We’ll have to wait until the Bank’s new economic forecasts in early August.

Q: Today’s speech is quite unprecedented, so does it show the scale of the economic crisis?

Carney says the Bank’s remit has changed in recent years, giving it a broader remit. It now holds responsibility for monetary stability, and financial security (unlike during the credit crunch)

Also, standards of transparency have changed - the public, businesses and the media all expect a rapid response.

The Bank can meet in an afternoon, and take decisions, if needed.

Q: How can the Bank protect the UK economy during the shambles playing out in politics?

Carney declines to describe British politics as a shambles.

But when there is “policy uncertainty”, the Bank can adjust and fine-tune its policies to try and anticipate the impact.

Updated

Carney: We'll keep doing our jobs despite criticism from Brexiters

Onto questions

Q: Could you work with Brexit campaigners who have criticised your conduct during the EU referendum campaign, if one became the next chancellor?

Carney says that his concerns about leaving the EU were shared by all policymakers at the Bank of England.

All those individuals are committed to discharging their responsibilities.

This is a professional, technocratic institution, and we will continue to do our jobs.

Carney is on good form. He now tells us about a weathervane in the Bank of England which was installed in 1805, to help the BoE handle the economy.

When the wind blew from the east, ships could come up the Thames, so merchants would need credit to buy goods.

When it came from the west, credit should be withdrawn.

Carney calls it a “Regency-era forecasting model” that helped the bank provide stability.

Today, the economy is more complex, and our forecasting models are a little less reliable....

There’s no argument, though, that the winds have changed -- and this time, the Bank cannot fully offset the consequences.

Updated

We face a trade-off between stabilising inflation on the one hand and avoiding undue volatility in output and employment on the other, says Carney.

So.... although he’s not pre-judging the view of his fellow policymakers, the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer.

Carney: Brexit fears could hurt labour market

Carney now explains how uncertainty will hurt the economy.

There is a danger that UK households could defer consumption (ie, delay buying new things) and firms delay investment -- which would push unemployment higher.

There are also risks of adverse spillovers to the global economy.

There’s also a risk that supply growth will be lower over the next three years, he adds.

Quick explainer - the pound has fallen, because traders are anticipating that the Bank could cut interest rates to fresh record lows (meaning you get even less for holding your money in sterling).

This time, the financial system will dampen the aftershock of recent events, rather than amplifying them, Carney pledges.

We’ll hold you to that, Mark....

Carney: Here's the plan

Mark Carney is now outlining the Bank of England’s plans to fight the uncertainty created by Brexit.

He says that the BoE has already taken steps to bolster the capital held by commercial banks, after the 2008 crisis showed that they weren’t carrying enough.

Banks have raised over £130bn of capital, and have large amounts of liquid assets, he says.

Then there’s an announcement:

Carney says the Bank will run weekly auctions to pump new liquidity into the financial system until September, to avoid a credit crunch. It usually runs these auctions monthly.

Pound hit by Carney comments

The pound has tumbled by one and a half cents, to $1.326 against the US dollar, on the prospect of a new stimulus package.

Carney is warning that the Bank’s previous fears of a Brexit slowdown are now its “central forecast”.

Carney hints at summer stimulus to fight Brexit recession

The Bank of England will likely have to cut interest rates over coming months to cushion the blow to the economy from the Brexit vote, says Katie Allen (who has attended the lock-in at the Bank).

She writes:

Carney is using a speech just a week after Britain’s historic vote to leave the EU to reassure business leaders and investors that the Bank’s contingency plans were “working well” and that it was considering more measures to safeguard financial stability.

He will give the strongest indication yet that the Bank’s reaction to the market turmoil and uncertainty caused by the Brexit vote will be to cut interest rates from the current record low of 0.5%, perhaps as soon as next month.

The Bank’s nine-member monetary policy committee (MPC) faces a trade-off between stabilising inflation – which could be stoked by a weaker pound - and shoring up growth and jobs, Carney said. But he erred on the side of supporting growth with lower borrowing costs.

“In my view, and I am not pre-judging the views of the other independent MPC members, the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer,” Carney said in the speech to bankers and business leaders.

Mark Carney today
Mark Carney today Photograph: Sky News

Carney reiterates that the Bank of England is prepared to take action to protect the UK economy from the impact of leaving the EU. But there’s only so much that monetary policy can do.

Carney: People are worried about losing their jobs

People ask basic questions at these times, Carney continues.

Will inflation go up, will other people lose their jobs? Will I lose mine?

This prompts a bout of giggling in the room, given the speculation that Brexit campaigners may want to drive Carney back to Canada.

Carney: Brexit is a 'regime shift.'

Here comes Mark Carney, bank on time.

The governor begins by saying that while the result of last week’s referendum is clear, its implications are not.

This country can handle change, he continues, It has one of the most flexible economies in the world, and world class infrastructure.

Its people are admired around the world over for their strength in adversity. So the question is not whether the UK can adjust, but how quickly and how well.

But.... the decision to leave the UK is a major regime shift, he continues.

Updated

Financial reporters are locked in the Bank of England until 4pm, so we should get a flurry of news very soon....

I’m guessing grey.

Mark Carney’s speech should be streamed on the Bank of England’s website (although it’s struggling to load right now).

It’s also been carried on the UK news channels, such as Sky.

Bloomberg’s Jeff Black has flagged up the nightmare scenario for the City.....

IMF warns on Brexit fears

Newsflash from Washington: The International Monetary Fund has warned that uncertainty over the UK’s future is likely to dampen near-term growth; in Britain, Europe and the world economy.

The IMF will include this effect in its next economic forecasts, on July 19th.

Joe Rundle, head of trading at ETX Capital, believes Carney needs to be straight with the British people about the consequences of Brexit.

He worries that some investors are too complacent, which is why the FTSE 100 index is now higher than before the vote.

The FSTE 100 continues to pump, jacked up on frenzied bargain buyers piling into the index’s largely overseas-focused companies and defensive stocks.

HSBC has confirmed it won’t move its headquarters outside of London and its stocks is up 1% today – to above pre-Brexit levels.

To level things out Carney really needs to play it cautious and once again stress the downside risks and concerns about the UK economy longer term from Brexit.

I missed this earlier, but apparently Mark Carney declined a pay rise this year.

Reuters has the details, from the Bank’s annual report:

Canadian Carney, who earns a basic salary of £480,000 ($645,000) a year and has a £250,000 annual housing allowance, has been a central figure in the response fromBritish authorities to leaving the European Union.

The Bank declined to comment on Carney’s reasons for rejecting a pay rise. Median gross earnings for full-time British employees stood at £27,600 for the year ending in April 2015.

Updated

Brexit campaigners could have the knives out for Mark Carney, after he angered them during the referendum campaign by warning of the economic risks of Leaving the EU.

Journalist Ben Chu suggests that Boris Johnson would have supported the governor, but other Brexiters might have other plans.....

Carney is currently on a five-year contract that expires in summer 2018, but he could possibly ask to extend it for three years [governors typically serve eight-year terms]

Updated

Preamble: All eyes on Mark Carney's Brexit speech

Pedestrians walking past the Bank of England in London.
Pedestrians walking past the Bank of England in London. Photograph: Suzanne Plunkett/Reuters

Economists, journalists and camera crews are massing at the Bank of England as attention turns to Mark Carney’s upcoming speech about life after the EU referendum.

After a week of stomach-churning political changes, the BoE’s governor will aim to reassure the public, and investors at home and abroad, that the Brexit vote won’t cause a new crisis.

Carney is due to speak at 4pm UK time and should take questions afterwards.

Last Friday, he was quick to address the nation after the referendum result, saying the UK economy was in good shape to ride out the situation. We’re hoping for more details about the Bank’s plans to protect jobs and ward off a recession.

City experts are pleased that the BoE is taking an approach to the crisis.

Alan Clarke, an economist at Scotiabank, told Bloomberg:

I don’t ever remember being invited to any briefings from the Bank of England at the height of the credit crunch in 2008-09, so it’s quite refreshing that the BoE is being so open.

It’s very good that someone is being proactive, because there’s been pretty much radio silence from the ‘Vote Leave’ leadership since Friday.

The BBC’s Kevin Peachey reckons Carney will strike a reassuring tone:

The independent economist Shaun Richards wonders whether Carney might announce a new offer of cheap credit to encourage bank lending:

Updated

The US stock market has opened, and the main indices are creeping higher ...

Wall Street in early trading

Updated

A Lloyds sign outside a branch in London.

Senior staff at Lloyds Banking Group have given their company a vote of confidence by snapping up tens of thousands of Lloyds shares each.

The bank has told the City that 19 board members and top managers bought shares this week. They moved after seeing them fall from 72p to about 55p after the Brexit vote.

Lloyds shares are down 3% at 53p today, so they’re not in profit quite yet ...

Updated

The Bank of England’s annual report is out.

In it, the Bank admits that it doesn’t know the impact of the Brexit vote on its balance sheet, saying:

The United Kingdom held a referendum on 23 June on whether or not to remain a member of the European Union. As a result of the decision to leave the EU, the Bank continues to consider the implications of this decision on its strategy, business plan and balance sheet. A reasonable estimate of the impact on the balance sheet cannot be made at this time due to volatility preventing use of appropriate market pricing.

It also shows that the Bank’s governor, Mark Carney, received almost £880,000 last year in pay, pension and benefits.

BoE Annual report 2016

Updated

It’s an old cliche that markets hate uncertainty.

Some investors deny that this is true: at least, those with the nerve to take big bets at times of wild volatility.

But the dramatic shakeup of British politics has brought some clarity – Boris Johnson certainly won’t be the next prime minister.

Ken Odeluga, a market analyst at City Index, reckons this “surprising increase in certainty” could reassure the City in the short term. However, there’s still no indication that leaving the EU will be easy.

He says:

EU negotiations might now begin sooner than expected, if signs of a push to elect a Conservative leader as early as September prove accurate. If EU/UK horse trading does kick off early, uncertainty could be reduced even further. (Almost regardless of how favourable or unfavourable the outcome is deemed to be).

However, the latest twists and turns of the Brexit saga have done little to improve the market’s ability to assess the UK’s prospect of extracting the best possible deal with the EU.

On that basis, it’s still difficult to believe that ‘risky’ assets like stocks and sterling will be able to hold their newly regained poise for much longer. Especially if signs of stability do not emerge in Westminster soon.

Updated

Investors are “unsure about almost everything”, says Kit Juckes of Societe Generale.

The ‘Brexit, what Brexit?’ recovery in risk sentiment is just about continuing in emerging markets and equities, but the pound, euro, and Australian and New Zealand dollars have run out of puff overnight.

Investors everywhere are a bit unsure what the UK’s departure from the EU will look like and what it means, a mindset that may now last a while.

Updated

We can’t expect many fireworks on Wall Street today.

The US stock market is expected to open flattish, matching the mood in Europe.

The “Boris bounce” didn’t last too long ...

Updated

The pound is pushing a little higher after Boris Johnson stunned British politics by announcing that he will not run to be the next Conservative Party leader and prime minister.

So, after leading the campaign to leave the EU, Boris won’t be dealing with the consequences.

Instead, it looks like a choice between Theresa May – who is still the odds-on favourite – and Michael Gove.

The FTSE 100, however, is dipping back to its opening levels having hit a two-month high this morning, as traders digest a morning of remarkable news.

Updated

The FTSE 250 index, made up mainly of UK companies, remains a better gauge of the UK economy than the multinational firms on the FTSE 100.

Joe Rundle, head of trading at ETX Capital, explains why:

“The FTSE 100 has rallied to its pre-Brexit levels and is holding on to most of yesterday’s big gains this morning. However, the UK-focused FTSE 250 remains down 8% and this speaks volumes about the split between UK and international companies.

“The blue chip index is stuffed full with big international firms and it is these companies propelling the rise. The heavy weighting towards these groups is very misleading.”

Connor Campbell of SpreadEx agrees that the political machinations playing out in Westminster have helped calm the markets.

Gains in the commodity sector seem to be driving the FTSE’s rise, though losses in the banking and property sectors are preventing it from matching the growth seen on Tuesday and Wednesday.

The UK index was likely aided by the semblance of order returning to the Tory party, with Theresa May (who has so far provided the most thorough Brexit outline) the frontrunner for PM, followed by Michael Gove, who plunged a knife into the back of former heir apparent Boris Johnson with his own leadership announcement this morning.

Updated

European stock markets are also enjoying a Brexit bounceback this morning:

Europe's main stock markets

Bank shares are lagging, though. The news that Santander and Deutsche Bank failed US bank stress tests last night isn’t helping the sector.

Updated

FTSE 100 hits two-month high

Britain’s FTSE 100 has hit a new two-month high as City investors remain calm about the Brexit crisis – and watch another remarkable day of political drama.

The blue-chip index is now up 35 points, or 0.6%, at 6397. That’s the highest level since 20 April, having recovered its referendum losses yesterday.

The FTSE 100 over the last quarter
The FTSE 100 over the last quarter. Photograph: Thomson Reuters

Importantly, though, this is all measured in sterling – shares are still down in dollars and euros.

Banks and building firms remain under pressure and the FTSE 250 index, which contains more UK companies, is slightly down today.

Nonetheless, the Brexit panic does seem to have abated, especially after Theresa May’s entry into the Tory leadership contest; she’s now the frontrunner at Betfair, while support for Boris Johnson ebbs away after Michael Gove’s sensational move into the race this morning.

Investors may be reassured that May laid out a clear plan to deal with the Brexit vote.

She also pledged not to hit Britain with an emergency budget and criticised George Osborne’s ‘balanced budget’ rule, saying:

While it is absolutely vital that the government continues with its intention to reduce public spending and reduce the budget deficit, we should no longer seek to produce a budget surplus by the end of the parliament.

Updated

Bank bosses warn of Brexit pain

As predicted earlier, Brexit has been top of the agenda at TheCityUK’s annual conference in London this morning.

John MacFarlane, the chairman of Barclays, urged politicians to show leadership to tackle the “self-inflicted wound” to the UK economy.

HSBC’s chairman, Douglas Flint, argued that the UK’s contingency planning worked well:

And the UK head of accountancy firm Deloitte, David Sproul, tried to sound upbeat ...

Updated

Eurozone breaks out of deflation (again)

A gobbet of eurozone economic news: The inflation rate has risen to 0.1%, from -0.1% in May.

As usual, energy prices were a drag on prices, but food, industrial goods and services prices all rose.

That will please the European Central Bank in its battle to fight deflation, although the Brexit shock has already changed the landscape....

Back in Westminster, Theresa May is launching her pitch to be Conservative leader, and the next prime minister.

Investors need to pay attention, as the Home Secretary is now the odds-on favourite (following Michael Gove’s attempt to torpedo Boris Johnson this morning).

May has said that:

  • Last week’s EU referendum is irreversible; the will of the people must be respected.
  • May wouldn’t trigger Article 50 before the end of this year (which means she would trigger it)
  • She doesn’t want an ‘emergency budget’; fiscal issues should be tackled in an autumn statement as usual.
  • She also suggests that the target of a budget surplus by 2020 could be ditched, if necessary.

Our Politics Liveblog has full details.

Updated

UK current account deficit remains shockingly bad

We also have new current account figures for the UK, and they paint an alarming picture.

The gap between the amount of goods, services and investment coming into the UK, and going out, was an eye-watering £32.593bn in January-March.

That’s 6.9% of GDP, and only slightly better than the £33.963bn recorded in October-December 2015.

The UK current account deficit

Newsflash: Britain’s economy suffered a deeper plunge after the 2008 financial crisis than previously thought.

The Office for National Statistics has revised its data, and concluded that UK GDP shrank by 6.3%, not 6.1% as first thought.

They also confirmed that the UK GDP grew by 0.4% in the last quarter.

Big breaking news in the UK: Michael Gove, one of the key Leave campaigners, has announced that he’s running for the leadership of the Conservative Party.

And he has also launched a potentially devastating attack on Boris Johnson, saying the ex-Mayor of London lacks the leadership to be prime minister.

Our Politics Liveblog has full coverage:

Soros: Brexit has unleashed a new crisis on Europe

George Soros

Billionaire investors-turned-philanthropist George Soros has warned European politicians that the Brexit vote is a ‘huge shock’ to their economy.

Speaking in Brussels this morning, Soros warned that the UK’s referendum has unleashed a new crisis on Europe. He predicted that the continental banking system will be ‘severely tested’, at a time when it hasn’t recovered from the eurozone debt crisis.

Soros cautioned EU leaders to heed the concerns of UK voters, and not to punish them for last week’s vote.

He repeated his call for Germany to drop its opposition to collective eurozone borrowing. And he urged leaders to take advantage of record low borrowing costs, and Europe’s top-ranked AAA credit rating.

The refugee crisis poses an existential threat to Europe. It is the height of irresponsibility to allow the EU to disintegate without utilising all its resources.

Throughout history, governments have issued bonds in response to national emergencies.

When should the EU’s triple-A rating be put to use, if not when the EU is in mortal danger?

Here’s a video clip:

Ripples from the Brexit vote have reached Singapore.

Singapore’s third-biggest lender has temporarily stopped issuing loans on London properties, due to uncertainty over the EU referendum vote.

European stock markets are dropping back in early trading, after yesterday’s surprising surge.

The main indices are all in the red. The FTSE 100 has dropped by 0.7%, after jumping 3.5% yesterday.

European stock markets

In London, Royal Bank of Scotland is leading the selloff, down 5%. Building firms are also dropping back, with Berkeley Group down 3.5%.

The pound is also in a state of torpor this morning, hovering around the $1.34 mark.

Sterling has struggled to make much recovery after Friday’s record plunge, and hit a 31-year low of $1.31 in Monday.

Bank shares have been pummelled since the referendum result, including Virgin Money’s which at one point had lost 30% of its value.

The bank’s boss Jayne-Anne Gadhia has told BBC Radio 4 Today programme
that sentiment should improve.

She said regulators had made banks stronger, well capitalised and highly liquid since the 2008 crisis. And she also played down the impact of low interest rates on banks saying a strong economy was more important.

“People should not panic,” she said, and keep moving home, adding:

“Post-Brexit we should all get together and have confidence about the future.”

A rallying cry? Sir Richard Branson who owns a stake in the bank has been calling for action, and told the Guardian on Tuesday that Chinese investors are pulling out of investment.

Bank of England governor to reassure markets

Bank of England Governor Mark Carney.
Mark Carney speaking last week Photograph: Reuters Tv/Reuters

When the going gets tough, you need a tough central banker to step in.

So Mark Carney, governor of the Bank of England, is going to do his best to prevent last week’s Brexit vote triggering a financial crisis.

Carney will give a speech at 4pm BST today, and we’re expecting him to reassure investors and the public that the Bank’s contingency measures are working.

He’ll also be quizzed by reporters about the impact of the EU referendum on the UK economy, and its implications for growth and monetary policy.

Analysts at Royal Bank of Canada say Carney’s speech will be closely watched in the City, and beyond:

In the UK the main event for markets is likely to be a hastily scheduled speech by Governor Carney with the title “Uncertainty, the economy and policy”. This will be at 4pm BST.

Given the title of the speech we would anticipate getting some clues on whether our expectation of prompt rate cuts and a QE extension is what the Governor has in mind.

Updated

The agenda: Calm returns to the markets

Good morning.

There’s an eerie calm in the financial markets this morning. After a week of wild, referendum-fuelled moves, traders are taking a breather while they wonder how the Brexit saga will play out.

Shares are dipping in early trading, but there’s no repeat of the recent volatility (yet, anyway)

Yesterday, the dear old FTSE 100 shrugged off its fears and surged by 219 points, or 3.5%. That means it has clawed back all its losses since the referendum result rocked Europe...

... however, it’s not as simple as that. The Footsie is priced in sterling, which is still close to its 31-year lows.

So price the index in dollars, and we’re still way down.

The real drama today will be in Westminster, not the City, with nominations for the Conservative party leadership closing at noon, and Labour leader Jeremy Corbyn facing a leadership challenge from Angela Eagle.

But European markets will still be gripped by the unfolding consequences of the Brexit vote, which could hurt growth and harm companies across the region.

Banks are under particular pressure, especially in Italy, due to fears of a flurry of bad debts if the economy turns sour. They also face the prospect of record low interest rates for even longer, eating into profitability.

Also coming up today:

  • Senior financial figures are gathering at a conference organised by TheCityUK - Brexit will surely be high on the agenda...
  • At 9.30am BST, we get the final estimate of UK growth in the last quarter. It’ll probably confirm that the economy expanded by 0.4% in January-March – but that’s all history now.
  • The latest Eurozone inflation figures are due at 10am BST, which may show that prices were flat last month.

Updated

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