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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Pound slides to 31-year low, as FTSE 250 hits record high – as it happened

The City of London, U.K.
The City of London, U.K. Photograph: Bloomberg/Getty Images

Closing summary: Shares surge, pound slumps

After a wild day in the markets, it’s time to wrap things up.

Fears of a Hard Brexit have sent the pound reeling to a new 31-year low tonight. Sterling traded as low as $1.2721, its weakest point since 1985, on growing expectations that the UK will leave the single market.

Currency expert Kathleen Brooks, of FOREX.com and City Index, pinned the blame on events at the Conservative party conference in Birmingham.

The Tory party conference is turning into a sell for the pound, as FX traders get spooked by May’s apparent sanguine attitude to leaving the single market, preferring to focus on immigration and UK sovereignty rather than the economic fallout of Brexit.

PM Theresa May has insisted that the economy is in good shape, with growth looking solid and unemployment low.

While the pound weakened, Britain’s stock market went on a tear today. The FTSE 100 jumped by 90 points, having come within a whisker of hitting its alltime intraday high.

The smaller FTSE 250 index did hit a record high.

Analysts said the weak pound had helped to drive share prices higher, as it will help exports and make overseas earnings more valuable.

Jasper Lawler of CMC Markets says:

Reports that UK Prime Minister Theresa May is not looking for any favourable treatment for the financial services sector has been cited as one reason behind the latest sterling decline.

It wasn’t all currency effect through – the FTSE 250, which does have its fair share of firms with foreign earnings, is more domestically focused.

At the moment, UK investors are getting their cake and eating it. The threat of more rate cuts and money-printing from the Bank of England if the government chooses a “Hard Brexit” has sent the British pound lower, but UK economic data continues to impress.

The International Monetary Fund pulled a u-turn, admitting that Britain won’t fall into recession next year. It expects the UK to be the best-performing G7 country this year, before slowing in 2017.

Michael Saunders, a Bank of England policymaker, has predicted that Brexit won’t be as bad as feared.

And a new survey has shown that the construction sector returned to growth in September; the latest sign that British companies aren’t being toppled by Brexit fears.

There’s loads more analyst comment and reaction if you scroll back through the blog.

I’ll be back tomorrow for more coverage, including a healthcheck on the UK services sector.

Thanks for reading and commenting. GW

Updated

Theresa May’s BBC interview
Theresa May’s BBC interview Photograph: BBC News

Theresa May: Currencies go up and down

Prime minister Theresa May has insisted tonight that the economic fundamentals of the UK economy remain strong.

During an interview with the BBC, May pointed to recent upbeat surveys - and the new forecasts issued by the IMF today.

And asked about the pound hitting a 31-year low today, she said:

Currencies of course go up and down. If you look at the fundamentals of the economy, it’s strong.

If you look at recent economic data, the forecasts coming out now for growth this year, it’s all more positive than people had expected it to be.

She also reiterated that she wants to get the “right deal” for the UK; one that lets British businesses both operate in and trade with the single market.

Despite today’s soaring shares, the weakness of the pound underlines that there are big worries about Brexit.

James Andrews, head of investment management at stockbroking firm Redmayne-Bentley, warns that a selloff could be painful:

“The heady heights we see in the UK equity markets currently reflect the lack of returns to be found in less risky assets, such as cash and bonds. The FTSE 100 is no longer a gauge of the UK economy, given it is full of large multi-national companies, but the more domestic-focussed FTSE 250 is also touching all-time highs.

“The likely fallout of messy negotiations around the exit from the EU mean it is an uncomfortable view from the summit currently, and it’s a long way down if the future turns out to be less than rosy.”

FTSE 250 hits record high

We do have a record to celebrate, though.

The FTSE 250 index has closed at its highest ever level, up 0.9% or 158 points at 18342.

That’s significant, as this index contains more UK companies than the Footsie 100 -- including engineering firm Renishaw (+4% today) and security firm G4S (+3.3%).

FTSE 100 fails to hit record high

A groan ripples around City trading floors, as the FTSE 100 fails to hit a new record closing high.

The blue-chip index closed up 90 points, or 1.3%, at 7074. That is a new 17-month closing high, but not the record.

It was still a good day for shares, with some internationally focused firms like Rolls-Royce and Pearson leading the rally.

But the temptation to take profits took the wind out of the markets’ sails at the end.

The FTSE 100 today
The FTSE 100 today Photograph: Thomson Reuters

It was quite a dramatic day, as Joshua Mahony, market analyst at IG, explains:

Today’s incredible rise in the FTSE 100 has been one of the biggest risk on moves of the year, with investors seeing in Q4 with a bang.

Fears over the economic implications of a Brexit have been brushed aside in favour of a focus on the benefits a weak pound and loose monetary policy would bring to stocks. As Phillip Hammond said, we are in for a roller coaster, yet on initial evidence, markets like the idea.

Updated

The stock market has gone into its closing auction!.... And we’re about to find out if the FTSE 100 has hit a new record closing high....

Updated

BoE policymaker: Brexit won't be too bad

Michael Saunders

Michael Saunders, the newest member of the Bank of England’s monetary policy committee, has fired a broadside at his colleagues for being too pessimistic over Brexit.

In a speech just released (due to be given tomorrow), Saunders says that the EU will probably cause rather less damage than policymakers had feared.

He cites Britain’s “considerable supply-side advantages”, from its flexible labour market and openness to foreign investment, to the current “low-ish” tax rates and strong position in high-tech manufacturing and knowledge-intensive services.

So Saunders (who was a top economist at Citigroup until he joined the BoE rate-setting this summer), reckons growth in 2017 will be stronger than expected.

After a good lunch, Saunders will tell the Institute of Directors in Manchester tomorrow that:

The process of EU exit may be lengthy and bumpy. It is certainly possible that anticipation of EU exit will have a greater near-term adverse effect on the economy than the MPC expect, especially if EU nationals currently working in the UK decide to leave or business investment weakens really markedly. But, unless Brexit-related uncertainties rise sharply and/or global conditions disappoint markedly, I suspect that the UK economy will be not too bad in the year ahead, with growth in 2017 more likely to be clearly above 1% rather than (as the consensus expects) below 1%.

Hence, especially if productivity growth remains modest, there may be little or no rise in unemployment in the UK over the coming year, although the current degree of slack would remain unless growth is strong enough to cut unemployment further.

You can see the speech here (lunch, alas, not included)

The economic outlook - speech by Michael Saunders

Some investors who bought shares after the Brexit vote will be cashing in their hard-earned gains winnings this afternoon.

So says Michelle McGrade, chief investment officer at online dealing group TD Direct Investing.

“With the FTSE peaking 7,100 this afternoon, our customers are predominantly selling today - demonstrating their savviness. Experienced investors have been buying up since Brexit and seemingly now enjoying the profits. The important thing for the markets is that it holds 7,000 overnight – this will be impacted by how the S&P 500 behaves.

She also urges small investors to be cautious...

“From a broader perspective, we hope that those less experienced investors aren’t getting too excited by the excitement and piling in, for the first time, while it’s high – this isn’t the best investment strategy and they will lose their confidence yet again.”

Ben Chu, the economics editor of the Independent, has done a nice piece about the causes of the pound’s weakness.

He says:

This week’s renewed downward lurch has coincided with Theresa May saying she will trigger Article 50 before next March and making it clear that she will not compromise on curbing EU immigration to the UK, something that strongly implies Britain will be out of the single market by 2019.

The fundamental reason for sterling’s descent is that traders believe there will be lower demand for sterling assets as a result of Brexit – that we will ultimately do less trade with the rest of the world and that we will be poorer as a result. Argue the markets are wrong if you want to – but recognise what they are saying.

Financial reporters are squinting at their terminals, desperate to see if the Footsie hits a record high today (we’re easily amused, to be honest)

Ooooh the FTSE 100 is pushing even higher as the clock ticks down to 4.30pm.

It just hit 7121 points, a whisker away from the record intraday high of 7122 (set in April 2015).

Oh, and I made a mistake before. The all-time record closing high is 7104. And that record is ON....

Updated

With one hour to go, the FTSE 100 index is just three points away from its record closing high, at 7009 points.

Richard Stone, chief executive at The Share Centre, explains why the weak pound has pushed shares up:

For companies in the FTSE100, some three quarters of their revenues are not earned in Sterling so are now worth more in Sterling terms. This makes their profits higher in Sterling and therefore their value in Sterling terms also increases.

Updated

The IMF’s new report hasn’t helped the pound; it’s still wallowing at the 31-year low of $1.275.

Betway, the gambling firm, are offering odds on it falling further, and even hitting parity, before the end of the year.

Lowest GBP/USD rate in 2016:

  • $1.2 - 1.28: 4/9
  • $1.1 - 1.19: 3/1
  • $1 – 1.09: 5/1
  • $ to be stronger than £ at any point in 2016: 50/1

This won’t please Donald Trump. The IMF thinks the US Federal Reserve was right not to raise interest rates last month.

Maurice Obstfeld has told reporters that there’s no sign that the American economy needs to be reined in.

He says:

At the moment, inflation is below their target levels,wage pressures are moderate, and so there doesn’t seem to be a great danger of overheating.

Trump has accused the Fed of keeping rates too low, to help Hillary Clinton win the presidential election.

Quite a lively press conference....

IMF chief economist Maurice Obstfeld has defended the Fund’s bleak predictions about Brexit.

Quizzed by journalists in Washington, Obstfeld says Britain is enjoying a “soft landing”.

This, he claims, was:

“one of our scenarios, and the one we are happier to have seen than the alternative worst scenarios”.

Obstfeld says the weaker pound has provided some support to the economy, by helping exporters.

He also credits the Bank of England with acting quickly to shore up confidence after the referendum result came in.

Updated

If the IMF are right, Britain’s economy is going to slow pretty sharply next year:

Chancellor Philip Hammond has opined:

Today’s forecasts show that the IMF should be embarrassed about its hand-wringing before June’s referendum, writes Larry Elliott from Washington.

Everybody makes duff forecasts. Everybody gets it wrong from time to time. Only the inveterate fence sitters are spared having egg on their face.

The International Monetary Fund certainly knows what it is like to make a mistake. In the run-up to the EU referendum, the IMF made a series of interventions warning voters of the dire consequences that would follow a vote to leave.

At first, the IMF stuck to long-term forecasts, saying investment and trade would eventually be weaker if the UK divorced from the other 27 members of the EU. But as the referendum neared and the vote was on a knife-edge, the warnings became more lurid. The UK would immediately start sliding into recession. House prices would crumble. Shares would crash.

So what do you do if your forecasts turn out to be a little wide of the mark? Either you put your hands up and admit you were wrong. Or you brazen it out. You say that it is too early to say. You say that eventually you will come right.

No prizes for guessing which option the IMF has taken. Its half-yearly world economic outlook (WEO) report says the UK will do fine in 2016 but is going to find the going a lot tougher in 2017.

This is a perfectly respectable view, and one held by a host of academic, business and City economists. Had the IMF stuck to this sort of assessment throughout the referendum campaign, it would have saved itself embarrassment now. As it is, it will get some stick from those who thought the Washington-based fund had overstepped the mark in its support for the remain camp.

The IMF singles out the UK’s referendum as a key factor hurting global growth, saying:

“There is a more subdued outlook for advanced economies following the June U.K. vote in favour of leaving the European Union (Brexit) and weaker-than-expected growth in the United States.

These developments have put further downward pressure on global interest rates, as monetary policy is now expected to remain accommodative for longer.

It also cites China’s economic rebalancing, and a general slowdown in trade growth since 2012. It blames a “waning pace of trade liberalization and the recent uptick in protectionism”.

The full report is online here.

Our news story about the IMF’s latest forecasts is here:

The IMF has left its overall global growth forecasts unchanged (compared to July), at 3.1% this year and 3.4% in 2017.

That’s pretty lacklustre in historic terms.

Updated

The IMF has also taken the scalpel to its forecast for US economic growth.

It now expects the world’s largest economy to only expand by 1.6% the year, down from 2.2% back in July.

IMF: UK to be fastest growing G7 economy in 2016

The IMF Headquarters in Washington, D.C.
The IMF Headquarters in Washington, D.C. Photograph: Zach Gibson/AFP/Getty Images

Newsflash! The IMF has announced that Britain will be the fastest growing major economy in 2016, despite the uncertainty caused by the Brexit vote.

In its new report, the Fund predicts UK GDP will grow by 1.8% this year, ahead of the US, Germany, Japan and the other members of the G7.

That’s quite a pronouncement, given the Fund has led the chorus of warnings against a Brexit.

It does also forecast a sharp slowdown in 2017 – but not a full-blown recession.

From Washington, our economics editor Larry Elliott reports:

The International Monetary has predicted that the UK will be the fastest growing of the G7 leading industrial nations this year and accepted that its prediction of a post-Brexit financial crash has proved overly pessimistic.

But while the Washington-based IMF said Britain would comfortably avoid recession with growth of 1.8% in 2016, it stuck to its view that the economy would eventually suffer from the shock referendum result and said expansion next year would be just 1.1% - lower than it expected in the immediate aftermath of the Brexit vote.

The Fund used its half-yearly world economic outlook to warn not just about the impact of the Brexit vote on the UK and the wider euro zone economies but about the weak growth and uneven division of the fruits of growth that caused 52% of those who voted on 23 June to end Britain’s 43-year membership of the EU.

Maurice Obstfeld, the IMF’s economic counsellor, said: “Taken as a whole, the world economy has moved sideways. Without determined policy action to support economic activity over the short and longer terms, sub-par growth at recent levels risks perpetuating itself—through the negative economic and political forces it is unleashing.

And here are the latest forecasts:

The latest IMF forecasts

Updated

Heads-up: In 15 minutes, the International Monetary Fund will release its latest assessment of the global economy.

The World Economic Outlook will contain new forecasts, which will surely include the impact of the Brexit vote...

Sky News’s Ed Conway has created a nice chart of the pound’s value over the centuries (click here to see a larger version).

Updated

There’s absolutely no love for the pound today.

As US traders arrive at work in New York, sterling is still at a 31-year low against the US dollar at just $1.275, down 1 cent or 0.7%.

This is a historically bad moment for the pound -- it’s only been weaker in 1985.

The pound vs the US dollar since 1980
The pound vs the US dollar since 1971 Photograph: Bloomberg

The unexpected good news that Britain’s construction sector surged in September (details here) hasn’t brought any relief. Investors are focusing on Brexit, and the prospect of a divorce between Britain and the EU by March 2019.

FXTM research analyst Lukman Otunuga says sterling is suffering from a “horrible combination” of Brexit anxieties and a resurgent Dollar, prompting traders into waves of selling.

It seems Theresa May’s sanguine attitude to leaving the European Union while focusing on immigration may have sparked concerns of a potential hard Brexit consequently leaving the Sterling vulnerable to steep losses.

Although investors were provided some clarity when March 2017 was the date set to invoking the article 50, the uncertainty over how the Brexit negotiations will take place in the period after continues to haunt investor attraction towards the pound.

And there could be worse to come....

It should be kept in mind that the persistent Brexit fears have always had a firm grip on the Sterling with explosive levels of volatility expected in the coming months as anxiety mounts ahead of the article 50 invoke date.

Former chancellor George Osborne.

George Osborne hasn’t had a lot to cheer about recently, what with being sacked by Theresa May and seeing the central pillar of his economic plan trashed by the new chancellor, Philip Hammond.

But there’s one piece of good news for the member for Tatton; his family firm is going to benefit from the slump in the pound.

My colleague Simon Bowers has the details:

Osborne & Little, the luxury wallpaper chain owned by the family of former chancellor George Osborne, says it expects to benefit from the fall in the value of the pound triggered by the Brexit vote.

The company said there would be “limited impact” in the short term from Britain’s decision to leave the European Union, but if sterling remained weak, it would bring a “material benefit” to the business next year.

In the company’s latest accounts, they say that:

“In the short term there will be limited impact resulting from the UK leaving the EU, but if exchange rates stay as they are, in particular, the exchange rate between sterling and the US dollar, then there will be a material benefit in the year ending 31 March 2018.”

What a stroke of luck....

Remember the wild hours of 24 June, after Britain voted to leave the European Union?

Of course you do. How could anyone forget the prime minister resigning, the pound plunging, and the stock market taking an almighty bath when trading began?

But, anyone who had the foresight to buy shares at that moment is sitting on some huge gains. The FTSE 100 is now 20% higher than its worst point on that Friday morning.

Higher still and higher goes the FTSE 100.

Britain’s blue-chip stock index is now above than its record close, 7103.98, recorded in April 2015.

It’s now up 126 points, or 1.8%, at 7110, with almost every shares up.

But, at the risk of banging on... this is partly due to the slump in the pound (which makes internationally focused companies more valuable in sterling terms).

Updated

Umunna blames Brexiteers for sterling slide

Chuka Umunna MP.
Chuka Umunna MP. Photograph: Richard Gardner/REX/Shutterstock

Chuka Umunna MP, Chair of Vote Leave Watch, has seized on the slump in the pound to berate the leaders of the Brexit campaign.

In a resounding blast, Umunna says:

“Leave campaigners promised that the economy would be unaffected by a vote to leave the EU. They dismissed every economic warning as ‘scaremongering’ or ‘Project Fear’.

“Today we see how hollow their assertions were. This collapse in the value of the pound means ordinary British workers will be worse off, as prices in the shops soar and the pound in everyone’s pocket is worth less.

“The Tory conference in Birmingham reveals three cabinet members responsible for Brexit – Davis, Fox and Johnson – blind to the damage Brexit is already doing to Britain. Instead of rushing to pull out of the Single Market, they should focus on limiting the damage to our economy and maintaining as many of the current benefits we enjoy as possible.”

Umunna is absolutely right that the weak pound is pushing up the cost of imports; both finished goods and raw materials.

Some technology companies began hiking prices immediately after the referendum. Consumer goods group Unilever warned in August that prices will be pushed higher; it makes Dove Soap, icecream, biscuits and Flora.

Even bacon from China could become more expensive too.

But other companies say they hope to ‘absorb’ these costs, rather than pushing up prices. For example, baking firm Greggs said today it will do its “absolute utmost” to avoid price rises.

Ireland trims growth forecasts on Brexit fears

Ireland Flag

The uncertainty swirling around the Brexit issue has forced the Irish government to cut its growth forecasts.

Reuters has the story:

Ireland on Tuesday cut its gross domestic product forecast for 2017 on concerns about the fall-out from Britain’s vote to leave the European Union and said risks were centered “firmly to the downside.”

The finance ministry cut its 2016 GDP forecast to 4.2 percent from 4.9 percent and for 2017 to 3.5% from 3.9% and said there was considerable uncertainty to the outlook for next year with the impact of Brexit still unfolding.

“We have reduced next year’s forecast by around half a percentage point to take into account the uncertainty associated with Brexit,” John McCarthy, the finance ministry’s chief economist, told a parliamentary committee.

Around 40% of Ireland’s food and drink exports are sold to the UK, in an example of the close trade links between the two countries.

Dublin is particularly anxious about the prospect of the UK leaving the EU customs union without any new trade agreement. The future of the border between Northern Ireland and the Republic is another obvious issue -- leading to calls today for a new agreement to prevent a ‘hard border’ being established.

Time for some history: a market report from the last time the pound was worth just $1.27.

Health worries about a senior US politician? An Argentinian debt crisis? Concern about the oil price? Plus ça change, plus c’est la même chose....

Updated

Mining companies and internationally-focused firms have been the best performing companies on the London stock market this year, as this chart shows:

Best and worst-performing companies on the FTSE 100

It was sent over by Laith Khalaf, senior analyst at Hargreaves Lansdown. He reckons the market could still go higher.

With cash and bonds yielding next to nothing, equities are the natural alternative for anyone looking for a decent level of income. Nor will there be any shortage of income-seekers at the moment, as millions of baby boomers are reaching retirement age, while the recent pension freedoms conveniently allow them to park their retirement funds in the stock market rather than buying an annuity.

And on some measures, shares aren’t actually too expensive today, he adds:

If you compare share prices to company earnings, the valuation of the UK stock market is actually somewhere in the middle of its historic range, neither particularly cheap, nor dear, at current prices. This is in stark contrast to the former peak of the market in 1999, when the price-earnings ratio of the UK stock market stood at an eye-watering level.

City fears hard time after hard Brexit

The City isn’t going to get any special treatment in the Brexit negotiations, according to a new report that has alarmed some investors.

Bloomberg is reporting that PM Theresa May wants to “change the relationship between the government and the City of London”.

According to three senior figures in May’s administration, the government will refuse to prioritize the protection of the sector after the U.K. has left the European Union.

Her team has also dismissed the key business demand for an interim deal with the EU to help ease the transition out of the bloc, one of the people said. All asked not to be named because the information is sensitive.

Here’s the full piece: Banks to Miss Out on Special Favors in May’s Brexit Plans

The City fears a hard Brexit because it could prevent firms in London from offering services across the European Union.

Those ‘passporting rights’ are highly prized, but would be lost if Britain leaves the single market in 2019.

This uncertainty is already making it harder for City firms to plan, or hire new staff.

Tom Stevenson, director of personal investing for Fidelity International, suggests the London stock market could easily keep climbing, despite the clouds of Brexit uncertainty.

“As the pound plunges to a three decade low, the FTSE 100 has broken through the 7000 barrier, reaching 7,076 this morning, close to its highest ever. The first time the FTSE surpassed this milestone was in March 2015 before rising to its all-time intra-day high of 7,122 in April 2015. Since then we have seen the markets fluctuate, hitting a low in February 2016 of 5,499, before bouncing back again – an increase of 28.6 per cent.

“This is obviously good news for UK investors and no-one would complain about the market finally moving decisively on from its 1999 dot.com bubble peak. But it should be remembered that the main reason shares are rising today is the remarkable slide in the pound to its lowest level since 1985. It’s good for UK exporters and overseas earners but for foreign stock market investors it takes the edge off the latest gains.

“Can the market go further from here? Despite coming close to a new high, the valuation of the UK market is not excessive and investors still look to shares for income, growth and stability.

FTSE 100 posts triple-digit gains

London’s stock market is surging higher, sending the FTSE 100 index up by 100 points to a new 16-month high.

Shares in consumer group Unilever, drinks company Diageo, and food group Compass have all hit record highs.

And the Footsie is now hovering around 7084 points, only 38 points shy of its record high. Nearly ever share is up.

The FTSE 100 today
The FTSE 100 today Photograph: Thomson Reuters

We shouldn’t forget the proviso that this is partly due to the weakness of the pound (which boosts the share prices of companies with international earnings, as explained earlier).

But investors may also be showing some confidence in Britain’s prospects; especially after this morning’s strong data from the building sector.

Chris Beauchamp, chief market analyst at City firm IG, explains:

There may be no shortage of commentators pointing out that the index is still down in dollar terms, but with the index at its highest level in over a year there is a distinct feel-good factor among UK investors.

European markets are joining in the party, with Deutsche Bank shares resilient despite no developments on a potential reduction in the DoJ fine. The traditionally strong quarter for equities has got off to a remarkably good start, although the move has probably been helped by the lack of heavyweight data so far this month.

Today’s UK construction PMI continues the trend set by manufacturing yesterday, although with so much focus still on the UK’s path to Brexit the relief for sterling has been minimal. If tomorrow’s services number also comes in strongly the Bank of England is going to have a hard time justifying another cut in interest rates.

Updated

The resurgence in Britain’s construction sector hasn’t done the pound much good.

Sterling is still ploughing 31-year lows this morning, trading at $1.2771 against the US dollar and 87.4p against the euro.

Carlo Alberto De Casa, chief analyst at ActivTrades, says:

“This is a clear signal that the fears for a hard Brexit are becoming bigger day by day and that also the limitation of the freedom of movement is taking the investors away from the pound.”

Here’s some expert reaction to Britain’s construction sector surging back to growth in September:

Tim Moore, Senior Economist at IHS Markit:

“Resilient housing market conditions and a renewed upturn in civil engineering activity helped to drive an overall improvement in construction output volumes for the first time since the EU referendum.

“A number of survey respondents noted that Brexit- related anxiety has receded among clients, although it remained a factor behind the ongoing decline in commercial building work.

Mike Chappell, Global Corporates managing director for construction at Lloyds Bank Commercial Banking

“Far from being overwhelmingly downbeat, many construction firms, particularly those at the larger end of the market, have indicated that the EU referendum result has – so far at least – had little impact on business.

“The industry has also been buoyed by the Government’s decision to press ahead with Hinkley Point, one of the most significant infrastructure projects of recent decades. Even if not all in the sector will share in the spoils, the move suggests a commitment to infrastructure, underlined by encouraging comments from the chancellor at the Conservative Party conference. Other major projects, such as HS2 and the airport expansion in the South East, are also in the pipeline.

“On the other side of the coin, the weakness of sterling continues to make raw materials more expensive for those without relevant hedging and the expectation of many is that inflation is set to become more of a headache during 2017.”

Paul Trigg, construction specialist and assistant head of risk underwriting at Euler Hermes, said:

“Construction is sitting in the eye of the storm. The sector has yet to feel the full brunt of Brexit as a healthy pipeline of work will carry companies through the next 12 to 18 months. Triggering Article 50 is likely to spark a significant change, and encouraging indicators could be false positives.

“The Government has an opportunity in the Autumn Statement to strengthen the commitment to infrastructure spending. Projects like Hinckley Point, together with smaller scale developments to keep the economy moving, will be on the wish list of a sector that needs more prospects on its horizon.”

Construction sector

Updated

Some snap analysis:

Updated

UK construction sector rebounds after Brexit vote

Boom! Britain’s building sector had surged back to growth, new data shows.

In the latest sign that the Brexit vote has not hurt the economy, the monthly construction PMI has leapt to 52.3 in September, up from 49.2 in August.

That’s much stronger than expected. It means activity in the sector increased last month, at the fastest rate since March (any reading over 50 = shows growth).

Markit, which compiles the report, says that residential housebuilding drove the recovery. There was also a welcome pick-up in new orders, after four months of “sustained decline”

UK construction PMI
UK construction PMI Photograph: Markit

The PMI, or purchasing managers index, measures activity, new orders, and confidence in the sector.

More to follow...

The important point about today’s selloff is that the pound has slumped below its lowest point after the EU referendum.

That strongly suggests that traders have been unsettled by the prospect of Britain leaving the EU, and the single market, as early as March 2019.

By falling through July’s lows, the pound is now at levels only seen during the sterling crisis of 1985.

Back then, the world was struggling to cope with a particularly strong US dollar, as America’s central bank held interest rates high to tackle inflation (which encouraged traders to hold dollars).

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

Kit Juckes of French bank Société Générale also blames the Conservative Party for sending pound down to levels last seen in 1985.

Confirmation that the UK Government plans to trigger article 50 by the end of Q1 2017 hit sterling harder than I expected yesterday, which is saying something.

Some sort of a bounce is possible today but the noises from the Conservative party conference aren’t helpful. There will be fiscal slippage as the Chancellor won’t try to hit previous deficit reduction targets, but a significant easing is not on the cards. Nor is the government showing any signs of shifting a position where control on immigration is the hardest of lines in negotiations to leave the EU, and won’t be sacrificed or watered down in order to keep access to the single market, particularly for financial services. There’s nothing there to soften the outlook for sterling, at all.

Ana Thaker, Market Economist at PhillipCapital UK, believes the pound could slump to $1.25, or worse, as exit talks with the European Union get underway.

She says:

There is great uncertainty regarding how the Brexit negotiations will take shape and this could see a renewed bout of volatility in the currency.

The Bank of England could also seek to stabilise markets if volatility continues but it remains to be seen how far Sterling could drop with the $1.25 being the next target level; whilst it could dip lower than this, there is likely to have to be significant developments for the pair to reach the $1.20 level.

FTSE 250 hits record high

The FTSE 250 index of medium-sized companies has hit a new record high!

That’s significant, as the index is seen as more representative of the UK economy than the heavyweight FTSE 100.

The FTSE 250 index
The FTSE 250 index Photograph: Thomson Reuters

Updated

Hats off to Bloomberg for this chart, which shows how the London stock market rally is partly due to the drop in the pound since 23 June.

Updated

The prospect of a ‘hard Brexit’ is hurting the pound, says Conner Campbell of SpreadEx:

It seems that it is going to be hard to provide a tourniquet for sterling’s recent wounds given the solidity of the newly announced Brexit timeline (with March set to go down in the history books as when Article 50 was triggered), and the firmness with which May stated her intention to chase border control even if it means relinquishing Britain’s position in the single market.

Today’s selloff is reinforcing the pound’s claim to be the worst-performing major currency of 2016.

This chart shows how the pound has weakened sharply against all its major rivals:

Bloomberg newsflash

FTSE 100 hits 7,000 points (but......)

While the pound slides, shares are soaring in London.

The FTSE 100 index of leading blue-chip companies bounced excitedly over the 7,000 point mark at the start of trading, to a new-16-month high.

It’s up 52 points to 7040, up 0.85%, as money pours into shares.

BUT.... before anyone gets excited, it’s important to note that this is partly due to the pound’s weakness.

The Footsie is packed with internationally-focused firms, whose overseas earnings are worth more when the pound is lower.

And if you price the FTSE in dollars, not pounds, it’s certainly not at a 16-month high....

Updated

Bloomberg says “Brexit angst” is hurting the pound:

The pound dropped to a three-decade low, as investor concern about Britain’s exit from the European Union welled up after Prime Minister Theresa May’s announcement that she would begin the process of leaving the bloc in the first quarter of 2017.

Sterling fell beyond its post-Brexit-vote low, and was down against 29 of its 31 major peers. During the first day of the Conservative Party’s annual conference in Birmingham on Sunday, May promised to curb immigration and set a date for Britain to trigger Article 50, which starts a two-year withdrawal process.

Pound hits 31-year low after Brexit timetable released

Newsflash: the pound has hit a new 31-year low against the US dollar.

It has shed 0.5% in early trading in London, dropping to $1.2778.

That’s its lowest level since June 1985, and almost 15% weaker than before the EU referendum on 23 June.

The pound has also ploughed to a new three-year low against the euro, at 87.51p.

Sterling has been under pressure since UK government announced on Sunday it would trigger the process of leaving the European Union by the end of March 2017.

City investors are also concerned that Britain appears to be on track to leave the EU single market, as it places a priority on restricting immigration into the UK.

Currency expert Kathleen Brooks, of FOREX.com and City Index, pins the blame on events at the Conservative party conference in Birmingham.

The Tory party conference is turning into a sell for the pound, as FX traders get spooked by May’s apparent sanguine attitude to leaving the single market, preferring to focus on immigration and UK sovereignty rather than the economic fallout of Brexit.

Phillip Hammond, the UK’s new Chancellor, didn’t help the pound either when he suggested that George Osborne’s fiscal rules will be abandoned and government spending increased. This is designed to cushion some of the blow from the UK’s departure from the European Union. However, it is likely to weigh on the UK’s already large budget deficit, which is another blow to the pound at the start of the new quarter.

More reaction to follow!

Updated

The agenda: Construction survey and IMF report

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

The health of Britain’s economy will probably dominate the agenda today, as the UK faces up to the prospect of exiting the EU by spring 2019.

For starters, we get a new health check on Britain’s construction sector, at 9.30am BST.

Economists predict that activity in the building industry contracted a little in September, as the sector’s recession continued.

CMC Market’s Michael Hewson says:

The construction sector has been a significant underperformer in the last three to four months, posting sub 50 readings every month since June. Expectations are for a reading of 49.1, slightly down from 49.2 in August.

Yesterday, though, we got some extremely decent manufacturing data - showing the biggest surge in two years. So a surprise can’t be ruled out.

The big news comes at 2pm BST, though, when the International Monetary Fund publishes its latest assessment of the global economy.

This will be the first World Economic Outlook since the Brexit vote in June, so it will be fascinating to see the IMF’s view today.

Back in June, they warned that Britain would lurch into recession if it voted to leave the EU; obviously its early days, but the economy does seem to be coping OK so far.

It’s not all about the UK, though. Germany’s Deutsche Bank remains under pressure to agree a fine for mis-selling mortgage backed securities.

Its shares will reopen at 8am, after a Monday holiday in Frankfurt...

We’ll be tracking all the main events through the day....

Updated

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