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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Pound jumps after Haldane turns hawkish and UK deficit falls – as it happened

Andy Haldane, chief economist at The Bank Of England.
Andy Haldane, chief economist at the Bank Of England. Photograph: ANL/REX Shutterstock

Oil price recovers after surprise inventory figures

And finally....the latest US oil inventory figures are just out, showing that US crude and gasoline inventories fell last week.

The US Energy Information Administration reports that US oil stocks shrank by 2.5 million barrels, more than the 1.01 million which the markets had expected.

In another surprise, gasoline inventories fell 578,000 barrels - compared to expectations of a 345,000 rise in gasoline stocks.

This has help to push the oil price up a little, away from this week’s seven-month lows. Brent crude is now up 0.25% today at $46.13.

That’s probably all for today. Thanks for reading and commenting. GW

The US housing market has strengthened unexpectedly last month, according to new figures.

Sales of US homes, excluding new builds, rose by 1.1% in May to an annual rate of 5.62 million sales.

Average house prices also jumped during the month to record levels, suggesting demand was stronger too.

This has pushed up the US dollar, pulling the pound back down below $1.27.

Supermarket giant Tesco are back in the news again today, for the wrong reasons.

Tesco Bank’s online banking service has suffered a glitch today, that has left some customer unable to access their accounts.

Yesterday, Tesco’s online shopping scheme hit a pothole, leaving scores of customers without their deliveries.

And in another blow today, Tesco has proposed closing its customer service centre in Cardif, putting 1,100 jobs at risk.

It is planning to consolidate its two customer engagement centres into a single expanded operation in Dundee, Scotland, and creating 250 new jobs there.

Fawad Razaqzada, market analyst at Forex.com, says Andy Haldane’s speech has been the main event of the morning.

Haldane’s concerns about not waiting too long to normalise policy could help the pound strengthen against the euro in the next few weeks, he says - just in time for the summer holiday season!

Razaqzada says:

Forget the Queen’s Speech, it was all about Andy Haldane this morning. The pound jumped and the FTSE dropped after the Bank of England’s chief economist and Monetary Policy Committee member said he’s ready to vote for an increase in interest rates “relatively soon”. This came as a major surprise because Mr Haldane has long been a known dove. He is going head-to-head against the Governor Mark Carney, who is fast losing support on his dovish stance. He said that “a partial withdrawal of the additional policy insurance the MPC put in place last year would be prudent relatively soon.”

Mr Haldane said that the risk was that the Bank tightened its belt too late rather than too early. This is something which the Bank of Canada is also worried about and what the US Federal Reserve had long been wary of, and the European Central Bank better be ready for. The latter came across pretty dovish at its last meeting. With the BoE turning hawkish and ECB remaining dovish, the EUR/GBP could come under pressure in the coming days and weeks.

He also sent this image of the €-£ exchange rate, showing how the euro hit eight month highs against the euro recently, but couldn’t break through 88.8p.

The euro vs the pound
The euro vs the pound Photograph: Forex.com

Haldane’s hawkishness has helped the pound to recovery almost all of the losses suffered yesterday, after BoE governor Mark Carney explained why interest rates ought to remain at record lows.

Lena Komileva of G+ Economics reckons there’s now a 50% chance of a UK interest rate rise this year.

She says:

The growing split on the MPC signals a much higher risk of tightening this year than previously expected in the markets.

With two new members joining the MPC in the second half of the year, an active policy debate on the merits of tightening, against the optics of a strong inflation overshoot, overheating consumer credit growth, and a tight labour market, may well tilt the vote in favour of a rate hike by the year-end.

The Haldane effect has pushed the pound back over $1.27, a whole cent higher than this morning’s lows.

Following Andy Haldane’s speech, there are now at least four Bank of England policymakers who are likely to vote for rate rises this year.

However... one of them, Kristin Forbes, leaves on 30 June.

That leaves Ian McCafferty and Michael Saunders, who both voted to raise interest rates from 0.25% to 0.5% at this month’s meeting.

Forbes’s replacement, Silvana Tenreyro, may not be as hawkish (but who knows?).

So the monetary policy committee could be split 6-3*, unless other members are thinking along the same lines as Haldane. The next MPC meeting is in early August.

* - Or 5-3, until the vacancy for a deputy governor is filled.

Duncan Weldon of Resolution Group thinks Haldane’s change of mind is an important sign..

Updated

Haldane turns hawkish: What the experts say

Andy Haldane’s hint that UK interest rates may rise this year is particularly interesting as he had been seen as the most dovish policymaker at the Bank of England.

With one speech, Haldane has shed his dovish feathers in favour of a hawkish summer plumage.

Michael Hewson of CMC Markets says there is a big split at the Bank of England.

Ben Chu of the Independent flags up that Haldane has sounded hawkish before, only to flip when the facts changed...

Rupert Harrison of asset management firm BlackRock (and a former top Treasury official) suggests that Haldane may be trying to annoy his boss.

Claus Vistesen of Pantheon Economics wonders if the Bank of England is trying to push the pound up, in an attempt to keep inflation down (something usually associated with emerging markets).

Jeremy Cook of World First suggests that Haldane’s comments caused some ructions on FX trading desks in the City:

Haldane: UK interest rates may rise later this year

Andy Haldane.
Andy Haldane. Photograph: ANL/REX Shutterstock

Newsflash: The Bank of England’s chief economist has declared that UK interest rates may have to rise later this year.

Speaking in Yorkshire, Andy Haldane argued that the recent spike in inflation, to 2.9%, means the risks of waiting too long to tighten monetary policy have increased.

As such, he says, rates may need to rise “well ahead” of City expectations.

It may make sense, Haldane adds, to start withdrawing some of last summer’s stimulus (injected after the Brexit vote) later this year. It would even be a sign of confidence in the UK recovery.

Here’s the key section from Haldane’s speech:

Having weighed the evidence, I think that the balance of risks associated with tightening “too early”, on the one hand, and “too late”, on the other, has swung materially towards the latter in the past six to nine months. The risks of tightening “too early” have shrunk as growth and, to lesser extent, inflation have shown greater resilience than expected. And if policy tightened “too late”, this could result in a much steeper path of rate rises later on, contrary to the MPC’s collective expectation that Bank Rate would increase ‘at a gradual pace and to a limited extent’.

As the balance point between these risks has shifted over the past 9 months, that has left me judging that a partial withdrawal of the additional policy insurance the MPC put in place last year would be prudent relatively soon, provided the data come in broadly as expected in the period ahead.

Certainly, I think such a tightening is likely to be needed well ahead of current market expectations.

How soon is “relatively soon”? I considered the case for a rate rise at the MPC’s June meeting. I felt then there were strong grounds for holding back until later in the year, for two reasons. First, despite upwards pressure on inflation, there are still few signs of higher wage growth. And despite robust surveys, there is still some chance of a sharper than expected slowing in the economy. Both are reasons for monetary policy not to rush its fences. Nor does it need to do so, given the slow build of nominal pressures in the economy.

Second, there is the election. This has thrown up a dust-cloud of uncertainty. Financial markets-wise, that is manifesting itself in a weaker exchange rate. It is unclear what twists and turns lie ahead, with potentially important implications for asset prices and, at least potentially, confidence among businesses and consumers. I do not think adding a twist or a turn from monetary policy would, in this environment, be especially helpful in building confidence, at least until the dust-cloud has started to settle.

Provided the data are still on track, I do think that beginning the process of withdrawing some of the incremental stimulus provided last August would be prudent moving into the second half of the year.

That’s an important intervention. Last week, three MPC policymakers (but not Haldane) voted for a rate hike. But just yesterday, governor Mark Carney argued forcefully that it is too early....

Updated

Back in the markets, shares in doorstep lender Provident Financial have slumped by 16% this morning after a shock profits warning.

The FTSE 100-listed lender admitted last night that its recent reorganisation - which eliminated around 2,000 - had caused more disruption than expected.

Provident appears to have botched its attempts to persuade self-employed debt collectors to become full-time staff instead.

CEO Peter Crook told analysts today that too few workers made the switch.

“We didn’t get it right. The incentives we had in place and the other management actions and communications that were there, were not sufficient to retain the number of agents that we anticipated.”

Updated

The pound has recovered its early losses following this morning’s public finance figures.

Sterling is back at $1.263, as traders watch for any surprises in the Queen’s Speech, which begins shortly.

Our Politics Liveblog will have all the details:

PwC: Boost to Hammond, but storm clouds ahead

John Hawksworth, PwC chief economist, says today’s public finance figures are a boost to Philip Hammond, at a crucial time.

“Today’s public finance data brought some good news for the Chancellor as estimated borrowing was revised down by around £2 billion in the last financial year and a further £1 billion in April.

“Taking April and May together, the deficit of around £16 billion was very similar to the same two months last year, whereas the OBR had forecast that borrowing would rise this financial year as one-off favourable factors unwound.

“Of course, it is very early days in this financial year, but the Chancellor will take some cheer from these figures.

However, Hawksworth is also concerned that the UK economic picture is darkening:

The economy is slowing and considerable uncertainties remain around the outcome of the Brexit negotiations. At the same time, political pressures for higher spending on health, social care, education, policing, social housing and public pay more generally have increased.

“The Chancellor therefore still faces some tough challenges ahead if he is to meet his target of a balanced budget by 2025. But his interim target of getting the structural budget deficit below 2% of GDP by 2020/21 looks much easier to achieve and gives him some room for manoeuvre on tax and spending over the next few years.”

The £300m drop in the deficit in May shows that the UK public finances started the year on a solid footing, says Capital Economics.

However, they also expect total borrowing to rise during this financial year.

Their UK economist, Scott Bowman, says:

The strong revenue growth partly reflected a 4.3% rise in VAT receipts – perhaps a sign that consumer spending growth hasn’t slowed too sharply recently.

That said, we wouldn’t read too much into the borrowing figures for the first few months of the fiscal year as they are based on a significant amount of forecast data. Accordingly, we still think that borrowing for the fiscal year as a whole will increase by several billion pounds (the OBR expects a £7bn rise) as a number of one-off factors that lowered borrowing in 2016-17 unwind.

Treasury: More work to do on the deficit

The Treasury in London.
The Treasury in London. Photograph: Alamy

Britain’s finance ministry has welcomed the drop in borrowing last month, but admitted that the task of repairing the public finances isn’t complete.

A Treasury spokesperson says:

‘We have reduced the deficit by three-quarters since 2010 but there is still further to go.

We are committed to bringing the public finances back to balance by the middle of next decade, building a stronger economy that can deliver higher living standards for people across the country.’

Fact check: That ‘three-quarter’ claim refers to borrowing as a share of the national economy. The deficit was 9.9% of GDP in 2010, and fell to 2.6% of GDP in 2016.

Yesterday, chancellor Philip Hammond said the government aims to eliminate the deficit by the middle of the next decade. A far cry from George Osborne’s goal of balancing the books by 2015.....

Updated

Public finances: What the experts say

Here’s some reaction to the news that Britain’s deficit fell to £6.7bn last month:

Economist Rupert Seggins points out that UK public sector borrowing has dropped, a little, so far this financial year:

KPMG’s chief economist, Yael Selfin, fears that the public finances may deteriorate in the months ahead:

Howard Archer of EY Item Club believes VAT receipts rose in May thanks to a pickup in retail sales in April:

Today’s public finance report also shows that Britain’s total national debt is now £1.737 trillion -- or 86.5% of annual GDP.

UK budget deficit falls as VAT takings rise

Britain’s budget deficit fell by £300m in May, giving a glimmer of hope to the UK government as it wrestles with Brexit.

New figures from the Office for National Statistics show that the UK borrowed £6.7bn to balance the books last month.

That’s down from £7bn in May 2016, and rather less than April’s £9.4bn deficit.

The public finances were boosted by an increase in the tax takes. VAT receipts rose by 4.3% to £11.2bn in May, which looks to be the highest for any May on record.

The figures show that Britain has borrowed £100m less since the start of this financial year than in 2016-2017. OK, we’re only two months in, but it’s not a disastrous start...

UK public finances
UK public finances Photograph: ONS

I’ll pull together some reaction now...

Updated

Chinese shares surge after MSCI boost

Investors in Beijing, China. Red = rising prices
Investors in Beijing, China. Red = rising prices Photograph: Ng Han Guan/AP

It’s been an exciting day on the Chinese stock market.

The CSI 300 index, which contains the biggest companies traded in Shanghai and Shenzhen, jumped 1.2% to its highest closing level since the end of 2015.

Traders rushed to buy shares after US stock index provider MSCI announced it would add some China’s mainland domestic shares to its emerging markets index.

That move will have been warmly welcomed in Beijing as it attempts to open up its financial markets and attract foreign capital.

Jamie McGeever of Reuters shows how the pound has fallen back to two-month lows since the general election delivered a hung parliament.

Pound hits fresh two-month low

Breaking! The pound has slipped to a fresh two-month low against the US dollar.

Sterling has just fallen below $1.26 for the first time since mid-April, when Theresa May took the fateful decision to call a general election.

It’s lost a third of a cent today to $1.2593.

Yesterday, the pound weakened after Bank of England governor Mark Carney said it was too early to raise interest rates.

Today’s selloff may be due to political instability in Westminster, and tensions between the Conservative party and the DUP over a possible deal.

Connor Campbell of SpreadEx explains:

Sterling also had a miserable open this Wednesday, the pound falling 0.3% against the dollar and 0.2% against the euro.

That’s because, despite the state opening of parliament being just a few hours away, Theresa May is yet to fully secure the support of the DUP, the Irish party unhappy with what they see as a lack of respect from certain sections of the Conservatives.

WSJ: Why oil is back in a Bear Market

Opec’s highly publicised production cuts have actually turned into a win for US oil producers.

American shale oil firms have raised their own output as the oil price recovered earlier this year, undermining efforts to cut the global glut of oil (leading to this week’s price falls).

The Wall Street Journal explains:

U.S. producers ramped up production when the world was already swimming in oil as OPEC members, Russia and other producing nations curtailed output.

U.S. oil production is up 7.3% to 9.3 million barrels a day since OPEC announced plans in November to cut output, and the number of active rigs in the U.S. is at a two-year high.

The cartel’s output cut “has been deemed an OPEC failure and a U.S. production win,” said Tony Headrick, energy analyst at CHS Hedging.

Oil prices are coming under more pressure this morning, knocking 1% off the price of Brent crude and Nymex.

US Brent crude
Brent crude Photograph: Bloomberg TV
US crude oil prices
US crude oil Photograph: Bloomberg TV

European stock markets are falling in early trading, as oil’s drop worries investors.

The FTSE 100 has shed 22 points, or 0.3%. BP and Royal Dutch Shell are among the big fallers, down over 1% each.

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

Taxi for Travis....

FILE PHOTO - Uber CEO Kalanick.

Big news from America: Uber chief executive Travis Kalanick has resigned after a series of scandals at the ride-hailing business he co-founded in 2009.

Kalanick’s departure comes a week after he announced he would take an indefinite leave of absence as the embattled company released a damning report on its workplace culture.

According to the New York Times, five of Uber’s major investors demanded that the chief executive resign immediately, following revelations about its workplace culture and reports of harassment and discrimination.

In a statement, Kalanick said:

“I love Uber more than anything in the world and at this difficult moment in my personal life I have accepted the investors request to step aside so that Uber can go back to building rather than be distracted with another fight.”

More here:

Updated

Oil price woes: What the experts say

Nordic bank Danske say that oil’s slide into a bear market is worrying investors worldwide:

FXTM research analyst Lukman Otunuga predicts that prices will keep falling:

Oil’s ongoing oversupply woes reached an ear-piercing crescendo during Tuesday’s trading session as WTI Crude plunged into a bear market after growing signs of rising production across the globe. WTI Crude was already extremely sensitive and vulnerable to losses amid the bearish sentiment with reports of an unexpected supply increase by Libya sending prices below $43.

Although OPEC initially displayed good intentions when it exempted some members from the production cuts, this has come back to haunt them with more production from Libya, Nigeria, and Iran. With the bias towards oil heavily tilted to the downside, further losses should be expected as bears exploit persistent oversupply concerns to ruthlessly attack the commodity.

This is from Jonny Bo Jakobsen of Nordea Markets:

Michael Hewson of CMC Markets also expects oil to keep sliding this summer:

The risk is we could see further declines, particularly if shale producers continue to add rigs, and demand continues to slow in Asia, and there are no further supply disruptions.

The key support levels sit down at the November lows at $43 on Brent and $42 on US WTI, which if they give way $40 could come into view very quickly indeed and drag equity markets down with them, especially if today’s weekly inventory data disappoints.

The agenda: Oil price weight on markets

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

Traders are edgy this morning after the oil prices tumbled to seven-month lows.

The cost of a barrel of Brent crude has slumped below $46 per barrel for the first time since November 2016, dragged down by signs that the market is oversupplied.

US crude prices also took a bath, falling 20% from their recent highs to around $43.50 per barrel. That put oil into a bear market for the first time since August, on signs that the global supply glut of oil isn’t going away.

These moves show that the oil market is losing faith in the Opec cartel’s ability to prop up prices, despite producers recently agreeing to extend production curbs until March 2018.

Amanda Cooper, Reuters’ oil expert, tweets that bearish oil traders have the upper hand.

The selloff was partly triggered by signs that Libya has tripled its production levels in the last year.

Libya is an Opec member, but exempt from its production cuts deal, as Naeem Aslam of Think Markets explains:

As for the black gold, investors are becoming a little anxious towards the rising production out of Libya, however, OPEC has stated it before that the production level out of Libya is already taken into account in the part of their production cut strategy. Saudi Arabia also reported higher export data on Tuesday.

It is important that not only production cuts are under control but also the export numbers as well.

New oil inventory figures are released by the US government later today, which could move the markets again....

Also coming up today.

Never exactly a shrinking violet, the UK economy will gambol back into the spotlight this morning when public finance figures for May are released.

The City predict that public sector net borrowing fell to around £7bn, from over £9bn in April a year ago , as the long drudge of deficit reduction continues.

Over in parliament, the Queen will outline the government’s legislative programme - even though prime minister Theresa May hasn’t agreed a deal with the DUP to prop up her government.

The Queen’s speech is likely to be dominated by Brexit, as the BBC’s Norman Smith explains...

The Bank of England’s chief economist, Andy Haldane, is visiting Yorkshire and the Humber. Haldane’s speeches are always good value (remember the one about the dog chasing the frisbee?), so we’ll be scrutinising this one closely.

The agenda:

  • 9.30am BST: UK public finances for May released
  • 11.30am BST: Queen’s Speech
  • 12pm BST: Bank of England’s Andy Haldane speaks in Yorkshire
  • 3pm BST: US home sales
  • 3.30pm BST: US crude oil inventory figures

Updated

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