Pound hits lowest level since early January as Brexit crisis rages - as it happened

Graeme Wearden

from Economics | The Guardian on 2019-05-22 18:59 (#4FMA6)

Sterling weakens amid reports of cabinet ministers turning on Theresa May

Latest: Pound slides to $1.263 as pressure builds on PM
Brexit-sensitive stocks rocked
Pound down against euro for 13th day running
British Steel in liquidation

Earlier:

7.59pm BST

Finally (unless we get more financial fluctuations), here's our story about the pound's record-breaking slump against the euro (bad news for Brits heading abroad this summer).

7.58pm BST

There's just time for one more jolt for the City to digest -- Leader of the House of Commons Andrea Leadsom has resigned tonight, in protest at Theresa May's Brexit strategy.

Leadsom is unhappy about the latest concessions proposed by May to persuade MPs to back the Withdrawal Agreement, including a vote on a second referendum.

7.17pm BST

In other news tonight, Topshop owner Philip Green has outlined plans to close 23 stores as part of the rescue of his Arcadia retail chain.

The closures would cost 520 jobs.

7.13pm BST

The pound has crept back a little in late trading, after it became clear that Theresa May was going nowhere (tonight, anyway).

The PM is sitting tight, and Conservative MPs on the famous 1922 committee have declined to change their rules to allow an immediate leadership challenge.

5.25pm BST

Sterling could fall further if Theresa May is replaced by a more hard-line Brexiteer, says Fiona Cincotta of City Index:

The pound tanked lower as rumours circulate that Theresa May could resign within the next 24 hours amid Brexit chaos. The pound fell to a fresh 4 month low against the dollar and the euro. The backlash from Theresa May's revised Brexit deal was almost immediate and has continued intensifying over recent hours.

The overriding concern for pound traders is who will replace Theresa May. A pro- Brexit candidate and a no deal Brexit becomes very likely. Under these circumstances the pound could fall back towards $1.20.

4.07pm BST

Sterling has fallen nearly four cents against the US dollar this month, a bleak performance.

Ranko Berich, Head of Market Analysis at Monex Europe, says:

"At this rate, sterling is on track for its worst month since October 2016, when fears of a deliberate hard Brexit drove selling"

3.35pm BST

Neil Wilson of Markets.com agrees that the turmoil in Westminster is hurting the pound:

News wires are flashing with a slew of reports suggesting the PM is about to be ousted. It seems the cabinet has now had enough and if they don't move now Theresa May will be safe for a while longer. The pressure on the PM is intense and it's hard to see how she can survive. We should caution though that she is the master of clinging on no matter what.

For the market this opens up the prospect of more uncertainty, the potential of a Brexiter PM, a General Election and perhaps a second referendum. In other words it just makes things even more chaotic. However, we should caution that a sell the rumour, buy the fact trade may well be at work - as soon as things become clearer sterling is ripe for a bounce - the more it's sold the riper it becomes as the trade looks increasingly crowded.

3.33pm BST

Shares in UK building firms are also under heavy pressure, a clear sign that fears of a no-deal Brexit are rising.

Persimmon (-5.6%), Berkeley Group (-4.2%), Barratt (-4.1%) and Taylor Wimpey (-4%) are all among the top fallers on the FTSE 100.

In last half hour -
1. Cabinet minister told me it's the 'end of the line' - and they will tell PM
2. Another says she can't make it beyond Mon (EU elex results are overnight Sun/Mon)
3. Another says she must stay - 'no difference' whether goes now or in a few weeks

3.22pm BST

My colleague Andrew Sparrow is tracking all the action at Westminster, as the PM's future hangs in the balance...(not for the first time, of course)

3.21pm BST

These tweets sum up the crisis facing Theresa May this afternoon, and explain why the pound is sliding....

RECAP: The situation PM faces this afternoon following conversations with sources:
1. 1922 exec meets at 4 with some now hell bent on changing rules to shift PM
2. Scottish Sec to see PM to discuss her future
3. Delegation of leave ministers also seeing PM to express their anger pic.twitter.com/h8XJPWaxId

More significant are plans for a group of Brexit-backing Cabinet ministers to see the PM this afternoon. One cabinet source says: "If you don't do it today, she's safe for two weeks."

Minister: "it's over. You may not see the result today but it's happened. You might have to wait till Friday for the podium but she's done."

3.13pm BST

The pound is coming under renewed pressure, hitting a new four-month low against the US dollar.

Sterling fell as low as $1.2625, its lowest point since the 4th of January. It's also down further against the euro, at a1.132.

Cabinet ministers were this afternoon discussing sending a delegation to tell Theresa May she should resign after botching her "last chance" at a Brexit deal.

At least four ministers were said to be in talks about calling time on the Prime Minister after her attempt to get cross-party backing for a new plan hit a wall of opposition.

Theresa May still doughtily defending her bill in the Chamber - but one cabinet source says, "something funny going on here... may move very fast."

Understand David Mundell has asked for a meeting with the PM later, because of concerns about how May has presented the second referendum issue. He feels any hint the government backs a PV gives the Scottish Tories a massive headache with the SNP.

2.38pm BST

With mobile operators shunning its phones, and ARM dramatically blocking work with the firm, Huawei's problems are deepening.

The crisis escalated last week when it was placed on a US trade blacklist, preventing the firm buying goods and services from American firms without government permission.

2.37pm BST

Here's our news story on EE's decision to drop Huawei phones like a hot potato:

2.23pm BST

In another blow to Huawei, two of Britain's mobile operators have decided not to offer its handsets to customers joining their new 5G networks.

EE announced this morning that it will launched the UK's first ultra-fast 5G network later this month, in Belfast, Birmingham, Cardiff, Edinburgh, London, and Manchester.

EE CEO Marc Allera said EE had put the Huawei 5G devices "on pause" until it has more information and confidence that the handsets would be supported for the lifetime of the devices.

But the vendor's equipment is still in EE core network; the UK government is currently deciding whether Huawei kit should be allowed in the nation's 5G networks.

1.58pm BST

Huawei has confirmed that ARM has suspended work with it, and blamed "politically motivated" decisions -- namely America's decision to blacklist it last week.

A spokesperson for the Chinese tech firm says:

"We value our close relationships with our partners, but recognize the pressure some of them are under, as a result of politically motivated decisions,

We are confident this regrettable situation can be resolved and our priority remains to continue to deliver world-class technology and products to our customers around the world."

1.54pm BST

The Financial Times reports that the ARM ban will hurt Huawei:

Huawei confirmed that it had been informed over the weekend that Arm would stop doing business with it. The company's current chip set, Kirin 980, is built on Arm designs and will not be affected for about a year, it said.

Kirin 980 can quickly adapt to AI scenes such as face recognition, object recognition, object detection, image segmentation and intelligent translation with the power of a dual-core NPU achieving 4500 images per minute which is an improved 120% recognition speed. So whether it's dancing to a fast song or quickly running in front of the camera, the Kirin 980 can focus on the joints and lines of the human body in real time

1.36pm BST

ARM has issued a brief statement on the Huawei ban, saying:

"ARM is complying with all of the latest regulations set forth by the U.S. government.

No further comment at this time."

1.32pm BST

The crisis facing Huawei has deepened today, as British chipmaker ARM suspended business with the Chinese company.

ARM took the move after America put Huawei on its "banned entity" list, which forbids US companies to supply it with technology.

An exclusive from @DaveLeeBBC - UK chip designer ARM has sent a memo to its staff telling them to suspend business with Huawei in a move that could threaten the Chinese firm's ability to create its own smartphone chips https://t.co/778iE5TUnl

1.23pm BST

The sight of Theresa May hanging onto her premiership by her fingernails is hurting sterling, says Fawad Razaqzada, analyst at foreign exchange firm Forex.com.

It looks like the Conservatives have had enough of their Prime Minister, as calls grow ever louder from her own party to quit. Although Mrs May looks dejected, she will not bow out without a fight. She still fully intends to put her Withdrawal Agreement Bill to a vote in the Commons in the week beginning June 3 for one last time.

This time, she has promised to offer Parliament a choice on customs arrangements and a vote on a second referendum, if they pass her withdrawal agreement bill. Essentially, the deal is very similar to the previous three that have already been rejected and offers nothing significant to appease hard line Brexiteers.

"Historically, we are at significantly low levels and have been since the Referendum. In the short term risks remain for the pound and are unlikely to go away anytime soon.

The withdrawal agreement will go back to the Commons at the start of next month - coincidentally the same week Donald Trump is in town - and more imminently we have the EU elections which it seems like the Brexit party are going to dominate in. The risk of No Deal was at its highest just before Christmas where the low was cemented around 1.25. This is the closest we have been to that since the turn of the year."

1.10pm BST

The pound has continued to slide on the foreign exchange markets, as Brexit uncertainty bubbles away.

Sterling continues its record-breaking losing run against the euro, down half a eurocent at a1.1320. That's a new three-month low, and the 13th daily fall in a row - the worst since the euro was created 20 years ago.

No cheers, no jeers, no booing even, just the worst sign for a prime minister possible in the chamber- a consistent dull muttering. They're not even listening any more.

Hearing there are "ongoing conversations" among cabinet ministers about whether there is any point at all in pressing the wab to a vote. "Today could be fluid", says one cabinet source. All eyes on the PM's statement this afternoon.

Pizza club absent from frontbench as PMQs gets underway. Karen Bradley has moved to fill Andrea Leadsom's usual seat

12.38pm BST

Financial analyst Frances Coppola certainly isn't convinced that Brexit uncertainty drove British Steel to the wall.

The fact the company is now being liquidated means it is effectively insolvent, suggesting more deep-seated problems.

OMG. British Steel has gone in to compulsory liquidation, not administration as was predicted. In other words it is totally bust and short-term loans would not have saved it. Just like Carillion.

I agree. British Steel tried to coerce the government into supporting them by arguing that their problems were due to Brexit uncertainty, but I don't believe it. Compulsory liquidation means they are completely bust. Can't see Brexit slowdown causing that.

12.26pm BST

Greybull Capital has insisted that Brexit uncertainty, not mismanagement, caused British Steel's demise.

A spokesperson says:

"Having rescued the business from closure over three years ago, we have worked hard to bring this important company back on its feet. Since 2016 we have arranged a financing package of more than 500 million, appointed a new and talented management team, helped the business open up new markets and reduce costs whilst addressing long-term underinvestment.

"The turnaround of British Steel was always going to be a challenge, and yet the business overcame many difficulties, and until recently looked set for renewed prosperity.

"The Workforce, the Trade Unions and the Management team, have worked closely together in their determination to strengthen the business, however, the additional blows dealt by Brexit-related issues have proven insurmountable.

We are grateful to all those who supported British Steel on the attempted journey to resurrect this vital part of British industry. We are now focused on assisting all involved as best we can through this process."

12.10pm BST

Here's our news story on today's rise in inflation:

12.09pm BST

12.08pm BST

British Steel's liquidation has already sent shockwaves through the sector.

Industrial and property group Hargreaves Services warned investors this morning that its revenues and profits would be hit if British Steel failed. Its share price has slumped by 15% this morning, to a two year low.

"The closure will have a huge knock on impact across the communities surrounding the company's plants. A raft of small firms like caterers, cafes, cleaners, shops and visitor attractions, all of which employs their own staff, rely heavily on British Steel.

"Businesses throughout the supply chain will need guidance and support as the situation develops."

The first potential casualty in the supply chain- Hargreaves Services warns of profit hit from possible British Steel... https://t.co/lMNAr6pycy #BritishSteel

11.42am BST

Greybull Capital, the private equity firm which owned British Steel, is facing serious questions over the company's collapse.

Greybull bought the business for 1 in 2016, and have since taken millions out of the company in management fees.

A fortnight ago the government agreed a 120m loan to cover British Steel's cost of buying carbon credits under an EU-scheme to limit emissions. At the time it seemed a respectable use of public money since the delay in the UK's exit from the EU meant the allocation of credits to all UK companies had been temporarily suspended.

But the FT later reported that Greybull had already sold surplus allocations in what appeared to be an a badly timed trade. Other UK steel producers, note, have not asked for loans to get over the permit obstacle. Again, there is an issue of trust with Greybull.

11.15am BST

Devi Shah, Partner at law firm Mayer Brown, hopes that some jobs at British Steel can be saved:

The immediate priority will be to seek a buyer, and secure the future of as many employees as possible, especially since this is an area where options for those affected will be limited, and the repercussions are likely to be felt across the region.

11.13am BST

British Steel's collapse is the biggest industrial insolvency since Rover in 2005, says Freddy Khalastchi, business recovery partner at accountancy firm Menzies LLP.

He fears the worst for the company...

"Unfortunately, the writing has been on the wall for some time and the business has been struggling to compete in a market flooded by cheap imports from China. The business has also experienced a slump in orders due to Brexit.

"In the past we might have expected the Government to intervene to protect a major industrial employer and key supplier to the UK defence sector. However, we are in uncertain times and it is not clear whether it will be possible to tap into Brexit mitigation funds in this case. The fact that British Steel recently borrowed more than 100m from the Government to pay an EU carbon bill and avoid further fines also suggests further intervention may be unlikely.

10.56am BST

Rebecca Long Bailey MP, Labour's Shadow Business Secretary, says the solution to the British Steel collapse is to nationalise it.

Long Bailey says:

"This is absolutely devastating news for the thousands of workers, their families and the communities in Scunthorpe and Teesside and those throughout the supply chain.

"The Tories' legacy will once again be industrial decline whilst they endlessly squabble over the European Union.

10.52am BST

Roy Rickhuss, general secretary of the Community trade union, is hopeful that jobs can be saved at British Steel, even though it's now in the hands of the Official Receiver (an employee at the Insolvency Service).

Rickhuss says:

"This news will heap more worries on workers and everyone connected with British Steel, but it will also end the uncertainty under Greybull's ownership and must be seized as an opportunity to look for an alternative future.

"It is vital now that cool heads prevail and all parties focus on saving the jobs.

10.49am BST

Breaking: British Steel has collapsed, after failing to agree a 30m rescue funds from the UK government.

"The government has worked tirelessly with British Steel, its owner Greybull Capital, and lenders to explore all potential options to secure a solution for British Steel.

"The Government can only act within the law, which requires any financial support to a steel company to be on a commercial basis. I have been advised that it would be unlawful to provide a guarantee or loan on the terms of any proposals that the company or any other party has made."

10.38am BST

The long slowdown in UK house price inflation ended last month.

The average price of a home rose by 1.4% in the 12 months to March, new ONS figures show. That's up from 1% in February.

House price changes across the UK in March. Yorkshire & the Humber seeing the fastest growth at 3.6%y/y with London, the N.East & the S. East all seeing average price falls. pic.twitter.com/ZPVKdYfQR4

10.27am BST

Suren Thiru, head of economics at the British Chambers of Commerce (BCC), is also concerned that real wages are shrinking as inflation rises:

"UK inflation moved above the Bank of England's 2% target for the first time since December 2018, with rising energy prices and higher air fares, placing the largest upward pressure on price growth in April.

"Rising inflation alongside slowing wage growth is a concern as it squeezes real household incomes. If this trend continues it could well choke off the recent improvement in consumer spending, a key driver of UK growth.

10.25am BST

This jump in inflation to 2.1% means that real wage growth in the UK has slowed.

Average earnings rose by 3.3% in the 12 months to March, which means real wages are only up by 1.2%

"With progress on Brexit completely paralysed, rising inflation poses a challenge for Carney. As prices creep up above 2% target, the improvements in wages seen earlier in the year are being cancelled out.

Uncertainty persists around the UK's future relationship with the EU and the US trade war with China shows little sign of abating.

10.10am BST

The message from today's inflation report is clear -- consider changing your energy provider now!

Peter Earl, head of energy at comparethemarket.com, says households on standard energy tariffs have suffered "brutal" increases since Ofgem lifted the price cap three months ago.

The new price cap level that came into force on 1^st of April saw those customers face an average annual price rise of 117, a hefty 10% increase, which all of the Big Six energy companies were quick to implement. Rather than preventing energy companies from repeatedly upping the cost of energy, the price cap looks to have done the opposite. Many customers have already switched to a more competitive fixed price tariff but, for the millions that remain, we strongly recommend shopping around to ensure they are on the best deal possible as this will help to minimise their household bill inflation."

10.05am BST

Beer and tobacco prices fell last month, the ONS adds:

Prices for cigarettes overall fell by 0.6% between March and April 2019 compared with a rise of 1.4% between the same two months a year ago.

Prices for beer, particularly larger packs of canned lager, also had a small downward contribution, although this was partially offset by spirits, which rose in price between March and April 2019 by more than a year ago.

9.58am BST

Consumers were hit by a 10% jump in electricity costs last month, today's inflation report shows.

That's MUCH more than the rise in wholesale prices -- as energy firms responded to Ofgem's decision to lift the cap on bills.

Consumer prices for electricity rose by almost 11% between March and April 2019, while input producer prices for electricity rose by around 2% over the same period.

Wholesale electricity prices are only available until December 2018 but rose by around 3% between November and December 2018, and rose considerably faster than producer and consumer electricity prices between June 2017 and September 2018.

9.47am BST

This chart shows how air fares surged in April - unlike in 2018, when Easter came earlier:

Prices for air fares typically rise during the school holidays, which follow similar patterns each year for the summer and Christmas holidays. As such, we see similar price patterns with prices rising through the summer before falling back in the autumn and rising again in December.

For Easter, however, school holidays typically move as the timing of Easter moves from year to year, sometimes falling in March and sometimes in April.

9.37am BST

Newsflash: The cost of living in the UK jumped last month, back over the official target.

Consumer prices jumped by 2.1% in April, compared to a year ago, up from 1.9% in March, the Office for National Statistics says.

9.29am BST

Marks & Spencer are the top faller on the FTSE 100, down 4%, after launching a 600m rights issue to fund its new tie-up with Ocado.

The high street chain is also speeding up its latest transformation plan, by closing another 20 of its full-line stores.

The retailer said it planned to close 85 of its big high street stores, which is on top of the 35 it has already shut. The company is battling the transfer of clothing sales online and it had already told the City to expect about 100 closures.

The news of the extra branches being axed came as the group pointed to "green shoots" of recovery despite annual profits being pulled down by a 440m bill for a modernisation programme. The overhaul of the struggling chain will also involve the closure of 25 of its Simply Food convenience stores.

9.23am BST

UK housebuilders are always vulnerable to Brexit uncertainty, so it's not surprising to see them among the top fallers on the FTSE 100 this morning.

Persimmon and Barratt Development are both down 2.5%, with Taylor Wimpey losing 1.7%.

9.11am BST

The pound's weakness today shows that the brief optimism that Theresa May might drag her Withdrawal Deal through parliament has faded, fast.

Michael Hewson of CMC Markets explains:

The brief move higher in sterling yesterday in the wake of the Prime Minister's pledge to add a confirmatory referendum to her withdrawal agreement turned out to be yet another false dawn.

If anything it appears to have made it much less likely that the deal will pass at the fourth attempt.

9.04am BST

Sterling is taking a pounding this morning, as Theresa May's latest attempt to get her Brexit deal through parliament flounders.

The pound has hit a four-month low against the US dollar, falling to $1.2662.

Quite... if govt tries to delay bringing the bill forward extremely hard to see how your party allows PM to stay on past sunday/monday - just asked a minister if she can stay on past this weekend - answer, 'I hope not' https://t.co/53Pj4YSCEU

Any more negative responses to the new proposed deal and Prime Minister May could resign as soon as this week and attention will shift to the likely Conservative leader contest.

That will probably yield a hard-Brexit supporting PM, which in turn will incrementally raise the odds of a hard Brexit.

8.48am BST

Breaking: Beijing has hit back against the threat of more Chinese companies being blacklisted in the US.

Foreign ministry spokesman Lu Kang has told reporters that Beijing opposes America using its powers to "smear" Chinese firms.

Chinese Foreign Ministry: China Opposes US Using National Powers To Smear US Companies
-Urges US To Provide Fair And Non-Discriminatory Environment For Chinese Firms

8.36am BST

Bloomberg is reporting that America could impose tough sanctions on five more Chinese technology firms - not just Hikvision.

The US is apparently concerned that the firms are helping Beijing suppress Chinese Muslims such as the Uyghur people (who face discrimination, and the threat of being placed in 're-education) camps).

The U.S. is considering cutting off the flow of vital American technology to as many as five Chinese companies including Hangzhou Hikvision Digital Technology Co., widening the dragnet beyond Huawei to include world leaders in video surveillance.

The U.S. is deliberating whether to add Hikvision, Zhejiang Dahua Technology Co. and several unidentified others to a blacklist that bars them from U.S. components or software, people familiar with the matter said.

Trump is considering blacklisting two Chinese surveillance giants over accusations of human rights violations https://t.co/f1EpA0cpFg

8.08am BST

While China seeks fresh talks, America is pressing on with its crackdown on Chinese firms.

According to the New York Times, the US is considering banning Chinese surveillance kit-maker Hikvision from buying US components. A similar ban was slapped on Huawei last week, in a dramatic escalation of the spat between the two sides.

The report has sent the company's shares down, even as Hikvision said it received no notice of the potential blacklisting and said its operations in Xinjiang had never been "inappropriate".

China has come under increasing international scrutiny over mounting evidence of the mass surveillance and detentions of millions of Muslim minorities in Xinjiang.

8.01am BST

China is calling on Washington to resume trade talks, as the dispute between the two major economic powers rumbles on.

Chinese Ambassador to the United States Cui Tiankai said last night that Beijing hadn't slammed the door, despite the clampdown on Huawei.

"China remains ready to continue our talks with our American colleagues to reach a conclusion. Our door is still open."

"It's quite clear it is the U.S. side that more than once changed its mind overnight and broke the tentative deal already reached."

"So we are still committed to whatever we agree to do, but it is the U.S. side that changed its mind so often."

7.52am BST

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

Marks & Spencer has reported a 9.9% fall in underlying pre-tax profits to 523.2m for the year to March 31

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