Bank of England policymaker: We probably won't forecast the next crisis – as it happened
The Treasury committee have questioned Bank of England governor Mark Carney, chief economist Andy Haldane, and policymakers Gertjan Vlieghe and Ian McCafferty
- Latest: Carney explains how the world has changed
- MPC member: Our models can't be infallible
- BoE's chief economist defends 'Michael Fish' comments
Earlier:
6.05pm GMT
Better than expected eurozone growth figures and a strong start on Wall Street with yet more new peaks have combined to push European markets higher, despite continuing political worries ahead of the French presidential election.
But badly received results from HSBC have left the FTSE 100 lagging its peers. The final scores showed:
5.50pm GMT
Over in Greece workers with the communist-aligned labour group, PAME have taken to the streets to protest the prospect of yet more austerity measures, our correspondent Helena Smith reports:
Thousands of protestors are marching en masse towards parliament in Syntagma square chanting: "we are not going to be spectators of our own wretchedness." The demonstration is one of 40 taking place across Greece in protest over the government's decision to agree to further talks with creditors in return for up front legislation of more unpopular cost-cutting measures.
Addressing the crowd, the communist KKE party leader Dimitris Koutsoumbas said: "While the government is writing, directing and playing in this new episode of deceit against the Greek people that has been played a thousand times before, we are here, in the struggle with the working class and the rest of the peoples' movement, loudly shouting "it cannot go on!
5.13pm GMT
With far-right French presidential candidate Marine Le Pen gaining ground according to opinion polls, the euro has come under further pressure. Jasper Lawler, senior market analyst at London Capital Group, said:
In a sign of relative weakness, the euro fell against most major currencies despite the upbeat data [showing eurozone growth at a near six year high]. Political risk is clearly trumping economic strength in the currency market.
3.59pm GMT
The Greek government has claimed a "decisive victory" following Monday's eurogroup announcement that a "common understanding" had been reached between creditors and Athens. Helena Smith reports:
Amid accusations of crossing its own 'red lines', prime minister Alexis Tsipras' leftist-led coalition went on the offensive today calling Monday's euro group a huge success that had ultimately put Greece on the path to economic recovery.
"The position of the Greek government for not a euro more of austerity has been respected and accepted by all," the government spokesman Dimitris Tzanakopoulos told reporters. "The demand for a4.5bn worth of extra measures in 2019 is no longer on the agenda of discussion," he said adding that upfront legislation of reforms that would be enforced as of January 2019 would be offset by counter measures and so "fiscally neutral."
But seven years into the crisis there was widespread cynicism that the vaunted change of policy mix, also announced at the eurogroup, would work. Across the board, political opponents accused the government of engaging in window-dressing and double speak. The so-called agreement did little more than prolong negotiations over the review, the former finance minister Evangelos Venizelos claimed.
No decision had been taken as to what would happen when the current bailout programme expires in 2018, or how creditors would deal with the country's staggering debt pile or even when Greece would enter the ECB's QE programme, he said. "The negotiation will be prolonged for a few more months in expectation, presumably, of the next German government," said Venizelos. "In other words what was agreed was the extension of the negotiation until dramatic dilemmas appear," he added referring to the huge debt repayments Greece faces in July.
3.09pm GMT
Back in the UK, and here's our story on the Treasury select committee. Phillip Inman writes:
The Bank of England is unlikely to predict the next financial crisis, according to one of the central bank's leading policymakers, who said economic models were unable to provide flawless forecasts for the UK economy.
Monetary policy committee member, Gertjan Vlieghe, said it was impossible for the Bank to forecast a recession, let alone the next crash and no amount of fine-tuning models of the way the modern economy operates would change that harsh reality.
Related: We will not spot the next financial crisis, predicts Bank of England
3.08pm GMT
The disappointing US data could dim some of the expectations of a forthcoming interest rate rise, analysts believe. Dennis de Jong, managing director at UFX.com, said:
President Donald Trump hasn't had much reason to be concerned about the financial markets since arriving at the White House, but today's reports of a slowing in manufacturing growth could give the President a momentary headache.
After figures went into overdrive after his election victory in November, Trump was keen to paint himself as the reason for the resurgence in American factory production - but this is a setback he won't be able to blame on another administration.
The US manufacturing sector continues to operate at positive levels, although February's figure may be viewed as a small backwards step.
Factories have been riding the crest of a wave since November's election, but today's drop could be a sign of things to come. Exports are likely to drop right off as a result of high inflation and uncertainty surrounding Donald Trump's trade policy, and that will hit manufacturing hard.
2.58pm GMT
The post-US election optimism could be running out of steam, says Chris Williamson, chief business economist at IHS Markit:
The drop in the flash PMI numbers for February suggest that the post-election upturn has lost some momentum. Growth of business output, new orders and hiring all waned, as did inflationary pressures.
February also saw a sharp pull-back in business optimism about the outlook over the next 12 months, which suggests companies have become more cautious about spending, investing and hiring.
2.52pm GMT
The US service and manufacturing sectors have grown by less than expected so far in February, according to new figures.
The initial Markit service sector PMI for the month came in at 53.9, compared to 55.6 in January and expectations of a figure of 55.8.
US PMI comes in below expectations.
Services 53.9 vs exp 55.6, Manufacturing 54.3 vs exp 55.0 pic.twitter.com/1Tuzyr7Ywm
2.41pm GMT
Over in the US, and stock markets have opened at record highs after Monday's holiday, lifted by positive reaction to results from retailers Wal-Mart and Home Depot, a rise in the oil price and a stronger dollar.
The Dow Jones Industrial Average climbed to 20,688, up 64 points while the S&P 500 opened up 0.23% and the Nasdaq Composite 0.17%.
2.17pm GMT
The session looked like a win for MPs not the MPC, reckons Ranko Berich, head of market analysis at Monex Europe:
Today, for once, the Monetary Policy Committee did not give as good as it got from the Treasury Select Committee. Long-time Carney baiters such as Steve Baker made some very good points about the BoE's lack of clarity in forward guidance and its recent patchy forecast history, yet ultimately we learned little about how the outlook for monetary policy has changed in recent months. This is mainly because inflation prospects are still surrounded by extraordinary amounts of uncertainty.
Much of the BoE's willingness to look through the coming surge in inflation seems to rest on stability in long term expectations. But inflation expectations are rising, and with consumers on the verge of digesting more price increases, the BoE's commitment to look through inflation could become increasingly limited.
2.10pm GMT
Here's some reaction to the Bank of England hearing, from committee member Helen Goodman MP:
Interesting session with #Carney of #BankofEngland : forecast assumes immigration falls from 300k to 150k .
But unfortunately #BankofEngland still not prepared to ask hard questions on their own role in creating house price rises.
Bank says pressures on employers and employees post #Brexit mean more conflict and aggro to be expected in wage negotiations.
1.04pm GMT
And finally, Mark Carney warns against reading too much into the FTSE 100's rally since last summer, to record highs.
The governor points out that the blue-chip index is packed with international firms who earn dollars overseas (which are now worth more in sterling terms).
12.54pm GMT
Steve Baker MP (another non-fan of Mark Carney) has been cheekily checking his phone during the session.
He admits that he's been following the 'highly amusing' commentary from twitter user @JediEconomist
Ugh ugh ugh pic.twitter.com/grW4Prh8d1
BoE Vlieghe "There are not one model that is wrong, and this one is right"
No, wrong they always are, and cut rates they always will.
Q: Did the BoE feed the housing bubble
Haldane: Ok... this depends on how you cut the cake but QE has benefited everybody.#sociopath
Talking about the Phillips Curve, McCafferty is, ugh ugh ugh.
Making this up they are, yessss pic.twitter.com/nViRDyEs2O
12.48pm GMT
In a determined effort to get himself dis-invited from this year's Bank of England Christmas party, Kit Malthouse MP has asked Mark Carney about forward guidance!
[This was Carney's great innovation when he joined the Bank; a promise that interest rates wouldn't rise until the unemployment rate fell to 7%, it was then fudged once the rate fell sharply below that level]
*CARNEY: RATES MAY RISE FASTER OR SLOWER THAN MARKET EXPECTS#RosesAreRedVioletsAreBlue
And now some value added BOE forecasts: CARNEY: RATES MAY RISE FASTER OR SLOWER THAN MARKET EXPECTS
12.36pm GMT
On food inflation, Carney says consumers should expect fresh food prices to rise to counter the fall in the pound, which makes imports more expensive.
Packaged goods producers have 'more leeway' to absorb the impact of sterling's depreciation, as they can look to save costs elsewhere.
12.30pm GMT
Conservative MP Kit Malthouse manages to rile Mark Carney by asking if the Bank of England is still locked into a pre-2008 mindset, and struggling to understand the modern world.
Malthouse argues that we're now in a "sod it" economy, where people are deciding to get on with their lives rather than waiting for conditions to improve.
12.19pm GMT
So, are the risks to household consumption more to the upside or the downside compared to the Bank's forecasts, Reeves continues? Just one word will do....
MPC member Gertjan Vlieghe won't be boxed into a single-word reply. The risks are to both sides, he insists. Consumption data at the end of last year was strong, but it's fallen off in the last few weeks.
12.13pm GMT
Labour MP Rachel Reeves clips the edge of the bullseye, by asking whether the Bank is worried about rising consumer borrowing.
Mark Carney concedes that the Bank is 'a little concerned' that lending criteria are being relaxed, to allow riskier lending.
We're concerned enough to look at it more closely.....
12.05pm GMT
Labour MP Helen Goodman turns to the Bank's quantitative easing stimulus programme.
She says that Bank analysis, released in 2012, showed that the wealthiest 5% of the population had received 185,000 from QE, but this didn't get a lot of publicity until prime minister Theresa May criticised the Bank's action last year.
Have the effects been felt equally across the economy, across regions, across households, no, they haven't.
But does that mean that people been disadvantaged in absolute terms? There the evidence is very much to the contrary.
11.51am GMT
The weakening in the pound may lead to more 'animated' wage bargaining than we've seen in the past, Ian McCafferty adds.
11.49am GMT
Q: It is highly likely that there will be less immigration over the next few years; did you take this into account when you lowered your estimate of the equilibrium levels of unemployment to 4.5%, from 5%?
Ian McCafferty says that an expectation of lower immigration is already build into the Bank's forecasts.
11.40am GMT
Q: Isn't it striking and bizarre that the Bank of England haven't changed its economic assumptions since the government signalled the UK will leave the single market?
Haldane says that the Bank feels this won't have a significant near term impact on its inflation and output projections over the forecast horizon, so no need to rip up the forecasting models yet.
11.37am GMT
Q: When might UK interest rates start to rise?
Ian McCafferty says there is "some hope" that interest rates could start to normalise in two or three years...
11.35am GMT
Not for the first time, governor Mark Carney reminds the Treasury committee that the Bank took some significant decisions after the EU referendum that mitigated the impact of that vote.
And yet....
I think we just have to accept that we're never going to get any credit for it.
11.33am GMT
Jacob Rees-Mogg suggests the Bank should be more circumspect about its forecasts, rather than presenting them as "Holy Writ", and then dismissing them six months later.
We know that people find risk hard to understand, I find risk hard to understand.
11.22am GMT
Now Jacob Rees-Mogg, Conservative MP and persistent thorn in the Bank of England's side, takes over the questioning.
He congratulates Andy Haldane on his "extraordinarily interesting" 'speech and interview last month (on Michael Fish forecasting errors). But he's concerned that Haldane thinks that the Bank would have taken the same monetary policy decisions, even if it had better forecasting.
11.15am GMT
Conservative MP Chris Phelp makes the Bank of England look a little silly...
Q: Your chart on page 31 of the quarterly inflation report shows that long-term inflation expectations are around 3%, so doesn't that mean that the financial markets don't believe price rises are transitory?
11.05am GMT
Onto inflation, which is poised to jump over the Bank's target of 2%.
Ian McCafferty says we are getting 'close' to the limit of how much inflation overshoot can be tolerated.
11.01am GMT
The Bank policymakers may be losing patience with the committee.... Carney points out that they've spend an hour fielding questions about forecasting the past, and not touched on the issues facing the economy in the future.
Tyrie agrees that the session is running behind schedule, and suggests that the BoE provide shorter answers!
10.59am GMT
John Mann MP isn't impressed.... pointing out that the Bank of England hasn't changed its forecasting to address the massive changes in house ownership in the UK.
Q: Aren't you behind the times when it comes to assessing consumer behaviour?
10.54am GMT
Chief economist Andy Haldane now hits back against the MPs' criticism.
He says that his "Michael Fish" speech last month was meant to highlight that the forecast errors around the Brexit vote are much smaller than before the financial crisis in 2008.
Bank of England's Vlieghe: probably not going to forecast the next financial crisis or recession. The models just aren't that good.
"I'm never confident of any forecast" says Bank of England economist Gertjan Vlieghe.
MPC member Vlieghe dismisses idea that @bankofengland would deliver better forecasts if it improved its models: its a probabilistic exercise
10.46am GMT
Another MPC member, Dr Gertjan Vlieghe, criticises the idea that the Bank would deliver flawless forecasts for the UK economy if it could only improve its models.
We are probably not going to forecast the next financial crisis, or forecast the next recession. Our models are just not that good.
10.39am GMT
MPC member Ian McCafferty argues that surveys of business activity are usually very helpful; but at times of major economic or political shock, they can give a misleading picture.
For example, after the Brexit vote, surveys showed a very large fall in corporate and consumer confidence -- but things quickly returned to equilibrium, faster than you might expect.
10.34am GMT
The Bank of England is now challenged over its decision to raise its growth forecasts this year from 1.4% to 2%
Q: Would the Bank have done a better job of forecasting the UK economy if it had thought that voting for Brexit might be a good thing, not a bad one?
A majority of consumers have looked through what we've seen in the last six to nine months.
10.30am GMT
BoE's Haldane: Autumn Budget Statement Will Have A Material Effect On UK Economic Growth
Andrew Tyrie really skewered Andy Haldane on this subject as he waffled and contradicted himself #BoE #TSC https://t.co/HwXuoJPCEE
10.28am GMT
Back in December, Mark Carney generously invited the whole committee to the Bank's Christmas party.
But there's no festive spirit this morning:
Carney and Tyrie's clear disdain for one another is great to watch
Quite testy exchanges between Tyrie and Mark Carney at Treasury Select Committee. They seem to like winding each other up
10.27am GMT
Tyrie then asks Haldane to justify the Bank's confidence that the 23bn productivity spending announced in last year's autumn statement will boost UK growth. Surely this is quite a small stimulus?
Haldane says this fiscal loosening will help, but there is still a 'net headwind' from budget cuts in future years.
10.24am GMT
When did the Bank last change its estimate of the equilibrium level of unemployment [before this month], chairman Tyrie asks.
Ian McCafferty doesn't know. Nor does chief economist Andy Haldane.
10.16am GMT
You can watch the Treasury committee hearing here.
10.16am GMT
Next question goes to Ian McCafferty -- does he support the Bank's decision to reduce the 'equilibrium level' of UK unemployment from 5% to 4.5%?
[this measures how close Britain is to full employment].
10.12am GMT
10.11am GMT
Over at parliament, the Treasury committee is starting its session with Bank of England governor Mark Carney and senior colleagues.
Chief economist Andy Haldane take the new ball, with a question about his recent claim that the financial crisis was a "Michael Fish" moment (a reference to the BBC weatherman who downplayed the UK's great storm of 1987.)
We can hope and aspire to do better, because we have learned lessons [from 2008].
10.05am GMT
Scott Bowman of Capital Economics thinks the UK is on track to borrow "significantly less" than the current forecast of 68bn this year.
Having read January's public finances, he says:
Looking through some of the monthly volatility, receipts growth has been fairly steady since June - adding to the evidence that the economy has held up well following the vote to leave the EU
9.46am GMT
Breaking! Britain has racked up its biggest surplus for a January in 17 years.
The Office for National Statistics reports that the government achieved a surplus of 9.4bn last month, the best since 2000, thanks to strong tax receipts.
Public sector net #borrowing (PSNB Ex) was 9.4bn in surplus in Jan 17, biggest Jan surplus since 2000 https://t.co/yfQcWsBbOA pic.twitter.com/wDuh4dW7Px
Welcome news for the Chancellor as borrowing on course to undershoot the OBR forecast. pic.twitter.com/IlDzFXTbEf
"We remain committed to returning the public finances to balance and building on our progress in reducing the deficit from 10% to 4% of GDP over the last six years. Next month the Chancellor will deliver his Spring Budget based on updated forecasts from the OBR."
9.22am GMT
French government bonds are coming under renewed selling presure, as fears that far right politician Marine Le Pen could become the country's next president.
Despite today's strong economic data, traders are piling out of French debt and into German bonds instead - fearing a political earthquake when the French head to the polls in late April and early May.
Oops: #France 10y risk spread over #Germany jumps to almost 80bps, highest since 2012 as Le Pen worries rise. pic.twitter.com/O2DREPqBsy
I'm quoted in City AM's latest coverage of the French elections: https://t.co/1s5OGoNLfs via @CityAM
9.11am GMT
The upshot of today's PMI reports is that the eurozone economy is picking up speed this month.
Markit says:
Job creation was the best seen for nine and a half years, order book growth picked up and business optimism moved higher, all boding well for the recovery to maintain strong momentum in coming months. Inflationary pressures meanwhile continued to intensify.
Euro zone PMI clearly didn't get the eurocrisis is back due to Greece/Le Pen memo. Composite at 56 (54.4 in Jan), 70-month high pic.twitter.com/xcNGjZydJg
9.08am GMT
Boom! Company growth across the euro area has hit its fastest rate in almost six years, thanks to the pick-up in France (details) and Germany (details)
Euro area composite PMI at a 6 year high, job creation at a 9 1/2 years high.
Euro zone flash composite PMI for February is 56.0, best since April 2011. pic.twitter.com/7lI1hvRbXQ
8.59am GMT
Here's Kit Juckes of French bank Socii(C)ti(C) Gi(C)ni(C)rale on today's eurozone growth figures:
France's composite flash PMI came in at 56.2 this month - and Germany's came in at 56.1 - providing further evidence of the European growth acceleration that will give the Euro wings when or if it can get free of its political shackles....
8.51am GMT
Greek bonds are strengthening this morning, following last night's agreement to talk about additional economic reforms in return for bailout cash.
The yield on Greece's two-year debt has dropped to 8.8%, down from over 9.3% yesterday. That means it is seen as less risky, but still quite risky.
8.41am GMT
More encouraging news! Germany's private sector is enjoying its best month in almost three years.
German manufacturing growth rose to a 37-month high this month, says Markit, while service sector growth hit a 3-month high.
"The flash PMI results for February signalled the strongest growth of the German economy for just under three years, with manufacturing in particular expanding at a marked pace and services recovering the momentum lost at the start of the year.
Moreover, the new Future Output Index is signalling strong confidence among firms, reaching a new high since its inception in mid-2012.
8.30am GMT
Economist are applauding the news that French companies have reported such solid growth this month.
Capital Economics are predicting that the wider economy is picking up pace:
After jumping to a 69-month high in February, the French Composite PMI seems consistent with a sharp rise in French quarterly GDP growth pic.twitter.com/CEb0mIXtRL
Sky is the limit for French #PMI. "Magnifique" February survey, with both headline & details looking good. My take: https://t.co/paxG4VEKXs pic.twitter.com/sCPHfoQ27W
PMI shows #French #manufacturing & #services output at 69-month high in Feb suggests economy is currently brushing off political uncertainty
8.21am GMT
Breaking: France's companies are growing at their fastest rate in over five years, despite the uncertainty created by this spring's presidential elections.
"The latest PMI data highlighted a further marked improvement in private sector conditions in France. Output continued to rise in both monitored sectors.
"Service providers remained the driver of overall growth, as evidenced by further sharp expansions in new orders and employment, the sharpest in five- and-a-half years in each case.
7.51am GMT
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Today we'll be watching Greece, following yesterday's agreement to allow debt inspectors to return to Athens.
ECB IMF ESM & EC to visit #Greece after deal on new reforms for aid. We can't call them "troika"..any other ideas? https://t.co/UCa6Lmtj0A pic.twitter.com/zTuOY7DCwn
"The government is celebrating the return of the institutions to Greece while the economy is sinking."
Related: Greece standoff over a86bn bailout eases after Brussels deal
Related: HSBC cuts pay of senior executives after failing to combat potential financial crime
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