Brexit fears hit the pound; Charlotte Hogg quits Bank of England - as it happened

Graeme Wearden (until 2pm) and Nick Fletcher

from on 2017-03-14 18:02 (#2FT2V)

All the day's economic and financial news, as sterling slides after parliament gives Theresa May the green light to trigger article 50

Scottish independence would be negative for UK rating - Fitch
CHARLOTTE HOGG RESIGNS
MPs: Hogg lacked professional competence to be deputy governor
Row over conflict of interest claims deputy governor
11am: Pound hovering around eight-week low
Scottish independence worries hit sterling

6.02pm GMT

Worries about Brexit, as well as a second Scottish referendum, sent the pound to an eight week low of $1.2106 against the dollar. The US currency was also boosted by the prospect of a rate rise from the Federal Reserve on Wednesday.

But sterling has since recovered from its lows, although it is still down 0.47% at $1.2160. Against the euro, the pound has fallen 0.29% to a1.1435 having earlier been as low as a1.1382. Joshua Mahony, market analyst at IG, said:

Despite the fact that the pound is hugely undervalued by historical standards, the uncertainty surrounding the future of the UK means we find little to be bullish about for the pound as we face confrontational negotiations. One could be excused for feeling we have had quite enough referendums over the past year, yet with Scotland seeking a second vote, there are plenty of reasons to question what the UK will look like in just over two years' time.

5.33pm GMT

A fall in the oil price, uncertainty over Brexit and a second Scottish referendum along with some caution ahead of an expected US interest rate rise on Wednesday and the Dutch election left equity markets in Europe lower on the day. Commodity companies came under pressure on the back of the drop in crude prices, while banks were also unwanted. Royal Bank of Scotland and Lloyds Banking Group were particularly weak on the renewed concerns about Scottish independence. The French market dropped back on the latest twist in the presidential campaign while Italy and Spain also struggled. The final scores showed:

4.48pm GMT

A second Scottish referendum which lead to a vote for independence would be "a negative credit shock" for the UK economy and public finances, and could lead to a rating downgrade, according to a new report by Fitch.

The agency, which has a AA rating with a negative outlook on the UK, said:

We believe Scottish independence would have adverse effects on the UK public finances and economy and so would be credit negative for the UK, as we have previously stated. Key uncertainties include the impact on the future trade relationship between the two countries, the financial sector and Scotland's currency arrangements.

Scottish independence would lead to an increase in the ratio of UK government debt to GDP. The UK government stated ahead of the September 2014 referendum that it would in all circumstances honour its issued stock of UK debt if Scotland voted for independence. This would lead to a one-off increase of around 8% of GDP in the UK gross public debt ratio as Scotland dropped out of UK GDP, on the basis of latest estimates of UK and Scottish GDP.

4.40pm GMT

Ahead of this week's meeting of G20 finance ministers in Baden-Baden, the International Monetary Fund has called on the major economies to preserve the benefits of trade and avoid protectionism.

With US president Trump showing protectionist tendencies and a propensity to rip up trade agreements, the IMF called for countries with trade and current account surpluses to work with countries with deficits to reduce these imbalances.

In fact, there has rarely been a period when policy choices have mattered more for what comes next, especially since there are still considerable risks to the outlook...

Above all, we should collectively avoid self-inflicted injuries. This requires steering clear of policies that would seriously undermine trade, migration, capital flows, and the sharing of technologies across borders. Such measures would hurt the productivity, incomes, and living standards of all citizens.

3.34pm GMT

European markets have edged back from their lows and are now virtually unchanged, with the exception of France.

The FTSE 100 is down just 0.08%, while Germany's Dax has dipped 0.02%.

3.03pm GMT

Worries about a new Scottish referendum appear to be at least part of the reason for a slump in Royal Bank of Scotland and Lloyds Banking Group.

RBS, down around 3% at the moment, and Lloyds, nearly 2% lower, both said they would relocate to England if the Scots voted for independence at the last referendum in 2014. Shore Capital analyst Gary Greenwood told Reuters:

[They] both have sizeable Scottish operations, so it depends what...ultimately happens there and whether [Scotland] actually exits the UK and stays part of Europe.

2.38pm GMT

Back with oil, and the price is continuing to slide. Brent crude is now down 1.7% at $50.47 while West Texas Intermediate has fallen 2% to $47.40 after Saudi Arabia pumped more oil than expected in February. Fawad Razaqzada, market analyst at Forex.com, said:

After a significant drop last week, oil prices tried to stabilise themselves at the start of this week as both contracts ended Monday's session slightly higher. Among other things, short-covering was the reason behind the slightly firmer oil prices then. Brent and WTI started Tuesday's session on the front foot.

However, they turned lower again by mid-morning before going into a mini free fall by midday. The latest drop was apparently in response to the OPEC's monthly oil report. While the OPEC acknowledged that compliance with the supply adjustments by OPEC and some non-OPEC producers supported prices and it raised its global oil demand forecast for 2017, it also raised its estimates for oil production from outside of the cartel. In the US, shale producers have ramped up drilling activity and increased oil output in response to higher prices. This has put serious question marks over the OPEC's attempts to balance the oil market.

2.27pm GMT

The bad weather in New York seems unlikely to hold back the Federal Reserve from raising US interest rates at the end of its two day meeting. Defying the elements, the Fed's latest gathering has apparently begun:

FOMC MEETING STARTED AS SCHEDULED AT 10 A.M., FED SAYS

It's almost certain we will see an increase in interest rates from the Federal Reserve tomorrow. The question now is not if they will increase, but by how much. The US economy added 235,000 jobs in February from non-farm payroll data, confirming a positive outlook for the US economy. Additionally, Wall Street is up 5% since the beginning of 2017 which is an impressive performance by any measure.

There is much discussion about whether this uptrend can continue with the possibility of the highest interest rates since 2007...We have a generation of investors who have become accustomed to investments trends with the back drop of an extremely accommodative monetary policy from the FED. Going forward, with possible three rate increases for 2017 alone, I predict we will see trepidation for the equity markets in general.

Markets have fully priced the outcome, Fed speakers have shouted it from the rooftops and the aforementioned job figures confirm the continuation of American economic vibrancy.

Because this is a "major" Fed meeting, with press conference and updated projections, there will be plenty of opportunities for the Fed to signal if it still believes three total tightening efforts are still appropriate for 2017, with another three scheduled for 2018. There is a risk that they upgrade this plan given economic strength. But our suspicion is that they won't, as the market already has a lot to digest given the sudden uptick in the pace of tightening from once per year to - for the moment - once per quarter.

1.59pm GMT

The US stock market has opened cautiously, with the Dow Jones industrial average and the S&P 500 index both dropping by around 0.2%.

US markets could well feel the effect of the blizzard that has descended on New York in the past few hours. We could be in for a volume-light session, compounding the probability of another snooze-fest for US markets ahead of tomorrow's Fed decision.

New York's "Fearless Girl" statue stands her ground against the Wall Street bull, even in the snow https://t.co/66S1V9KFJ6 pic.twitter.com/bSMjVJ78kN

1.52pm GMT

Our economics editor, Larry Elliott, says Charlotte Hogg did the right thing by resigning -- and believes the Bank of England has lessons to learn over the affair.

Hogg has done the right thing in resigning quickly. Better that than a long, drawn-out process that would eventually have ended with the same result. She was damaged goods.

This incident shows that the system of oversight by the Treasury committee has worked. The grilling of Anthony Habgood, chairman of the Bank of England court, was forensic and showed MPs at their best.

1.37pm GMT

While the pound dips, the US dollar is strengthening as investors anticipate the first US interest rate rise of 2017 tomorrow afternoon.

Even the snow hitting the east cost of America isn't likely to prevent the US Federal Reserve hiking borrowing costs, in response to the latest solid economic data.

"The pound's initial resilience to Nicola Sturgeon's confirmation that she will push for a second vote on Scottish independence dwindled in early morning trade today, with sterling slipping to 8-week lows against the US dollar near the $1.21 mark.

News that any new referendum won't happen until late next year at the earliest may have softened the initial impact, but the UK's looming political challenges are still driving sentiment with reports suggesting Theresa May will trigger Article 50 in the final week of March after getting the green light to initiate formal Brexit proceedings from Parliament last night. Meanwhile, expectations that the Fed will lift US interest rates tomorrow and prime markets for more to follow later in the year are also lending support to the dollar."

12.36pm GMT

The oil price has taken another slide today, after Saudi Arabia revealed that it boosted production levels last month.

New figures supplied to the Opec cartel show that Saudi pumped more than 10 million barrels per day in February. That means it has reversed some of the curbs it promised last November, when Opec agreed a historic deal to cut production.

#BREAKING: #SaudiArabia tells #OPEC it lifted #oil production in February back above the key 10 million barrels a day level #OOTT pic.twitter.com/ESdMSrBsEO

12.15pm GMT

Here's Jill Treanor's story about Charlotte Hogg's resignation:

12.05pm GMT

Charlotte Hogg's departure is a big blow to efforts to get more women into top jobs at the Bank of England.

Bloomberg's Jill Ward points out that men have dominated the monetary policy committee since it was created almost 20 years ago:

Hogg's departure means the @bankofengland will lose 3 women from the MPC in the space of 4 months. There have only been 7 in its history pic.twitter.com/hdhqEwZgig

12.01pm GMT

Having helped to prompt the end of Charlotte Hogg's career at the Bank of England, Andrew Tyrie MP has now welcomed her resignation.

"This is a regrettable business with no winners. Ms Hogg has acted in the best interest of the institution for which she has been working. This is welcome.

"It is also welcome that the Bank has responded immediately by announcing an internal review. The Bank's governance is already in much better shape than it was a few years ago. It is something to which the Governor and Court has been committed for some time. But there is clearly more to do.

11.51am GMT

The financial markets have known for nine months that Britain was going to trigger the process of leaving the EU. But it seems that Brexit may not be 'priced in'.

George Saravelos, currency strategist at Deutsche Bank, believes that sterling could fall much further, and close to parity with the US dollar:

"I think the market is slowly starting to realise that Brexit is anything but priced in."

"How can you price in an event of incredible complexity that has never happened before? We remain very bearish on the pound - our forecast is for a move close to $1.05."

11.17am GMT

Speaking of Brexit, one of the major groups in the European Parliament has backed a petition calling for UK citizens to be allowed to retain their EU citizenship rights after the break-up.

No better backer for our petition for EU Citizenship rights than their promoter, @GuyVerhofstadt! Sign up here https://t.co/gL2TN4tmOz pic.twitter.com/FXooW8Neu8

11.09am GMT

Back in the markets, the pound is still bobbing around an eight-week low as traders worry about Brexit, and a possible second vote on Scottish independence.

Sterling is down almost one cent right now, at $1.2127. Against the euro, it's lost over half a eurocent at a1.141.

The complex issue of Brexit has been further affected by the additional twist of the call for a second Scottish Independence Referendum. The previous Scottish Referendum was supposed to have settled the issue for a generation but the SNP now claims that Brexit decision has changed this, as 62% of Scots voted to remain in the EU. This complicates the task facing the UK government as they have won parliamentary authority to trigger Article 50, to initiate the process for pulling out of the EU.

Further to last night's developments, the pound has now slumped into a two month low, at $1.2125. The lower pound is proving to be good for UK exports but inflation which is already showing signs of a significant revival could be boosted further."

10.20am GMT

On a lighter note, gin and bicycle helmets are being included in the basket of goods used to track UK inflation.

Gin consumption [is] on the rise, partly thanks to the significant growth in the number of small gin producers.

Bicycle helmets are also returning to the basket after a 12-year absence, following the significant increase in the popularity of cycling due to sporting successes by British cyclists in the Olympics and the Tour De France.

The number of price quotes collected for the swing has been falling reflecting its availability in shops particularly in the winter months and the change is an attempt to improve coverage of outdoor play equipment particularly in those winter months.

10.03am GMT

Oh wow. Charlotte Hogg actually offered to resign last week, when she also admitted to MPs that she's failed to report her brother's role at Barclays.

The Bank has just published Hogg's resignation letter, in which she insists she made an "honest mistake" by not fully complying with the BoE's code of conduct (which she helped to draw up).

9.54am GMT

Labour MP Angela Eagle says Hogg has made the right decision:

She had no option after ignoring banks own disclosure rules: Charlotte Hogg resigns from new Bank of England role https://t.co/38KJ2r4QYF

9.53am GMT

Here's some instant reaction to Charlotte Hogg's resignation, from the BBC's business editor Kamal Ahmed:

Charlotte Hogg, talked of as a possible first female governor of the Bank, quits @bankofengland after critical report by TSC

Blimey: this is very embarrassing for Bank of England boss Mark Carney: Hogg is his handpicked lieutenant. https://t.co/0KavsUQsjL

9.44am GMT

NEWSFLASH: Charlotte Hogg has resigned from the Bank of England, following the scathing report from the Treasury committee.

In a statement, the BoE says it accepted her resignation with deep regret.

"In her time at the Bank, Charlotte Hogg has made a huge contribution in areas such as professionalising and modernising the management and operations of the Bank, leading the implementation of the strategic plan, championing diversity and driving forward the Bank's understanding of key issues such as Fintech and Operational Risk. No one who knows her doubts her track record or her integrity. While Charlotte's decision by any measure exceeds the standard that would be expected in the private sector or would be required under statute, it is understandable in the circumstances and she has taken it with the best interests of the Bank at heart."

"While I fully respect her decision taken in accordance with her view of what was the best for this institution, I deeply regret that Charlotte Hogg has chosen to resign from the Bank of England."

"Since Charlotte joined the Bank almost four years ago, she has transformed its management and operations. Drawing on her extensive private sector experience and her unrelenting commitment to excellence, she has led a broad range of initiatives to build a more open and inclusive institution, to overhaul our IT systems, and to change fundamentally how the Bank develops, manages and rewards its dedicated public servants.

9.41am GMT

Charlotte Hogg is under serious pressure now, following the Treasury Committee's ruling that she lacks the competence to be deputy governor.

Wes Streeting, another member of the committee, says she should step down.

Treasury Cttee unanimous in view that Charlotte Hogg's "professional competence falls short
of the very high standards required" for BoE D-G

Charlotte Hogg should now withdraw from her appointment as Deputy Governor.

9.28am GMT

Newsflash: The Treasury Committee has just declared that Charlotte Hogg, the new deputy governor of the Bank of England, has fallen short of the 'highest standards' required for the role.

In its Report on 2 March, the Committee concluded that Ms Hogg had the professional competence necessary to fulfil the role of Deputy Governor for Markets and Banking. Had it known then what has since been disclosed, it would have taken a different view.

Professional competence for this role includes an ability to follow the rules, particularly those that one has had a hand in writing and enforcing; an understanding of why those rules are important; and an awareness of the risks arising from actual and potential conflicts of interest, and the perceptions of conflict. Ms Hogg's oral and written evidence has given the Committee grounds for concern on all three counts.

Charlotte Hogg: strongest opinion ever made by a Treasury Committee: knowing what we know now, we would not have approved her. Unanimous.

9.22am GMT

The British Chambers of Commerce has added to the jitters in the City this morning.

Although the BCC has raised its growth forecast for 2017, it also cut its forecasts for 2018 and predicted that consumer spending will falter as inflation rises.

BCC's Head of Economics @Suren_Thiru comments on the #BCCForecast published today https://t.co/ljDQKulmXR pic.twitter.com/5DE3HwvFCD

8.34am GMT

Foreign exchange traders are starting to get "spooked" by the prospect of two years of Brexit negotiations, warns Kathleen Brooks of City Index.

Parliament may have passed the Brexit Bill, but a source at the PM's office said that Article 50 won't be triggered today, instead we will have to wait until the end of March, when Dutch elections and the EU's 60th birthday celebrations are out of the way.

The pound has taken a sharp drop in early Tuesday trading, in fairness liquidity has been thin, however, it suggests that the reality of the UK's divorce from Europe and two years of horse-trading to agree trade deals is beginning to spook the FX market.

8.27am GMT

Naeem Aslam of Think Markets says "sterling has dropped like a rock" this morning, as traders wake up to the reality that the UK will trigger article 50 this month.

Theresa May is heading towards hard Brexit negotiations with an attitude that she has nothing to lose.

The biggest fear on the street is what will her EU partners will say and how they are going to treat this matter given that Brexit is about to become a reality.

8.25am GMT

Britain's FTSE 250 index, which contains many medium-sized UK companies, hit a fresh all-time high in early trading.

A cheaper pound boosts the value of UK companies' overseas earnings, and also makes them more vulnerable to takeover bids from foreign rivals.

8.14am GMT

Financial experts believe that Scotland's push for a new referendum on independence is also hitting the pound today.

Theresa May tried to slap down the idea yesterday, claiming the Scottish Government was playing politics by requesting a second vote.

The many questions surrounding the latest Scottish push for independence will further add to the already elevated levels of uncertainty. The coming days will likely see both pro- and anti-independence activists starting to work with strong assumptions about the consequences of a potential Scottish break-away, painting their positive or negative views as "inevitable".

The government's stance on calls for a second Scottish referendum is still evolving, but reports in the media overnight (The Times) suggest PM May is "preparing to reject" the call.

GBP back under pressure from Brexit (Art 50, Scot indyref2), expectations of more dovish BoE, still hawkish Fed. A lIttle boost for #ftse100 pic.twitter.com/UWAjmYMcS2

7.53am GMT

The prospect of Britain triggering its exit from the European Union this month has hit sterling this morning.

The pound has shed almost a cent against the US dollar in early trading, hitting $1.2125.

"If I thought there was a foot in the door or a glimmer of hope that we could change this bill, I would fight it tooth and nail, but it doesn't seem to be the case.

7.33am GMT

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

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