Bank of England leaves interest rates on hold as Brexit hits the economy - as it happened

UK central bank has left borrowing costs at 0.75%, and warned that Brexit uncertainties are weighing on the markets

• Bank of England keeps rates on hold
• FTSE 100 hit lowest since September 2016
• Intro: US central bank alarmed investors by raising rates, defying Trump
• Full story: Asian shares battered after Fed raises rates for fourth time

12.50pm GMT

Time for a quick summary:

The Bank of England has resisted any temptation to raise UK interest rates. Policymakers left borrowing costs unchanged today at just 0.75%.

BoE:

- 0.75% (unch) as expected
- 9-0 vote as expected
- Warn that Brexit uncertainty has intensified since Nov
- As such, have lowered Q4 2018 growth estimate to 0.2% from 0.3%
- CPI could fall below 2% amid oil declines
- Maintain guidance on rates; 'gradual and limited'

"There is growing evidence that the economy has weakened since summer, with monthly GDP data from the ONS showing flat or only very marginal growth in recent months, while consumer price inflation is slowing and the retail sector is struggling during the vital period in the run-up to Christmas. Add to this the continued lack of clarity around Brexit since its last meeting, and it is clear that interest rates will have to remain on hold for some time.

"That said, the Bank noted the growing tightness of the labour market, which has pushed wage growth higher than the central bank had previously anticipated. There is also the possibility that lower global oil prices could also stoke domestic demand. However, these positive factors do not outweigh those indicating a slowing economy.

12.33pm GMT

The Bank of England has also published its latest agents' survey of business conditions across the UK, online here.

It shows that retail sales growth weakened slightly, Brexit uncertainty is restraining investment, export growth has slowed a little, and companies are struggling to hire enough staff.

1. Some points from the Bank of England's Agents' survey for Q4. Investment intentions (rough indicator of current business investment) dropped a bit. Brexit reportedly a short term drag, but companies are making efficiency investments in the face of higher labour & other costs. pic.twitter.com/2MyinJj0dC

2. Companies reporting increasing recruitment difficulties. Pretty widespread. BoE pointing to construction and various services sectors as being affected. Should hopefully help support real pay growth. pic.twitter.com/bgxYRoH0n6

3. Agents survey suggests export growth is likely to continue to fade, as manufacturing companies reported slower demand from Emerging Markets for things like cars and sterling's boost fading. pic.twitter.com/JWtrZbJVFJ

4. Manufacturing output growth also set to continue to wane according to the BoE survey, although aerospace, food & beverages and electronics sectors reportedly doing well. Brexit contingency actions were reportedly taken predominantly by the larger companies in Q4. pic.twitter.com/jTxsPJeXkf

5. Agents' survey continues to point to pretty good growth in retail sales values (%y/y). That said, many contacts reporting that Black Friday didn't meet their expectations. Caveat is retailers were not as yet sure how much of this was just people delaying into December. pic.twitter.com/Hilj3ZStR1

12.32pm GMT

You can catch up with the Bank's thinking here:

Monetary policy summary and minutes of the MPC meeting ending on 19 December 2018: https://t.co/xfs4i4jUV7 pic.twitter.com/U4LoYDvGjm

12.26pm GMT

The Institute of Directors says the Bank of England is quite right -- Brexit is having a chilling effect on the economy.

Tej Parikh, Senior Economist at the IoD, says businesses will welcome today's interest rate decision -- any stability is welcome right now.

"The current political uncertainty is difficult to navigate for both the Bank and firms alike, so the MPC is right to wait for greater clarity before it makes its next move - anything else would be a risky punt on the economy.

The Bank now has a key role in communicating how it would support confidence in markets and the economy in the crucial months ahead in all circumstances, including a no-deal."

12.19pm GMT

In a worrying sign, Brexit uncertainty is now making it harder, and more expensive, for UK companies to borrow money.

The Bank of England says:

A number of UK corporates had withdrawn planned bond or loan issues in recent weeks. Market contacts had viewed uncertainty around Brexit as having had an adverse impact on the sterling market and the ability of UK companies to issue in other currencies.

Spreads on international banks' senior unsecured debt had also increased since the Committee's previous meeting.

12.09pm GMT

The Bank of England has issued a blunt warning that Brexit uncertainties have "intensified considerably" since November.

The minutes of this month's MPC meeting state that the pound has fallen, government bonds have come under pressure, and stocks have declined (although that's true of other countries too!).

These uncertainties are weighing on UK financial markets. UK bank funding costs and non-financial high-yield corporate bond spreads have risen sharply and by more than in other advanced economies. UK-focused equity prices have fallen materially. Sterling has depreciated further, and its volatility has risen substantially. Market-based indicators of inflation expectations in the United Kingdom have risen, including at longer horizons.

The further intensification of Brexit uncertainties, coupled with the slowing global economy, has also weighed on the near-term outlook for UK growth. Business investment has fallen for each of the past three quarters and is likely to remain weak in the near term. The housing market has remained subdued. Indicators of household consumption have generally been more resilient, although retail spending may be slowing.

12.03pm GMT

All nine members of the Monetary Policy Committee voted to leave UK interest rates on hold, resisting any temptation to copy their counterparts at America's Federal Reserve.

12.00pm GMT

Newsflash: The Bank of England has voted to leave UK interest rates unchanged at 0.75%.

More to follow....

11.53am GMT

It's nearly time for the Bank of England to announce its decision on UK interest rates.

The City expects the BoE to sit on its hands..... with Brexit less than 100 days away, the economy doesn't also need a rate hike.

"All roads ultimately lead back to Brexit and until there's a semblance of certainty, the outlook will remain difficult for the UK. We expect interest rates will remain unchanged, with May offering the best hope of a hike. However, this is largely dependent on Britain leaving the EU with a deal in place.

"Business is reluctant to invest in the current climate. As such we expect the economy to come to a near standstill, with GDP growth expected to drop to 0.2% this quarter and set to stall further to 0.1% in Q1 2019.

11.31am GMT

Pablo Shah, economist at the CEBR think tank, says the Federal Reserve ignored signs of weakness in America's economy when it hiked borrowing costs last night.

"Cracks are emerging for the US economy, with consumer confidence moderating and recent job market data disappointing.

The stock market turmoil that followed yesterday's rate hike shows that investors are concerned about a slowdown in 2019 and the Fed's apparent willingness to continue tightening monetary policy."

With wage growth at a nine year high, historically low unemployment and an economic growth rate still in excess of 3%, the US economy still seems to be in good shape - particularly when compared with other major economies such as China and the Eurozone. However, there is a growing consensus that the edge is coming off the US' resurgent economy...

10.59am GMT

In a boost to anyone driving home for Christmas, the oil price has hit its lowest level in over a year.

Brent crude, sourced from the North Sea, is now trading at just $54.91 per barrel, the lowest since October 2017. That's a 4% slide.

Brent #oil falls to new low, because investors just like to sell everything right now. pic.twitter.com/FIoGYdHXnf

10.44am GMT

You'd normally expect a currency to rally after an interest rate hike. However, the US dollar has actually dropped today.

This has sent the pound up almost one cent, to $1.269, and the euro up one cent to $1.147 (which pulls down the share price of multinational European companies).

10.32am GMT

Some City traders would happily hand America's top central banker a stocking full of coal for alarming the stock markets with last night's interest rate announcement.

Russ Mould, investment director at stockbrokers AJ Bell, explains:

"Rather than the traditional Santa rally, equities are enduring a Santa rout.

"A rate hike was widely expected when the US Federal Reserve met last night but the extremely negative market reaction reflects what was said alongside the decision by Fed chief Jerome Powell.

"US rates have such a widespread and profound impact globally thanks to the country's status as world's largest economy and because many currencies, particularly in the developing world, are tied to the US dollar. Many emerging markets also hold a lot of their debt in dollars.

"After big declines in Asia overnight, just a handful of stocks on the FTSE 100 were in positive territory this morning with mining firms, energy shares and industrial stocks all enduring significant pain.

10.12am GMT

Back in the markets, the FTSE 100 is struggling back from its early-morning slide.

After two hours of trading, the blue-chip index is down 50 points at 6715, a drop of 0.7%.

We've seen plenty of evidence that the global economy is slowing and financial conditions are tightening, while bond markets have been starting to warn that winter is coming for some time now, in the form of a possible recession, so last nights Fed rate decision would have been the perfect opportunity for US central bankers to reassure investors that they recognised these risks, with a nod to the darkening skies.

The decision to raise rates was not a surprise, however the guidance was, in that it wasn't dovish enough. Fed chairman Jay Powell did recognise some of these concerns by saying that growth and inflation were likely to be weaker, yet his overall tone came across as steady as she goes, as the US central bank continued to act as if the sun was shining, slapping on the sun screen, instead of investing in some form of storm insurance, as dark rain clouds start to loom larger.

9.37am GMT

Newsflash: Online shopping has hit a new peak in the UK.

The latest retail sales figures just released, show that online sales made up 21.5% of all retail spending in November. This is the first time that web shopping has exceeded 20%.

Retailers reported strong growth on the month due to Black Friday promotions in November, which continues the shifting pattern in consumer spending to sales occurring earlier in the year; the non-seasonally adjusted growth rate in November 2018 was 13.2% in comparison with 8.7% in November 2013.

UK retail sales +1.4% in November, well above forecasts and the highest increase since May.

But retail sales in 3 months to November, which smooths out some monthly volatility, rose just 0.4%, the smallest increase since April.

9.26am GMT

Heads-up: We're about to discover how well, or badly, Britain's retailers fared last month....

Stand By Your Desks! UK Retail Sales are due up in a bit after plenty of rumours about weakness so let's see what we get #GBP

9.09am GMT

Not every investor thinks the US Federal Reserve blundered last night.

Ronald Temple of Lazard Asset Management argues that America's central bank is right to raise borrowing costs last night, given the strength of the US economy.

"I believe the Fed made the right decision for the wrong reasons. With its more dovish outlook, the Fed is too attentive to short-term market moves and not enough to the benefits of running a high-pressure economy.

Tight labor markets are resulting in rising labor productivity and more people returning to the labor force, the two ingredients for faster economic growth.

8.40am GMT

There's a distinctly Dickensian feel in the markets this morning, says Connor Campbell of SpreadEx.

The markets are stuck in the first act of A Christmas Carol on Thursday, with Ebenezer Powell and the Federal Reserve ruining any hopes of a pre-Xmas turnaround.

Raising interest rates for a fourth time this year as expected, the wording of Jerome Powell's statement suggested the central bank was on track for 2 more hikes in 2019, down from the previously hinted at 3 increases.

8.33am GMT

The sell-off in London is gathering pace.

After 30 minutes of choppy trading, the FTSE 100 has shed 119 points, or 1.6%. That takes it to a new 28-month low of 6646 points.

8.29am GMT

Stocks are sliding because America's central bank seems determined to keep raising interest rates next year, says Mike van Dulken of Accendo Markets:

The driver was not so much the Fed's decision to hike interest rates [last night], more it's more downbeat projections for 2019 economic growth and inflation and, perversely, its updated forecast of just 2 hikes next year (previously three).

8.23am GMT

European stocks are also sliding, taking the Stoxx 600 index down to a two-year low.

8.18am GMT

The FTSE 250 index, which contains many US-focused companies, has also hit its lowest level in over two years.

Keir Group, the outsourcing company, has plunged by 10% after many investors refused to back a cash call.

8.16am GMT

There are some big losses in London this morning.

Antofagasta, the Chilean mining company, has tumbled by 4.75%.

8.06am GMT

Boom! Stocks are falling in London, as traders rush to sell following last night's hike in US interest rates.

The blue-chip FTSE 100 index has fallen by over one hundred points to 6662 points, its weakest level since September 2016.

7.54am GMT

Fed chair Jerome Powell has turned into a 'Grinch', sending anxiety coursing through the markets, says Sue Trinh of Royal Bank of Canada.

The kicker for markets was Fed Chair Powell revealing what keeps him awake at night in his presser.

He spent a lot of time talking about downside economic risks, particularly international economic challenges and financial conditions, without ever mentioning upside risks (e.g., potential for massive tax refunds to fuel consumer spending next year).

7.51am GMT

Ouch! The wave of disappointment following the US rate hike has driven Japan's stock market into a bear market (20% off its recent peak).

Japanese stocks enter a bear market as the Federal Reserve and Bank of Japan add to mounting investor concernshttps://t.co/D4E9XsZsaK pic.twitter.com/EISUzZVjjt

7.44am GMT

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

Related: Federal Reserve raises interest rates despite pressure from Trump

Related: Asian shares battered after Fed raises rates for fourth time

Despite many signs of global economic growth slowing, the Fed does not seem to be very concerned at this stage suggesting that monetary policy will continue to tighten albeit at a slower pace than previously projected. What appeared to be even more concerning to equity investors is that Powell is not only ignoring Trump's calls to pause the tightening cycle, but he is also not listening to them.

In answering a journalist's questions related to market volatility, Powell said that "we don't look at any one market. We look at a really big range of financial conditions and what matters for the broader economy is material changes in a broad range of financial conditions that are sustained for a period of time".