Mark Carney: Financial markets think no-deal Brexit less likely - as it happened
Bank of England governor Mark Carney has told MPs that UK banks can cope with disorderly Brexit, but investors believe it's less likely following Tuesday's vote
- Latest: Carney on sterling rebound
- Pound fell sharply yesterday, then recovered after vote
- Carney: China's economy is decelerating
- Experts: Brexit uncertainty is rising
- Introduction: Carney at parliament
8.15pm GMT
And finally, here's our news story about Mark Carney's testimony to parliament.
Related: Markets expect Brexit to be delayed, Bank of England governor says
8.14pm GMT
Sterling is resolutely refusing to rally tonight, despite Theresa May winning her no-confidence vote (as expected).
A revised and watered-down deal getting through is probably the most likely scenario at the current time and a much softer Brexit seems to be the current expectation in markets. This scenario would require some kind of alignment with the EU single market regulation to avoid a hard Northern Irish border. But crucially was this what the electorate voted for in the original referendum? Politically it would be extremely messy.
"Other routes forward are being priced as lower probabilities now. There is very little chance of the UK parliament committing hari-kari and deciding that No Deal Brexit is the way to solve the current impasse. This would be economic suicide and result in a severe contraction in economic activity and a guaranteed recession. It is hard to see that this route will come to pass as there is no parliamentary majority for a No Deal cliff edge exit from the EU. Parliament will take control of the process should May fail to deliver any improved deal option and block this route by extending Article 50. So a No Deal Brexit has now morphed into a never ending Brexit.
5.11pm GMT
London's stock market has closed for the day, leaving the FTSE 100 index of top shares in the red.
The Footsie lost 32 points, or almost 0.5%, to end the day at 6,862 points.
Stubborn losses in its commodity sector - with the likes of BP, Shell and Rio Tinto all feeling edgy about the state of the Chinese economy - meant that the FTSE 100 was stuck in the red.
Sterling spent the day acting as if it didn't have a care in the world, posting a leisurely 0.3% increase against both the dollar and the euro. The currency is in for another rough night, however, as investors prepare for the no-confidence vote in Theresa May and, dun dun dun, whatever fresh Brexit hell its aftermath brings.
5.06pm GMT
Kerim Derhalli, CEO of Invstr, fears investors are being too complacent about the Brexit risks:
"The markets have been remarkably calm overnight after yesterday's historic government defeat. The rally in the pound from the 1.2670 low yesterday implies that the scale of the defeat makes a no Brexit outcome more likely. This has been the Prime Minister's argument but seems naively optimistic.
"Without a re-negotiated deal, the possibility of a no-deal Brexit is the next most likely outcome. This would imply far greater political and economic uncertainty. The pound would fall towards $1.10 and lower.
"No Brexit, which the market is hoping for, could only be achieved by a second referendum or a general election. The only certainty in either of those scenarios is civil disorder in the UK similar to the gilets jaunes movement in France. A Labour government would create a greater market shock than a no-deal Brexit.
3.04pm GMT
Related: How should this Brexit crisis be fixed? Our writers' verdicts | Matthew d'Ancona and others
3.02pm GMT
Goldman Sachs' European economist Adrian Paul has added his weight to the growing City chorus predicting that Britain will remain in the EU beyond March.
In a research note published today, Paul says:
"We still expect a slim majority of MPs to ultimately consent to a close variant of the current Withdrawal Agreement,"
We think the prospect of a disorderly 'no-deal' Brexit has faded further. That sharper skew implies a greater probability of an extension to the 29 March Brexit deadline embedded in Article 50.
Goldman Sachs sees greater chance of Brexit being scrapped altogether after historic defeat https://t.co/fI1NaMYPfe
2.46pm GMT
Over in the US, Bank of America has defied recent market turmoil by beating forecasts.
The Wall Street giant posted earnings of 73 cents per share, compared to 63 cents expected. At $22.7bn, revenues beat forecasts of $22.4bn - even though its bond-trading division saw revenues fall 15%
"Through the trillions of dollars of consumer transactions we process and from the steady confidence and activity of our small business and commercial clients, we see a healthy consumer and business climate driving a solid economy."
Stocks open higher after strong earnings from Goldman Sachs and Bank of America https://t.co/0eUQ8XoeEA pic.twitter.com/Ty97r50Om5
2.21pm GMT
Over in Westminster, MPs are getting their teeth into the No Confidence motion that could bring down Theresa May. We're live-blogging it here.
Sterling, though, is remarkably calm..... basically unchanged against the US dollar today after yesterday's late-night recovery.
As the Commons begins its debate of no confidence in the Government, we'll be monitoring markets to see how investors are reacting. So far, at least, currency markets are quite placid - more so than yday. Here's vs $ pic.twitter.com/qgQ1lPowug
2.04pm GMT
Charles St Arnaud, senior investment strategist at City firm Lombard Odier Investment Managers, has reckons a Brexit delay is now 'unavoidable' (providing further support to Mark Carney's point this morning)
But there are six possible scenarios, he suggests:
1.23pm GMT
Professor Costas Milas of the University of Liverpool has compiled a neat chart, showing how economic and political crises are bad for sterling.
I think the Governor is right to point out that we should not make much of the very short-run movements in the exchange rate. The exchange rate will only strengthen if Brexit uncertainty recedes. The best way to see this is by plotting together economic policy uncertainty in the UK ( based on newspaper articles regarding policy uncertainty from The Times and The Financial Times; available here) and the effective exchange rate from the BoE database.
To avoid the distraction of very short-term fluctuations, I plot together the two series in terms of 1-year rolling average growth rates. There is a very strong negative correlation: Rising policy uncertainty harms sterling growth. Notice that policy uncertainty has moved down notably since early 2017 when we finally triggered Article 50. This provided a lift to the exchange rate on the ground that Ms May engaged seriously with our EU partners in Brexit discussions. Will the exchange rate lift further if we extend Article 50? I suspect so provided that the extension is only short lived with the aim of tweaking Ms May's deal slightly.
1.15pm GMT
The pound is strengthening against the euro, up 0.3% today at a1.13.
That's another sign that Brexit worries are fading, a little.
Theresa May did say to extend Article 50 UK would need to show it is getting towards a deal, so first acknowledgement that changing the timetable is possible if there's a compromise to be found. The other reasons the EU might extend timing are second referendum or new govt
BREAKING: Dominic Grieve has just tabled a bill for a new European Union Referendum in the House of Commons pic.twitter.com/kcpfMHcF5L
12.42pm GMT
Andy Bruce of Reuters has rounded up the latest City views on Brexit:
There's a huge range of views among economists on how Brexit will turn out. But they're leaning towards delay.
UBS: No deal chance ai, A50 ext ai
Oxford Econ: May deal(ish) likely
Schroders: No-deal risk high, soft Brexit unlikely
Natixis: May deal <20%, likely delay/revoke A50
ADM: A50 ext then 2nd ref or hard Brexit
Berenberg: Softer Brexit or 2nd ref
Capital: A50 ext, Norway-ish Brexit
ING: A50 ext
Franklin Templeton: A50 ext most likely, hard Brexit wouldn't be so bad
RBC: A50 ext, then "truly alternative path" like 2nd ref
12.32pm GMT
David Page, senior economist at AXA Investment Managers, has weighed in to support Mark Carney.
He concurs that investors believe Britain is less likely to crash out of the EU without a deal, now that MPs have delivered such as resounding defeat on the PM.
12.16pm GMT
Governor Mark Carney played today's session fairly tightly -- understandably keen not to spook the markets at such a crucial time. But there are a few key points to flag up.
The financial markets believe that Brexit could be delayed, according to Carney. He believes the recovery in sterling since last night's vote shows a no-deal Brexit is seen as less likely.
11.56am GMT
Carney makes one final point on the Bank's 'worst-case' disorderly Brexit scenario (in which the pound plunges 25% and a staggering 8% is wiped off GDP).
That scenarios is mainly based on the imposition of tariffs and economic dislocation, not higher interest rates (which has a longer-term impact). the governor adds.
11.34am GMT
BoE policymaker Richard Sharp makes an important point -- the economy will suffer if global investors lose faith in the credibility of the government to handle its financial affairs.
In other words, uncertainty over Brexit (or a general election) could hurt demand for UK assets (an interest rate hike to prop up the currency could drive debt defaults and cost jobs, for example)
11.25am GMT
More Christmas card news -- John Mann MP reassures Mark Carney that his Christmas card went on the main mantlepiece at Mann Towers (not with the missives from "politicians and other curiosities").
Carney's card was proudly displayed between Borussia Dortmund Football Club and the ambassador of Nepal, apparently.
11.08am GMT
Labour MP Wes Streeting asks Carney about another big issue - the rise in unsecured household debt. It has hit 15,400 per person, according to the TUC.
Carney argues that the true picture is lower -- the TUC's data includes student loans, which are effectively a tax (you only pay them back at a certain income level). It also includes loans to non-profitable bodies such as schools and hospitals.
11.01am GMT
The Treasury committee now turn to the UK's persistent current account deficit (the gap between the goods and money flow into and out of the country)
Q: Could Brexit make it worse?
As a nation we are spending more than we earn.... the onus is on the UK to maintain its attractiveness for that overseas investment, unless we want to go through that painful adjustment.
10.56am GMT
Here's our news story on this morning's inflation data:
Related: UK inflation falls to lowest level in two years
10.55am GMT
Back on China, Mark Carney warns that Chinese lenders have been using some of the techniques seen in America in the run-up to the financial crisis.
10.51am GMT
Brexiteer Steve Baker MP starts his questioning with an apology.....for not sending Mark Carney a Christmas card! Apparently it was part of a wider failure.... (readers can insert their own joke about Brexit planning).
Baker then asks about the government's decision to end the "zero risk weight rule" on eurozone government debt in a no-deal scenario.
10.33am GMT
Christopher Smart, head of macroeconomic & geopolitical research at Barings, thinks Mark Carney is right -- the markets do believe the Brexit date could be extended, and that a hard Brexit can be avoided.
Smart writes:
"Theresa May has been the Energizer Bunny of British politics. She just keeps going, in spite of all obstacles. Everyone hates her plan, but they hate the alternatives even more. Lots of people want her job, but they don't want it now.
With this vote, however, she may be coming to the end of her rope. Even if she wins the confidence vote tonight, it's just hard to imagine that in consultation with other party leaders she can develop a fresh approach that will garner broad support.
10.31am GMT
This chart from Refinitiv shows the pound's rebound last night which Carney alluded to.
As you can see, sterling weakened steadily through Tuesday as the meaningful vote loomed, only to bounce back off the mat once the scale of May's defeat became clear.
10.25am GMT
Uh oh.... Mark Carney is now talking about potential problems in the financial system.
This includes the growth in leveraged loans and loan securitisation (bundling debt into new securities - a popular and dangerous practice that led to the 2008 crisis).
Mark Carney said he's "concerned" about leveraged loans: "This is very clear evidence of a steady decline in underwriting standards."
@bankofengland Mark Carney, taking about potential for sub-prime crisis repeat, makes important point that UK and #euro banks must retain a portion of any loans securitised and sold on. In US, lending originators "don't have any skin in the game" once loans are sold. US at risk!
10.19am GMT
Conservative MP Colin Clark turns to the trade dispute between the US and China.
Q: Has the UK already been hurt by the trade war?
10.11am GMT
Q: What's a bigger threat - Brexit, or China's slowdown?
Alex Brazier, BoE executive director for risk, says the Bank doesn't rank them -- it trie to ensure that the financial system is strong enough to cope with both.
10.09am GMT
Brexit isn't the only risk facing the UK economy, of course.
Mark Carney is now outlining how an economic shock in China could hurt Britain, as it's such an open economy.
9.58am GMT
We are looking to avoid a situation where the financial system makes the next downturn worse, Carney says.
He points out that the Bank has forced commercial banks to hold more capital (through its counter-cyclical capital buffer). That cash is effectively on standby for an economic shock, and could be released to support lending.
9.52am GMT
Labour MP Catherine McKinnell is quizzing Mark Carney over the Bank's predictions that interest rates could rise sharply if Britain crashes out of the EU without a deal.
The governor explains, at some length, that the bank's "mechanical formulae" models how such a shock would ripple through the system, and the actions policymakers should take.
We have confidence that the core of the system is resilient to the kinds of shock we could see.
Nice to see that @catmckinnell isn't buying the @bankofengland line that it would jack up interest rates in the midst of a no-deal #Brexit. Mark Carney says it would save the banks. But neglects to say it exacerbates the dive in GDP, rise in unemployment and home repossessions
9.39am GMT
Just in: UK inflation has fallen to its lowest level in almost two years -- giving households some relief as they brace for possible Brexit upheaval.
The consumer prices index shows that prices rose by 2.1% year-on-year in December, down from 2.3% in November, thanks to falling fuel costs.
*U.K. DECEMBER INFLATION RATE FALLS TO 2.1%, AS FORECAST
9.36am GMT
Bank off England governor Mark Carney has told the Treasury select committee the markets reacted positively to last night's Government defeat because they anticipate the Article 50 process will be extended.
9.34am GMT
Carney adds that he wouldn't put 'too much weight' on short-term market moves.
9.30am GMT
Mark Carney begins his session by talking about the financial markets' reaction to last night's Brexit vote.
The governor says that market sentiment across a range of markets are affected by Brexit developments, particularly in parliament.
Public market commentary, consistent with our market intelligence, that rebound appears to reflect some expectation that the process of resolution would be extended and that the prospect of no-deal may have been diminished.
Pound sterling plummets then rallies as Commons overwhelmingly rejects PM Theresa May's Brexit deal | The Independent https://t.co/j9GyDN5RQQ
The markets, like the country, are looking to parliament for direction, and one could expect continued volatility.
9.21am GMT
Mark Carney's hearing is underway now. It's being streamed live here.
9.14am GMT
Newsflash: Environmental threats, and politicians inability to tackle them, are the biggest risk to the global economy, the World Economic Forum has warned.
WEF's annual global risks report, just released, cites extreme weather events, natural disasters, and failure to address climate change as the three biggest threats.
Is the world sleepwalking into a crisis? Global risks are intensifying but the collective will to tackle them appears to be lacking. Instead, divisions are hardening...
Nine out of 10 respondents expect worsening economic and political confrontations between major powers this year. Over a ten-year horizon, extreme weather and climate-change policy failures are seen as the gravest threats.
Related: Global tensions holding back climate change fight, says WEF
9.03am GMT
The pound is calm now, but may rally if Theresa May wins today's no-confidence vote, called after last night's historic Brexit deal defeat.
Kit Juckes of French bank Socii(C)ti(C) Gi(C)ni(C)rale says:
The UK voted for Brexit, markets priced it in (to a large degree) and now are watching, slack-jawed, as the Government tries to find a path to the exit which it can rally politicians behind.
Today's confidence vote isn't quite a done deal and so if the Government survives, sterling should get a bit of a lift.
9.01am GMT
Credit rating agency Moody's isn't considering cutting the UK's credit rating, yet anyway, following the Meaningful Vote on the Brexit deal last night.
It says:
The outcome of the vote further extends the period of uncertainty over the UK's relationship with the EU, a credit negative for many rated debt issuers.
However, the vote against the deal is not, in itself, sufficient grounds for Moody's to shift its base case to a no-deal scenario in which the rating agency would formally review the UK's credit profile and other affected issuers
8.51am GMT
City analysts and fund managers have been scrambling to update clients on the Brexit situation, after Theresa May's withdrawal deal was resoundingly rejected by MPs.
David Lafferty, chief market strategist at Natixis Investment Managers, says the drubbing highlights the PM's weak position:
"From our view, the most likely outcome is that May acquiesces and either delays or revokes article 50, effectively pushing the 'pause button' just before the train flies off the tracks. UK businesses and consumers should expect to live under continued uncertainty for quite a while longer.
It is important to recognize that the Brexit referendum was about an ideal - a United Kingdom independent of the EU. So far, that ideal has not been matched by a realistic plan or process to deliver it. Until such a plan emerges, the withdrawal process will probably be put on hold."
At this stage we do not advocate taking directional views on sterling and UK assets. The reaction of the pound following the vote would suggest that markets are not currently increasing the risk of an adverse outcome.
For the time being, we expect that uncertainty will remain high and UK markets will stay volatile. Within portfolios, exposure to sterling-denominated assets should be maintained at benchmark levels until more clarity emerges."
As Mrs May licks her wounds after last night's humiliating defeat what matters now is how hard she tries to build a consensus on the basis that a large majority in the Commons including half her ministers (and possibly herself but she is not saying) are determined to avoid 'no deal'. She has her work cut out as nobody really trusts her competence or veracity any more (ironically, rather like Mr Trump, whom she no doubt fastidiously disdains as her mirror image).
She may genuinely be taken aback by the intensity of division both in Parliament and amongst voters but as Prime Minister she has to deal with it responsibly in order to limit the economic and social damage.The scale of the defeat means there is little point in her persisting with the current deal as Europhile MPs who loyally supported her yesterday will now feel able to go their own way. This, in turn, means that Brexit will not take place on 29 March, if at all.
8.37am GMT
Mark Carney will be quizzed today about the Bank of England's latest Financial Stability Report, released at the end of November.
That report predicted that the UK banking sector could survive a disorderly Brexit, thanks to the Bank's work since June 2016 (if only the rest of the system had worked as efficiently....)
The FPC has reviewed a disorderly Brexit scenario, with no deal and no transition period, that leads to a severe economic shock.
Based on a comparison of this scenario with the stress test, the FPC judges that the UK banking system is strong enough to continue to serve UK households and businesses even in the event of a disorderly Brexit.
8.12am GMT
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Related: Theresa May suffers historic defeat in vote as Tories turn against her
Unable to command her party or parliament, Theresa May limps on, sustained by #Brexit policy chaos on all sides, lack of an obvious replacement. But her options & time running out. Also hard to see her surviving a 2nd referendum scenario. #BrexitVote
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