ECB unveils measures to revive eurozone as it cuts growth forecasts – as it happened
- Central bank to launch fresh round of cheap bank loans and says rates will stay at record lows 'at least through 2019'
- ECB slashes 2019 growth forecast to 1.1% from 1.7%
- John Lewis to pay lowest staff bonus since 1953
4.14pm GMT
The ECB has surprised observers with a double dovish move on monetary policy, extending the time horizon in which it will not raise interest rates and unveiling more cheap funding for banks.
ECB president Mario Draghi and the rate-setting governing council want to forestall a growth slowdown in the EU, with the large German and Italian economies both struggling.
Related: ECB to keep interest rates low this year over recession fears
2.56pm GMT
Here's Mario Draghi at his poetic monetary policy best:
Draghi: In a dark room you move with tiny steps. You don't run but you do move.
2.51pm GMT
Here are those growth projections in handy visual form. It does not spell a pretty picture for this year in the Eurozone.
Draghi introduces the GDP and inflation outlook for the euro area pic.twitter.com/8C5lxUR9NU
2.44pm GMT
Pushing on a string? That's the verdict of Nick Wall, co-manager of a bond investment fund at Merian Global Investors.
He said: "As growth cools, the ECB is taking no chances with the banking system by offering cheap liquidity until 2023.
This helps at the margins by keeping the cost of credit cheap, but the issue in Europe has been demand for credit. For money demand to increase, Europe will be looking for an upswing in Chinese growth to boost its exports and for governments to boost spending. An increase in consumer confidence would also reduce the savings rate that picked up following a turbulent fourth quarter of 2018.
The ECB is doing all it can within its legal framework to keep money cheap, but until the demand for money picks up meaningfully, it will be pushing on a string.
2.40pm GMT
European bank shares have not taken to the ECB's announcement particularly well, despite the promise of more cheap funding.
The eurozone banks index is down by 3.9%, which would be its worst day of the year so far.
2.37pm GMT
Mario Draghi has now finished speaking in Frankfurt.
In truth, the major action was probably at the announcement itself, in which the ECB surprised observers.
We doubt, however, that the new measures will be enough to reverse the economic slowdown.
2.33pm GMT
An interesting answer on what the main underlying causes of the slowdown seen by the ECB in Europe.
It's a mixture of internal and external factors for the EU, Draghi said. The external slowdown was "mostly the slowdown in world trade", with China, some emerging markets, and a "potential slowdown" in the US at issue.
2.26pm GMT
As ever, it's a tricky rhetorical path that Draghi must tread.
Question - is the Eurozone economy becoming too reliant on stimulus?
Draghi - No.
Yet only last year Draghi was saying that QE was only driver of growth in some parts of Europe
2.23pm GMT
The ECB may have cut its growth outlook and given banks cheap funding, but using the central bank's biggest monetary policy tool, quantitative easing, was not at issue this week, Draghi said.
When the ECB announced the December end of its quantitative easing programme it left the door open to returning to it if necessary. Not yet, though. He said:
There was no discussion about quantitative easing. Not at all.
2.19pm GMT
Asked about whether giving an effective subsidy to banks, in the form of cheap lending, at a time when big bonuses are still being paid out, Draghi defended the policy.
If it were not a subsidy no banks would take it up, making it useless as a monetary policy tool, Draghi said.
2.17pm GMT
Draghi chuckled when asked about the fact that he will never raise rates as ECB president.
It's not me. It's the [rate-setting] governing council. But I have no comments to make.
2.14pm GMT
Jasper Jolly taking over here from Julia Kollewe.
Some early reaction from economists, with Draghi still speaking.
We are a bit surprised by this because this commits the new ECB president and governing council not to move on rates after Mr Draghi leaves in October*.
2.04pm GMT
You can read Mario Draghi's introductory remarks here.
2.01pm GMT
German bond yields are also down on the ECB's new GDP and inflation forecasts.
German 10y yields drop below 9bps as #ECB has cut all inflation forecasts and GDP forecasts for 2019 and 2020. pic.twitter.com/juccttQ1gI
1.59pm GMT
The euro fell to a new session low of $1.1254, down 0.5% on the day, after Draghi announced a sharp downgrade to this year's growth outlook. Southern European bond yields extended falls, some to levels not seen since 1999.
1.56pm GMT
Several analysts are saying the ECB's policy decision today proves that is ahead of the curve, for once.
Seema Shah, senior global investment strategist at Principal Global Investors, says.
For one of the first times in its short life, the ECB has been pre-emptive rather than reactive. By announcing new liquidity operations earlier than the market was anticipating, the ECB has moved ahead of the curve and provided strong reassurance to the banking sector - and to the real economy to some extent - that it will provide support if required. Admittedly, these TLTROs themselves are unlikely to provide strong stimulus, but demonstrating its intent to act is half the job done.
In addition, the ECB provided forward guidance on policy rates through the end of 2019. With the ECB deposit rate in negative territory, further rate cuts were out of the question. The inability to pass on the negative rates to depositors means that banks net interest margins get squeezed when they deposit excess reserves at the ECB, cutting away at profitability, capital and their ability to lend. No wonder then that negative rates have been drawing criticism from banks across Northern Europe and the ECB has, if anything, been receiving calls for rate hikes.
1.54pm GMT
All members of the ECB governing council still think the probabilities of a recession are low, the ECB chief said, reiterating that financing conditions has eased further.
1.52pm GMT
He said this year's growth forecast had been revised down "quite significantly" because we are "in a period of continued weakness and pervasive uncertainty".
1.50pm GMT
Draghi said financing conditions had "even eased since the last meeting".
1.48pm GMT
Draghi: The policy measures decided today, and in particular the new series of TLTROs, will help to ensure that bank lending conditions remain favourable
1.47pm GMT
Here are some more introductory remarks from Draghi at the ECB press conference.
While there are signs that some of the idiosyncratic domestic factors dampening growth are starting to fade, the weakening in economic data points to a sizeable moderation in the pace of the economic expansion that will extend into the current year.
The weaker economic momentum is slowing the adjustment of inflation towards our aim.
1.43pm GMT
A question for the ECB Draghi press conference. Mario can you please explain why you were telling us Euro area GDP growth was "robust" last autumn when it was in fact 0.1%?
1.41pm GMT
Draghi has just given the ECB's new growth forecasts. A big downgrade for 2019, to 1.1% from 1.7%, and a smaller revision to 1.6% from 1.7% for 2020. The 2021 forecast remains at 1.5%.
The ECB also slashed its inflation forecasts, to 1.2% in 2019 (from 1.8%), 1.5% in 2020 (from 1.6%) and 1.6% in 2021 (from 1.7%).
1.38pm GMT
Mario Draghi is speaking at the ECB's press conference.
Further details on TLTRO will be given "in due course", Draghi said.
1.25pm GMT
You can read the full ECB announcement here.
In just over five minutes, ECB president Mario Draghi and vice-president Luis de Guindos will take questions from journalists and explain the central bank's latest measures. You can watch the press conference live here.
1.21pm GMT
The euro keeps falling after the ECB announcement, and is now down 0.4% at $1.1266.
1.16pm GMT
Naeem Aslam, chief market analyst at ThinkMarkets, says:
ECB delivered fireworks: a new series of TLTROs. Basically acknowledging the slow growth in the eurozone. This announcement made traders go wild and this pushed the euro-dollar price lower. All eyes will be on Draghi and markets are going to be even more brutal if he delivers any more surprise in his statement. This is because the overnight volatility for euro-dollar pair shows that when traders are not expecting any surprise, and the policymakers play against the odds, the reaction is more ruthless.
1.14pm GMT
A sign of panic or an attempt to get ahead of the curve? asks Carsten Brzeski, chief economist at ING Germany. The ECB surprised almost everyone by announcing a new series of measures, trying to avoid an unwarranted tightening of its monetary stance.
He writes:
1.11pm GMT
Economic growth in the eurozone has slowed to 0.2% in the final three months of last year, half the rate seen in each of the first two quarters of 2018, the latest Eurostat data confirmed today, with global trade tensions and Brexit uncertainty biting.
This prompted the ECB to push its first interest rate hike since the financial crisis to next year at the earliest, and to offer banks more cheap funding.
1.00pm GMT
The euro has dropped while bank stocks have risen on news of the ECB's new lending operation and its guidance that there won't be an interest rate hike this year.
Euro drops, bank stocks rise as ECB announces new lending operation and sees no rate hike this year https://t.co/8jFtVETC9r pic.twitter.com/XaQDoxLbbh
12.55pm GMT
#ECB leaves all rates at record low. Main refi at 0%, Depo rate at -0.4%. TLTROs announced, guidance pushed back. Sees rates on hold at least through 2019. pic.twitter.com/8EI82n4KK1
12.54pm GMT
This means that Mario Draghi will leave the ECB in the autumn without ever raising rates.
The ECB bits that matter
(Also ECB confirming that Mario Draghi will go full eight-year term without ever raising rates) pic.twitter.com/Eatrl0MStf
12.53pm GMT
In its forward guidance on interest rates, the ECB said:
The governing council now expects the key ECB interest rates to remain at their present levels at least through the end of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.
12.50pm GMT
The European Central Bank has left interest rates unchanged at record lows, as expected, and said they would stay on hold for at least the rest of this year.
It is launching a new round of quarterly targeted longer-term refinancing operations (TLTRO-III) - its third since 2016 - starting in September and running until March 2021, each with a maturity of two years, to support bank lending in the eurozone.
12.39pm GMT
The pound is falling after reports that the Brexit negotiations have hit an impasse.
Reuters quoted a government source as saying that there are no signs that anything will change in the UK's talks with the EU over the next 48 hours, who added that the EU was simply not moving.
12.23pm GMT
While we are waiting for the ECB, a tweet from Liam Fox reveals that he doesn't know what WTO stands for - it stands for World Trade Organization, in case you are wondering. The UK's international trade secretary is in Switzerland, visiting the Geneva-based organisation.
Today I am in visiting the World Trading Organization.
Leaving the EU presents the UK with a golden opportunity to reshape our position in the , and our work @WTO will not only benefit British businesses but all the people of across the
12.14pm GMT
So to sum up, the key things to watch for at today's ECB meeting are the central bank's forward guidance on rates, its new growth and inflation forecasts and any comments on a new round of TLTROs (which would be its third since 2016) to support bank lending.
Neil Wilson, chief market analyst at Markets.com, says:
On rate guidance, it seems appropriate for the ECB to acknowledge that it will not be raising rates until 2020, at the soonest. I'm sticking to the view that the ECB is more likely to ease policy rather than tighten this year. But we may not see the ECB alter its forward guidance until the later spring/early summer meetings.
On TLTROs, it seems all but certain that the ECB will need to relaunch these loans this year, although it may choose to hold fire at this meeting. If past performance is anything to go on, Draghi will use this opportunity to confirm to the market that the ECB is thinking this way and we may expect them to launch in the summer. With QE having ended and data softer, the ECB seems at pains to keep financial conditions easy and it would seem likely that TLTROs will be used. Having missed its opportunity to tighten, the ECB is now at risk having to go even deeper and relaunch QE later this year unless the economic data rebounds significantly over the next two quarters.
12.10pm GMT
Didier Borowski, head of macroeconomic research at Amundi, Europe's largest fund manager with a1.45 trillion of assets under management, has also shared his thoughts on what to expect.
Given the uncertain environment, the ECB should keep its assessment on risks unchanged and, in addition, announce new TLTROs (it would be the third wave of TLTROs, the first wave ... was announced in March 2016) to alleviate the burden on the banking sector. This is widely expected and has been to some extent pre-announced in recent weeks. However, the modus operandi is still in question.
Regarding interest rates, the ECB will likely change its forward guidance. But the ECB may want at the same time to maintain the door open to a "normalisation" of its deposit rate which weighs on the profitability of the banking sector, in particular in the north of the Eurozone. Bringing it back to zero at some point remains an objective for the ECB, in particular if the base scenario is confirmed in H2. This is all the more true that certain studies indicate that maintaining negative interest too long could prove counterproductive for the banking sector, impairing the credit channel and thus arming the economy.
Some observers have concluded that the ECB can put in place a two-tiered deposit rate system: one that would apply to banks that have accumulated large excess reserves and that could be raised without inconvenience; while the other, for banks that are highly dependent on the liquidity of the ECB (in Southern Europe, especially Italy), would stay negative (but variable). The establishment of such a mechanism is or has likely been studied by the ECB. But in the current environment, it seems premature for the ECB to move in this direction.
12.01pm GMT
David Kohl, chief currency strategist at Swiss private bank Julius Bir, has sent us his expectations for the ECB's growth downgrade.
The updated growth projection for 2019 will be revised sharply down from the 1.7% published in December. We expect growth in the eurozone to slow to 1.2% in 2019. The possibilities to respond to slower growth with easier monetary policy are limited, as the main refinancing rate stands at 0% and the deposit rate is already negative, with -0.4%, and thus puts pressure on the bank's profitability at this level.
The focus of attention is on the extension of long-term refinancing operations, which will start to expire next year and are a crucial so that banks fulfil the net stable funding requirements. We expect that an extension will be prepared at today's meeting given the weaker growth outlook. Any additional dovish rhetoric, including an extension of the guidance on how long rates will remain unchanged, would be a dovish surprise and drive the EUR/USD faster towards our 3-month target of $1.10.
11.57am GMT
The pound has lost 0.2% against the dollar and 0.3% against the euro - its losses a combination of Brexit anxiety and pre-ECB hope from its single currency rival, noted Connor Campbell, financial analyst at Spreadex.
He went on to say:
Though the slowdown is well-know at this point, the OECD's forecasts for the eurozone were still troublesome on Wednesday. In response to the region's economic issues, the ECB is expected to announce, or at least signal, that is prepping a fresh set of targeted longer-term refinancing operations in order to encourage bank lending.
11.52am GMT
Time for a look at the markets, ahead of the ECB's policy decision at 12.45pm GMT and ECB chief Mario Draghi's eagerly-awaited press conference at 1.30pm GMT.
Nearly all major European stock markets are down, with the exception of Spain's Ibex, which has edged up some 11 points.
10.58am GMT
The euro is holding around $1.1316, just off three-week lows versus the dollar, as traders hope for more stimulus from the ECB at lunchtime. Konstantinos Anthis, head of research at financial services firm ADSS, has looked at what the ECB might do, and the likely impact on the euro.
We've seen more signs of the eurozone slowdown in recent months, off the back of political challenges, domestic and abroad, and rising geopolitical risks that prevent producers and consumers from committing to investments and production. As such, the ECB has been supporting liquidity in the euro area by providing banks with loans in order for them to in turn increase lending to everyday people and keep the economy going. These central bank loans are called TLTROs.
These loans are about to expire in June but given the lower growth prospects seen in the Euro area, the ECB is seriously considering to announce a new round of TLTROs to keep the domestic economy supported.
And here lies the key takeaway from today's meeting: if the ECB announces the new round of loans today the euro will lose value and head towards the $1.1220 lows as increased money supply in the market will drive prices lower.
If the ECB mentions that they will introduce a new round of TLTROs but defer offering any details right now, we still expect a bearish reaction towards $1.1240 but not a sell-off as the markets have largely priced in a bearish ECB. In the off chance that Draghi says nothing, the euro will soar towards $1.14 as expectations for a bearish meeting will be proven wrong.
10.50am GMT
The eurozone growth figures come ahead of the European Central Bank's monthly meeting, where it is expected to leave interest rates unchanged. But markets will be looking for any additional measures the central bank is taking to revive the slowing economy, such as another round of cheap loans to banks.
ECB chief Mario Draghi is expected to announce sharp downgrades to the central bank's growth and inflation forecasts when he begins his press conference at 1:30pm GMT.
10.43am GMT
The latest eurozone data are also out. The EU's statistics office Eurostat has confirmed its previous estimate of 0.2% quarterly growth in the final three months of last year. This is up slightly from 0.1% growth in the third quarter.
Growth in the fourth quarter was driven by exports, investment and household spending, offsetting a sharp drop in inventories.
10.27am GMT
News just in that 440 jobs are going at Waitrose because it is selling a further five shops to other retailers, following the closure of five shops announced last year.
10.24am GMT
Here is some reaction to the John Lewis staff bonus, the lowest in 66 years, following a slump in the retailer's profits.
3% bonus for the John Lewis / Waitrose folk; better than nothing in a tough environment but the days of 17/18% feel a long time ago.
Thankyou #johnlewis #waitrose for my extra 300 towards my #readingfc season ticket!!!
John Lewis staff feeling nervous this morning.. the posters which normally announce "bonus day" are instead flagging "full year results announcement"...
10.19am GMT
You can read the full speech here.
10.19am GMT
She also explained what was likely to happen after a smooth Brexit.
Following a smooth Brexit, sterling would be likely to appreciate. Potential supply will also be able to continue on its recent path, free of any immediate constraints. A stronger pound and continued supply growth would both limit the extent that a recovery in demand feeds through into inflationary pressures.
So while I still envisage that in the event of a smooth Brexit we will need a small amount of tightening over the next three years, before voting for any rate rises I would want to be confident that demand was growing faster than supply. As I have discussed today, to be most sure of that I would need to see an increase in domestic inflationary pressures.
10.17am GMT
The Bank of England is more likely to cut interest rates than raise them in the event of a disorderly, no-deal Brexit, according to Silvana Tenreyro, who is a member of the central bank's rate-setting committee.
She said in a speech in Glasgow:
In my judgement, a situation where the negative demand effects outweigh those other effects is more likely, which would necessitate a loosening in policy. But it is easy to envisage other plausible scenarios requiring the opposite response.
10.08am GMT
Here is more detail on the John Lewis results. It owns the upmarket grocer Waitrose, which has fared better because it did less discounting and spruced up its ranges. Operating profits rose 18% to 203.2m as profit margins improved and like-for-like sales grew 1.3% .
Waitrose launched more than 5,000 new or updated products including bigger ranges of vegetarian and vegan products - introducing Beetroot Wellington before Christmas.
10.01am GMT
Back to house prices, which jumped 5.9% on the month in February, according to the mortgage lender Halifax. It was the biggest monthly gain ever recorded and was partly caused by an increase in sales in south east England.
A spokeswoman explained:
It is the biggest we have recorded, but as always we'd caution against putting too much emphasis on the monthly figure as that is much more volatile. You'll recall that January was a particularly weak month, so February is something of a correction.
Underlying that, we've been seeing an increase in sales in the south east which had been more subdued in recent months. This has played a part in the movement given the importance of the region.
9.50am GMT
John Lewis has set out its preparations for Brexit, with the official departure date of 29 March just three weeks away.
We have been preparing for the operational implications of Brexit for well over a year, and are in a good position for a managed transition. This covers currency, tariffs, customs and labour.
The main risk in an unmanaged transition is a strong fall in consumer confidence and the impact that has on trade. Given the current level of uncertainty, we expect 2019 trading conditions to remain challenging. We have built up a strong liquidity position at nearly 1.5bn so that we have the financial headroom to mitigate the risks and make sure we can continue investing for the future.
9.48am GMT
The staff bonus - which at 3% of salary is the lowest in 66 years - has cost John Lewis 44.7m, compared with 74m the previous year.
All partners, from leading executives to Saturday shelf-stackers, receive the same percentage bonus.
Related: John Lewis cuts staff bonus to lowest level since 1953
9.43am GMT
He said there had been "near constant discounting" since October in many areas, to draw in reluctant shoppers:
The market context continues to be challenging. That's evident in our results, especially in John Lewis & Partners, where we saw near constant discounting across many categories from October onwards in response to the combination of subdued demand, excess retail space and some other retailers' distress.
Near-term uncertainty, politically and in the economy, is having a major impact on consumer confidence, but we do not believe the market conditions are cyclical. The disruption we have seen on the High Street, including business failures and renewed interest in mergers and acquisitions, are instead signs of an inevitable market adjustment which will require greater clarity on whether brands are competing on scale or difference.
9.41am GMT
Sir Charlie Mayfield, partner and chairman of the John Lewis Partnership, said:
In line with expectations set out in June, our partnership profits before exceptionals have finished substantially lower in what has been a challenging year, particularly in non-food.
9.34am GMT
After a tough year, John Lewis will pay its 83,900 staff a bonus equivalent to 3% of salary, smaller than last year's 5%. It is the lowest payout since 1953. The bonus was first paid in 1920 and is handed to all staff from shelf stackers to senior managers.
Underlying profits fell 45.4% to 160m in the year to the end of January. Gross sales rose to 11.7bn from 11.6bn, and John Lewis warned that trading conditions remain challenging.
9.29am GMT
Philip Hammond, the UK chancellor, said this morning that Britain will probably have to delay its departure from the EU if MPs reject the government's proposed divorce deal next week.
He told BBC radio:
The government is very clear where the will of parliament is on this. Parliament will vote not to leave the European Union without a deal. I have a high degree of confidence about that.
9.26am GMT
Sterling is trading at $1.3151 - holding below an eight-month high of $1.3351 hit last week as investors are waiting for some clarity to emerge out of the Brexit negotiations between the UK and the EU.
Conflicting signals from Westminster and Brussels aren't helping, and are keeping the pound in a tight range, said Nikolay Markov, a senior economist at Pictet Asset Management.
9.05am GMT
Jeremy Leaf, a north London estate agent and a former RICS residential chairman, says about the house price increases reported by Halifax:
Transaction numbers [are] keeping up with the five-year average but there is no doubt that the shortage of supply is a significant factor in the uplift.
The reasons behind it are certainly not just to do with Brexit as we consistently hear on the doorsteps - affordability and tough lending criteria as other factors. Local factors are also highly relevant and activity varies quite a bit from area to area.
8.52am GMT
Stock markets are falling as the global mood sours while sterling remains "stoic," says Connor Campbell, financial analyst at Spreadex.
Following in the footsteps of the Dow Jones - which has had a terrible start to March as investors clamour for concrete US-China trade war progress - the European markets slumped their way through Thursday's open.
With some big names - Rio Tinto, BHP Group, Persimmon, Standard Chartered and RSA Insurance - going ex-dividend, and the general mood dour, the FTSE didn't stand a chance. Luckily for the index, it has tended outperformed its peers in the last week or so, meaning its half a percent decline still leaves it up on the month so far.
8.49am GMT
The Halifax figures tend to be more volatile than other house price surveys.
8.46am GMT
Mark Harris, chief executive of mortgage broker SPF Private Clients, has sent us his thoughts about the Halifax numbers.
It has been a good start to the year for the housing market, considering the political and economic challenges the UK has to contend with, and there is definitely an element of people getting on with things.
People are bored with the to-ing and fro-ing on the political front, and can't put their lives on hold indefinitely while the government sorts Brexit out. There is some prevailing nervousness towards the top end of the market where maybe the swings are greater and there may be more reason to hold off a purchase for the time being.
8.37am GMT
Russell Galley, managing director of the mortgage lender Halifax, which is part of Lloyds Banking Group, said:
House prices have grown on an annual, quarterly and monthly basis for the first time since October 2018, taking the average house price to 236,800. The shortage of houses for sale will certainly be playing a role in supporting prices.
Annual house price growth at 2.8%, is within our expectations, but is fairly subdued compared to 2015 and 2016, when the average growth rate was 8.3%.
8.35am GMT
The Halifax house price index is out. It shows house prices jumped 5.9% in February from the previous month, compared with a 3% drop in January. The annual growth rate in the three months to February picked up to 2.8% from 0.8%. This means the average price of a house rose to 236,800 last month.
8.27am GMT
The housebuilder Persimmon is the second-biggest faller on the FTSE 100 index, with the shares falling nearly 6% - perhaps on the back of a BBC report of a couple moving into a Persimmon house near Leeds last year with a staggering 700 faults.
8.20am GMT
Most European stock markets have opened lower, as expected.
8.18am GMT
There has been a flurry of corporate announcements this morning.
Greggs is still riding high on the success of its vegan sausage roll. The bakery and takeaway chain reported a 10% rise in underlying pre-tax profits for the year to 29 December, to nearly 90m. Like-for-like sales in shops managed by the company jumped 9.6% in the seven weeks to 16 February.
7.40am GMT
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Markets are waiting for the European Central Bank's policy decision at lunchtime today. The highlight, as usual, will be the subsequent press conference by ECB president Mario Draghi in Frankfurt.
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