Digital currency could help with negative interest rates, says BoE's Haldane – as it happened

Graeme Wearden

from on 2020-11-18 16:51 (#5AH8A)

Bank of England chief economist explains that digital currency could help central bankers cut interest rates below zero, as part of a new monetary order'

4.51pm GMT

OK, time to wrap up.

The Bank of England's chief economist has outlined how digital currency could allow interest rates to be cut below zero. Andy Haldane told a conference in London that the move would mitigate, or eliminate, the zero lower bound -- meaning savers could one day be charged on their deposits.

4.44pm GMT

A quieter day in the European markets has ended, with the main indices a little higher.

The FTSE 100 has closed nearly 20 points higher, or 0.3%, at 6385 points, back towards Monday's five-month high.

Stocks are higher as the vaccine race is heating up now that Pfizer and BioNTech confirmed their potential Covid-19 vaccine is 95% effective.

Early last week, the companies announced that it was more than 90% effective so good progress has been made in the short time period. On Monday, Moderna Inc said their hopeful coronavirus vaccine is 94.5% effective so things are neck and neck in the drug race. The optimistic news surrounding a possible vaccine has been doing the rounds for a while now and to a certain extent, it is losing its impact on the markets.

4.11pm GMT

The boss of JP Morgan has blasted Congress for failing to agree a new stimulus deal this autumn, CNBC reports.

Jamie Dimon said the childish" wrangling over the size of the package risks hurting the economy, as there's less chance of a good economic outcome without more help.

JPMorgan Chase CEO Jamie Dimon criticized lawmakers for a months-long deadlock over a second round of coronavirus relief to help unemployed Americans and struggling businesses as the pandemic deepens.

I know now we have this big debate. Is it $2.2 trillion, $1.5 trillion?" Dimon said Wednesday, referring to competing visions for a relief bill from Democrats and Republicans, at the New York Times' Dealbook conference.

classic Dimon remarks today on Washington dysfunction, the Biden administration, the need for higher U.S. taxes while pushing for GDP growth, "terrible" racial inequality, Bitcoin etc. H/T to @andrewrsorkin for a tight interviewhttps://t.co/NJ8dCE7ChF

4.03pm GMT

The latest US housing data seems to show that America's property sector is having a better autumn than other parts of the economy.

US homebuilding increased more than expected in October, with new home construction rising by nearly 4.9% last month (to an annual rate of 1.53m units).

We expect some moderation in the pace of housing starts in the face of the rapidly escalating health crisis, a faltering recovery and softening labor market gains."

October housing starts stronger than expected at 1.53m (+4.9%) vs. 1.46m (+3.2%) est. & 1.46m (+6.3%) in prior month ... building permits a bit weaker than expected at 1.55m (0%) vs. 1.57m (+1.4%) est. & 1.55m (+4.7%) in prior month pic.twitter.com/7xBobIfOnV

Building #Permits (leading indicator) still improving but unlike other leading indicators seemingly losing momentum. Watch carefully given widespread bullishness on #housing. pic.twitter.com/h6AJ5osyg2

U.S. Census Bureau & HUD Dept announce that building permits for new privately-owned homes were basically unchanged in October over the previous month, but private housing starts rose +4.9%, see https://t.co/DGmLaJQQ3H #housing #realestate #builders #homes pic.twitter.com/WIP5P77RBZ

3.29pm GMT

The US stock market has made a quiet start to trading.

Relief that Pfizer's Covid-19 vaccine performs even better than first thought, and is ready to seek an emergency licence, is tempered by concerns that the pandemic is accelerating in the US.

3.15pm GMT

My colleague Phillip Inman has dug into this morning's UK inflation report, and explains how it doesn't capture the impact of the pandemic on our lives:

When the ONS says the falling cost of holidays dragged down the average for October, it shows that most people's day-to-day experience, where cut-price package holidays are a pipe dream, have become divorced somewhat from the inflation figures.

Likewise cinema ticket prices fell. But who was buying them last month to enjoy the financial benefit? Not many after UCI and several other cinema chains closed their doors.

3.07pm GMT

Getting back to inflation... Canada's annual inflation rate has accelerated to 0.7% in October, up from 0.5% in September.

That's rather higher than the 0.4% expected.

Year-over-year price growth for fresh vegetables was higher in October (+9.5%) than September (+3.6%). This was partially attributable to higher prices for lettuce, which rose by around one-quarter (+25.6%) in October amid reduced supply stemming from disease and inclement weather in growing regions.

Meat prices rose 1.7% on a year-over-year basis in October, following a 0.4% increase in September. This faster price growth was supported by higher prices for fresh or frozen chicken (+2.4%) following a 2.2% decline in September. Volatility in the food service industry related to COVID-19 has had an unpredictable impact on chicken prices.

2.50pm GMT

Andy Haldane's comments about digital currencies are particularly interesting because the Bank of England is already examining the possibility of negative interest rates.

Base Rate is currently just 0.1%, so very close to the zero lower bound which Haldane says could be eased by digital currency.

The BoE is also in the middle of a review into the feasibility of cutting interest rates below zero in Britain, as central banks have done in the euro zone and Japan.

Haldane said that in the longer term, a digital currency issued by the BoE could make steps like this easier.

2.20pm GMT

The Telegraph's Tim Wallace has a good take on Andy Haldane's speech:

Savers could be charged negative interest rates in future if the Bank of England successfully establishes a widely used digital currency, according to its chief economist.

Andy Haldane said central banks' inability to effectively take rates below zero risks harming the economy by keeping the rate of interest too high, and so it could be useful to find a new way to further loosen.

1.40pm GMT

The Bank of England's chief economist, Andy Haldane, hailed the recent Covid-19 vaccine trial results in a speech to TheCityUK this morning.

Speaking before Pfizer's latest update, Haldane told delegates that:

We all live in hope of the three Rs that are the theme of the conference - Recovery, Rebalancing and Revitalisation. With the recent positive news about vaccines, that hope is now justified.

At root, the ZLB [zero lower bound] arises from a technological constraint on the ability to pay or receive interest on physical cash, whether positive or negative.

In principle, a widely-used digital currency could mitigate, if not eliminate, that technological constraint by enabling interest rates to be levied on retail monetary assets.

On the monetary policy side, one of the most pressing issues for monetary policymakers today is the zero (or close to zero) lower bound (ZLB) on interest rates. At root, the ZLB arises from a technological constraint on the ability to pay or receive interest on physical cash, whether positive or negative. In principle, a widely-used digital currency could mitigate, if not eliminate, that technological constraint by enabling interest rates to be levied on retail monetary assets. How far it is able to do so will depend on the supply of physical cash to the public, as well as any impact of the new regime on the financial system.

The potential macro-economic benefits of easing the ZLB constraint appear to be significant. Studies prior to the global financial crisis suggested the ZLB would bind infrequently and have only a modest macroeconomic cost. With global real interest rates having since fallen, recent work suggests the ZLB could bind much more frequently, between 20 and 40% of the time. That, in turn, could lead to significant shortfalls in average output relative to potential (of around 2%) and average inflation relative to target (of as much as 2pp).

Andy Haldane says digital currency hasn't been discussed enough as a way to get around the ZLBhttps://t.co/7r8FNlPwN4 pic.twitter.com/dvmVUr29ht

It is just over a decade ago that the late Paul Volcker famously remarked: the ATM has been the only useful innovation in banking for the past 20 years". Enfield in North London - the home of the first ATM - might be surprised to hear it is the cradle of modern-day financial innovation.

Developments in digital finance could transform how consumers and businesses make payments and raise finance. This could help revitalise the UK economy, says Andy Haldane. https://t.co/0mrnkdvJ4Z pic.twitter.com/NORbR6TanV

1.38pm GMT

US regulators have approved Boeing's 737 Max to fly once more, almost 20 months after the manufacturer's bestselling plane was grounded following two fatal crashes caused by design flaws.

My colleague Jasper Jolly explains:

The Federal Aviation Administration (FAA) has rescinded an order grounding the aircraft, in a move that could allow the planes to fly again before the end of the year.

The regulator still must approve new training programmes for pilots before the 737 Max will be able to fly again.

12.47pm GMT

European stock markets have moved higher, after Pfizer reported that the final results from the late-stage trial of its COVID-19 vaccine show it was 95% effective.

That's even higher than the encouraging initial readings released last week, with Pfizer also saying that it has also now collected the two months of safety data needed for an application for emergency use in the US.

Final results from Pfizer Inc's COVID-19 vaccine trial showed its shot had a 95% success rate and two months of safety data, paving the way for the drugmaker to apply for an emergency U.S. authorization within days, it said on Wednesday.

The vaccine's efficacy rate, the highest of any candidate in late-stage clinical trials so far, pleased experts who had already said that interim results showing Pfizer's shot was over 90% effective were very encouraging.

We may be in for a bit of a dark winter as our government leadership locks us down again but we can see the light at the end of the tunnel with both extremely effective vaccines and therapeutics developed in record time.

12.28pm GMT

We've also had confirmation this morning that the eurozone remains in a state of deflation.

Prices across the single currency region fell by 0.3% year-on-year in October, reports Eurostat (confirming its own flash reading two weeks ago).

Euro area annual #inflation stable at -0.3% in October (-0.3% in September) https://t.co/z0LCcP5LtW pic.twitter.com/1QBb0A3cXn

12.24pm GMT

NIESR, the economic thinktank, has reported that underlying inflation in the UK rose to 1.3% in October, up from 1.2%.

That's rather higher than the headline reading of 0.7% reported this morning, and is calculated by removing the highest and lowest price changes.

Our new analysis of 119,627 locally collected goods and services indicates that increases in clothing and footwear and food and non-alcoholic beverages contributed to the uptick in inflation during October 2020. The imposition of a three-tier lockdown system on the 12th of October to stem the rise in Covid-19 infections likely introduced a greater level of uncertainty for consumers.

Households now face the prospect of deteriorating personal finances in the face of weaker economic growth and delayed recovery prospects for the UK economy.

12.02pm GMT

Lloyds Banking Group is pushing ahead with 56 branch closures that were initially paused during the first wave of the pandemic.

The pandemic has highlighted the vital role our local bank branches play in providing an essential service to the community. These closures don't just cut a vital service from communities but also force customers to travel further to stand in larger crowds of customers queuing outside busier branches."

In January this year we announced that these branches would be closing due to a decline in use. We paused these closures due to the Covid-19 pandemic and, after careful consideration, these planned closures will take place in March and April 2021."

11.57am GMT

Nick Leeming, chairman of estate agents Jackson-Stops, reports that new commuter hotspots are emerging, as families look for more space:

While all regions of the UK reported growth in September, the South West and the North West led the charge - each experiencing price growth of more than 6% growth.

Emerging commuter hotspots, Cheltenham, South Norfolk and South Oxfordshire, performed particularly well, as demand increased for further a-far commuter towns, largely driven by families in the search for more space in the home and outdoors afters months cooped inside during lockdown. This shift is reflective of what our offices are seeing across our network.

11.28am GMT

Prices of detached houses are rising faster than for smaller houses and flats, the Office for National Statistics' report shows.

The southwest performed best out of all the regions, clearly illustrating the impact of lockdown. More people are considering moving further out, perhaps because they don't have to be in the capital every day for work, or are looking at holiday homes to take advantage of the staycation boom.

Detached homes have the most space and bigger gardens than say terraced homes, thereby fuelling their popularity among those who can afford them.

11.08am GMT

House price growth was particularly strong in the South West of England, with prices jumping by 6.4% in the year to September 2020.

The lowest annual growth was in the North East, where average prices increased by 3.3% - below the national average of 4.7% growth reported today.

Not even during the frothiest days of the pre-Financial Crisis boom did price growth jump so far, so quickly.

Lockdown living sparked the fire, as months of confinement led thousands of people to decide that they wanted more from their home - more space, somewhere comfortable to work and a better standard of life away from the big cities.

10.51am GMT

Jamie Durham, economist at PwC, says the current stamp duty holiday clearly helped to push UK house prices to a new high in September:

The Stamp Duty holiday is clearly helping to boost activity in the market and support price growth. There are potentially significant savings to be made by purchasing a property while the Stamp Duty holiday is in place, and so some people may be bringing planned purchases forwards.

Looking ahead, the realistic prospect of a vaccine in the first part of 2021 along with the extension of the furlough scheme until the end of March may help to support demand and price growth over the coming year to an extent. However, there are still risks to the outlook, including considerable uncertainty in the economy and the potential for rising unemployment."

10.34am GMT

UK house prices have hit a record high, as the move towards homeworking and the stamp duty holiday continue to drive demand.

The Office for National Statistics reports that prices jumped by 4.7% over the 12 months to September, up from 3.0% per year in August.

Recent price increases may reflect a range of factors including pent-up demand, some possible changes in housing preferences since the pandemic and a response to the changes made to property transaction taxes across the nations.

10.28am GMT

At British Land, one of Britain's biggest property companies, the pandemic has wiped nearly 1bn off the value of its property portfolio, which is now worth 11.2bn.

There is a clear preference from shoppers and retailers for out of town, open air retail parks."

British Land itself is trying to get its house in order, to prepare for potentially long term changes to the way we use office and retail space in the future.

Trying to second guess the extent to which pandemic habits will stick won't be easy but it is becoming clear office space and how we shop is undergoing a major rethink."

10.10am GMT

Here's our economics correspondent Richard Partington on the pick-up in inflation last month:

UK inflation rose by more than expected in October, fuelled by an increase in clothing prices.

The Office for National Statistics (ONS) said the consumer prices index (CPI) rose to 0.7% in October from 0.5% a month earlier as clothing prices increased, returning to a more normal seasonal pattern after the disruption this year. City economists had forecast an inflation rate of 0.6% for October.

UK inflation rises on back of increase in clothing prices https://t.co/rHhsYvqoFK

9.57am GMT

Here's my colleague Mark Sweney on the takeover of insurance group RSA:

RSA, the 300-year old insurer that owns the More Than brand, has agreed a 7.2bn takeover from two overseas insurers that will result in the breakup of one of the FTSE 100's oldest companies.

The board of the London-headquartered company has accepted an all-cash offer from the Canadian insurer Intact Financial Corporation and the Nordic insurer Tryg.

9.46am GMT

The surge in cycling during the pandemic has helped UK retailer Halfords to double its profits.

Since the 5th of November we have seen some impact on trading as the second national lockdown came into force. Cycling has continued to grow; we saw an immediate upturn in our Mobile Expert business; and we have seen another shift towards our digital and home delivery channels.

However, sales of motoring products have been impacted, with Government data showing car traffic last week at 70% of pre-Covid-19 levels

As a sign of our confidence in the long-term prospects of our motoring business, and in order to meet the growing demand for our services in this area, we are in the process of recruiting to fill a wide range of service-oriented roles across our stores, Autocentres and fleet of Halfords Mobile Expert vans.

We are also making a substantial investment in further training for existing colleagues, including in the rapidly growing area of electric vehicle servicing as we work to fill the skills gap that exists in the UK. We will be training 100 more electric car technicians next year, bringing the total to 470.

8.55am GMT

In the City, the FTSE 100 index has made a quiet start to the morning, down 18 points or 0.3% at 6347 points.

Insurance group RSA is leading the risers, up 4%, after receiving a 7.2bn takeover offer from Canada's Intact Financial and Denmark's Tryg.

The initial vaccine euphoria is under pressure as Covid-19 cases continue to tick higher, highlighting the gulf between discovery and distribution.

With several US states implementing further restrictions and a further 70 000 hospitalisation cases, the impact on the economy remains in play.

8.37am GMT

Looking further ahead, Laith Khalaf, financial analyst at AJ Bell, predicts that inflation could pick up as companies try to recover their losses this year:

The current lockdown may create some short-term volatility in the number, but the overall picture is one of low, gradually rising inflation. The economic damage of the pandemic means that many businesses won't want to deter valuable customers by raising prices for some time to come.

There is a legitimate question of whether all the fiscal and monetary stimulus thrown at the pandemic will create inflationary pressures further down the line. When confidence returns, we could see businesses looking to recoup losses by pushing through price rises. While the pandemic has cost some their livelihoods, we know that many people have actually seen a boost to their finances from enforced frugality, allowing them to afford price increases in future.

8.13am GMT

Several economists are predicting that the current Covid-19 restrictions will drag inflation down again in the short term.

Here's Suren Thiru, head of economics at the British Chambers of Commerce:

@ONS data shows #UK CPI #inflation at 0.7% in October 2020, up from 0.5% in September. Increase driven largely by rising clothing & food prices.

Impact of #Lockdown2 likely to drag inflation closer to zero in the near term as restrictions stifles demand & activity. pic.twitter.com/FCbt1aGTew

October's inflation figures have come in slightly above expectations. Yet they reflect a disinflationary environment, given the current backdrop of weak wage growth, rising unemployment and abundant spare capacity.

Inflation is likely to remain subdued until the economy regains most of the lost activity due to the pandemic."

Inflation crept up to 0.7% in October on the back of slightly higher food. While prices are on an upwards path, rises are likely to be subdued for a while longer. Covid infections are still increasing, large swathes of the UK are under strict lockdown rules, restricting opportunities to spend, and unemployment is climbing. This is not a recipe for inflation reaching its 2% target any time soon.

Further out, however, there is light at the end of the tunnel in the form of a potential vaccine. Re-opening the economy will rekindle animal spirits. The widely-discussed shift to negative interest rates looks less likely now and this is good news for investors. The Bank of England has increased its quantitative easing programme to encourage consumer spending and investment and it should now keep its powder dry."

7.59am GMT

Prices of second-hand cars also rose last month -- a sign that people are trying to avoid using public transport due to the pandemic.

Prices for second-hand cars have risen by 1.4% between September and October 2020, compared with a 0.2% fall between the same two months a year ago.

This upward movement continues from last month, which is reported to be because of increased demand for used cars as people seek alternatives to public transport.

7.50am GMT

Despite rising to 0.7% last month, UK inflation is still some way below the 2% target:

7.35am GMT

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

Britain's inflation rate has nudged higher, lifted by rising clothing prices, food, and second-hand cars.

The rate of inflation increased slightly as clothing prices grew, returning to their normal seasonal pattern after the disruption this year."

The cost of food also nudged up, while second-hand cars and computer games also all saw price rises. These were partially offset by falls in the cost of energy and holidays.

Commenting on today's inflation numbers our Deputy National Statistician for Economic Statistics, @jathers_ONS said: 1/2 pic.twitter.com/JloneWJspT

.@jathers_ONS added: 2/2 pic.twitter.com/5Hs1fY9vAa

European Opening Calls:#FTSE 6328 -0.59%#DAX 13077 -0.43%#CAC 5471 -0.22%#AEX 599 -0.33%#MIB 21370 -0.30%#IBEX 7903 -0.39%#OMX 1917 -0.27%#STOXX 3455 -0.39%#IGOpeningCall

Source	RSS or Atom Feed
Feed Location	http://feeds.theguardian.com/theguardian/business/economics/rss
Feed Title
Feed Link	http://feeds.theguardian.com/