Mark Carney warns Brexit adds to UK current account risks - as it happened
Bank of England governor says "certain developments" could mean UK assets are seen as riskier, as EU referendum approaches
- Summary: Treasury committee grills Carney
- Full story: Carney could do eight years at the BoE
- Full story: Andrew Bailey is new City watchdog chief
- Markets recover as oil price rebounds
- Chinese stock market slumped 6% today
5.40pm GMT
Volatile days are becoming the norm but even by those standards, the swings during the course of the day's trading were pretty notable.
A 6% slump in Chinese markets - partly driven by poor rail freight figures casting new doubt on the strength of the country's economy - got things off to a bad start. Oil was on the slide, falling back below $30 a barrel on continuing fears of a supply glut at a time when demand is weakening.
4.39pm GMT
The slump in the oil price should theoretically be good for the global economy but stock markets at least do not seem to be taking that on board. Julian Jessop at Capital Economics says:
In principle, a lower oil price should be positive for the world economy. The transfer of income from producers to consumers, who are more likely to spend on other goods and services, should boost global demand. At worst, the impact might be expected to be neutral, with the winners offsetting the losers. In practice, though, the net impact of the recent slump in oil prices appears to have been negative, or at least perceived as such in financial markets.
There are a number of factors at play here. First, the speed and extent of the slump has itself added to the uncertainty about the global economy. Rightly or (more probably) wrongly, the fall has been interpreted as evidence of a collapse in demand and fuelled fears about a hard landing in China in particular.
This asymmetry has compounded the negative impacts on financial markets. Energy companies may now only account, for example, for a small share of the US junk bond market, but the fear is that there will be widespread defaults throughout this sector, rippling through the financial system as a whole. Similarly, the impact on the 20% or so of the UK FTSE 100 accounted for by commodity producers is far more visible than the potential benefits to the remaining 80% who are not.
Pressure on oil producers to sell assets accumulated in Sovereign Wealth Funds has also soured the mood, even though this selling might actually boost the global economy if the proceeds are used to support local spending.
4.06pm GMT
The recovery in the oil price has given a boost to stock markets and follows hopes that Opec would be willing to cut production if non-member countries - notably Russia - also agree to reduce supply.
Iraqui oil minister Adel Abdel Mahdi said he saw some flexibility for a deal with rival producers, and as a consequence, Brent crude is now up 2.9% at $31.38. But given the recent volatility, the gains may not last long. Chris Beauchamp, senior market analyst at online trading group IG, said:
As oil goes, so goes the rest of the market. Yesterday a rapid decline in crude paved the way for stock markets to give up their gains, but today the price of black gold is on the up again, with the reliable market rumour of production cuts providing the foundation for both Brent and WTI to move back above $31 a barrel.
At this point, a decision between Opec and non-Opec members to cut production is not the important element; the key point is such talk allows the price to move upwards to a position where bears can hit the 'sell' button once again.
4.00pm GMT
More protests in Greece. Helena Smith reports:
Unionists representing Greece's 35,000-strong nurses' federation have been protesting outside the finance ministry in the latest display of fury over the leftist-led government's draft proposals overhauling the pension system. Nurses, who have been hard hit by austerity, starting with relentless rounds of wage cuts, have become increasingly vociferous in recent months. Many turned up in surgery outfits.
The country's union of civil servants (ADEDY) will stage a much bigger protest rally and march this evening to coincide with an extraordinary debate in parliament over the proposed measures. It will be the first time that prime minister Alexis Tsipras clashes in the 300-seat House with Kyriakos Mitsotakis, the newly-elected leader of New Democracy, the centre right main opposition party. The Harvard-educated erswhile banker, among the biggest champions of reform in Greece, has recently been leading polls.
Odysseus Trivalas, who heads ADEDY, told me: "Without any prospect of growth or reduction in unemployment the proposed pension reforms are unsustainable. The government keeps saying without these measures the system will collapse but we argue that with contributions so low and unemployment so high it will collapse anyway if the government does not provide extra funding through the budget."
"The funds should have been strengthened with all that money that was initially earmarked for the recapitalisation of banks. They didn't listen to us and now they will pay the price because these protests are not going to end soon."
Forecasts that Greek banks would need as much as a25bn to withstand possible shocks proved to be vastly over-inflated when it was estimated in November that recapitalisation needs would not exceed more than a5.7bn.
3.14pm GMT
More US data, and this time it is more positive for the Federal Reserve.
January's consumer confidence index came in at 98.1, better than the 96.5 expected and the 96.3 level in December.
Despite global economic volatility, that US consumer confidence levels are higher than expected will be music to the ears of Fed Chair Janet Yellen.
The US job market has surely contributed to the feel good vibe, with unemployment at a seven year low, in addition to sinking prices at the pumps providing consumer's wallets with a much needed fillip.
USA Consumer Confidence announcement - Actual: 98.1, Expected: 96.5 pic.twitter.com/1aTyTU7s1K
3.05pm GMT
The World Bank has cut its forecast for crude oil prices for 2016 by $14 a barrel to $37, and also reduced its predictions for 37 out of 46 commodities. Phillip Inman reports:
The World Bank has slashed its forecast for oil prices this year, saying the cost of a barrel of crude will stay near its current lows for the rest of 2016.
The Washington-based institution said a glut of oil that sent prices crashing by almost half last year and another 27% this month will continue to dominate the market for the next year.
Related: Oil prices to stay near current level throughout 2016, World Bank says
2.53pm GMT
More weak data for the US Federal Reserve to consider as it gathers for its first meeting since raising interest rates in December, a move many believe may have been a mistake.
The US services sector has seen its slowest growth since December 2014. The Markit initial reading for the purchasing managers business activity index came in at 53.7 in January. This is down from 54.3 the previous month and just below the expected 53.9. Markit said:
U.S. service providers started the year with another slowdown in business activity growth...Although still indicative of a solid increase in business activity, the headline index has now signalled weaker overall growth in four of the past five months.
The survey data paint an inauspicious start to the year for the US economy.
A struggling manufacturing economy is being accompanied by a services sector where growth showed further signs of losing momentum in January even before the bad weather hit.
2.40pm GMT
On what has been a volatile day for markets so far, Wall Street has started off on the front foot ahead of results from Apple and as the Federal Reserve begins its latest two day meeting.
With oil recovering from its early falls - Brent crude is now up 1.6% at $30.99 a barrel having fallen as low as $29.27 - the Dow Jones Industrial Average is up 133 points or 0.8% in early trading.
2.32pm GMT
Britain's economy continues to grow pretty steadily, according to the Bank of England's chief economist Andy Haldane, and a Chinese slowdown is unlikely to push the world economy into negative growth.
Haldane said in an interview with Wolverhampton's Express and Star newspaper:
We would have to fall a long way, or something very untoward would have to happen for that to fall into negative territory,.
I think that is a reasonably unlikely event. Now are there things that could happen that could slow that rate of growth? Yes there are. It's true to say there are some concerns about how rapidly the Chinese economy is growing.
2.24pm GMT
Meanwhile, as Carney was speaking, the World Economic Forum has announced the Bank of England governor as one of eight "senior decision makers" joining a taskforce to discuss the future of the global financial system.
The group was formed at the request of Carney and WEF founder professor Klaus Schwab and it will "work to identify, analyse and propose recommendations in response to major transformative forces influencing the future of global finance and economics."
2.02pm GMT
Why is governor Mark Carney worrying about the current account deficit anyway?
The current account is significant, as it shows the balance between the goods, services and financial transactions into, and out of, the UK. Britain has been running a persistent deficit for some time -- dubbed the 'invisible deficit', as the financial markets have been relaxed about it.
Related: UK's current account deficit is the forgotten deficit
1.44pm GMT
A quick recap of the main points from the Governor of the Bank of England's appearance at parliament:
First, the general global environment has been much more febrile, much more volatile.
Relying on the kindness of strangers is not optimal in that type of environment, and that's what is the case when you're running a 4%, 4.5% current account deficit.
Related: Mark Carney fails to rule out eight-year term at Bank of England
1.20pm GMT
Stock markets have recovered some of their early losses. The FTSE 100 is now down just 28 points, or 0.5%, having been down almost 100 points earlier.
1.17pm GMT
12.48pm GMT
On a lighter note, Wes Streeting then asks Mark Carney if he's seen The Big Short, the new film of Michael Lewis's excellent book about the US sub-prime crash that almost brought down Wall Street.
I feel like I lived it, Carney replies [he was running the Bank of Canada at the time]
I haven't seen it, but I'm sure I will. I'm happy to go.
@paulwaugh Your wish has been granted. He's not seen it yet, but Martin Taylor has!
12.39pm GMT
Q: Has the MPC or FPC gathered any information on how negative interest rates might affect the UK economy?
We have thought more carefully about where the zero lower bound is, Carney replies. [ie, could they cut rates below the current record low of 0.5%?]
12.36pm GMT
Labour MP Wes Streeting asks Carney whether the Treasury has ever leant on him over banking regulations.
No, and it wouldn't make a difference if it tried, Carney replies.
12.18pm GMT
Rachel Reeves MP asks Carney about Britain's current account deficit, and the implications on UK trade if it leaves the EU.
Q: Is the UK current account a growing risk, a declining risk, or a stable risk? And do you think Brexit would make it more or less of a risk?
"First, the general global environment has been much more febrile, much more volatile.
Relying on the kindness of strangers is not optimal in that type of environment, and that's what is the case when you're running a 4%, 4.5% current account deficit.
BOE Carney, asked on #Brexit, says UK assets may have risk premium due ... "certain developments" Governor sticks to don't mention Brexit
Related: Brexit 'would trigger economic and financial shock' for UK
12.05pm GMT
John Mann MP demands to know whether Carney had any role in the decision to abandon Britain's review of banking culture.
This decision was taken entirely by the FCA, Carney replies.
11.58am GMT
Mark Carney is asked whether Britain would face financial instability if it votes to leave the EU.
The governor says the Bank will reveal its precautionary measures 'after the fact'.
11.34am GMT
Carney also denies that central bankers hope the oil price goes up, to push inflation higher.
Low oil price is a "net positive for the global economy" says Mark Carney, governor of the Bank of England
11.33am GMT
Q: Can OPEC survive the slump in the oil price?
11.30am GMT
Back in the committee room, Mark Carney has been fielding questions about market turbulence, and the oil price.
We are in an environment of "heightened risk aversion" which could continue for some time, says the BoE governor.
11.25am GMT
Here's a piece of idle speculation.....
If Mark Carney does change his mind and serve a full eight years at the Bank of England, he would leave the BoE at the end of June 2021.
Carney says he needs to decide whether to serve full (8yr) BoE term this yr. Wonder what variables he's considering. pic.twitter.com/yb1GvARoT4
10.56am GMT
Looking away from the select committee.... Tesco has been ordered to improve the way it deals with suppliers.
An official inquiry into the 2014 scandal around Tesco's financial results found that the supermarket has delayed payments to suppliers, to support its profits.
"I was troubled to see Tesco at times prioritising its own finances over treating suppliers fairly."
Related: Tesco failed to treat suppliers fairly, watchdog rules
Some Tesco suppliers paid 100,000s to be part of a Tesco "range review", which could lead to better and more shelf space, GCA says
Christine Tacon of GCA says "almost every supplier" she has spoken to since Feb 2014 told her Tesco is a "better business" today.
10.46am GMT
Mark Carney: "What is not happening right now is any concern about distress at any of the major systemic financial institutions"
10.45am GMT
Now the Treasury Committee has moved onto the new rules to handle failed banks, which will see bond-holders 'bailed in' to cover the costs of a rescue.
Q: When will the system be ready, and will it work?
10.28am GMT
Q: Carney is then asked who, if anyone, he consulted before giving a speech last week saying that it's not time to raise interest rates?
I wouldn't clear a speech with anyone before giving my personal view, Carney replies.
Mark Carney being questioned about him giving a speech for the #BoE when he is only one vote out of 9! #MPC #GBP
10.20am GMT
Q: Was the Federal Reserve right to raise interest rates in December?
Carney gives a long answer, arguing there is solid growth at the core of advanced economies.
Mark Carney: "Tightening of US monetary policy...a contributory factor" to a tightening of global financial conditions, but not main cause"
10.15am GMT
Andrew Tyrie, chairman of the Treasury Committee, then asks Mark Carney if he is reconsidering his decision to only serve five years at the Bank of England.
Could he now decide to serve the full eight years?
Andrew Tyrie tells Carney on whether he will stay: "the sooner you are able to give us the clarity the better"
10.10am GMT
The session begins with Mark Carney paying tribute to Andrew Bailey's career at the Bank of England.
It will probably take three to six months to appoint a new deputy governor to replace Bailey.
10.03am GMT
Heads-up: Mark Carney, governor of the Bank of England, is about to start taking questions from the Treasury Committee. The session is being streamed live here.
10.02am GMT
Looking back at the markets quickly... the FTSE 100 is still deep in the red, down 64 points or 1% at 5812.
Oil is recovering some of its early losses, but it's still down around 2% at $29.91 per barrel.
9.48am GMT
George Osborne has really surprised the City by announcing Andrew Bailey as the new head of the FCA.
Bank of England governor Mark Carney says he's a fine choice (although would he really say anything else?....)
Andrew is an extraordinary public servant who has devoted his entire professional life to serving the people of the United Kingdom.
During his career, he has worked across all of the Bank's policy areas, combining leadership and innovation to deliver consistently the Bank's policy objectives. His work in helping to manage the crisis and then to develop the post-crisis regulatory framework has been exemplary.
Breaking: Bank of England's Andrew Bailey to be new head of the Financial Conduct Authority. Widely respected deputy governor at Bank
Interesting that one of the more recent goals of new #FCA CEO Andrew Bailey was to help increase competitiveness of smaller challenger banks
Because the Bank of England has done so well......Oh hang on! https://t.co/CEZoXayWwM
9.36am GMT
Newsflash: Britain has a new City regulator.
Andrew Bailey, the deputy governor of the Bank of England, has just been named as the new chief executive of the Financial Conduct Authority.
Delighted to announce Andrew Bailey will lead @TheFCA. He was the most respected and qualified candidate for this crucial job
Andrew Bailey's unrivalled experience after 30 years @bankofengland makes him the right person to be @TheFCA's new CEO
9.28am GMT
Here are a couple of photos from China's brokerage houses, as investors watched the market tumble by 6%.
9.18am GMT
Analysts are divided over the severity of the Chinese slowdown.
Yogi Dewan, founder of Hassium Asset Management (a wealth management firm) told Bloomberg TV that China is "slowing, not melting down".
A re-established wave of risk aversion gripped Asian equities sending most into red territory, while elevated fears that China capital outflows may accelerate as the economy decelerates has sent the Shanghai Composite Index diving -6.3% lower, to levels not seen in 13 months.
With days like today continuing to come back to haunt the Shanghai Composite Index, the Chinese New Year period and the trading break couldn't come soon enough.
9.01am GMT
Shares in easyJet have dropped by 2%, after the company reported that recent terror attacks have weakened demand.
8.35am GMT
Today's selloff comes nearly a week after global markets slumped into bear market territory, triggering alarm around the world:
Google searches for "bear market" the highest since October 2008: pic.twitter.com/gOmjtBzfVi
8.30am GMT
Simon Smith, chief economist at currency trading firm FXPro, fears that more market turbulence is coming.
He writes:
Chinese indices are 6% lower overnight, Japanese over 2% in the red and oil is back below 30 bucks a barrel.
Volatility has been rising throughout the year so far but we're still someway off the big spike in the Vix (volatility index or 'fear gauge') last August and so there's potential for moves in markets to get even more dramatic.
8.26am GMT
Today's selloff has been triggered by the slide in the oil price, as well as the Chinese market mayhem.
Tony Cross of Trustnet Direct explains:
Crude is sliding on renewed oversupply fears and even the building narrative we're seeing from Opec that they are ready to strike a deal with other producer nations - possibly centred around Russia - doesn't really appear to be lending any support to the equation, at least not yet.
8.13am GMT
The gold price has jumped by 1%, as money pours out of shares and into safe-haven assets.
That's usually a sign that investors are worried.
And... gold prices are closer to $1,120/ounce. #SellOff pic.twitter.com/GmiYBnQF64
8.11am GMT
Other European markets are also falling, with France's CAC down 1.6% and the German DAX shedding 1.3%:
Siemens - only stock in the #Dax trading higher today after reporting higher profit. Shares jump 4%. #Ingenuity JG pic.twitter.com/Crla8ijI68
8.04am GMT
The FTSE 100 index of major UK companies has fallen by 87 points at the start of trading, or 1.4%, to 5789
Almost every share is falling, as traders face another day of volatile trading dominated by fears over the global economy.
7.53am GMT
Almost every share on the Chinese stock market was hit by today's rout, with only four gaining ground.
7.40am GMT
A late wave of selling has gripped the Shanghai stock market, sending shares slumping and triggering new angst in financial markets worldwide.
China's benchmark index, the CSI 300, shed 188 points or 6.02% to finish the day at 2940. That's its lowest level since December 2014.
*SHANGHAI COMPOSITE PLUNGES 6.4% AT CLOSE, MOST SINCE JAN. 7
#China | 2015 rail frieght volume 3.36B tonnes, -11.9% y/y: NDRC pic.twitter.com/2DSlq3MruG
7.28am GMT
The crude oil price has lurched back through $30 per barrel.
Brent crude has slumped by 3% this morning, and is changing hands at $29.61 per barrel.
Oil drops below $30 again https://t.co/b9WN3qN4bx pic.twitter.com/iTsZtt1Xlk
The fall in oil prices will make most of the headlines and drive most of the movement in markets today, unless it is reversed for no particularly good reason. The latest driver is the news that Iraqi oil output is strong. US production remains the key swing on supply and is what will eventually trigger a turn. But it will take hard news about declining US output to shift the market mood.
7.07am GMT
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It looks like being another 'challenging' day in the markets.
Last weeks rally a distant memory. Nikkei ends down 2.4% at 16708.90 while Yen strengthens beyond 118 per Dollar. pic.twitter.com/R3Tyu58GTU
Our European opening calls: $FTSE 5814 down 63 $DAX 9627 down 110 $CAC 4261 down 51 $IBEX 8475 down 93 $MIB 18448 down 193
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