Greek borrowing costs rise after IMF reveals bailout split – as it happened

Investors are worried about the Greek debt talks, and elections in France and Germany

• UK interest rates may need to rise soon - B0E's Forbes
• US trade deficit hits four year high
• Greek borrowing costs are shooting up
• IMF board can't agree over Greek bailout terms
• Most board members want lower targets
• IMF: Greek debt is still unsustainable
• French bonds are under more pressure today
• UK facing biggest tax burden in three decades

5.45pm GMT

Despite US markets hitting new highs as the Trump rally returned, it was a different picture in Europe. UK markets ended in positive territory, with the FTSE 100 helped by a weaker pound and a strong performance from precious metal miners. Germany's Dax also moved higher but France was under pressure on concerns about the presidential election, while the latest Greece developments pushed up the country's bond yields again. The final scores showed:

5.11pm GMT

Back with Greece, and Monday's IMF meeting appears to have reinforced the government's resolve not to give in to more demands for austerity, reports our correspondent Helena Smith:

The Greek government has long argued that the country has been hostage to the deep differences that exist over fiscal targets between its creditors. In recent months as the rhetoric has crescendoed it is a claim that has been openly used to account for the foot dragging in implementation of reforms.

Now that a split within the IMF itself has also come to light, cadres in the ruling Syriza party are saying it will only strengthen the leftist-led coalition's determination to stick to its guns and not forge ahead with more painful austerity. The government spokesman's description of IMF demands as "illogical" is indicative, they say, of Athens now digging in. "There is a lot of behind-the-scenes movement to see where the points of convergence are," said one. "But to ask us to strangle our economy further and take additional measures once the bailout ends when our [economic] progress has been openly acknowledged is totally absurd."

Thursday's Euro working group will be seminal in seeing if a solution can be found to break the deadlock and conclude the review by February 20 when euro area finance ministers next meet in eurogroup session.

Creditors are now saying it is up to the Greek finance ministry to take the initiative with announcement of new reforms, not least further broadening of the personal income tax base by lowering the tax threshold to a6000 - a measure that would bring around 1.5 million Greeks currently surviving on very low wages and pensions into the tax fold. Euclid Tsakalotos, the Greek finance minister, has opposed the measure amid widespread rumour that he will hand in his resignation if forced to rescind.

4.53pm GMT

UK markets have closed higher, helped by the weakness in the pound, with the FTSE 100 up 0.2% and the FTSE 250 closing at a new high, of 18,559, up 0.99%. Joshua Mahony, market analyst at IG, said:

Stock markets are back on the rise, with the FTSE benefitting from a weaker pound, and US markets reaching record highs despite a widening trade deficit.

The FTSE is enjoying a strong recovery today, with the deterioration in the pound helping to boost the index. Once more it is the gold producers heading up the leaderboard, with Randgold and Fresnillo rallying sharply despite today representing an off day for the gold price. Despite the weakness we saw earlier in the week, it is clear that investors see any pullback as an opportunity to get into the Trump rally, with the Dow and Nasdaq hitting a fresh all-time intraday high in early trading.

4.18pm GMT

The worries about Greece's debt problems following the signs of a split among the IMF board members continues to hit the country's bonds. Yields on its 10 year bonds are at 7.8% while the two year yield is at 10%:

And there you have it. Greek 2Y bonds close at just over 10% yield, last closed at over 10% in June 2016 #Greece #Greekcrisis #imf pic.twitter.com/WFb1jFBd9L

3.45pm GMT

The pound is still lower against a strong dollar - the US currency being boosted by Fed comments suggesting a rate hike before long - but it is well off its lowest levels. Sterling has recovered some lost ground after the news of a vote on a Brexit deal in parliament, as well as the comments from Bank of England policymaker Kirstin Forbes that UK rates may soon need to rise. Connor Campbell, financial analyst at Spreadex, said:

As the Brexit debate rages on, news that MPs will get a vote on a deal, before the European parliament and covering 'not only the withdrawal arrangements but also the future relationship with the European Union took the edge off the pound's decline as the afternoon went on. Sterling was also helped by comments from the Bank of England's Kristin Forbes, who stated that she believes a rate hike might be need to prevent inflation from getting too unwieldy. This could only erase a small part of the pound's losses, however, with sterling still down 0.7% against the dollar.

The euro, meanwhile, maintained its half a percent drop against the greenback, spooked by both Draghi's pro-stimulus comments yesterday and the truly terrifying prospect of President Marine Le Pen. The Le Pen issue meant that, while the FTSE and DAX rose 0.6% and 0.4% respectively, the CAC slipped by 0.4%, the French index finding itself back under 4800 once again.

After weak start European stock markets are slightly more buoyant today, helped in part by a weaker euro and a weaker pound, helping push the DAX and FTSE100 higher on the day, with the FTSE 100 hitting a two week high and the FTSE 250 set to post a new record close, begging the question, are UK stocks becoming a safe haven for European political risk?

2.53pm GMT

Back with Greece, and the country is doing better than the IMF suggests.

That is the view of Eurogroup president Jeroen Dijsselbloem, who said the IMF's report was outdated due to recent Greek growth, and he was surprised by the harshness of the fund's comments. He said that there had been some easing of Greece's debt but more was needed.

2.40pm GMT

Over on Wall Street, and US markets are on the rise again.

The Dow Jones Industrial Average has hit a new record of 20,126, up 74 points, while the Nasdaq Composite is also in uncharted territory again.

US markets open with strong gains, #Dow & #Nasdaq hitting record high, as optimism and enthusiasm returns.

2.32pm GMT

Over in the UK parliament, a concession from the government: Brexit minister David Jones has announced that MPs will get a vote on the final deal to leave the EU before it is concluded.

More at our politics live blog here.

2.25pm GMT

The comments about a possible rise in interest rates from the Bank of England's Kirstin Forbes has given some support to the pound.

It has erased some of its losses against the dollar, and is now down 0.67% at $1.2386 having earlier fallen as low as $1.2348 this morning.

2.07pm GMT

Bank of England policymaker Kristin Forbes has suggested she is getting closer to voting for a rate rise to stop inflation rising too high.

In a speech in Leeds, she is saying the economy had outperformed gloomy post-referendum expectations and continued to hold up well.
Here's the key comment from Forbes:

"If the real economy remains solid and the pickup in the nominal data continues, this could soon suggest an increase in Bank Rate.

"It is worth highlighting that an increase in interest rates, however, given today's extremely low level of Bank Rate, and the substantial amount of monetary stimulus that is already in place through a variety of programs, would still leave a substantial amount of monetary support for the economy"

BoE Forbes says UK rates should rise soon
"increasing slightly more rapidly than expected" "inflation surprises"#Brexit

"The vast majority of economists and forecasters expected the UK economy to slow immediately after the UK voted to leave the European Union, with some even predicting an outright recession. Most put substantial weight on the evidence that growth, and especially investment, tends to slow sharply in the face of heightened uncertainty. I was on the more optimistic end of the forecasters, but I still expected to see at least some softening.

"But this slowdown has not occurred - and it has now been over 7 months since the June vote...Growth may still slow as higher inflation reduces real incomes, or if negative supply effects related to the UK's departure from the European Union build over time. Signs of such a slowdown starting soon, however, are as yet few and far between."

"You may have heard that UK economic forecasters have recently been less accurate than weathermen. But I will show you that the Bank of England has actually done quite well - that is, if you compare the UK's recent performance to what was predicted in May based on the assumption that the UK would vote to remain in the European Union...

... The bottom line: the real economy, including the labour market, have performed largely as forecast last spring. Most economic measures (except investment) have matched or slightly outperformed our May expectations based on a Remain vote. The UK economy appears to have been largely resilient to Brexit uncertainty. The main exception is sterling and the nominal data - which indicate sharply higher inflation than expected last spring"

1.55pm GMT

Reuters' Jamie McGeever points out that US trade deficit actually narrowed last year, as a proportion of the economy - and despite a strengthening dollar.

Paging @realDonaldTrump
US trade deficit narrows to 2.7% of GDP in 2016 from 2.8% the year before. Despite $ rising 3.6% to a 14-year high.

1.43pm GMT

Here's some instant reaction to the US trade data (no word from the president yet, I'm afraid...)

Dec '16 trade deficit down 3.2% to $44.3b. Exports up 2.7% to $190.7b. Imports up 1.5% to $235b https://t.co/CF29YBNhVA #Census

US trade deficit rose in 2016 to highest since 2012. Should provide fuel for Trump's claim that the US needs tougher approach to trade pic.twitter.com/tbZz5lNL5w

US exports jump to highest in over 18 months in December, narrowing the trade deficit more than expected to $44.3 bln.

1.39pm GMT

Donald Trump has made trade a massive issue, so the latest US trade figures are going to be particularly closely watched.

And the headline news is that America's trade deficit with the rest of the world has hit a four-year high in 2016, at $502.3bn, up from $500.4bn in 2015.

NOW about those headwinds to #US exports from a 'strong' #USD - please note "Dec US Trade deficit narrows as Exports hit 1 1/2 yr high" ahem

1.18pm GMT

With the euro still wallowing below $1.07, analysts are blaming political uncertainty in Europe.

Analysts at Rabobank say the French presidential election is to blame.

"Although opinion polls suggest that (Far-right National Front Leader Marine) Le Pen will not win the second round of the French presidential election in May, polls have wrongly picked the winners of both socialist and republican primaries."

Draghi's comments yesterday about the need for stimulus in the Eurozone despite rising inflation, alongside the damage the currency would suffer if Marine Le Pen becomes the next French president, are dragging it lower.

Overall if seems that the pound is struggling the most, however, dipping by 0.2% against the euro having been 0.3% up just after the bell.

12.22pm GMT

One point... Although the rise in Greece's 10-year bond yields is significant, it doesn't actually affect its borrowing costs yet (because the country is in a bailout programme).

As Dan Davies of Frontline Analysts reminds me... the short-dated two-year Treasury bonds are a better measure of the current borrowing costs (They've spiked even more sharply, to around 10%)

@graemewearden secondary market bond yields that is - Greek borrowing costs are the T-Bill yields or the troika program itself

11.50am GMT

Athens-based journalist Omaira Gill tweets:

In Greece, we seem to live the same #economic & political life each year, but age twice as fast & are poorer each time around #GreekLife

11.46am GMT

The Greek government has now weighed in on the ongoing row over its bailout.

Spokesman Dimitris Tzanakopoulos said the government hopes for a 'positive conclusion' to the long-running (and bogged down) review of the programme.

"The government is aspiring for a deal that will lead to the country's inclusion in the (ECB's) quantitative easing programme.

The government's position is clear and it has been expressed categorically ... our aim is to not yield to illogical demands by the International Monetary Fund, which insists on legislating precautionary (austerity) measures after the programme ends."

So here we are again, back to looking at Greek 2Y Bond yields, which are back near 10% today on the back of IMF talks #greece #greekcrisis pic.twitter.com/iUw6KRu2gO

11.27am GMT

The UK Treasury has responded to today's warning that Britain's tax burden will soon hit a three-decade high:

"The government is committed to repairing the public finances and living within our means so that we can build an economy that works for all.

That has required some difficult decisions on spending, but we are determined to deliver efficient public services which provide maximum value for every pound of taxpayers' money."

Remember all those breathless stories about the end of austerity last autumn...? Not so much https://t.co/eoVVZeKFIU

10.53am GMT

Back to Greece...and the country's benchmark borrowing costs have spiked to their highest level of this year.

The yield, or interest rate, on Greek 10-year bonds has jumped to 8% this morning - after the IMF revealed its board is split over how much austerity the country should swallow.

"The European debt crisis never went away - a fix was implemented and the can was kicked down the road but the problem came back in 2016, particularly in the case of Italy and Greece

In the meantime, the fractures in these and other countries have grown as the economies have shrunk or barely grown with the growth of extremist, protectionist parties which are a threat to the liberal values.

Greece's short-term yields have climbed above 9% after the IMF reveals bailout divisions https://t.co/r9zF965pBV pic.twitter.com/IcJzoLnMge

10.15am GMT

Here's more details of the IFS's grim assessment of the UK economy:

If Philip Hammond sticks to budget surplus in next parliament goal we are looking at 15 years of austerity ahead. #IFSGreenBudget @itvnews

Austerity is coming back, big time. Environment, culture & justice esp in firing line with 40% budget cut ahead. #IFSGreenBudget @itvnews

In today's @TheIFS Green Budget Oxford Economics predicts UK economy will be 3% smaller by 2030 because of Brexit & migration controls

Take forecasts with something of a pinch of salt, the IFS says "the degree of uncertainty...is virtually without precedent"

10.14am GMT

Newsflash: Britain's tax burden is set to hit its highest level in three decades, to help fix the black hole in the UK public finances

That's according to the well-respected Institute for Fiscal Studies, which has just published its new 'Green budget'.

"For all the focus on Brexit the public finances in the next few years look set to be defined by the spending cuts announced by George Osborne. Cuts to day-to-day public service spending are due to accelerate while the tax burden continues to rise. Even so the new chancellor may not find it all that easy to meet his target of eliminating the budget deficit in the next parliament.

Even on central forecasts that is going to require extending austerity towards the mid-2020s. If the economy does less well than hoped then we may see yet another set of fiscal rules consigned to the dustbin."

Related: IFS warns of steep cuts and tax rises to fill 40bn black hole

Public finances looking rosy then...from @TheIFS briefing pic.twitter.com/EB7bWw3MRf

9.59am GMT

In yesterday's liveblog, we reported how British businesses are already suffering a negative impact from the Brexit vote.

Today's news is more encouraging -- the UK could be the fastest growing economy between now and 2050, according to new research from PwC.

PwC sets out the UK's prospects in its latest report into how the world economy will look in 2050. Using models that analyse population trends, investment, education and technological progress, PwC economists expect six of the seven largest economies by 2050 will be emerging markets, led by China.

They see the UK economy remaining in the top 10, slipping down one spot from ninth place now to 10th in purchasing power parity (PPP) terms, which adjusts for price differences between countries to provide a measure of the volume of goods and services produced by an economy.

UK could be fastest-growing G7 economy if it gets trade deals right, @PwC_UK #Worldin2050 report https://t.co/UIyGyIPWUf

UK could be the fastest growing economy in the G7 to 2050, with average annual growth of 1.9% #Worldin2050: https://t.co/YvFqaUZk0d

9.15am GMT

French bonds are coming under more pressure this morning too.

This selloff has pushed the gap between Paris and Berlin's respective borrowing costs to a four-year high.

#France 10y risk spread over Germany keeps rising on increasing political risks in the Eurozone. Risk premium now 77bps, highest since 2012. pic.twitter.com/964YOPMadb

Credit markets unveil new world order: While default probabilities are rising in the Eurozone including #Germany, UK is gaining credibility. pic.twitter.com/7fasnYpIzt

9.09am GMT

Kit Juckes, currency expert at Societe Generale, expects political worries to gnaw at the euro over the next few months.

We expect the euro/US dollar exchange rate to reach the low for the year sometime in the next three months, during the French political election campaign, at a level close to parity. If Marine Le Pen doesn't win the election, we expect a very significant Euro rebound through the second half of 2017 as valuations and capital flows dominate.

But with M Fillon showing no signs of leaving the fray, M Bayrou still lurking in the shadows, and M Hamon still making overtures to M Melenchon, the only candidate confident of making it to the second round is "Marine".

9.01am GMT

The US dollar is enjoying a little surge this morning, sending the pound and euro reeling in its wake.

Sterling has dropped almost a whole cent to $1.237, a two-week low.

Traders in the City seem to have woken up to the prospect of the Fed tightening interest rates quicker than they'd thought, after Philly Fed president Patrick Harker said he would support hiking rates in March. That's thrown the cat among the doves a bit as the last FOMC meeting suggested the Fed was not likely to raise rates until the summer. The rally in safe haven assets seems to have stalled and traders are piling back into long dollar positions.

8.46am GMT

Dublin MEP Nessa Childers is pleased that most IMF board members believe Greece's fiscal targets should be cut, to just 1.5 % of GDP.

At least a marginally sane policy....'IMF says Greece should meet lower fiscal surplus target' https://t.co/iKxs860q2N via @Reuters

8.40am GMT

Newsflash: UK house prices fell (yes, fell) by 0.9% month-on-month in January, according to new figures from the Halifax.

Economists had expected prices to remain flat.

UK house price growth continuing 2 ease @AskHalifaxBank sees downward pressure as eco weakness, affordability & spending constraints bite pic.twitter.com/jt9vlFCJlo

House prices climbed 5.7% in the last year, reckons the Halifax. Average home now 220,260

8.26am GMT

Greece's government debt is falling in value this morning.

The yield, or interest rates, on 10-year Greek bonds has jumped to 8%, from 7.85% last night. That means its price has fallen, with investors calculating that there's a greater risk that Athens defaults.

Greek 2-year bond yield shoots up to near 10%: disappointment with IMF board meeting: more vague promises, hoping the problem will go away? pic.twitter.com/mQM7hdbJpW

8.20am GMT

The divisions among the IMF's board over Greece's bailout highlight its long-running row with Europe, points out the Financial Times:

The fund did not reveal which board members had objected. But the public statement illustrates the sensitivity surrounding the continuing Greek bailout programme. It also points to one of the main political challenges facing Christine Lagarde, the IMF's managing director who has battled with European leaders over the Greek debt issue for almost two years.

The IMF has been the target of criticism since first joining the EU-led bailout of Greece in 2010, particularly over the strict fiscal targets it set early on. Economists have also blamed the IMF and its European partners for not doing enough to reduce Greece's long-term debt load.

8.13am GMT

The IMF has also made its traditional call for Greece to receive fresh debt relief.

Today's statement says:

Most Directors considered that, despite Greece's enormous sacrifices and European partners' generous support, further relief may well be required to restore debt sustainability.

They stressed the need to calibrate such relief on realistic assumptions about Greece's ability to generate sustained surpluses and long term growth. Directors underlined, however, that debt relief needs to be complemented with strong policy implementation to restore growth and sustainability.

7.57am GMT

A split has opened up at the International Monetary Fund over the terms of Greece's bailout, raising new doubts over its participation in the rescue plan.

Most Executive Directors agreed with the thrust of the staff appraisal while some Directors had different views on the fiscal path and debt sustainability.....

Most Directors agreed that Greece does not require further fiscal consolidation at this time, given the impressive adjustment to date which is expected to bring the medium-term primary fiscal surplus to around 1 percent of GDP, while some Directors favored a surplus of 3 percent of GDP by 2018.

7.38am GMT

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

Political tensions are rising in Europe, and exerting pressure on the financial markets.

Just published: front page of Financial Times UK edition for February 7https://t.co/R8H8wI1ZAO pic.twitter.com/329oFbx5C6

European markets got off to a poor start to the week yesterday, slipping to seven week lows, with investors once again reluctant to try their luck against a backdrop of rising political risk, on both sides of the Atlantic.

While US President Trump has extended his one man crusade to the US court system, after his travel ban was overturned, any notion of a more stable political outlook in Europe took another twist over the weekend, as a narrowing of opinion polls in Germany, cast doubt on Angela Merkel remaining as Chancellor later this year, while Marine Le Pen launched her bid for the French Presidency as well.