Bank of England warns of 'pocket of risk' from consumer credit - as it happened

UK central bank warns that 30bn of loans could turn sour if Britain's economy falls into recession

• Brent jumps to highest since July 2015
• ECB's Draghi speaks at European parliament
• Bank of England tells banks to hold 10bn extra capital
• Bank warns that 20% of credit loans might default if UK hits recession
• Brexit threat to UK derivatives market
• How consumers can protect themselves
• Introduction: German election results worry investors

6.13pm BST

European investors appeared to be a little nervous following the result of the German elections. As expected Angela Merkel remains Chancellor, but the better than expected performance by the far right party AfD took some of the shine off her victory.

In the UK banks and insurance shares were under pressure as Labour unveiled proposals to cap interest rate payments on credit cards, while the Bank of England said UK banks need to set aside an extra 10bn to cover potential losses on car loans, and credit cards.

5.51pm BST

Ratings agency Fitch has opined on the German election result:

Fitch on Germany: Political developments are broadly consistent with our assessment when we affirmed Germany's 'AAA/Stable' sovereign rating

Fitch: German Vote Won't Cause Marked Economic Policy Shift https://t.co/oFPPLaMu7Y

4.40pm BST

Crude is at its best level for more than two years after producers said output cuts were having an effect, and fears grew that supplies from Kurdistan could be curtailed.

Brent has jumped 2.7% to $58.39 a barrel while West Texas Intermediate added 2% to $51.77. On Friday an Opec meeting said that an agreement to cap production was helping to reduce the global supply glut.

4.28pm BST

With markets slipping back, particularly in the US after the new North Korean comments, Chris Beauchamp, chief market analyst at IG, said:

US stocks underwent a sharp wave of selling as North Korea decided to respond to the weekend's events by declaring that it viewed Mr Trump's comments as a 'declaration of war'. This looks like a fairly hefty step up in the escalation game, and one that is sure to provoke a US response of some kind. Tech stocks were hit hardest, with the Nasdaq already stumbling thanks to the poor debut of Apple's new phone models. North Korea is clearly rattled; the bomber flights at the weekend remind Pyongyang of its inherent vulnerability and its clear disadvantages when it comes to high-tech weaponry. The risks of miscalculation have now multiplied alarmingly, and markets may well continue to respond negatively.

A day relatively free of big corporate news has meant that the focus is squarely on the euro.

In Brussels ECB president Mario Draghi seems to have decided that the time has come for a bit of judicious 'talking down' of the euro. While at the most recent ECB meeting he seemed unperturbed by the euro's strength, today's comments show that the rise in the single currency is clearly causing him to lose some sleep. With a nod to inflation weakness, he has suggested reminded everyone not to get too carried away with the idea of tapering, since more easing could still be needed. This is Mr Draghi carefully hedging his bets, but with Germany now somewhat distracted by coalition forming the ECB needs to keep the show on the road. If more QE is the means to achieve this, so be it.

4.24pm BST

Back with the German election, and the results have unnerved Greece whose dependency on Berlin for emergency bailout funds has made it ever more vulnerable to developments elsewhere. Helena Smith reports:

The Greek prime minister Alexis Tsipras was among the first to congratulate the German chancellor Angela Merkel on her four-time electoral victory:

"A Europe of solidarity and democracy is today more necessary than ever before. Whoever, believes in this, should, despite differences, work together for the deepening and expansion of European values."

"There is a joint interest in getting the third [bailout compliance] review done quickly," he said during talks with Tsipras.

4.21pm BST

Back in Europe, and European Central Bank president Mario Draghi has finished his appearance before parliament. Here is Reuters take on his performance:

The European Central Bank is growing increasingly confident that inflation will rise back to its target but patience is still needed, ECB President Mario Draghi said on Monday.

Draghi singled out currency volatility as a source of uncertainty which requires monitoring and argued that the economy still needed to absorb slack, requiring "ample" ECB accommodation.

4.01pm BST

US markets have extended their falls after comments from North Korea ratcheted up the tensions with the US again:

North Korean Foreign Minister: N. Korea Has Right To Shoot Down Strategic US Bombers Even If They Are Not In North Korean Airspace

#Gold $Gold spiking after North Korean comments that Trump rhetoric an effective declaration of war. @XTBUK pic.twitter.com/31CxBZpPGx

3.57pm BST

Elsewhere US markets have slipped at the start of the new week, not helped by a decline in Apple shares on concerns that the new iPhone 8 may not be as popular as hoped and a drop in Facebook stock.

The Dow Jones Industrial is down 0.04% in early trading while the S&P 500 is 0.12% lower.

The Dow Jones and S&P 500 are fractionally lower today as the lacklustre move in US equities continues. The American indices registered a string of fresh record-highs recently, but we saw the bullish momentum fizzle out at the end of last week.

The ground that has been handed back is small when compared with how much they have risen since August.

Dallas Fed jumps to 21.3 vs 17 prev and beats consensus of 11.5; At odds with earlier Chicago Fed drop (-0.31 vs -0.25 est vs 0.03 prev R+)

3.49pm BST

On the ECB's future actions:

*DRAGHI SAYS ECB MUST BE SENSITIVE ABOUT NOT HALTING RECOVERY

3.14pm BST

Draghi says it is premature to talk about what may be decided at the October meeting of the ECB.

That meeting is in the spotlight for any news on the bank deciding tapering its stimulus programme, but Draghi seems keen not to pre-empt the discussion.

DRAGHI REITERATES THAT 'BULK' OF QE DECISIONS DUE IN OCTOBER

3.08pm BST

A question on regulating bitcoin:

* DRAGHI SAYS NOT IN POWER TO PROHIBIT OR REGULATE BITCOIN

And he is right. https://t.co/AFSbHoxAeX

2.53pm BST

Asked about North Korea and the current tensions, Draghi says he mentioned potential downside risks for the economy, and geopolitical concerns are part of that.

ECB's Draghi: Downside Risks To EZ Growth Are 'Mainly Geopolitical' - RTRS

2.52pm BST

On to questions.

Draghi is asked about China and the prospects of its debt situation affecting the global economy. He says he is confident the Chinese monetary authorities can cope adequately and have started to act.

2.31pm BST

Draghi concluded with another call for government's to also take action:

While a cyclical adjustment has been taking place, there are still structural issues which impede sustainable economic convergence.

In the years to come, a higher degree of sustained convergence and strengthened resilience will be necessary in order to achieve a better-functioning Economic and Monetary Union.

2.31pm BST

Draghi defended the ECB's policy and its bond buying programme:

The package of monetary policy measures that we have phased in sequentially since June 2014 has led to a significant easing in financing conditions. What is very apparent today, and very difficult to dispute, is that this monetary policy impetus is increasingly leading to stronger economic activity, higher incomes and better employment prospects for people in the euro area.

One key factor has been our ability to activate non-standard instruments that can transmit additional stimulus to the productive sector. In fact, transmission through the banking system has become increasingly effective since we began adopting credit-easing measures. I am referring here specifically to the expanded asset purchase programme (APP), but a similar case can be made for our targeted longer-term refinancing operations....

2.28pm BST

The European economy still needs the ECB's stimulus package despite its recent recovery, according to the central bank's president Mario Draghi, who also expressed concern over the recent volatility of the euro. Speaking to the European parliament (live here), he said:

The firm economic recovery still needs to translate more convincingly into stronger inflation dynamics. As I reported already in the past, deflation risks have essentially disappeared. Nevertheless,measures of underlying inflation have picked up only moderately over recent months.

Headline inflation, which was 1.5% in August, is expected to temporarily decline towards the turn of the year, driven mainly by base effects in the energy component. Afterwards, it is expected to pick up gradually, reaching 1.5% in 2019, according to the ECB staff projections.

According to the September ECB staff macroeconomic projections, the economic expansion will continue at growth rates above potential over the projection horizon.

2.17pm BST

Back with yesterday's German general election, here's a round-up of the best City reaction.

Asset management firm BlackRock say:

Critics are wondering what this means for German domestic politics, and the German economy as a whole.

Euro slips as German far right upset the apfel cart - WorldFirst Morning Update September 25th - https://t.co/4WVmFDyuHi pic.twitter.com/rksN4Mhrp6

Europe's equity market has lagged other developed markets (excluding the impact of currency) and so offers some potential for catch up, particularly given valuations do not looked stretched relative to recent history and with earnings per share growth the fastest among developed markets. The backdrop also supports the rationale for small cap eurozone equities which should benefit most from the growing expansion of domestic demand and any agreement to cut corporate taxes.

Merkel's governments have promoted German growth mainly through external competitiveness and, although there is a need to re-balance the economy somewhat, it is unlikely the new government will significantly change tact with Markel still Chancellor. This should be positive for export orientated sectors, such as industrials and healthcare, though the auto sector faces some stronger specific challenges that will be important for relative performance.

If Catalonia votes for independence, even if the vote is deemed illegal, then it could put pressure on Madrid to allow the people of the region to have a legal vote, which could increase the chance of a break up of Spain.

It could also have ramifications for the EU, would an independent Catalonia be allowed to join? Would it spur other nations to seek independence, not only from other countries' but also from the EU?

1.58pm BST

Back to the Bank of England's warnings on consumer credit....

....and Capital Economics have issued a note, pointing out that the BoE isn't actually forcing banks to tighten their lending.

In today's Statement, the Bank of England's Financial Policy Committee (FPC) fired a warning shot to banks over consumer credit, suggesting that banks would need to increase the amount of capital they hold by 10bn in order to protect against losses. But it stopped short of attempting to rein in lending....

Overall, then, today's action goes further than the red-flag waving we've seen from the FPC up until now. But it is unlikely to slow the economy significantly, or delay the first hike in interest rates, which we think will be in November.

1.56pm BST

Uber's apology (see earlier post) appears to have broken the ice with London's authorities.

Sadiq Khan, the Mayor of London, has just welcomed Dara Khosrowshahi's open letter -- and asked Transport for London to meet with the Uber boss.

"I welcome the apology from Dara Khosrowshahi, the Uber CEO. Obviously I am pleased that he has acknowledged the issues that Uber faces in London.

Even though there is a legal process in place, I have asked TfL to make themselves available to meet with him."

1.25pm BST

My colleague Nick Hopkins has a cracking scoop - Deloitte, one of the world's largest accountancy firms, has recently been hacked, exposing emails from some its major clients.

One of the world's "big four" accountancy firms has been targeted by a sophisticated hack that compromised the confidential emails and plans of some of its blue-chip clients, the Guardian can reveal.

Deloitte, which is registered in London and has its global headquarters in New York, was the victim of a cybersecurity attack that went unnoticed for months.

Related: Deloitte hit by cyber-attack revealing clients' secret emails

12.55pm BST

Shares in UK banks and insurers have dropped this morning, amid the warning that a recession could create 30bn of consumer credit losses.

A downturn in bank and insurance company shares meant a difficult start to the week for the FTSE 100. The Bank of England is sounding the alarm on rising consumer debt levels.

Any restriction on lending, particularly unsecured lending like credit cards and car loans would be a direct hit to a big profit centre for banks and insurers.

12.43pm BST

It's official, Labour are calling on the UK government to change the law so that credit card customers don't pay more in interest repayments than their original loan (as flagged up at 10.30am).

And if they don't, John McDonnell says he'll do it when Labour win power.

12.34pm BST

John McDonnell just brought the Labour conference hall to its collective feet, with a pledge to bring Britain's energy, water, rail, and the Royal Mail back into public ownership and control.

McDonnell: "i want people to have mo doubt - Rail, water, energy, Royal Mail- we're taking them back." #lab17

12.31pm BST

Over at the Labour party conference in Brighton, shadow chancellor John McDonnell is criticising Britain's "rentier economy".

McDonnell is also blasting the City for failing to support high value businesses, and promising a new "Strategic Investment Board" to improve productivity. Plus, extra investment on transport links outside London.

Related: John McDonnell's speech to Labour conference - Politics live

12.18pm BST

The Bank of England's warning about consumer credit comes as the City braces for the first UK interest rate rise since 2007.

The BoE is widely expected to hike borrowing costs by early next year, quite possibly in at its November meeting.

BoE's sudden hawkish lurch triggers biggest ever reversal of hedge funds' bearish sterling bets - net short GBP positions slashed by 35.9k. pic.twitter.com/21GY5SrjKC

11.46am BST

Uber CEO Dara Khosrowshahi's apologetic open letter to London strikes a more conciliatory tone.

His promise to change the taxi hire company is a clear sign that Uber could compromise to persuade TfL to reverse last week's decision, and let it keep operating in the capital.

"While Uber has revolutionised the way people move in cities around the world, it's equally true that we've got things wrong along the way. On behalf of everyone at Uber globally, Iapologise for the mistakes we've made.

We will appeal the decision on behalf of millions of Londoners, but we do so with the knowledge that we must also change."

11.35am BST

In other news, Uber has issued an open letter confirming it will appeal the decision to remove its licence to operate in London.

CEO Dara Khosrowshahi has apologised for the mistakes made by Uber (he doesn't specify what, exactly) and promised to listen to its critics.

Open letter to Londoners in today's Evening Standard from Uber's new CEO @dkhos: pic.twitter.com/LOuLgPvF4B

10.49am BST

Hannah Maundrell, editor in chief of money.co.uk, has sent over some tips for consumers to protect themselves from getting overwhelmed by debt.

"The Bank of England's Financial Policy Committee statement means more for banks than it does for borrowers right now. It's the highest financial power telling lenders they need to be careful and set aside an extra 10bn if they want to sail through Brexit unscathed.

10.30am BST

The Bank of England's consumer credit warning comes as the opposition Labour party turn up the pressure on lenders.

Later today, shadow chancellor John McDonnell is expected to promise more help for people struggling with their debts.

"It means that no one will ever pay more in interest than their original loan.

If the Tories refuse to act, I can announce today that the next Labour government will amend the law."

Related: Labour to pledge help for millions trapped by credit card debt

10.13am BST

Our City editor Jill Treanor has studied today's report from the BoE's Financial Policy Committee, and reports:

Britain's banks could incur 30bn of losses on their lending on credit cards, personal loans and for car finance if interest rates and unemployment rise sharply, the Bank of England warned on Monday.

After assessing the fast growth in the consumer credit market, Threadneedle Street is requiring the banking system to hold an extra 10bn of capital as protection against any future losses after finding that lenders are underestimating their exposure to bad debts in an economic downturn.

Bank of England warns a consumer debt crisis could cost banks 30bn https://t.co/xCS7wrEswD

10.10am BST

The Bank of England says that UK consumer credit is growing 'rapidly', at 9.8% in the 12 months to July 2017.

It singles out "strong growth of dealership car finance, credit card debt and other borrowing, such as personal loans".

There is no suggestion the sales practices are illegal or that any rules have been broken, yet they illustrate a significant shift in the way cars are bought in the UK. Salespeople at three dealerships visited by the Guardian offered vehicles on the road with little or no deposit. One suggested a 1,000 downpayment to secure a 1.5l Mini Cooper, with a top speed of 127mph, which could be refunded when the car was collected from the showroom a few days later. Deposits can even be paid for by credit card, adding to the debt pile......

Britons previously paid cash or took out a loan from a high street bank. Now, they're increasingly turning to finance packages, with a package known as the personal contract purchase (PCP) among the most popular.

Related: Car finance: the fast lane to debt?

10.04am BST

The Bank of England seems to have turned up the volume today:

As City AM's Jasper Jolly puts it:

The Bank of England today issued its strongest warning yet on the fast-expanding consumer credit sector, with financial stability experts at Threadneedle Street saying banks may not be adequately prepared for losses.

Bank of England issues strongest warning yet on losses from consumer credit https://t.co/EksodEgx6U pic.twitter.com/1N8Jq1M8tP

9.55am BST

In a nutshell, the Bank of England is concerned that lenders, both in the UK and beyond, aren't being prudent enough.

It fears that reckless borrowing will come back and bite banks, painfully, if the world economy weakens, financial conditions worsen, and borrowers find they've overstretched themselves.

There are signs in some markets, globally and domestically, of excessive weight being placed on recent benign conditions as an indicator of future risks. This behaviour encourages greater risk taking, potentially building up greater vulnerabilities.

9.46am BST

The Bank of England is also concerned that Brexit poses a risk to UK economic stability.

It ha singled out the City of London's huge market in derivative contracts (such as options to buy or sell financial assets at a certain price in the future.

The FPC is considering in particular risks arising from: discontinuity of cross-border contracts, in particular insurance and derivatives; restrictions on sharing of personal data between the European Union and United Kingdom; and restrictions after Brexit on cross-border banking, central clearing and asset management service provision.

Bank of England continuing to assess risks from Brexit, including the way 20tn of derivatives contracts are handled

9.41am BST

Newsflash: The Bank of England has issued a fresh warning that consumer credit losses could spiral if the economy weakens.

Bank of England tells lenders they will need 10bn of capital to withstand potential consumer credit losses

9.36am BST

The fall in business confidence this month is a setback to the German economy, says Carsten Brzeski of ING.

He's telling clients that German firms are suffering from rising geopolitical tensions,

While Germany is still digesting the results of last night's elections, the country's most prominent leading indicator, the Ifo index, weakened for the second month in a row and dropped in September.

The Ifo index now stands at 115.2, from 115.9 in August. Both the expectations and current assessment component dropped. While the September drop was probably a result of increased geopolitical tensions, ongoing problems in the German automotive industry and the stronger euro, the next months will tell how the German business sector looks at the results of Sunday's poll.

And another thing... Here's a bit of a set back for the #Germany economy. Super stuff from @carstenbrzeski https://t.co/c7n2xONuNQ

9.26am BST

The drop in German business confidence suggests that Europe's largest economy is slowing, says IFO.

IFO Chief Economist: German GDP In Q3 Will Be Somewhat Weaker Than In First Two Quarters, But We Will Have Very Good Year

IFO chief economist: 'Jamaica@ coalition will be hard to form, cannot rule out new German elections. $EUR.

9.13am BST

Just in: German business confidence has deteriorated unexpectedly this month.

The monthly survey of investor morale, from the IFO institute, has dropped to 115.2 from 115.9. Investors had expected it to maintain its recent rally and hit 116.0.

*IFO SEPT. GERMAN BUSINESS CONFIDENCE INDEX AT 115.2; EST. 116.0 | still near historical highs pic.twitter.com/cmByP0hIrk

9.10am BST

Mehreen Khan of the Financial Times also reckons the German election results are a blow to Emmanuel Macron's push for a eurozone budget.

Here's a snapshot from her Brussels Briefing:

Awkward squad led by FDP's @c_lindner might derail the Franco-German euro engine before it's even warmed up. Today's @ftbrussels briefing pic.twitter.com/TfBES3GFz1

9.04am BST

Europe's major stock markets have all dipped in early trading.

The negative European open follow a mixed session in Asia in response to a less convincing Federal election win for German Chancellor Merkel and French President Macron struggling in Senate elections - both denting the euro - coupled with a UK sovereign debt downgrade by Moody's on Friday, just hours after PM May's Brexit speech, and aggressive rhetoric from North Korea's foreign minister at the UN on Saturday.

8.57am BST

The pound is shaking off Moody's decision to downgrade Britain's credit rating last Friday night.

Sterling has risen by almost half a cent against the US dollar at $1.3533, despite Moody's warning that the UK's "medium-term economic strength" would be weakened by Brexit - a claim the Treasury have rebutted.

Beware a short-lived slide, but the longer-term depends on the economy, monetary policy the public finances and all that normal jazz.

Ratings agencies can have a temporary impact but they are mostly telling us what we already know and have priced-in long ago.

Moodys will be disappointed to see that UK Gilt yields are up only marginally today after its downgrade 10 year yields 1.36%

8.43am BST

Investors are piling into German government debt this morning, at the expense of riskier assets such as Italian bonds.

This has pushed the gap between Italian and German borrowing costs to its highest level since early September:

#Italy risk spread over Germany jumps following German election as outcome make it more difficult to pursue further #Eurozone integration. pic.twitter.com/idtFWfifyX

8.42am BST

We've collected the full German election results here.

Das amtliche Endergebnis - so hat Deutschland gewihlt. #BTW17 pic.twitter.com/3B2Nz942eQ

8.35am BST

The euro is losing ground in early trading, as traders digest Germany's election results.

The single currency has shed 0.3% against the US dollar to $1.1915. It's suffering a sharper fall against the pound, down 0.7% at 87.9p.

"As predicted, Angela Merkel won a fourth term in office, but not without handing over a chunk of her vote to the Far Right AFD. The SDP did even worse, and the chancellor will be forced into bed with the Greens and the Free Democrats (FDP) in a Jamaica coalition. Any extended period of uncertainty poses a problem, certainly if the FDP's dislike of Macron threatens Germany's relationship with France. Markets won't like that.

It's possible that Angela Merkel becomes distracted from international politics during the inevitable horse trading following a disappointing election for her. Any sense that this weakens the EU's position could play into the hands of UK Brexit negotiators, as a fourth round of talks with European officials begins in Brussels today."

8.16am BST

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

"a60bn eurozone budget flowing into France or Italy is inconceivable for us...a line in the sand," sez FDP leader @c_lindner.

Politics continues to make its mark on markets after the weekend provided news of two more coalition governments. Angela Merkel underperformed expectations of an easy victory and was awarded with the parties' lowest vote count since 1949, whilst New Zealand is now bracing itself for a fourth consecutive coalition government.

Merkel's underwhelming victory may have seen her cling on to a 4^th term, but her job has just become harder. The rise of AFD, which celebrated its highest result of 13.5%, means they have a louder voice and will force Germany to confront anti-immigration and anti-EU issues at home.

Asia markets in risk-off mode on pol uncertainty after Germany's Merkel won 4th term but faced fractured parl. #Oil at 6mth highs after OPEC pic.twitter.com/784yJQtNWz

Britain's biggest banks are braced for new restrictions on consumer lending as the Bank of England prepares to unveil the results of its review of the booming sector.

Credit cards, unsecured loans and car finance deals have all surged in popularity over the past year, leading Mark Carney and his colleagues on the powerful Financial Policy Committee (FPC) to investigate if there are any growing risks in the sector.