Bank of England Carney says UK is banker for Europe, IMF welcomes Brexit progress –as it happened

Angela Monaghan (until 12.55) and Nick Fletcher

from on 2017-12-20 17:54 (#3B6X4)

Bank of England governor Mark Carney up before Treasury committee

5.54pm GMT

It was a busy day for the week before Christmas.

The International Monetary Fund welcomed progress on Brexit talks but warned the timeframe is ambitious because of the long list of tasks to address. It cut its forecast for the UK economy from the 1.7% it expected in October to 1.6%, and said it expected the economy to grow by 1.5% in 2018.

5.02pm GMT

It is a cliche, but buy on the rumour and sell on the fact does seem to hold true sometimes for stock markets. So the bumper rises seen ahead of the US tax proposals has fizzled out now the plan is has more or less been passed. The final scores showed:

4.04pm GMT

On ringfencing, Woods says the deadline in January 2019 but he would expect much of it to be done in four to six months.

We are in a good place to regulate both ringfenced bank and the rest.

4.01pm GMT

Is there a risk banks could reallocate not from UK to EU but to somewhere else?

Sharp says they have big European presences, and London has a tremendous competitive advantage. But there is no doubt that there will be profit opportunities in EU due to growth possibilities there.

3.56pm GMT

Question on misconduct? Will it be helped by senior management regime, will we get to a point where midconduct doesn't form part of stress tests?

Carney says previous misconduct is in the tests, what is not in there is what we don't know yet about other possible types of misconduct. It could be they will pay less than the amount provided for in the stress tests.

3.52pm GMT

Question on foreign investment in the UK. Is that because of confidence in UK growth prospects, is it the kindness of strangers and if there is a reversal what are the implications for domestic credit conditions?

Some of that reversal is in the stress tests. One of the big elements of flows has been into real estate, especially London. These are signs of confidence. There are lots of reasons to continue to see the flow. But if there was a shrinking, this would be a concern but you would see this in the risk premia.

3.35pm GMT

Nicky Morgan leaves for a meeting with the prime minister and John Mann takes over, and asks about Bitcoin. Who will regulate it and if no one does will it be a problem?

Carney says at present we do not view Bitcoin as a financial stability issue. It is not connected closely to the mainstream financial system. It's more like an equity type risk.

3.32pm GMT

Question on the gender pay gap.

Carney says they are high relative to other industries. It requires multi pronged approach to change over a period of time. The Women in Finance initiative etc, these will make a difference if they are followed through and focus minds of senior management and their shareholders.

3.28pm GMT

Question on cyber developments and whether the bank has sufficient skills.

Woods says it is challenging, mainly in operations resilience. Financial system is under attack, the Bank triggered its response systems for sufficiently large cyber attacks six times in last year. But now a significant development, we have brought a specialist GCHQ unit into our response team.

3.13pm GMT

On the regulatory systems, Carney says:

We been through 10 years of fixing the faults of the financial crisis. With so many new rules in place, there is some duplication, and now the big job is to make adjustments to those rules on an international level.

3.04pm GMT

Question on jobs numbers, and comments that to judge by the numbers leaving immediately after Brexit rather than four or five years out would be a mistake.

Carney agrees. If in the short term there is an ability to retain interconections, the initial job losses are less. If those are pulled into the continent the job losses are much greater.

3.00pm GMT

Question about co-operation with EU colleagues:

Woods says Brexit is throwing up a point of tension within the EU, which will probably build rather than subside. EU authorities tend to impose regulatory restrictions that the UK applies to retail banking to wholesale banking too.

2.53pm GMT

Question about the potential loss to London of clearing business post Brexit?

Carney says the raw economics are compelling, so if the euro business were pulled out that is 13% of the overall pool. The loss of benefits would in our judgement cost at least 1 to 3 basis points to EU institutions, and that doesn't sound much but 1 basis point equates to a21bn per annum.

2.47pm GMT

Now questions to Carney about the London Stock Exchange succession planning (to recap Xavier Rolet decided to leave the LSE but an activist shareholder wanted him to stay on.)

Carney says they were aware of the issues, had multiple conversations with the board and management, it was clear that the then CEO was not going to continue with his role but they were in a legal position where they couldn't say he would never return even though he had no intention of continuing under any circumstances. It was very Kafka-esq.

2.39pm GMT

Carney says consumer credit was a key component of the stress tests.

The debt burden is less than it was in the 1990s. But there are without question parts of the working population that are vulnerable, who start from an overextended position. Those issues are important... we look at how we target an intervention to manage the scale of the risk.

2.35pm GMT

Mann: are you underplaying the problem of the rise of consumer credit?

Woods says the fact it is growing at 10% a year is causing some concern to the committee. The impact is different on different firms. We publish how much we think individual banks would lose.

2.33pm GMT

John Mann: Is risky consumer credit only a problem at some banks.

FPC member Richard Sharp says they don't go into the micro level. We were concerned at the pace of the growth of consumer credit in the economy. We formed a consensus and we acted.

2.30pm GMT

Is there enough being done to prevent banking misconduct?

Carney says, there is a lot being done to reduce banking misconduct. One of the things that is recognised is that fines alone of institutions well after the fact that affect current shareholders and not the individuals who perpetrated the act are a fairly ineffective way, shouldn't be the tool to be the deterrent.

2.18pm GMT

Barclays and RBS failed 2017 test on the basis of the cut-off date for their capital reserves, but they've since built that up. Are you comfortable with that margin of error?

Woods says this is the first year we haven't required any of the banks to do anything on the back of stress tests. On those two, if we ran the tests today they would both pass. Quite a significant moment.

2.14pm GMT

Question on the 2017 stress tests, saying it was not designed to deal with a disorderly Brexit. How does the test scenario differ from a disorderly scenario. Are you confident all scenarios have been adequately tested.

Carney says the tests have a severe macroeconomic scenario, pound down by a quarter, house prices down by a third etc. On top there is a stressed hit for misconduct costs for the banks of 40bn.

2.09pm GMT

Lights out:

2.06pm GMT

Nicky Morgan turns to the Budget, and the forecasts from the OBR, which she says are predicated on smooth and orderly Brexit. But EU chief negotiator Michel Barnier has said financial services not being part of a free trade agreement, so do you have a comment on the OBR forecasts and Brexit affecting economy.

Carney says the OBR reduced its productivity forecast, we had reduced, they are now below ours.

1.58pm GMT

Question: of the four that are systemic, how much capital would they need to commit to UK?

Carney says its relatively modest, bigger capital requirment would be because of the wholesale bank footprint.

1.54pm GMT

Carney is asked if there is enough time if changes need to be made.

He says, we know these firms now, we know the risk so we're in a pretty good position to have a limited amount of time to adjust their business model.

1.49pm GMT

Deputy governor Sam Woods adds we would have needed a good reason to depart from established way of doing this.

We will keep position under review as negotiations progress.

1.47pm GMT

Nicky Morgan says this seems like a plan for the status quo. Alternative would have been for [EU banks] to create subsidiaries.

Carney says if we didn't have co-operation with EU, we will tell banks to create subsidiaries. Should we say you subsidiarise now and then un-subsidiarise in the future if there is an agreement, that would cause a tremendous amount of disruption. We can at the moment manage the risk. Now is not the time to say, we're never going to get a deal.

1.38pm GMT

Carney says this is a proposal and is out for consultation.

1.37pm GMT

The Treasury Select committee is beginning, chaired by Nicky Morgan.

Bank of England governor Mark Carney is going through the day's earlier announcement.

1.14pm GMT

Bank of England confirms it will impose no material additional regulatory or capital costs on most EU banks operating in the EU (they can continue to operate as "branches" of their home country bank, in the jargon) https://t.co/BVv4cpgY11

1.05pm GMT

Just ahead of Bank of England governor Mark Carney's appearance before the Treasury Select Committee, the Bank said it planned to spare European banks from costly extra capital requirements after Brexit. But it warned that could change if the current talks are unsuccessful. Reuters reports:

Setting out its position for a possible tussle with Brussels over London's position as a top global financial hub, the BoE said it wanted to ensure it could effectively oversee foreign banks and financial services firms after Brexit.

"The foundation of the Bank of England's approach is the presumption that there will continue to be a high degree of supervisory cooperation between the UK and the EU," the BoE said in a statement.

12.56pm GMT

Back with Michel Barnier, the EU's chief Brexit negotiator, saying the European commission wants the transition period to end on 31 December 2020, and Dr Adam Marshall, Director General of the British Chambers of Commerce, does not appear entirely happy:

Businesses will welcome the fact that the European Commission has now joined the UK government in backing a single adjustment for business, at the end of an agreed transition period.

However, the end date proposed by the Commission seems better-suited to the EU's bureaucratic framework than to real-world business conditions. The two sides' main criterion should be to set a timeframe that allows businesses on both sides of the English Channel to adequately prepare for a new trading relationship between both parties.

12.53pm GMT

Over in Athens, parliament has ratified the 2018 budget. It is the last one before debt-burdened Greece exits international supervision under its latest bailout programme. Helena Smith reports:

This year is the first with real growth after many years of recession. We took over a country with empty coffers, with unemployment close to 27%, with zero trust among its partners and international markets, and with the 10-year bond yield at almost 8%.

12.40pm GMT

The International Monetary Fund says its gloomy forecasts in the runup to the referendum are now playing out in the numbers.

Even so, the IMF's forecasts for UK growth for this year and next compare favourably with those from both the Organisation for Economic Co-operation and Development (OECD), and the Office for Budget Responsibility (OBR), the government's independent forecaster.

12.10pm GMT

Here is our full story on the IMF's annual health check of the UK economy.

The IMF's managing director, Christine Lagarde, gave a strong defence of the Fund's gloomy forecasts for the UK after Brexit, saying pre-referendum warnings of slower growth were coming true.

11.33am GMT

Retail sales rose in the runup to Christmas according to the latest survey from the CBI, but at a slower pace than retailers had expected.

Retailers have seen decent growth heading into the vital Christmas trading period, although it was weaker than expected. It's clear that people are stocking up on food for their Christmas lunch, with grocers' sales driving most of the sales growth seen in December.

Notwithstanding the sales growth seen in the last couple of months, underlying trading conditions are tough for retailers. We expect the squeeze on real pay for households to last a while longer, so retailers will still face challenging conditions ahead.

10.59am GMT

Michel Barnier, the EU's chief Brexit negotiator, has given a news conference, announcing that the European commission wants the transition period to end on 31 December 2020.

For all the details, follow our politics live blog here:

10.51am GMT

Christine Lagarde has insisted she and the IMF were right to be gloomy about the implications of a leave vote in the runup to the EU referendum in June 2016.

She said the numbers on the UK economy today were proving the point, adding UK growth is "a bit of a disappointment" compared with other countries.

10.42am GMT

The Guardian's Business Today email has expanded its property coverage.

As well as key news headlines, an agenda of the day's main events, insightful opinion pieces and a quality feature, there is now more coverage of house prices, mortgages, the rental market - and the best picture galleries from our Money pages.

10.31am GMT

The UK chancellor Philip Hammond says he agrees with the IMF on the urgent need for a Brexit transition deal.

One of biggest boosts we can provide to our economy is making early progress on delivering certainty and clarity about our future relationship.

10.22am GMT

The IMF is clear that the Brexit vote is already weighing on the UK economy.

Growth in the first three quarters of 2017 was slower than a year ago. Despite a strong recovery in global growth and supportive macroeconomic policies, the impact of the decision to exit the European Union has weighed on private domestic demand.

The employment rate has remained around record highs, but the sharp depreciation of sterling following the referendum pushed up consumer price inflation, squeezing household real income and consumption.

IMF's @Lagarde on Brexit vote and invoking of Article 50: "These two decisions are already having an impact on the economy."

10.16am GMT

Here is what the IMF had to say about the ambitious nature of the timeframe for Brexit talks.

Recent progress in negotiations between the UK and EU is welcome. Both parties have reached agreement in principle on citizens' rights, on Northern Ireland, and on the financial settlement. While the ultimate outcome of the next phase of discussions is for the UK and EU to determine, an agreement that minimizes tariff and non-tariff barriers and ensures that firms have access to the labor they need would best support growth.

The list of tasks that remains to be accomplished is very long, and the timeframe to do so is ambitious. They include agreeing on a trade deal with the EU, negotiating new arrangements with around 60 countries to replace those to which the UK is currently party via its membership in the EU, bolstering human and IT resources in customs and other services, and translating many thousands of pages of EU law into UK domestic statute.

The government has set aside a budgetary allocation to support Brexit preparations. Early agreement on a transition period would avoid a cliff edge exit in March 2019 and reduce the uncertainty facing firms and households.

IMF publishes staff's 2017 annual economic health check on UK economy https://t.co/T3i6r1mOwK

10.06am GMT

The International Monetary Fund has welcomed progress on Brexit talks but warned the timeframe is ambitious because of the long list of tasks to address.

The fund predicts the UK economy will grow by 1.5% in 2018.

9.50am GMT

A setback for Uber this morning after the European court of justice (ECJ) ruled it is a transport services company, subject to the same rules as other cab firms.

Uber had argued that it is a computer services business, after a challenge brought by taxi drivers in Barcelona.

9.33am GMT

Michael O'Leary, the outspoken and often controversial boss of Ryanair, has been asked by MPs to answer allegations by workers that the airline sometimes pays less than the minimum wage.

Sadly, it will not surprise me if the sorry picture painted here is true: a company that turned in 1.15bn profit last year squeezing its workers. People who work long, hard hours and have an important role in passenger safety, and yet apparently cannot count on receiving the National Minimum Wage - or even close to it.

These allegations of hours of unpaid work, of charges for uniforms, of fees being incurred to leave, suggest a company falling well short of its duty to the staff who help their planes get off the ground and who spend the flight attending to and serving its paying customers. This appears to be evidence of a company trying to wiggle out of its basic responsibility to pay its workers the National Minimum Wage.

8.48am GMT

Investors across Europe are in a subdued mood this morning, with all the major indices following Wall Street lower.

Here are the scores so far:

8.37am GMT

President Trump's long-trailed tax reform bill cleared a major hurdle last night and this morning, making it through Congress and then the Senate.

A procedural issue means the bill will have to go back to a revote in Congress, but this appears to be a technicality and is not expected to derail the bill.

Having teased, tantalised and promised the markets for most of this year that we would see some significant measures to reform the tax code it seems that US President is on the cusp of delivering some measures that, depending on who you listen to, are either transformative or unfair.

Having seen the bill pass through Congress fairly easily last night, and pass through the Senate this morning it seems increasingly likely that the bill will be signed into law by President Trump in the coming days, though it will need to go back to a revote in Congress after a procedural snag made last night's vote invalid. That obstacle aside it now looks increasingly likely that just over a year since being elected that Trump is likely to have something to show for his first year as President.

The United States Senate just passed the biggest in history Tax Cut and Reform Bill. Terrible Individual Mandate (ObamaCare)Repealed. Goes to the House tomorrow morning for final vote. If approved, there will be a News Conference at The White House at approximately 1:00 P.M.

8.17am GMT

Neil Wilson, senior market analyst at ETX Capital, says the Tesco/Booker deal could open the door to other deals.

Given how easily this deal was approved, it leaves the door open for further significant consolidation in the sector and the potential for a major change in the UK retail space over the coming years. The case for consolidation is strong given the intense competition, heightened margin pressure and the emergence of new threats online. Retailers should be looking to strike now to secure their economies of scale.

For Tesco/Booker it's a win on several levels. Cost synergies of around 200m a year, mainly from buying and distribution, are expected, although this could a lot more and may exceed 300m.

8.13am GMT

Britain's competition watchdog has given the go-ahead this morning to Tesco's 3.7bn takeover of Booker, the cash-and-carry group that also owns brands including Londis and Budgens.

We have carefully listened to feedback from retailers and wholesalers who operate in what are highly competitive UK retail and wholesale sectors. Retailers have told us that they shop around for the best prices and service from their wholesaler, and we are confident that this will continue after Tesco buys Booker.

This has been an important investigation for us. Millions of people use their local supermarket or convenience store to buy their groceries or essentials, so it is vital that they have enough choice to secure the best deal for them. Having examined the evidence in depth, we are satisfied this will remain the case following the merger.

8.02am GMT

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

Christine Lagarde, head of the International Monetary Fund, is in London this morning to present the Fund's annual health check of the UK economy.

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