Article 3YPBQ Turkey hikes interest rates; Bank of England ‘s Brexit warning; John Lewis’s profits slump - as it happened

Turkey hikes interest rates; Bank of England ‘s Brexit warning; John Lewis’s profits slump - as it happened

by
Graeme Wearden
from on (#3YPBQ)

All the day's economic and financial news, as UK central bank leaves interest rates on hold and Turkey announces a whopping rate hike

4.50pm BST

Finally, here's our news story on Turkey's blockbuster interest rate hike

Related: Turkey raises interest rates to 24% in startling bid to curb inflation

4.47pm BST

In the City, the FTSE 100 index of top shares has ended the day down 0.4% at 7,281 points, a drop of 31 points.

3.32pm BST

Time for a quick recap.

Turkey's central bank has defied political pressure and unleashed a huge interest rate hike. Borrowing costs have been raised to 24%, from 17.75%, just hours after president ErdoAan demanded lower interest rates.

Related: Bank holds interest rates and warns over no-deal Brexit

Related: No-deal Brexit could tip UK into recession, warns Moody's

Related: John Lewis profits dive by 99% as Brexit row erupts

3.23pm BST

Just in: president Trump has claimed that China's markets are "collapsing", as he denies feeling pressure to reach a trade deal.

The Wall Street Journal has it wrong, we are under no pressure to make a deal with China, they are under pressure to make a deal with us. Our markets are surging, theirs are collapsing. We will soon be taking in Billions in Tariffs & making products at home. If we meet, we meet?

2.54pm BST

Agathe Demarais, Turkey analyst at the Economist Intelligence Unit, says today's Turkish interest rate hike is a "welcome signal".

However, it won't fix all Turkey's economic challenges.

2.39pm BST

Back in the markets, the American dollar has fallen after today's US inflation data was weaker than expected.

That's giving a range of battered emerging market currencies some relief, with the Turkish lira leading the charge.

Dramatic rate rise by #Turkey fuels jump in lira, and fact $ weakening again (on weaker inflation data) helps buoy most other EM currencies...apart from poor old Argentinian peso pic.twitter.com/SXRyXEPSBv

2.32pm BST

Get in touch....

Related: Tell us: how would a no-deal Brexit impact your business?

2.06pm BST

Asked about Italy's populist government, Draghi insists firmly that several Italian ministers have pledged to stick with EU budget rules.

He also doesn't see signs of contagion from Italy to other eurozone countries.

2.05pm BST

Good point!

Draghi: "Even before Lehman it was clear the crisis was coming and it was worldwide."

ECB *raised* rates in July 2008, Lehman failed in September.

1.59pm BST

Q: What do you think of Jean-Claude Juncker's proposal to make the euro a reserve currency, challenging the US dollar?

Draghi says he is interested to see more details on the proposals, and is ready to work with the Commission on their plans.

1.50pm BST

Q: How much of a threat are the problems in emerging markets to the eurozone, and the world economy, and is it due to US monetary policy?

Draghi says the spillovers from Turkey and Argentina have "not been substantial". The countries most vulnerable are those with the weakest economic fundamentals, he adds.

1.44pm BST

Q: The ECB's new forecasts show inflation hovering around 1.7% in the next few years - is that consistent with your mandate?

Yes, it's consistent with the mandate, says Draghi crisply, reminding reporters that the mandate is to keep inflation "close to, but below 2%".

1.39pm BST

As rumoured yesterday, the ECB has trimmed its growth forecasts.

It now expects GDP to only increase by 2% this year (down from 2.1%) and by 1.8% next year (down from 1.9%).

Draghi introduces the GDP and inflation outlook for the euro area pic.twitter.com/JbPJ5e3fTY

1.37pm BST

Back in Frankfurt, Mario Draghi has warned that risks from protectionism, and emerging market volatility, have risen.

But still, he argues that the risks to the euro area growth outlook are "broadly balanced".

1.36pm BST

Just in: US inflation rose by less than expected last month.

Prices only increased by 0.2%, compared to forecasts of 0.3%. That pulled the annual inflation rate down at 2.7%, versus expectations of 2.8%, down from 2.9% in July.

US Consumer Price Index rose 0.2% in Aug, vs 0.3% increase expected https://t.co/uSlw2ihRt1

1.33pm BST

Over in Frankfurt, European Central Bank president Mario Draghi is giving his press conference.

He confirms that the ECB left interest rates unchanged, and intents to leave them at their present record lows until at least next summer.

1.18pm BST

Paul Greer, portfolio manager at Fidelity International, says the Turkish central bank should have acted sooner to raise rates and strengthen the lira.

However, he also fears today's rate hike will drive the economy into recession.

"Going forward the focus will now fall on Turkish growth which is slowing very quickly as the economy, and the current account deficit in particular, rebalances. Today's move, while helping to moderate inflationary pressures, will accelerate the slowdown and probably push Turkey into a recession.

The next challenge for Turkey will be how does the economy deal with this slowdown, particularly in the banking sector where capital ratios have been eroded and asset quality will further diminish.

1.16pm BST

Relief that Turkey's central bank has delivered such a chunky interest rate hike is driving shares up in Istanbul.

The benchmark BIST 100 index has gained 1.5%, as trader express optimism that Turkish inflation could be tamed.

12.52pm BST

Now it's the European Central Bank's turn.

The ECB has left its interest rates at current record lows, meaning the headline cost of borrowing sticks at just zero.

12.41pm BST

Neil Wilson of Markets.com says Turkey's interest rate hike is a show of strength from the country's central bank, in the face of political pressure:

It represents a major and important reassertion of the central bank's independence and shows they will not be bullied by politicians, although to a large degree its hand was forced by the 18% print on August inflation.

There was also a commitment to do more if necessary and that will be regarded as a sign that policymakers are serious, although it's maybe a tad short of being a 'whatever it takes' type commitment - indeed the move on the lira only takes it back to where it was at the end of August.

12.34pm BST

The Turkish lira has been through a roller-coaster ride today:

So, to recap. pic.twitter.com/sEPtZycMu6

12.17pm BST

BOOM! The Turkish central bank has announced a massive increase in borrowing costs.

The Central Bank of the Republic of Turkey has hiked its benchmark interest rate to a blistering 24%, up from 17.75%.

Here's what happened to the Turkish lira after the central bank lifted interest rates 6.52 percentage points to 24% pic.twitter.com/Z6CUGsdsxN

12.09pm BST

The Bank of England is also worried by the rising risks of a full-blown trade war, and its impact on emerging markets.

The Bank's monetary policy committee say::

The global economy still appears to be growing at above-trend rates, although recent developments are likely to have increased downside risks around global growth to some degree.

In emerging market economies, indicators of growth have continued to soften and financial conditions have tightened further, in some cases markedly.

12.06pm BST

The Bank of England has warned that uncertainty over Brexit has risen recently.

Most indicators of exports and investment intentions had held up in recent months, although there had been a sharp fall in the IHS Markit/CIPS goods export orders index in August.

Some respondents to that survey, and the associated equivalents for the service and construction sectors, had noted uncertainty around the UK's withdrawal from the European Union. And reports from the Bank's Agents had also suggested that companies were becoming more uncertain about the economic outlook and were considering their Brexit contingency plans more carefully.

12.00pm BST

Newsflash: The Bank of England has left UK interest rates on hold at 0.75%.

It has also left its quantitative easing programme unchanged.

11.58am BST

Hold onto your hats.. we're about to get the Turkish and UK interest rate decisions...

Not expecting the BOE to overshadow the CBT

11.54am BST

Over in Turkey, president ErdoAan has made an astonishing intervention ahead of today's interest rate decision.

ErdoAan attacked the Central Bank of the Republic of Turkey, saying it had failed to bring down inflation (which hit a 15-year high last month).

"As of today I have not seen the central bank fix inflation rates as they promised."

"Interest rates are the cause, inflation is the result. If you say 'inflation is cause, the rate is the result', you do not know this business, friend,"

LIRA DOWN 3%: #Turkey's President Recep Tayyip Erdogan attacks the central bank for continuously missing inflation targets just TWO HOURS before monetary policy makers annonce their interest rates decision; @business pic.twitter.com/qVkptPz4Mi

11.51am BST

Bank of England governor Mark Carney has been spotted leaving Downing Street, where he must have been attending today's cabinet meeting to discuss a no-deal.

Mark Carney smiling as he leaves the No. 10 cabinet meeting over potential no-deal Brexit

(pic: @hannahmckay88) pic.twitter.com/lgFQWtZ5Ke

11.09am BST

Here's the full quote from John Lewis chairman Charlie Mayfield, as he refuses to get into a verbal punch-up with Dominic Raab:

"This whole thing is so frothy. I didn't say Brexit was the reason for our result.

The fact is sterling is weaker, it's more expensive to import goods... so we have to absorb that within our margin.

10.56am BST

Here's our guide to what's gone wrong at John Lewis:

Related: Five reasons why John Lewis profits have dived

10.31am BST

John Lewis chairman Charlie Mayfield has held a conference call with journalists to discuss its plunge in profits.

He's declined to get into a war of words with Dominic Raab over the 'blaming Brexit' row. Instead, he's revealed quite how tough the last few months have been, with JL's department stores making their first half-year loss in at least 10 years.

John Lewis chair Sir Charlie Mayfield's response: "I'm not going to get into some sort of ding-dong with the secretary of state." https://t.co/umJZhTPS9a

John Lewis department stores fell into a half year loss for the first time in at least a decade or "recent history" according to its parent group's boss Charlie Mayfield.

Charlie Mayfield says John Lewis won't be spending more on its Christmas ad than it did last year despite rumours that it has hired Elton John for 5m..

Charlie Mayfield says impact of matching rivals discounts on John Lewis profits was about 40m - wow that is chunky!

10.17am BST

Related: Business Today: sign up for a morning shot of financial news

10.07am BST

Moody's chief credit officer for Europe, Colin Ellis, is concerned that the risks of a no-deal Brexit have risen.

He says:

"We still think the UK and the EU will eventually reach an agreement to preserve many - but not all - of their current trading arrangements, particularly around trade in goods. However, we believe the prospect of the UK leaving the EU without any agreement has risen materially.

"The precise impact of a 'no deal' outcome is impossible to define because both the UK and the EU would likely take swift steps to limit short-term disruption. But it would clearly pose more significant credit challenges than a negotiated exit."

10.01am BST

Breaking: Credit rating agency Moody's has warned that Britain's economy would suffer significant harm if the country leaves the EU without a deal.

In awkward timing for Dominic Raab, Moody's warns that many companies would be hurt, hinting it could slash their credit rating.

Related: Day-to-day effects of no-deal Brexit stressed in new impact papers

Related: Brexit: Back Chequers or UK will leave EU with no deal, Dominic Raab tells Tory rebels - Politics live

9.41am BST

Financial blogger Lotty Burns has more sympathy than Dominic Raab for John Lewis's predicament:

I feel bad for John Lewis. Consumers want the cheapest prices possible, and yet John Lewis would always price match if you found it cheaper elsewhere - PLUS a 5-year guarantee on top. Great store. #JohnLewis

9.24am BST

European credit analyst Tomas Hirst suggests Dominic Raab should resist the temptation to put the boot into British businesses -- as the weak pound is causing real problems for importers.

Brexit is not the only cause of UK retail woes, but weakness did have a significant impact on real incomes, import costs. So dismissal of concerns by ministers not a good look. https://t.co/d6Iymil6zD

Easy to put the ideological blinkers on about this stuff - and perfectly possible Brexit not the main factor in the case of John Lewis - but right now the one thing Brexit *isn't* for UK businesses is "convenient"

Seems to me @DominicRaab has a difficult enough brief without widening it to include snarking at underperforming UK high street names

9.23am BST

Here's a video clip of Dominic Raab criticising businesses who are "tempted to blame Brexit" for disappointing results:

Dominic Raab rubbishes John Lewis's claim that #brexit is partly due to their fall in profits "There will be some temptation from businesses that aren't doing so well to blame #brexit.." #Unbelievable #peoplesvote #FBPE pic.twitter.com/U1KlFCtoli

9.13am BST

9.01am BST

Britain's Brexit secretary Dominic Raab has launched a stinging attack on John Lewis for daring to suggest that Brexit uncertainty is hurting.

Asked on the Today Programme about businesses's concerns about the Brexit negotiations, Raab insisted that Britain's economy was a sunny place:

"It's probably rather easy at this moment in time for any business which isn't doing rather well to point to Brexit.

But let me just give you the facts. This week we've had economic growth accelerating, we've had real wages accelerating"

We've had Anglo-Dutch firm Relx revise its structure to be based in the UK.

Actually inflation has come down to 2.5%, some people said it would hit 4%

I don't doubt that uncertainty around these negotiations will have an impact on business. That's why we are putting all our energy into getting the good deal that we want with our EU friends and partners, while making sure we manage the risks if it doesn't happen.

8.54am BST

John Lewis's chairman, Charlie Mayfield, told the Today Programme that cost inflation has surged due to the weak pound (which is still 13% below its pre-referendum levels).

He also warned that Waitrose wouldn't simply be able to stockpile all its food after Britain leaves the EU, explaining:

"The thing about stockpiling food (for Waitrose) is the stuff that's most sensitive to these things is actually perishable, so you can't really stockpile it, it rots, and you waste it. What we're doing is we're looking at all our import and export arrangements and so that we're prepared as we can be.

"The other thing is we're making sure the business is financially sound so we have the highest liquidity position in a long time, in terms of having cash and resources available because there's so much uncertainty and you don't know what's going to happen, you don't want to find yourself in a tight squeeze.

"I really hope it won't (be a no-deal Brexit). I've said before that would be a very bad outcome for the UK and the consequences are extremely unpredictable.

8.25am BST

John Lewis Partnership chairman Charlie Mayfield has taken to the airwaves with a rallying cry to staff and customers.

"You don't succeed by retrenching so if anything we are investing more and pushing on with differentiation,.

The simple truth is that times like these call for cool heads and really determined ambition."

8.13am BST

John Lewis also warns that profits in the second half of the financial year (to the end of January 2019) will be sharply lower than a year ago.

It says:

With the level of uncertainty facing consumers and the economy, in part due to ongoing Brexit negotiations, forecasting is particularly difficult but we continue to expect full year profits to be substantially lower than last year for the Partnership as a whole.

We expect profit growth in Waitrose & Partners will be offset by the continuing margin pressure in John Lewis & Partners and by incremental costs of investment.

8.12am BST

John Lewis says its department stores suffered from falling demand for "big ticket and bespoke items", as consumers cut back.

This dragged sales at its "Home" division down by 4.2%.

8.05am BST

Here's the top line from John Lewis today:

8.00am BST

John Lewis's pledge to match other retailers' prices has also hit its bottom line this year.

The company says the plunge in profits...

...reflects our decision not to pass on to our customers all cost price inflation from a weaker exchange rate and from our Never Knowingly Undersold promise, where we have seen an unprecedented level of price matching as other retailers have discounted heavily.

7.59am BST

Here's some instant reaction to the John Lewis figures:

John Lewis Partnership profits, pre exceptionals down nearly 99% in the first half to 1.2m as the department store division falls to a loss.

John Lewis. Sales up, but profits down 99%. The business feels like it's broken. Never knowingly unsold needs refining, badly.

The retail market is very volatile at the moment. Household name John Lewis has just announced a profit slump of 99% meaning only 1.2m profit made in first 6 months. Are costs rising or spending falling (or both)? #Retail #JohnLewis https://t.co/HOzFZVTzD1

7.54am BST

Breaking: the John Lewis Partnership has seen its profits all-but wiped out in the last six months.

The group, which owns Waitrose and the John Lewis department stores, has reported a 99% slump in pre-tax profits (before exceptional items) to just 1.2m in the first half of the year. That's down from aroud 83m a year earlier.

"These are challenging times in retail. Our profits before exceptionals are in line with what we said they would be at our Strategy Update in June.

We're continuing to improve our offer for customers while ensuring we have the financial strength to continue developing our business going forward.

7.39am BST

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

It's a huuuuge day for central bank news. Policymakers at the Bank of England, the European Central Bank and the Bank of Turkey are all meeting today to set monetary policy, and potentially unleash a few fireworks too.

Related: Mark Carney agrees to stay at Bank of England until January 2020

ECB is expected to cut its forecast for Eurozone growth rate, reports @mattmiller1973 @BloombergTV, chart @ECB pic.twitter.com/uQOeUcnHzw

A rate rise would be symbolic for the global financial community. One reason why the lira fell so sharply over the summer was partly due to fears about the political atmosphere and President Erdogan taking control of the central bank for his own economic benefit.

He spoke out vociferously against rate hikes, saying that higher interest rates did not dampen inflation, which goes against traditional economic theory. He also placed his son-in-law in the finance ministry, both things spooked investors' and triggered the Turkish financial market crisis.

Credibility is the word - #Turkey's c. bank is expected to raise interest rates at Thursday's MPC meeting. Predictions for the hike vary widely btw 225 bps to 725 bps. "The decision would reflect the prioritization of Turkish authorities' concerns" https://t.co/ZGvrQHz0he

European Opening Calls:#FTSE 7302 -0.16%#DAX 12004 -0.24%#CAC 5317 -0.29%#MIB 20914 -0.23%#IBEX 9283 -0.26%

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