Bank of England: No-deal Brexit could cause 'significant' market turmoil - business live
Financial Stability Report says UK banks can ride out a no-deal Brexit, but there could be serious volatility in the markets
- Summary: Bank's no-deal Brexit worries
- Latest: Mark Carney holds press conference now
- BREAKING: BoE financial stability report released
- Bank: Brace for serious market jitters after no-deal Brexit
- Bank to hold climate tests
- Climate activists outside the Bank of England
3.30pm BST
The pound is having a rare good day, despite Mark Carney's concerns about Brexit.
Connor Campbell of SpreadEx has the details:
Seemingly taking heart from the Bank of England's claim that there has been 'some improvement in the preparedness of the UK economy for no-deal Brexit', the pound rebounded on Thursday.
Cable [the pound/dollar exchange rate] also benefiting from the restated dovishness of the Federal Reserve, rose 0.3%, putting further ground between it and the week's 2-year-plus lows. Against the euro, meanwhile, it added the same amount, pushing it back above a1.114 and away from yesterday's 6-month nadir. These gains served to prevent the FTSE from joining in with the gains seen elsewhere. Instead the UK index lost 0.2%, dragging it under 7520.
2.17pm BST
Here's John McDonnell MP, Shadow Chancellor, n the Bank of England's Financial Stability Report:
"The Bank of England has spelled out that crashing out of the EU, with no care and no deal, would cause real damage to households and businesses.
"No responsible politician, genuinely concerned for the wellbeing of families and communities, would advocate a no-deal Brexit given these known consequences."
2.13pm BST
Here's our news story on the Bank's latest concerns about financial stability.
Related: Bank of England warns of lending crisis for EU firms after no-deal Brexit
2.10pm BST
Time for a recap
Being ready for financial stability does not mean market stability. Markets will adjust, potentially quite substantially if there is a no-deal Brexit,
It also doesn't mean economic stability. Even with a smooth adjustment it would still be a major economic adjustment, a major economic shock, virtually instantaneously.
1.40pm BST
Just in: core consumer inflation in America has jumped, casting some doubts on expectations that US central bankers are poised to cut interest rates.
Core inflation (stripping out volatile factors such as fuel) jumped to 2.1% per year last month, from 2%, meaning it's now above the Federal Reserve's inflation target.
US CPI (June): 1.6% vs 1.6% expected, prior 1.8%
US core CPI (June): 2.1% vs 2% expected, prior 2%
US jobless claims: 209,000 vs 223,000 expected, prior 222,000 (revised from 221,000)
#Futures pulling back now in response to the better than unexpected CPI numbers $SPY $SPX $ES_F pic.twitter.com/xcovsYIBDa
#CPI apparel prices jump 1.1 percent in June -- erratic category, but still an extraordinary increase
1.32pm BST
City of London Corporation Policy Chair Catherine McGuinness has urged politicians in Westminster to heed the Bank of England's concerns about Brexit:
She says a disorderly exit must be avoided:
Material risks include the threat of 'significant market volatility', which could cause economic turmoil in the UK and beyond. While the sector is prepared, the worst impacts can only be mitigated, not avoided, by preparation. In addition to industry action, there is a need for government to take steps to prevent cliff-edge damage.
"This should be a wake-up call for Westminster. We are now just over three months away from the next Brexit cliff-edge and the risk of no-deal is drawing dangerously close. As every day passes, the crippling uncertainty that is holding business hostage remains, leaving companies unable to make everyday decisions. This has been demonstrated in recent data covering the services sector.
1.29pm BST
The Bank of England's new climate change stress tests will force banks to take the issue more seriously, says David Strachan, head of Deloitte's EMEA Centre for Regulatory Strategy:
"Banks will need to make some very significant advances in data collection and in their understanding and management of climate change risks, in order to be ready for the 2021 exploratory scenario. For many, this will require them to develop a wholly-new risk discipline."
1.05pm BST
The Times have written up Mark Carney's concerns about open-ended funds.
Investment firms may be banned from allowing customers to pull out their money with a day's notice if their underlying assets are difficult to sell, under plans being considered by the Bank of England.
Open-ended funds that invest in commercial property such as shopping centres, which can take a year to sell, may have to tell investors that they have to keep their money tied up for about a year.
12.29pm BST
UK political risk has surged in recent years, points out the Bank's new financial stability report:
What's hot and what's not in UK financial system risk according to the latest survey from the Bank of England. pic.twitter.com/fxKfhh2k1y
12.25pm BST
During the press conference, Mark Carney was asked whether the cost of a no-deal Brexit were "vanishingly inexpensive", as Boris Johnson breezily claimed this week.
The governor suggested not.
Being ready for financial stability does not mean market stability. Markets will adjust, potentially quite substantially if there is a no-deal Brexit,
It also doesn't mean economic stability. Even with a smooth adjustment it would still be a major economic adjustment, a major economic shock, virtually instantaneously.
.@ITVJoel asked Bank of England governor Mark Carney about Boris Johnson's claims the cost of a no-deal Brexit were "vanishingly inexpensive for us to prepare".
Read more on Joel's blog here: https://t.co/5BA50AfoaJ pic.twitter.com/4ueChh6dRs
12.11pm BST
Time for one last question.....
Q: Given the important of central bank independence, what do you say to politicians who might judge your successor based on their Brexit views or their closeness to political leaders?
It's not my position to give advice. It's the government's job to decide who sits on these committees.
Sometimes that means an uncomfortable message comes out, that a certain domestic policy or international development has a real risk to financial stability.
We have a statutory duty to reveal our thinking on that risk, and take action to mitigate that risk where we can.
12.02pm BST
My colleague Richard Partington asks Mark Carney about the 'tragedy of the horizon' [where short-term focused companies won't consider the climate emergency until it's too late]
Q: Is disclosure and stress-testing really adequate to tackle the market failure of the 'tragedy of the horizon'? Isn't it time to use macro-prudential tools, credit guidance, or green QE, as the climate activists outside say?
11.57am BST
Q: What is your message to political leaders on Brexit, about what still needs to be done?
Mark Carney says there is "more to be done" in terms of creating capacity and infrastructure for Britain's new trade relations with the EU.
11.54am BST
Q: Are you satisfied with Deutsche Bank's restructuring (which is shedding 18,000 jobs).
Deputy governor Sam Woods says Deutsche Bank has well-known problems. The BoE welcomes its "ambitious plan", but will work with DB to see how the plan is implemented.
11.51am BST
Q: The Financial Stability Report mentions Facebook's Libra cryptocurrency - what are your concerns?
Mark Carney explains that G7 countries have created a working group to understand Facebook's proposition, and consider the risks and opportunities.
The standards are in a different zipcode than in other forms of technology.
This is not 'learn on the job' stuff. It needs to be rock solid right from the start, or it's not going to start.
It is way too expensive and slow to do domestic payments,and far too expensive to send money across borders.
11.41am BST
Back to open-ended funds such as Woodford.
Q: Are you saying this is the end for funds that promise daily liquidity... and if so, could you actually create the problems you're trying to solve if investors run to the doors now?
11.38am BST
Q: What's your message to the protesters asking you to do more on climate change, and put your money where your mouth is?
Carney defends the Bank's track record, saying it has taken a lead forcing financial institutions to show their exposure to climate change. This is the TCFD [Task Force on Climate-related Financial Disclosures] rules, which the Bank itself is now following.
That will have a huge impact in terms of the preparedness of the system.
11.33am BST
My colleague Larry Elliott bowls a tempting delivery at the governor....
Q: Are you interested in becoming the next head of the International Monetary Fund?
11.27am BST
Mark Carney says the Bank is "disappointed" that there hasn't been enough progress globally in tackling open-ended funds.
The problem is that they promise instant liquidity, but can't provide it if investors rush to the exits at once.
11.22am BST
On Brexit preparations, Carney says UK companies have made "real progress".
But there is still more to do. Some UK exporters are not "all the way there" yet.
11.20am BST
Onto questions.....
Q: Are you really saying that it there is a massive global trade war, and a disorderly Brexit at the same time, the UK banking sector would be strong enough?
"Nobody wants a global trade war... nobody wants a disorderly Brexit" Governor Carney tells me when I ask if he really thinks the banks would be strong enough if a global trade war occurred at the same time as a disorderly Brexit...
Asked about the vacancy at the IMF, Mark Carney says he is "committed to be here" at the Bank of England - he will make sure there is an orderly transition to his successor. Note: he is due to leave in January.
11.12am BST
On the climate emergency, Mark Carney says the companies who adapt to a low-carbon future will thrive, while those which fail will "cease to exist".
He says the Bank's next stress tests, in 2021, will test companies for their preparation on climate change -- a world first, he declares (see this post for more details).
11.10am BST
Carney turns to another financial threat -- open-ended funds which invest in illiquid assets.
The problem is that fund managers cannot access capital fast enough if too many investors try to redeem their money. This is likely to encourage investors to check out (rather than languish at the back of the queue) creating a "self-reinforcing dynamic".
11.06am BST
Governor Carney is running through the key points we covered earlier -- the UK financial system is ready for a no-deal Brexit, but there would still be major market volatility.
Turning to the rest of the world, Carney points out that global business confidence has been hit by worries about a global trade war. Markets are pricing in lower growth rates, and lower corporate profits, he adds.
11.03am BST
Mark Carney begins by pointing out that Brexit is the single most important determinant of the UK's economic outlook.
Material risks still remain, he warns, even though firms are more prepared for Brexit.
11.01am BST
The Bank of England is holding a press conference now to discuss the Financial Stability Report.
You can watch it online here (unless you're too busy following the exciting cricket....)
10.51am BST
Here's the key message from the Bank of England's financial stability report (which you can read online here).
10.48am BST
The Bank of England has outlined plans to test whether the UK financial system can survive the climate emergency.
It says it will publish a discussion paper in autumn 2019, and complete full stress tests by 2021.
10.44am BST
The Bank of England points out that Brexit worries have pushed the pound down, and have dragged on stock prices too.
It says:
Increased Brexit uncertainties have put additional downward pressure on UK forward interest rates and led to a decline in the sterling exchange rate and an underperformance of UK-focused equities. In markets that are particularly dependent on foreign investors - notably commercial real estate and leveraged lending - investment into the UK was much weaker in 2019 Q1 than in recent years.
The UK banking system remains strong enough to continue to lend through the wide range of UK economic and financial shocks that could be associated with Brexit...
Even if a protectionist-driven global slowdown were to spill over to the UK at the same time as a worst-case disorderly Brexit, the FPC judges that the core UK banking system would be strong enough to absorb, rather than amplify, the resulting economic shocks.
10.36am BST
The Bank of England also warns that Britain could suffer "significant market volatility" in the event of a disorderly Brexit.
The Financial Stability Report warns:
"Financial stability is not the same as market stability. Significant volatility and asset price changes are to be expected in a disorderly Brexit."
10.33am BST
Breaking! The Bank of England believes the UK banking sector is strong enough to withstand a disorderly Brexit, and an intensified trade war.
Its latest financial stability report has just been released, showing that the UK's banks have enough capital to ride out a double-whammy of disruption at home and abroad.
"The perceived likelihood of a no-deal Brexit has increased since the start of the year,"
"The UK banking system remains strong enough to continue to lend through the wide range of UK economic and financial shocks that could be associated with Brexit.
10.27am BST
Here's a photo of a petition card being delivered to the Bank of England (perhaps to one of its pink frock coat-wearing security guards).
10.22am BST
Analysts at Royal Bank of Canada have predicted that the Bank of England will slash interest rates from 0.75% to 0.5% immediately, if Britain leaves the EU without a deal this autumn.
But if Britain leaves with a deal, they think the BoE will sit on its hands for some time....
10.11am BST
One protestor is even quoting one of Mark Carney's recent articles on the climate emergency (we published it here), which called on the financial sector to help tackle the problem.
9.37am BST
You can sign the petition urging the Bank of England to help decarbonise the economy and support investment in low-carbon companies and technologies here.
The letter recognises that BoE governor Mark Carney has spoken out about the issue -- including in a speech in March, urging governments to deliver coherent and credible policies. But more action is needed to drive the UK's "green transition".
Your recent warning about the "devastating effects" of climate change has provided a much-needed wake-up call to the world's banks, investors and regulators. It's brilliant to see you set a powerful example by announcing that the Bank of England will disclose its own climate risk.
But we know you can and must go further. You rightly acknowledge that meeting even the modest targets of the Paris Agreement will require a "massive reallocation of capital". But this is unlikely to happen unless central banks play a leading role.
"What do we want!? Green investment! When do we want it!? NOW!!" The climate emergency is on our doorstep we need to #GreenTheBoE today! If you agree sign here > https://t.co/pHbDJllbRa pic.twitter.com/ssKrI8qXN9
9.13am BST
The demonstrators are chanting "Whose climate? Our climate" outside the Bank:
Protestors are chanting "whose climate, our climate" and say the Bank has Shell and BP assets on its balance sheet from QE pic.twitter.com/FpreOhpIVE
Rachel Oliver, head of campaigns at @PositiveMoneyUK, says they want the Bank to take climate risks as seriously as other risks, such as for mortgages. She says credit guidance could be used to penalise carbon linked assets
9.11am BST
Today's protests are organised by Positive Money and Fossil Free London, who argue that the climate emergency is a massive threat to financial stability.
As such, the Bank should prioritise climate change when assessing the risks to the UK economy and the financial system.
The Bank of England rightly recognises that climate change represents a huge risk to financial stability, estimating that it may lead to $20tn in losses - nearly ten times UK GDP. However, while the central bank has made good progress in talking the talk, it has not always walked the walk, continuing to shy away from treating climate change with the same gravity it gives to other risks to financial stability, such as risky mortgage lending.
The Bank of England itself has also been culpable in fuelling carbon bubbles, buying bonds in high-carbon companies such as the likes of Shell and BP with money created through its corporate QE programme. Positive Money and Fossil Free London wants the Bank of England's power to create money to be used in a way that helps rather than hinders the green transition.
9.05am BST
A group of campaigners have assembled outside the Bank of England, demanding it does more to tackle the climate emergency.
They will hand over two A1 postcards signed by hundreds of members of the public during the recent Glastonbury festival, addressed to governor Mark Carney with the text:
"We the undersigned urge you to use the Bank of England's powers to unleash green investment now!"
Protestors outside the Bank of England this morning ahead of its regular financial stability report press conference pic.twitter.com/BaMaCg9iu6
The protestors organised by a@PositiveMoneyUKa(C) and @divestlondon say the UK needs a "complete reorientation of the banking system" - calling for "Green QE" to decarbonise the economy pic.twitter.com/FmGjm00Wkk
"I very much enjoyed Stormzy. He puts his money where his mouth is in terms of building a more diverse society."
8.45am BST
Mohamed A. El-Erian , chief economic adviser at Allianz, explains why today's financial stability report (released at 10.30am UK time) matters:
Good morning.
While many institutions now publish "financial stability reports." that of the @BankOfEngland remains one of the most insightful. The latest edition is due out today -- at a time when some key measures of financial conditions are at their loosest levels in 25 years.
8.38am BST
The oil price has hit its highest level since late May, after three Iranian boats "attempted to impede" a British oil tanker in the Gulf.
The incident took place in the strait of Hormuz through which the commercial vessel, British Heritage, was attempting to pass. It comes in the wake of the UK seizure of an Iranian oil tanker last week, for which Tehran had threatened retaliation.
"Contrary to international law, three Iranian vessels attempted to impede the passage of a commercial vessel, British Heritage, through the strait of Hormuz," a UK government statement released on Thursday morning said.
Related: Iranian boats 'attempted to impede' British oil tanker in strait of Hormuz
8.31am BST
Commodity prices are also rallying, sending palladium up to $1,600 per ounce for the first time since March.
Palladium is used in car catalytic converters, so a pick-up in economic demand can push its price higher. Plus, anything priced in dollars can go up when the US currency weakens.
8.21am BST
The weakness of the dollar is giving sterling some support this morning, pushing the pound back over $1.25 (away from a six-month low).
8.14am BST
European stocks are also pushing higher, with the Stoxx 600 index gaining 0.3%.
In London, house builders are among the top risers after the latest RICS survey of chartered surveyors suggested the market was picking up.
8.06am BST
America's S&P 500 stock index surged over the 3,000 point mark for the first time ever yesterday, after Fed chair Jerome Powell signalled that a rate cut is close.
A July rate cut seems set in stone as Powell cites geopolitical uncertainties and global growth slowdown as the reasons why an easier policy will help sustain the expansion domestically.
8.00am BST
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Related: Fed chairman hints at first interest rate cut in over a decade
The US dollar gave back gains on a sharp move after the Federal Reserve (Fed) Governor Jerome Powell has been very clear that the global economic slowdown outweighs the encouraging data in the US at his speech before the congress on Wednesday.
Powell's testimony gave yet another solid sign that the Fed is preparing to cut the interest rates in July. In the wake of Powell's first day of testimony, the market sees a 25-basis-point cut as largely granted
European Opening Calls:#FTSE 7559 +0.37%#DAX 12432 +0.47%#CAC 5590 +0.40%#MIB 22169 +0.56%#IBEX 9282 +0.32%
Dollar weakness continuing this morning, trading 0.22% lower:#EURUSD 1.12694 +0.17%#GBPUSD 1.25278 +0.21%#USDJPY 107.988 -0.44%#USDCAD 1.30589 -0.17%#AUDUSD 0.69725 +0.19%#USDCHF 0.98683 -0.27% pic.twitter.com/4KFNGic76a
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