Government won't hold inquiry into hedge funds speculating on no-deal Brexit – as it happened

Graeme Wearden

from Economics | The Guardian on 2019-09-30 16:17 (#4RFT7)

An urgent parliamentary question has examined claims Boris Johnson's supporters are shorting the pound

5.14pm BST

Time for a recap

The UK government has refused to launch an inquiry into its links to financial speculators who are accused of shorting UK assets to profit from a disorderly departure from the EU.

The Prime Minister and the Conservative Party have received 726,000 from individuals who back a no-deal Brexit, many involved in hedge funds, in this year alone."

John Mcdonnell had told the Commons "evidence has mounted of sizeable sums being mobilised to short the pound betting on sterling falling in the event of No Brexit''. Cited both the former chancellor, Philip Hammond, and former Treasury Official, Nick Macpherson, backing the idea

Some of the PM's biggest donors are clearly betting against Britain, and intentionally or not the prime minister is aiding and abetting them by pursing a no-deal Brexit.

Will the government set up an urgent, independent investigation?

3.58pm BST

Labour MP Bill Esterson says it's wrong that hedge funds who have shorted construction and shopping sector companies [such as Odey] would "cash in" from a no-deal Brexit, at the expense of constituents across the country.

A weary-sounding Simon Clarke repeats that the government wants to leave the EU with a deal. The only reason there's a risk of a no-deal is that the opposition are undermining these efforts, he claims.

3.54pm BST

Labour MP Mike Amesbury MP asks whether the minister is really saying that Philip Hammond is a member of the "tin foil hat brigade", by raising concerns over hedge funds.

Simon Clarke says that he has great admiration for the former chancellor, but he's "very clear that in this case he is wrong"

3.51pm BST

Labour MP Kerry McCarthy says the government can't just sweep away its links to hedge funds, and also calls for an inquiry.

We are doing what we're doing because it's right to leave the European Union on 31 October, as we promised, Simon Clarke replies. Suggestions to the contrary are not just wrong, they're offensive.

3.48pm BST

Labour MP Liz McInnes quotes Frances Coppola's concerns (in the Guardian today) about the conflict of interest created by Boris Johnson's links to hedge funds.

Does the PM have the moral courage to cope with this pressure?

3.45pm BST

Labour MP Christian Matheson hits back, saying short-selling doesn't have a role when the government is deliberately manipulating the currency to deliver a big payout to those who have provided financial backing to individual MPs or the Conservative party.

He says there's a "stink of something that doesn't seem quite right".

3.40pm BST

On the issue of nefarious hedge funds, minister Simon Clarke says opposition deputy chief whip in the House of Lords said last year that short selling is not necessarily the evil practice the popular press claim. It has a role.

3.38pm BST

SNP MP Alan Brown also calls for an investigation, pointing out that hedge funds made 350m overnight by betting against the pound in 2016.

There is a clear conflict of interest, so why can't we have an inquiry?

3.34pm BST

Q: How large are the short positions against the pound?

Simon Clarke refuses to comment, and then accuses MPs of trying to smear the government with "wild speculation".

3.32pm BST

Labour MP Jack Dromey reminds ministers that chocolate maker Cadbury was taken over a decade ago, because hedge funds built up a 30% stake in the company and wanted a profit.

Isn't there a conflict of interest when you take money from people who profit from selling Britain short?

3.31pm BST

Ian Austin, Conservative PM, points out that the original claim that hedge funds have taken huge bets against the pound in anticipation of a no-deal Brexit have been debunked twice.

Once by the FT (No deal Brexit is not a hedge fund conspiracy) and then by FullFact (We think there's a big error in that viral article about hedge funds and Brexit).

3.27pm BST

The SNP's David Linden asks the government to publish details of all calls with Crispin Odey (hedge fund magnate and backer of Boris Johnson and Brexit).

Clarke says the government won't comment on meetings with individuals [reminder, Odey told us today that he's only spoken to Johnson once since he became PM]

3.23pm BST

Labour MP Cat Smith reminds the House that hedge funds also took big bets against the pound in 2016 (and made huge profits when the Leave side won).

Is regulation of hedge funds adequate?

3.19pm BST

Now Ed Davey, Liberal Democrat MP, wades in, pointing to the potential conflict of interest that stems from taking money from hedge funds who are shorting the pound.

He says a former Conservative chancellor (Philip Hammond) a former permanent secretary to the treasury (Nick Macpherson) and the prime minister's own sister (Rachel Johnson, on the radio last week) have "blown the whistle" about Boris Johnson's links to City speculators.

Some of the PM's biggest donors are clearly betting against Britain, and intentionally or not the prime minister is aiding and abetting them by pursing a no-deal Brexit.

Will the government set up an urgent, independent investigation?

3.13pm BST

SNP MP Hannah Bardell calls for an independent investigation into Boris Johnson's relationship with speculators, who she calls 'short-changers of society'.

Minister Simon Clarke doesn't address this issue, but instead says MPs should respect democracy and deliver Brexit.

3.11pm BST

Q: Isn't it ironic to see George Soros, who made millions on Black Wednesday, is now backing the 'continuity remain' side?

Clarke sticks to his line that the government doesn't comment on individuals' actions,

3.08pm BST

Independent Group for Change MP Chris Leslie cites a recent stress test by the Office for Budge Responsibility which predicted an-deal Brexit would sent the pound tumbling, and create a year-long recession.

Is this a price worth paying?

3.07pm BST

Conservative MP Craig Mackinlay says Simon Clarke is doing "sterling work" (a pun which ought to get a yellow card from the Speaker).

He invites the minister to talk about Labour's threat to the economy.

3.04pm BST

Labour MP Tracy Brabin tells the House of Commons that she watched The Big Short over the weekend (based on Michael Lewis's excellent investigation into the sub-prime crisis).

Isn't it a question of morality that investors shouldn't profit from a no-deal Brexit?

3.01pm BST

Michael Tomlinson, Conservative MP, says the real threat to the UK economy is John McDonnell becoming chancellor.

Unsurprisingly, minister Simon Clarke happily supports this view (which the DUP's Sammy Wilson then repeats).

2.59pm BST

Labour's Hilary Benn asks the minister to confirm that the government's own economic analysis shows that a no-deal Brexit would have the worst impact on growth, jobs and businesses. And why will he contemplate such a scenario?

Simon Clarke says the government believes on delivering on the 2016 referendum result.

2.57pm BST

Conservative MP Maria Caulfield says the best way to prevent speculators profiting from a no-deal Brexit is to vote for a withdrawal agreement.

Simon Clarke agrees.

2.57pm BST

Labour MP Helen Goodman asks about Crispin Odey's shorting of housebuilders (Berkeley Group) and shopping centres (INTU) (as I wrote yesterday).

Won't this mean he "makes a packet" after a no-deal Brexit, when we can't build homes and shops will close?

2.53pm BST

Former Liberal Democrat leader Vince Cable asks if the government is happy for sterling to fall to any level?

Clarke says the government doesn't set a fixed price for sterling - it's important to allow currencies to move, and he's certain that the pound can find the appropriate level under any circumstances.

2.52pm BST

Amber Rudd, former home secretary, says that Labour's economic plans are creating uncertainty and concern in the markets.

But the SNP's Alison Thewliss raises the conflict of issue question, saying Johnson has received hundreds of thousands of pounds from hedge funds.

2.49pm BST

Simon Clarke (who is exchequer secretary to the Treasury) hits back.

The only people generating uncertainty in parliament are the opposition, he insists.

It is they who are selling this country short.

2.43pm BST

John McDonnell is responding now.

He says Boris Johnson has created uncertainty in the markets through his Brexit strategy.

"Johnson is backed by speculators who have bet billions on a hard Brexit - and there is only one option that works for them: a crash-out no-deal that sends the currency tumbling and inflation soaring."

2.37pm BST

Shadow chancellor John McDonnell is asking his question, on 'short positions against the pound' now.

Cabinet minister Simon Clarke is responding.

2.27pm BST

Newsflash! Crispin Odey, the hedge fund manager who is a leading backer of a no-deal Brexit and Boris Johnson, has denied that he hopes to profit from a disorderly Brexit.

Odey told the Guardian that claims that he supports Brexit because he hopes to make millions from short-selling UK companies and the pound were "absolute rubbish".

Odey said he was optimistic about the prospects for the UK after Brexit, denied influencing strategy at No 10 and said his fund had an overall "neutral" position on UK stocks.

The founder of Odey Asset Management said he had spoken to Boris Johnson only once since the latter became Conservative leader, "two days after, to say congratulations". He added: "I am an observer. When it comes to his strategy, I am not involved."

"It's absolute rubbish. It really is. Politics doesn't drive markets. Markets are very bad at observing political events because they are not monetary.

"We are trading currencies all the time, long and short. Sterling is weak because we have a big current account deficit and an annual budget deficit of 2.5% of GNP [gross national product]. And we have all this noise about whether we are coming out on 31 October and who governs the country - Boris or parliament."

2.23pm BST

Financial commentator and author Frances Coppola has dismissed the claim that hedge funds are planning to profit from a hard Brexit as "mythical".

She's dug into some of Johnson's hedge fund backers, and concluded that they're shorting struggling UK companies for a variety of reasons, not just Brexit.

In short, there is no evidence that the hedge funds that have backed Johnson's election campaign have "millions of pounds" of speculative bets on no-deal Brexit. They have millions of pounds of speculative bets on U.K. companies, yes, but that is simply business as usual. So this is yet another a tin-foil-hat conspiracy theory. But no doubt it will continue to run.

Already, the opposition Labour party has called for an inquiry into Johnson's "conflict of interest."

It is fair to say that financial backing from companies that hope to profit from a no-deal Brexit, even though there is no evidence that they have has yet placed significant bets to that effect, places Johnson under some psychological pressure to deliver what they want even at the expense of the best interests of the country.

But if he is any good as a Prime Minister, he will resist this. And if he isn't, then he shouldn't be in the job.

2.15pm BST

There's no dispute that investors globally have been betting against the pound since the EU referendum.

The US Commodity Futures Trading Commission keeps a record of net positions for speculative trades on sterling, on the New York and Chicago futures markets.

2.12pm BST

Labour have asked chancellor Sajid Javid to respond to the concerns about City speculators shorting the pound.

One problem, he's in Manchester, preparing to give a keynote speech on future tax and spending plans to the Conservative Party conference

Awkward. @sajidjavid will be giving his big #CPC19 speech at that time! https://t.co/eCxNrGiKJU

1.59pm BST

Nick Macpherson, former permanent secretary to the Treasury, backed Philip Hammond yesterday.

Macpherson said the former chancellor was right to question the political connections of some of the hedge funds with a financial interest in no deal, warning:

"They are shorting the pound and the country, with the British people the main loser."

1.40pm BST

Now this might be interesting.

The Labour Party is putting the UK government on the spot about claims that hedge funds who back Boris Johnson have been shorting the pound.

Two UQs granted from 2:30pm:

1) @johnmcdonnellMP to ask @sajidjavid to make a statement on the short positions being taken against the pound in the lead up to a possible no-deal Brexit.

2) @ianpaisleyuk to ask @JulianSmithUK to make a statement on Wrightbus in Ballymena. https://t.co/3Ps5A0z0bn

Nadhim, calm yourself: I made no reference to "interference". I observed 3 things:
1) Boris has backing from hedge fund managers;
2) Some of those will have bet on No Deal;
3) Those that have will be happpy to see scant progress towards a deal.
Which of these 3 is incorrect?

12.51pm BST

Reuters says that the Saudi authorities won't be pleased by this downgrade:

The downgrade - which places Saudi Arabia one notch above the assessment of peer rating agency S&P Global - is a blow to the largest Arab economy just as it is gearing up for a potential international sale of U.S. dollar denominated Islamic bonds.

12.32pm BST

Newsflash: Credit rating agency Fitch has downgraded Saudi Arabia.

In a blow to Riyadh, Fitch has lowered its sovereign credit rating by one notch to A, from A+. That's its sixth highest rating.

"Recent drone and missile attacks on Saudi Arabia's oil infrastructure resulted in the temporary suspension of more than half of the country's oil production.

"Although oil production was restored fully by end-September, we believe that there is a risk of further attacks on Saudi Arabia, which could result in economic damage."

Fitch Downgrades Saudi Arabia to 'A'; Outlook Stable: The downgrade reflects rising geopolitical and military tensions in the Gulf, Fitch's revised assessment of the vulnerability of KSA's economic infrastructure and continued deterioration in fiscal, external balance sheets.

12.06pm BST

UK consumer credit growth has slowed to its lowest level in five years, according to new data from the Bank of England.

This could be a sign that people are more cautious about their spending, and hunkering down in case the economy

The extra amount borrowed by consumers in order to buy goods and services fell to 0.9 billion in August, slightly below the 1.0 billion average since July 2018. Within consumer credit, net credit card borrowing weakened on the month to 0.2 billion, the lowest since December 2018. Net borrowing for other loans and advances remained at 0.7 billion.

The annual growth rate of consumer credit continued to slow in August, falling to 5.4%. This remains considerably lower than its peak of 10.9% in November 2016, and is the lowest level since February 2014.

66k mortgage approvals for house purchase in August according to the Bank of England. Mortgage market still turning over at a steady rate. pic.twitter.com/opB3cn9sue

11.41am BST

Economist Rupert Seggins has also kindly shown the UK's place in the global growth league:

UK GDP growth in Q2 2019 revised up a touch from 1.2%y/y to 1.3%y/y. For those interested in cross country comparisons, the story is unchanged. UK still 4th in G7 rankings & unchanged compared with other OECD countries (0.1% closer to France for the REALLY competitive folks). pic.twitter.com/LwPuVxD2US

11.40am BST

This is a good spot:

There's been a really important revision to business investment today. The point at which investment turned is no longer 2015 (as previously measured). By my reckoning on the new figures it's now more like mid-2017. pic.twitter.com/FXeWfOKV0V

10.59am BST

The ONS has also reported that the UK made a net contribution of 11bn to the European Union last year, as its share of the EU budget.

That works out at 211m per week, contra to what you may have read on the side of a bus.....

Last year the UK's net contribution to the EU was 11bn - the biggest since 2013 and, as far as I can make out, the second biggest on record. https://t.co/BJOe01bY8B pic.twitter.com/Bi9XOfde6X

10.48am BST

How does the UK's performance in 2019 compare to other countries?

Well,as this chart shows, the UK was one of the faster-growing G7 companies in January-March, and the fastest-shrinking in April-June.

There has been a slowdown in the euro area in the latest quarter, largely reflecting the contraction in the German economy where GDP fell by 0.1%.

Having entered a technical recession in the second half of 2018, the Italian economy continues to perform in a subdued manner as there was no pickup in GDP in Quarter 2. French GDP maintained its quarterly rate of growth of 0.3%. Having increased by 0.8% in Quarter 1, US GDP growth slowed to 0.5% in the latest quarter.

10.37am BST

John Hawksworth, chief economist at PwC, says today's "GDP Blue Book data" shows an economy propped up by consumer spending, and riddled with weak business investment.

UK GDP is still estimated to have fallen by 0.2% in the second quarter after an upwardly revised rise of 0.6% in the first quarter of this year. This volatility largely reflects Brexit timing effects and the underlying trend is still for modest GDP growth at an average of around 0.2% per quarter, or just under 1% per year. Early indicators are that growth continued at a similar modest rate in the third quarter.

Household spending has moderated somewhat to an average of around 0.3% per quarter over the past year, but has remained consistently positive, supported by continued jobs growth and increased real earnings. But total investment in the economy has been much more volatile, falling in four of the past six quarters as businesses remain cautious about investing in the face of Brexit-related uncertainty and a slowing global economy.

10.35am BST

Some positive revisions in the UK national accounts today:

q/q% GDP growth revised up by 0.1pp in Q4 and Q1, showing Brexit uncertainty not that damaging

H'holds' saving rate revised up a massive 2pp, highlighting scope to absorb future income shocks without cutting spending: pic.twitter.com/nCzvzPjDcG

10.27am BST

The service sector was the only part of the UK economy to expand in the last quarter, by just 0.1%.

Production, construction and agriculture all contracted, according to today's updated growth report:

9.58am BST

Worryingly, the ONS has calculated that production output fell by a downwardly revised 1.8% in April-June. That's the largest decline since the end of 2012.

This was driven by a revised 2.8% fall in manufacturing output -- partly due to the car factory stoppages.

9.57am BST

The ONS says there's evidence that stockpiling boosted growth in January-March, lifting GDP by a punchy 0.6%.

But, those stocks were then run down in the second quarter, when GDP shrank by 0.2%.

Furthermore, it was also reported that a number of car manufacturers had brought forward their annual shutdowns to April as part of Brexit-related contingency planning.

9.40am BST

Breaking: Britain's economy has grown a little faster than previously thought over the last year.

New GDP figures from the Office for National Statistics show that the economy expanded by 0.6% in January-March, up from 0.5%. A burst of stockpiling ahead of the original Brexit deadline is partly responsible.

Good News! UK first quarter GDP growth is revised up to 0.6% ( from 0.5%) meaning annual growth at Q2 is revised up to 1.3% #GBP

UK Q2 GDP contracts 0.2% - in line with expectations

YoY GDP revised +0.1% to 1.3%#GBP +0.19% against other currencies

9.34am BST

Anxiety over the US-China trade war is keeping European stock markets subdued today.

The main indices are mostly down, a little, after it emerged that American investors could be curbed from investing in China. The White House is also considering blocking Chinese firms from listing on the New York stock exchange, according to insiders.

8.58am BST

UK businesses are also at risk from a Chinese hard landing.

Official data released today showed that China's factory output continued to contract this month. This manufacturing PMI rose to 49.8, from 49.5 -- the fifth straight month of contraction but closer to the break-even 50 point mark.

China PMI data: a mixed bag https://t.co/qwcQpLGYlG pic.twitter.com/4h1Hpl1rBH

8.51am BST

Despite UK PLC's obvious concerns, the government insists that Britain could handle a no-deal Brexit.

Chancellor Sajid Javid has been speaking this morning, ahead of his speech at the Conservative Party conference. He told the BBC that leaving the EU without a deal was possible (despite the Benn Bill ruling it out!).

It's not our preferred outcome. We are working incredibly hard to get a deal by October 31.

But if we do not manage to do that, we do still need to leave the EU on that date - we cannot have any more dither and delay, and we will leave if we have to, without a deal, on October 31.

Sajid Javid says "no one really knows" how much no-deal Brexit will cost the country. Which is reassuring. #r4today

8.44am BST

The CBI, which represents Britain's bosses, has also lashed out the government over its handling of Brexit.

Over the weekend, it reported that private sector activity had shrunk in the last quarter, and will probably keep shrinking at a faster pace in the next few months.

"Decision-makers in boardrooms across the country have been watching politics this week with a heavy heart.

"Despite all the noise, what must not be forgotten is the importance of getting the UK economy back on track, by supporting investment and innovation which is the bedrock of productivity, and higher living standards.

MAIL FINANCIAL: CBI boss goes to war with Boris #TomorrowsPapersToday pic.twitter.com/SWsw6fumht

8.15am BST

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

With just a month until the Brexit deadline, business leaders are growing increasingly pessimistic about the outlook for the UK economy.

"While overall business confidence this month has remained broadly steady, optimism in the economy has fallen, and both remain significantly below the same period last year, and the historic average.

This month we are also seeing firms' concerns about leaving the EU intensify against the backdrop of ongoing economic uncertainty."

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