Weak global economy and sharp slowdown in UK growth will prevent any rise from 0.5% for at least four years, says EIUAnxiety in global markets and a weakening US economy will force the Bank of England to delay UK interest rate rises until at least 2020, according to a leading firm of analysts.The Economist Intelligence Unit (EIU) forecast, which will cheer mortgage borrowers and disappoint savers, extends by at least three years the timeline for the central bank’s first increase from the historically low 0.5%.Related: Market turmoil: European markets fall again after Japan's 5% rout – live updates Continue reading...

Worries over the world economy and the outlook for banks have sent global stock markets tumbling again

With the US and the world economy looking much weaker than two months ago, Janet Yellen must signal that a March rate rise is off the agendaShare prices are tumbling. Bank shares are being clobbered. There is talk of a US recession, induced by a strong dollar that is already causing havoc in China, much of the rest of Asia and Latin America. In the good – or bad – old days, we could predict what the chair of US Federal Reserve would do in these circumstances. Alan Greenspan would cut interest rates, or hint at his intention to do so.Is Janet Yellen, Greenspan’s successor but one, of similar mind? If she is, she has an opportunity to say so on Wednesday when she begins two days of testimony before Congress. This event has suddenly assumed an importance that seemed unlikely when the Fed raised interest rates last December for the first time since 2006.Related: Fears over weak growth cause global stock markets to fall Continue reading...

The chancellor has made his name by talking tough. But a new audit of his stern promises reveals that they are less than they seemMore than seven years have passed since George Osborne stood up, at the depth of the financial crisis, and pronounced that “the cupboard is bare”. He had previously been the young Tory moderniser, pledged to match New Labour’s social spending, but when hard times came, he recast himself as an old-fashioned bank manager, who would not shrink from telling Britain how broke it was.The same solemn pose has served Mr Osborne well ever since. It allowed him, first, to cling on at the Treasury, which wasn’t a given during the stagnation that dogged much of the first Cameron administration. It contributed, too, to his party’s stunning success last year in coming back at the end of a five-year term of shared power, during which average living standards had fallen, with a mandate to govern alone. Spelling out hard truths has proved a winning trick even when these turned out not to be, well, true. It did Mr Osborne no damage at all when his defining promise to pay down the deficit in the course of a single parliament gradually collapsed into a 10-year plan. It did him no harm, either, when he sternly committed in 2014 to the grim necessity of rolling back the size of the state to prewar proportions, before deciding that this was not after all quite necessary just before polling day, and then indulging in a second post-election rethink, deciding that he could now afford to throw a shield over the police and the army. Continue reading...

The IFS says the chancellor’s plan to turn a deficit into a surplus is good politics but bad government, especially given the reliance on tax receipts and oil pricesThe last time the government showed a determination to turn a budget deficit into a surplus it was the mid-1990s. Ken Clarke was the chancellor and it was, he said, the responsible thing to do in the wake of the debts racked up following the 1990 recession.George Osborne also wants to achieve surplus, and one trend that could help him is the low oil price. If there was one overriding feature in the 1990s that kept the global economy growing and the tax receipts rolling in, apart from the giddy tech boom, it was oil at $12 a barrel.

A brief burst of Keynes prevented a 1930s-style collapse that might have led to a more fundamental rethink of the status quoKeynes’s General Theory of Employment, Interest and Money is to economics what Joyce’s Ulysses is to literature: a classic that lots more people start than finish. The same applies to two other seminal works from the dismal science: Adam Smith’s Wealth of Nations and Karl Marx’s Capital.It is a fair bet, though, that a good chunk of the Keynes devotees at last week’s British Academy celebration of the 80th anniversary of the publication of the General Theory in February 1936 had ploughed their way through Postulates of the Classical Economy to Notes on Mercantilism, while only occasionally thinking they would rather be reading Tinker Tailor Soldier Spy. Continue reading...

Goldman Sachs’ CEO Lloyd Blankfein inadvertently pushed young people closer to Democratic underdog who speaks their language of ‘economic angst’Congratulations, Lloyd Blankfein, on giving the presidential bid by Vermont senator Bernie Sanders a big boost! Oh, that wasn’t what you meant to do? Whoops …Whether or not the Goldman Sachs CEO intended to further undermine the appeal of Democratic party contender and his former paid speaker, Hillary Clinton, in eyes of a key voter bloc, that’s precisely what his description of Sanders’ campaign as having “the potential to be a dangerous moment” accomplished. And if either of them want to know why, it’s the economy stupid!Related: I worked on Wall Street. I am skeptical Hillary Clinton will rein it in | Chris ArnadeRelated: Millennials 'heart' Bernie Sanders: why the young and hip are #FeelingtheBern Continue reading...

Weaker than expected rise of 151,000 new jobs backs evidence that the US economy is heading for a bumpy rideHindsight is a wonderful thing. It’s easy to be wise after the event and say a decision was a mistake. But it’s hard to imagine that the Federal Reserve would have raised interest rates in December had it known then what it knows now.News that employment growth as measured by the increase in non-farm payrolls was up by 151,000 is just the latest piece of evidence to suggest that the US economy is going through a tough period. Growth in the fourth quarter was weak, sales of durable goods suggest that businesses are reluctant to invest, and consumers are saving rather than spending the windfall from lower oil prices.Related: US economy adds 151,000 jobs amid rising concern about loss of momentum Continue reading...

Hints that the Fed won’t raise interest rates in March are proving to be good news for miners and oil producers’ share pricesDid you miss Thursday’s super soaraway stock market? OK, it was a local affair that wasn’t obvious in the headline figures – the FTSE 100 index advanced a trifling 60 points, or 1%. But look what happened to some very large companies. Anglo American up 20%, Glencore 16% higher, BHP Billiton 11% dearer, even the Shell colossus advanced 6%. These are huge moves. What happened?The short answer is that the market suspects the US Federal Reserve is having second thoughts about increases in interest rates. Nor is the idea wildly speculative. William Dudley, a top Fed official, said on Wednesday that monetary conditions had tightened since December’s quarter-point rise and rate setters would have to take note. Further strengthening in the dollar, added Dudley, could have “significant consequences” for the health of the US economy. Translation: the Fed probably won’t raise in March. Continue reading...

Countries around the world should get used to pattern of unfamiliar inflation, growth, monetary policies and asset pricesSince the beginning of the year, the world economy has faced a new bout of severe financial market volatility, marked by sharply falling prices for equities and other risky assets. A variety of factors are at work: concerns about a hard landing for the Chinese economy, worries that US growth is faltering at a time when the Federal Reserve has begun raising interest rates, fears of escalating Saudi-Iranian conflict and signs – most notably plummeting oil and commodity prices – of severe weakness in global demand.And there’s more. The fall in oil prices, together with a lack of market liquidity, the rise in the leverage of US energy companies and that of energy firms and fragile sovereigns in oil-exporting economies, is stoking fears of serious credit events and a systemic crisis in credit markets. And then there are the seemingly neverending worries about Europe, with a British exit from the European Union becoming more likely, while populist parties of the right and the left gain ground across the continent.Related: Is stagnation the 'new normal' for the world economy? Continue reading...

Dow Jones industrial average falls sharply, adding to gloom about US economy and worries over global stock marketsFresh evidence of a slowdown in the US economy has added to the jittery mood of global stock markets and sent share prices tumbling on both sides of the Atlantic.Trading on Wall Street opened sharply lower on Wednesday after a survey conducted by Markit showed activity in America’s service sector growing at its weakest rate for 27 months.Related: Markets fall on weak US services industry data – as it happened Continue reading...

Rolling coverage of the world economy and the financial markets, as investors continue to worry about the state of the global economy