Rolling coverage of the latest economic and financial news
- Pound jumps as risk of negative interest rates drops
- Bank of England: Six months to prepare for possible negative rates
- Experts suggest they may not be needed if economy recovers
- BoE left interest rates on hold today
- UK car sales fell 39.5% in January
- Worst start to a year since 1970
- UK construction output dipped last month too
That’s all for today. Time for a quick recap.
The Bank of England has given the UK’s commercial banks six months to be ready for the possibility of cutting interest rate below zero. But at its latest monetary policy meeting, the BoE also stressed this isn’t a sign that negative interest rates are likely.
In London, the FTSE 100 index has closed just four points lower at 6503 points.
Lloyds Banking Group and NatWest Group were the top risers, up 5.5%, as the threat of negative interest rates being imposed in the next six months receded.
“The BOE did sound mildly optimistic on the economic outlook and this in turn boosted the pound and weighed on the UK markets,” said John Woolfitt, Director at Atlantic Capital.
“They also highlighted that, whilst at this point they do not want to set a negative interest rate, it is something they wouldn’t rule out if needed.”
Here’s Edward Moya of foreign exchange firm OANDA on the pound’s recovery today:
The British pound surged after the BOE eased concerns that they were closer to considering negative interest rates. Hope for the best and prepare for the worst is what the BOE is telling the banks.
The UK economy is turning a corner and their vaccine rollout success should point to a brighter second half of the year.
Back in the US, Treasury secretary Janet Yellen has warned there are “tough months ahead” before the US economy gets to the other side of the coronavirus-related crisis.
She also said that she and financial market regulators needed to “understand deeply” what happened in the trading frenzy involving GameStop and other retail stocks in recent days before taking any action.
“We really need to make sure that our financial markets are functioning properly, efficiently and that investors are protected.”
It appears that there is very high leverage among many, many retail investors in the US, and maybe around all parts of the world as well.
Obviously that is very high risk and that puts investors at very high risk of losing their money frankly.
One of the things we do have to watch is this whole question about margin calls on retail brokerage platforms. Clearing houses of course have to make margin calls, that’s entirely the right thing to do.
But the retail brokerage platforms have to be ready for those and have to stress test their own position, and obviously the substantial price volatility in the very high level of volume has caused, you know, those bad margin calls to happen.
As well as pushing up unemployment, the pandemic has also lead to longer working hours for those doing their jobs from home during the lockdown.
My colleague Hilary Osborne explains:
Employees who work from home are spending longer at their desks and facing a bigger workload than before the Covid pandemic hit, two sets of research have suggested.
The average length of time an employee working from home in the UK, Austria, Canada and the US is logged on at their computer has increased by more than two hours a day since the coronavirus crisis, according to data from the business support company NordVPN Teams.
Over in America, the number of new unemployment claims has fallen – but still remains at a level unseen before the pandemic.
American workers filed 779,000 fresh applications for unemployment benefits last week, on a seasonally adjusted basis, down from 812,000.
#MORE Continuing claims fell by 193,000 to 4.6 million for the week ending 01/23
Total number of Americans receiving benefits under all programs fell to 17.8 million
U.S. jobless claims keep easing, but it leaves initial claims—a proxy for layoffs—at a higher weekly level than before the winter surge in coronavirus cases. The decline in the week ended Jan. 30 marked the third week of lower filings. https://t.co/dJ8kH0jIa4 pic.twitter.com/vnTJAPTYyI
“Some looser lockdown measures and the vaccine roll out have helped the US initial jobless claims to fall again this week, and by a lot more than expected.
Given that the President’s support package is not going through as smoothly as he would like, this is good news. However, it suits those that argue against the size of the package.
Bank shares have rallied in London, as the threat of negative interest rates within the next six months recedes.
NatWest Group and Lloyds are both up around 6%, at the top of the FTSE 100 risers board, as the City reacts to the BoE’s move:
OIS Pricing Out Negative Rates After BoE pic.twitter.com/mnBArfFbNk
In other banking news, the Guardian has confirmed that 190 jobs are at risk at Lloyds Banking Group.
These changes reflect our ongoing plans to continue to make parts of our business simpler and to meet the changing needs of our customers.”
“Sadly, ever since the financial crisis we have been dealing with business re-structuring [and] redundancies.
“Ultra-low interest rates, the expected rise in unemployment with associated loan impairments, changing customer behaviour and the technological landscape mean that things are going to get any easier on the jobs front any time soon.”
Ben Chu of the Independent shows how the pound bounced, as the City anticipated that negative interest rates may not be needed in six months time, if the economic recovery is underway by the summer
No “signal” on negative rates today insists @bankofengland
But put its implication of no negative rates for at least 6 months (to enable banks to get ready) & projection for decent economic bounceback in H2 2021 and it’s little surprise you get this reaction from market pic.twitter.com/dWjUT2i1Vw
Here’s my colleague Phillip Inman on the Bank of England’s move:
The Bank of England took a step closer to introducing negative interest rates for the first time on Thursday, after it gave lenders six months to prepare for such a move.
Threadneedle Street’s monetary policy committee (MPC) voted unanimously to keep the official interest rate at historically low levels while it agreed to set the deadline for banks to prepare themselves after policymakers said they were ready to make negative lending rates part of their toolkit.
The pound is continuing to strengthen.
It’s now up a third of a cent against the US dollar at $1.368, and has extended its gains against the euro to €1.142.
$GBPUSD has strengthened to currently trade above 1.3680 following today’s #BoE meeting as the MPC talked down the chances of negative rates. The pair had weakened leading into the meeting, falling below the 1.3600 level for the first time in over two weeks. $GBP $USD pic.twitter.com/0UmVDouBm8
Bank of England governor Andrew Bailey says investors shouldn’t take any signal from today’s statement about the likelihood of negative interest rates.
He tells reporters:
My message to the markets is: you really should not try to read the future behaviour of the MPC from these decisions and these actions we’re taking on the toolbox.
Laith Khalaf, financial analyst at AJ Bell, explains how negative interest rates could affect savers:
Experience of negative rates in other countries suggests that even if rates turn negative, most banks wouldn’t charge high street customers to hold money in their accounts, mainly because you can always take cash out of the bank and stuff it in a mattress. Those with higher balances would be most at risk, because a bank account provides security that is hard to replicate without financial cost.
Negative base rate would likely lead to an explosion in the number of bank accounts paying zero interest, which currently house around £225 billion of savers’ cash. While savers might not explicitly pay interest to their bank, it’s possible banks would introduce fees instead, something HSBC said it’s looking at in some markets.
Several economists and strategists are predicting that the UK is unlikely to resort to negative interest rates.
Hugh Gimber, global market strategist at J.P. Morgan Asset Management, says:
The economic outlook is beginning to brighten with vaccine rollout proceeding at pace and, even in the event of a setback, the November decision to expand the QE programme has created ample firepower if more support does become warranted. With pent-up savings set to be unleashed later this year by consumers looking to make up for lost time, the likelihood of negative rates being implemented in the UK this year is reducing.
“That said, the MPC clearly has an eye on their options to guard against the next hit to the UK economy, whenever that may come, and the decision to ask banks to prepare the capability to implement negative rates should be viewed in this context. Careful wording in the minutes to stress that this decision should not be mistaken as a policy signal highlights the Bank’s understanding of what a momentous move this would be.
For a start, it will take at least 6 months to work out the operational obstacles. More generally, it feels like policymakers are well aware of the issues and the uncertain merits of the tool, which has not been particularly effective in other jurisdictions.
If the base case of a strong recovery over 2021 – taking economic activity back to its pre-crisis levels by Q1 2022 – pans out, the Bank will be glad to keep negative policy rates idle in its toolbox.”
“Firstly, the BoE stressed that preparations should not be interpreted as an imminent policy signal, or indeed a “prospect at any time”.
Secondly, from a broader macro standpoint we don’t regard negative rates – which could adversely impact the banking sector – as an effective tool for downturn periods, even if they are accompanied by a tiered system of reserve remuneration.
Sterling has hit a near nine-month high against the euro, as the prospect of imminent negative interest rates recedes.
The pound has risen over €1.139, its highest point since last May, after the BoE gave banks six months to prepare for any cut below zero.
Markets were given some clarity on the negative rates debate. The Bank has indicated that it will take six months for the financial sector to prepare for such a move. The MPC were clear that it is not their intention to take rates lower, but it is worth preparing for the possibility in case it is needed in the future.
We do not expect the BoE to take rates into negative territory. In our view, they will remain on hold for the year. The economy should see a marked improvement in the coming months, which will change the tone of the debate for policymakers. Especially against a medium-term forecast for inflation that is close to the Bank’s target.
The Bank of England has dampened the prospect of cutting UK interest rates below zero in the next few months.
Following a consultation with UK banks, the central bank has concluded they would need six months to prepare for negative interest rates. Moving sooner than six months would lead to “increased operational risks”.
“The Prudential Regulation Authority’s engagement with regulated firms had indicated that implementation of a negative Bank Rate over a shorter timeframe than six months would attract increased operational risks,”
On the basis of firms’ responses to this exercise, the PRA understands that the majority of firms would be able to implement tactical solutions to accommodate a negative Bank Rate within six months, without material risks to safety and soundness.
Taking this into account, and consistent with the PRA’s primary statutory objective to promote the safety and soundness of individual firms, along with its insurance policyholder protection objective and secondary competition objective, the PRA considers that an implementation period of shorter than six months would attract increased operational risks and could adversely impact some firms’ safety and soundness and the PRA’s wider statutory objectives.
– cuts 2021 GDP growth forecast to 5% from 7.5% in November
– sees inflation accelerating 2.1% in 2 years
– to start work on tiered system in case rates cut below zero
– says banks should start preparations for negative rates if needed pic.twitter.com/fDhtwM4YYt
The Bank of England has also predicted that the UK economy will shrink around 4% in the current quarter, due to the current Covid-19 lockdown.
But it also predicts that GDP was stronger than expected in the final three months of last year, because “more businesses appeared to be better prepared to continue operating than during the first lockdown”.
UK GDP is expected to have risen a little in 2020 Q4 to a level around 8% lower than in 2019 Q4. This is materially stronger than expected in the November Report.
While the scale and breadth of the Covid restrictions in place at present mean that they are expected to affect activity more than those in 2020 Q4, their impact is not expected to be as severe as in 2020 Q2, during the United Kingdom’s first lockdown.
The Bank of England’s most significant projection is that GDP is expected to fall by around 4% in 2021 Q1, in contrast to expectations of a rise in the November Report. But still only about a fifth/sixth of the drop in activity in the spring.
“The outlook for the economy remains unusually uncertain. It depends on the evolution of the pandemic,
measures taken to protect public health, and how households, businesses and financial markets respond to
these developments.” – MPC
The Bank of England’s Monetary Policy Committee has voted unanimously to leave UK interest rates unchanged, at their current record low of 0.1%.
The MPC has also left its asset purchase stimulus programme unchanged, meaning it will continue to buy up to £875bn of UK government bonds, as well as holding £20bn of corporate debt – leaving the total package at £895bn.
We have published the February Monetary Policy Summary, Minutes of the Monetary Policy Committee Meeting ending 3 February 2021 and the Monetary Policy Report.
Summary and Minutes:https://t.co/Akh0Ah0KEe
Monetary Policy Report:https://t.co/p8C0u0ivqC
The catering company at the centre of a row over meagre free school meal parcels for schoolchildren has apologised again and will cover the cost of meals over February half-term.
The move by Compass, a FTSE 100 company, came after its subsidiary, Chartwells, faced significant criticism in January when pictures of its food parcels for children eligible for free school meals were widely shared. The parcels were supposed to help children in low-income families while schools in the UK were closed by lockdowns.
This is due to a series of actions we have taken over the last year to adapt our operations and to manage our cost base more flexibly, including contract renegotiations and resizing of the business.
In the cryptocurrency world, Dogecoin has surged over 50% after billionaire entrepreneur Elon Musk ended a brief break from Twitter to declare that “Dogecoin is the people’s crypto”….
Price of dogecoin rises by 50% following Elon Musk tweet https://t.co/UjYPnNxqCm
Builders were under pressure in January as new order growth across the sector fell to the lowest rate since last June, says Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply:
Clients hesitated to commit to new workflows because of concerns around the vitality of the UK economy which in turn brought cautious job hiring and obliterated the gains made in employment numbers in December. The residential sector had been relatively immune to the effects of lockdowns and pandemic disruptions but it too was beginning to show signs of weakness for the first time in over six months.
Progress in the sector feels like two steps forward and one step back for builders, as the shortages and the longest delays in supply chains since May affected optimism and led to the sharpest rise in building costs since June 2018.”
UK building firms also reported that employment numbers dropped in January, wiping out a small increase during December.
Job cuts were primarily linked to the nonreplacement of leavers following project completions, Markit reports.
The UK construction sector has also made a weak start to the year, with output declining unexpectedly in January for the first time in seven months.
Data firm IHS Markit reports that its construction PMI, which measures activity across the sector, dropped to 49.2 last month — a sharp decline on December’s 54.6.
Construction companies often noted that the third national lockdown and concerns about the near-term economic outlook had led to greater hesitancy among clients, especially for new commercial projects.
“The construction sector ended a seven-month run of expansion in January as a renewed slide in commercial work dragged down overall output volumes. House building was the only major construction segment to register growth, but momentum slowed considerably in comparison to the second half of last year.
Construction companies continued to report major delays with receiving imported products and materials from suppliers, with congestion at UK ports contributing to the sharpest lengthening of delivery times since May 2020. Adding to the squeeze on the construction sector, rising steel and timber costs led to the fastest rate of input price inflation for just over two-and-a-half years.
Teletext Holidays is the latest travel firm to feel the heat from the Competition and Markets Authority (CMA) for failing to refund travellers.
“We understand that the pandemic is presenting challenges for travel businesses, but it is important that the interests of consumers are properly protected and that businesses comply with the law.
“We’ll be engaging with Teletext to establish whether the law has been broken and will take further action if necessary.”
We’ve launched an investigation into Teletext Holidays to establish whether it broke consumer protection law over refunds for holidays cancelled due to #coronavirus.
January’s car sales figures make ‘grim reading’ says David Borland, EY UK & Ireland Automotive Leader, especially if you compare them to 2019…
With 2020 being the lowest sales total since 1992 and also the lowest manufacturing output since 1984, it makes grim reading for a sector already under strain. To add to the bleak outlook, it is also worth keeping in perspective that January 2020 performance was not impacted by the pandemic, but sales were still down by 7% on 2019. So, based on a biennial comparison, today’s figures are 44% down on 2019.
“But this is not just a UK issue – a truly global industry faces, in the main, similar challenges. We have seen similar declines in the EU, with Spain being one of the most challenging markets with a 51% reduction from 2020.
This was driven by some one-off effects, with consumers bringing forward orders to December to take advantage of a scrappage scheme and the after effect of storm Filomena further denting consumer confidence. Germany also recorded a decline of -31%.
Sue Robinson, chief executive of the National Franchised Dealers Association (NFDA), says pent-up demand should help the car sector recover later this year:
“Franchised dealers continue to offer ‘click & collect’ and deliveries to customers, and aftersales servicing to keep key workers on the road, however, there is a proportion of consumers waiting for dealerships to reopen and holding off their vehicle purchases due to the current restrictions. Showrooms have spacious areas and dealers can work by appointment ensuring the safety of customers and staff.
“Positively, sales of electrified vehicles have begun the year with a strong performance and with more models coming to the market, the improvement to the charging infrastructure and retailers investing heavily to inform their customers, sales of EVs will continue to grow.
Here’s some snap reaction to the slump in UK car sales last month, from EY ITEM Club economist Howard Archer:
Notable that year-on-year fall of 39.5% in January in new #UK private #car sales reported by #SMMT deeper than the 27.4% y/y drop suffered in November. Adds to evidence that UK #economy taking a bigger hit from #lockdown at start of 2021 than it did in November https://t.co/kfhsZKUWLI
Rocky start for UK car sales – down 40% in January.
A good month for electric & PHEV – bad for just about everything else. pic.twitter.com/6OjU9yflto
The SMMT also warns that the drop in car sales will hurt UK manufacturers:
With lockdown restrictions in place until March – the most important month of the year for the sector, accounting for one in five new car registrations on average – the industry will face a challenging year as showroom closures depress consumer demand, which has a knock-on effect on manufacturing output.
“Following a £20.4 billion loss of revenue last year, the auto industry faces a difficult start to 2021. The necessary lockdown will challenge society, the economy and our industry’s ability to move quickly towards our ambitious environmental goals.
Lifting the shutters will secure jobs, stimulate the essential demand that supports our manufacturing, and will enable us to forge ahead on the Road to Zero. Every day that showrooms can safely open will matter, especially with the critical month of March looming.”
It’s official, UK car dealers have made their worst start to a new year since 1970.
Industry body SMMT reports that just 90,249 new cars were registered last month – the weakest figures for any January in just over 50 years. That’s down from almost 150,000 a year ago, just before the pandemic hit Europe.
Declines were also recorded in both petrol and diesel cars registrations, which fell by -62.1% and -50.6% respectively. On a positive, however, battery electric vehicle (BEV) uptake grew by 2,206 units (54.4%) to take 6.9% of the market, as the number of available models almost doubled from 22 in January 2019 to 40 this year.
Combined, BEVs and plug-in hybrid vehicles (PHEVs) accounted for 13.7% of registrations.
Royal Dutch Shell plunged to a loss of almost $20bn last year after the impact of the Covid-19 pandemic on the global oil market stripped around $22bn from the value of its oil and gas assets.
Shares in travel firms and hospitality companies are rallying this morning, lifting the FTSE 100 higher.
Hotel operators Whitbread (+4.8%) and InterContinental Hotels (+2.7%) are among the risers, along with jet engine maker Rolls-Royce (+1.8).
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Britain’s car industry has made a spluttering start to 2021, as the latest Covid-19 lockdown hit the economy.
British new car registrations fell by around 40% year-on-year in January, according to preliminary industry data released on Thursday, after nearly all of the United Kingdom spent most of the month in lockdown.
Sales were at their lowest level for a January in decades, according to industry body the Society of Motor Manufacturers and Traders (SMMT).
MPs and campaign groups said the chancellor, Rishi Sunak, had repeatedly ducked opportunities to fix gaps in furlough and the self-employed income support scheme (SEISS) for almost a year since the Covid-19 pandemic began.