First fall in UK annual retail sales since 2013, Carney says Bank will be nimble over Brexit - as it happened
UK retail sales fell for the first time in October, year-on-year, since 2013, despite stronger-than-expected growth over the month
After recent declines, it was a slightly rosier picture for stock markets today, helped by some positive results from US businesses Wal-Mart and Cisco and some relatively positive economic news. But worries about the Republicans’ US tax reforms mean investors remain cautious. David Madden, market analyst at CMC Markets UK, said:
Stocks markets in Europe are higher today as the bargain hunters move in. For now the selling pressure has cooled, but traders are still cautious after the market endured several days of selling in a row. One positive day won’t erase the memory of the declines that we saw recently. As we approach the end of the year, we could see further selling pressure as investors look to square up their position before the year ends.
On Wall Street, the Dow Jones Industrial Average is currently up 197 points or 0.85%.
We’ll see how the economy evolves. If it evolves broadly in line with our projections we would probably raise interest rates a couple of times over the next few years.
But there’s some pretty big forces, some pretty big decisions still to be taken with respect to Brexit by the UK Government and the Europeans and all of those things can affect the path (of the economy).
One eminent Twitter user whose every tweet seems to cause headlines is Lloyd Blankfein, and his latest comments are about Brexit. Jill Treanor writes:
“Reluctant to say, but many wish for a confirming vote on a decision so monumental and irreversible. So much at stake, why not make sure consensus still there?”
Markets are heading higher after recent declines, helped by positive results from a couple of US corporations and some better than expected data. Joshua Mahony, market analyst at IG, said:
European and US markets are following the lead of their Asian counterparts, with yesterday’s widespread losses being left behind for a more positive outlook today. The final remnants of the third quarter earnings season have helped US indices along, with a strong showing from Cisco and Wal-mart providing a boost as we leave behind a quarter which saw significant outperformance bred largely from low expectations.
The outperformance of Wal-Mart is particularly welcome, with rising sales helping the World’s biggest retailer to gain over 8%, boosting the retail sector ahead of the crucial festive period. The retail sector boost was felt on both sides of the Atlantic, with the October UK retail sales figure outperforming across the board, helped by a historically low pound. However, while we saw retail sales beat expectations, the fact that the year-on-year figure remains in negative growth will not be lost to economists, with the economy continuing to flounder amid an uncertain economic outlook.
Investors are also cautious about the Republican’s proposed US tax reforms, and whether they will be passed by lawmakers or not.
Carney is asked about being criticised for commenting on Brexit by both sides of the polictical spectrum.
He says, we have to look straight through that. The only thing political for us is if we try to anticipate a political reaction. We have a responsibility under law to identify major risks to UK financial system and the broader economy.
In advance of the referendum and today we see some of the most important risks relate to Brexit so when we testify to Parliament and when we sit here...we view that there are risks and there are big risks and we have to disclose those under law, then we have to say what we are doing to reduce those risks and again be honest and open, and say if there are some risks we can address you should know about them and hold others to account for addressing them.
He says, we were under a statutory responsibility to identify risks. If there was a vote to leave, we said the exchange rate would go down - you can judge whether it did. We said there would be pressure on UK financial institutions. We let them put collateral with us so they could borrow almost unlimited amounts with us, we co-ordinated with other central banks, so in the morning after the referendum...we could stand up and say we’re well prepared, the system’s going to be fine. That is the criteria we should be judged against. Some people during the campaign didn’t want to know there were risks, but there were, we did our best to address them...
There are risks associated with the nature of leaving, it matters what type of deal we get, it matters what the timeline is.
On Brexit, Carney adds that the Bank makes a judgement about how businesses and households are acting today, what their expectation is in the end.
Households are being more affected by the real income squeeze than a concern about future wages under a bad Brexit scenario. What matters is how those expectations change in time, that will happen when there is real information. It could go either way.
Whatever happens we will be nimble enough to bring inflation back to target while supporting the economy, and the core of financial system will be there.
On Brexit, Sir Jon Cunliffe says the Bank’s job is to ensure monetary stability, make sure whatever happens people don’t have to worry about inflation, and financial stablity, so people don’t have to worry about disruption to the fin system as we saw in the crisis.
We do this by working closely with banks so when things change, there is no disruption to financial services, in terms of things like insurance contracts. We test the banks to make sure they are strong enough to withstand a big event. We are helping government to turn EU law on financial services into UK law.
And we have to stay nimble so we can take action as it becomes clear what sort of Brexit it will be.
We have all sorts of complicated frameworks but they come down to two things: does the bank have enough of its own money to absorb any losses, and are the people running the bank honest, competent and know what they’re doing. If either question is no, we take action.
It would be easy to crush all risk out of the system, but we don’t want to do that, we want banks to do useful things like lending to consumers and businesses.
Woods is asked about why the money was put into the banks rather than helping the NHS.
He says it’s a fair point. Back in 2008 we put £66bn into two of our banks, same number as all currency in circulation. It was a terrible thing, and a lot of work we;e done is to make the system stronger so that next time we have more options and not just taxpayer writing a cheque.
Sir Jon Cunliffe adds that the money was put in not to save the bankers but to save the economy from the bankers. The anger [about the crisis] is well justified.
Ben Broadbent is asked to explain why interest rates rose at the most recent meeting, in two and a half minutes.
He emphasises the importance of stable inflation, saying volatile inflation is not good for economy, and it makes it difficult for businesses to plan.
We vary the interest rate to ensure inflation is stable. Inflation can be too low as well as too high. After the financial crisis, the danger was it was too low, interest rates were cutt to ensure that didn’t happen.
After the referendum, the value of the currency fell, all stuff we buy from abroad went up in price and pushed up the rate of inflation.
Although interest rates are at historic lows, the MPC did decide to put them up at last meeting. It makes borrowing a bit more expensive, adds a little bit to savings, helps to control inflation.
On wages he said: Wages are not going up as rapidly as they used to before the crisis. The problem we have in the economy is productivity, how much more productive we get over time. That is fundamentally why wages are growing less quickly.
On whether interest rates are effective, he said the policy has worked pretty well.
After a couple of days of decline, US markets have opened in positive territory after strong earnings from Cisco and Wal-Mart.
The Dow Jones Industrial Average is up 130 points or 0.57% while the S&P 500 opened 0.39% higher and Nasdaq Composite 0.55% better.
Industrial production rose by more than expected in October, up 0.9% compared to a 0.4% rise in September, as output rebounded after the effects of the recent hurricanes. Analysts had been expecting a 0.5% increase last month.
Talking about the difficulties of communicating, Carney says the Bank’s charter in 1694 begins with a 700 word sentence, which no one would do now. Not clear and open transparent communication.
Carney moves onto the economy, and says the recovery since the financial crash has been slower than the Great Depression, real incomes have fallen. But more recently the UK and local economy has picked up.
Carney says they will discuss what causes changes in the economy, what effects they have and what role the Bank has (the team has been around schools this morning talking about this.)
He says people think economists are perceived as being terrible about explaining the economy in an accessible way, and that is what they are now trying to do.
Here are the Bank’s governors waiting to answer questions:
The number of Americans filing for unemployment benefits rose unexpectedly last week, partly because authorities are still clearing backlog of claims in Puerto Rico following the disruption caused by hurricanes.
Economists polled by Reuters were expecting a fall in the number of new claims to 235,000.
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