George Osborne says Brexit would drive up mortgage rates

Chancellor says that the cost of home loans is likely to rise if voters decide to leave EU in 23 June referendum

George Osborne has issued a stark warning that mortgage rates will rise if Britain leaves the European Union.

The chancellor said he thought it was likely interest rates, and therefore the cost of home loans, would rise if Britons vote to leave the EU in the referendum on 23 June. But Brexit campaigners accused Osborne of panicking and resorting to intimidating voters.

Related: Alistair Darling: Brexit would risk collapse of confidence in UK economy

Related: Bank of England stages Brexit dress rehearsal

Continue reading…

Oil falls ahead of Opec; US data disappoints and China fears mount – as it happened

Citi’s Michael Saunders to replace Martin Weale on Bank’s MPCWeak US industrial production data and disappointing confidence figures… but positive New York manufacturing surveyCredit bubble dangersChina’s growth rate hits a seven-year low
What the economists say

6.12pm BST

The number of oil rigs drilling in the US dipped last week for the fourth week in a row, according to the regular survey by Baker Hughes.

Oil rig numbers dipped by 3 to 351, the lowest level since November 2009, while the number of gas rigs was unchanged at 89:

5.57pm BST

There are likely to be only modest US interest rate rises this year, with economic conditions riskier than they were when the Federal Reserve raised rates in December.

That is the view of Chicago Fed president Charles Evans, in a speech in Washington.

Evans sees only modest rate hikes this yr

Evans wants more confidence that core PCE will reach 2%

5.15pm BST

UK chancellor George Osborne has added more fuel to the flames of the Brexit debate by saying in Washington that mortgage rates would rise in Britain left the EU. Rupert Neate and Katie Allen report:

The chancellor said he thought it was “likely” that interest rates, and therefore the cost of home loans, would rise if Britons vote to leave the EU in the referendum on 23 June.

Asked if he thought that the cost of mortgages would increase on a British exit from the 28-nation bloc Osborne said: “The short answer is yes. I think that is likely, but I’m not in charge of interest rates.”

Related: George Osborne says Brexit will drive up mortgage rates

5.06pm BST

With Chinese economic growth slowing down – albeit in line with expectations – and oil sliding ahead of this weekend’s meeting of producers in Doha, European shares have ended the week on a negative note. Tony Cross, market analyst at Trustnet Direct, said:

It has perhaps been a predictably muted end to the week for London’s FTSE-100. The benchmark index is sitting a little lower on the day but we’re closing well up on the week and that’s certainly worth cheering, Sustaining the rally from here however really does rely heavily on a meaningful production freeze being implemented by oil producer nations meeting in Qatar this weekend – we’ve already seen some pessimism creeping in there over the last few hours, crude is off a touch and this is certainly going to be casting a shadow over sentiment.

4.52pm BST

In an interesting bit of timing, the news that Citigroup economist Michael Saunders was joining the Bank of England’s monetary policy committee came shortly after the US bank reported a 27% drop in first quarter earnings.

This is the biggest fall reported by any of the big US banks so far, with the bank blaming lower revenues from trading and investment banking and bad loans to the energy industry following the slide in oil prices.

4.16pm BST

The European Central Bank will keep rates at their current low (in some cases negative) levels for an extended period, ECB president Mario Draghi has said in a speech in Washington.

That means well beyond March 2017 when its bond purchase programme is due to run out. Draghi said:

Taking into account the current outlook for price stability, the Governing Council expects the ECB’s key policy rates to remain at present or lower levels for an extended period of time, well past the horizon of the net asset purchases. We are confident that the very accommodative monetary policy stance will provide further support to the euro area recovery and will accelerate the return of inflation to levels that we consider to be consistent with our objective. The Governing Council has done and, within its mandate, will continue to do whatever is needed to pursue its price stability objective.

The outlook for euro area growth remains faced with uncertainty, mainly as a result of downside risks to growth prospects in emerging market economies, a clouded outlook for oil prices and their economic implications, and also geopolitical risks.

Looking ahead, inflation in the euro area is likely to display slightly negative rates in the coming months before picking up later in 2016. Thereafter, supported by our substantial monetary stimulus and the projected evolution of energy prices and economic developments more generally, euro area inflation rates should recover further. In the current context, it is crucial for the ECB to ensure that the very low inflation environment does not become entrenched in second-round effects on wage and price-setting.

The stability of the euro area banking sector has improved significantly over the past few years. Bank capital and provisions have been substantially reinforced and bank profitability has started to rise again. However, against the background of a moderate economic recovery, this profitability remains low. Structural factors may also be at play. In addition, in some jurisdictions, a high stock of non-performing loans (NPLs) continues to linger as a legacy of the earlier crisis. As this may constrain banks’ lending capacity and their ability to build up further capital buffers, determined action is needed. Cooperation among all major stakeholders, including governments, banks, regulators and investors, at national and European level, is necessary in order to make substantial progress in this field. Tailored approaches, based on a thorough understanding of country-specific aspects and in the context of a comprehensive strategy that is led as much as possible by the private sector, are needed. The banking supervision arm of the ECB is working from the supervisory perspective, on identifying best practices that can be adopted by individual banks. Certainly, a decline in NPL ratios will also be facilitated by an environment of stronger economic growth.

4.04pm BST

Meanwhile Greek prime minister Alexis Tsipras has welcomed (to put it mildly) the news that the ECB will accept bonds from Greek banks in its QE programme. The Athens-Macedonian news agency reported Tsipras commenting in parliament:

This decision, he said, amounts to indirect recapitalization as Greek banks may gradually sell during the year up to 50 pct of the EFSF bonds they hold in their portfolios, whose value is estimates at over 30 billion euros. This also means the banks will have a very important boost totaling 18.5 billion euros.

“This development is not only a significant relief for banks and liquidity, it also constitutes the beginning of the end for the crisis and the imminent [program] review,” Tsipras said.

3.44pm BST

IMF director Poul Thomsen has said he expects to come to an agreement on Greece soon, but hardly seemed very positive in some of his other comments. And the various parties involved still seem at odds on key points:

Statements 2day:
-Dijsselbloem & Dombrovskis: We’re close to agreement
-Schäuble: Greece doesn’t need debt relief
-Thomsen: Greece is a mess

#IMF’s THOMSEN: #GREECE TO HAVE DOUBLE-DIGIT UNEMPLOYMENT FOR DECADES

#IMF’s THOMSEN: EURO-AREA BAILOUT TARGETS FOR #GREECE NOT CREDIBLE

#GRECCE | #IMF THOMSEN: VERY LIMITED IF ANY DISCUSSION ON GREEK DEBT RELIEF – BBG

IMF’s Thomsen says there is “menu of options” to deal with #Greece’s debt load. “One can achieve it without a haircut if that’s desirable.”

Schäuble says #Greece doesn’t need debt relief; Thomsen says maybe #IMF won’t put in any money. Going swimmingly. https://t.co/TF9q3hgAZb

3.23pm BST

The US consumer confidence figures suggest the second quarter has got off to a poor start, says Rob Carnell at ING:

Expectations for a rise in the University of Michigan index of consumer sentiment were dashed by a fall – this is beginning to look like a trend.

Despite some better recent labour market data and more positive stock market behaviour, US consumers were more downbeat in April, according to the latest University of Michigan index of consumer sentiment.

3.12pm BST

In a boost to Greek banks, the European Central Bank earlier announced it would include EFSF notes in its list of eligible securities which it can buy under its quantitative easing programme.

Greek banks hold more than €30bn of these notes, and had not been allowed to sell them in the market, but could now make gains on the securities.

Greek bank shares up 15% after ECB gifts them a cash windfall. Banks can now profit from sale of 30 billion euros of bailout bonds via QE.

3.06pm BST

More disappointing US data, with the University of Michigan consumer confidence index coming in lower than expected.

The preliminary index for April was 89.7, down from 91 in March and below forecasts of a level of 92.

2.53pm BST

Commenting on the weekend’s meeting of oil producers in Doha, analysts at finnCap said:

The market is focussing on the meeting in Doha on the 17th when the group of OPEC and non-OPEC countries decide on whether or not to freeze production at January levels which we note were at an all-time high for OPEC. The “group” produces over half of global production, but excludes Iran, which is keen to get its production back to pre-sanction levels. Historically, OPEC has not been particularly effective at sticking to quotas so it is unclear if this new group will be any stricter should the freeze be put in place. One suspects not and this will need to be closely monitored for it to be an effective way of manageing the oil price.

On Monday we should have some visibility as to what the outcome of the meeting has been. An agreement to freeze will be good for the oil price in the short term, but any sign of cheating would be viewed negatively by the market, making the whole process to that point pointless.

2.41pm BST

The US industrial production figures are “bad, bad and bad”, says Rob Carnell of ING Bank, and cast doubts on a June rate rise let alone one in April. He says:

Following a 0.6% decline in February, which we felt was dominated by warmer than usual weather depressing utilities output, a small bounce in activity, or at least a smaller decline in overall industrial production looked a sensible forecast, backed up by a slight bounce in the manufacturing ISM index.

But production fell a further 0.6% month on month, utility production fell less than in February, but still by a sizeable 1.2% month on month, while mining (for which read in large part – shale extraction) fell at an accelerated pace of 2.9% (-1.0% in Feb) and manufacturing also accelerated its decline falling by 0.3% month on month, with particularly large fall (-1.6% month on month) in motor vehicles and parts. If that were not bad enough, even the February figures saw some small downward revisions.

2.24pm BST

Back to the US, and some weaker than expected industrial data, to follow the better than expected New York manufacturing survey.

Industrial output fell by 0.6% in March, with February’s figure revised down from a 0.5% drop to 0.6%.

2.20pm BST

The Treasury and Bank of England have now confirmed Citigroup’s Michael Saunders will replace Martin Weale on the Bank’s monetary policy committee, as of 9 August. The Treasury said:

As an external member of the MPC, Michael Saunders will hold one of nine votes to decide the future path of UK monetary policy. The MPC currently meets monthly to set monetary policy it judges will enable the inflation target to be met.

The Chancellor of the Exchequer, George Osborne said:

Mark Carney (Governor); Ben Broadbent (Deputy Governor, Monetary Policy); Dame Minouche Shafik (Deputy Governor, Markets and Banking); Sir Jon Cunliffe (Deputy Governor, Financial Stability); Andy Haldane (Executive Director, Monetary Analysis and Chief Economist); Kristin Forbes (external member); Ian McCafferty (external member); Gertjan Vlieghe (external member) and Michael Saunders (external member).

On behalf of the Bank of England, I am delighted to welcome Michael Saunders to the Monetary Policy Committee. He brings first-rate knowledge of the UK economy and a wealth of economic and financial experience.

I would also like to take this opportunity to thank Martin Weale for the exceptional contribution he has made to the work of the Monetary Policy Committee over the past six years. Martin joined the Committee at a time of grave economic challenge for the United Kingdom, bringing invaluable practical knowledge of the UK economy coupled with academic expertise. Amongst his many contributions, Martin advanced our understanding of the labour market, assisted in the development of unconventional monetary policy and supported the Bank’s efforts to increase transparency and effective communication.

2.05pm BST

Martin Weale joined the Monetary Policy Committee in 2010 after 15 years as director of the National Institute of Economic and Social Research.

He was appointed for a second three year term in 2013, which – by a mathematical deduction – ends this year.

1.59pm BST

The Michael Saunders news appears to have come out of Washington where chancellor George Osborne is attending the IMF spring meeting:

Michael Saunders from Citi appointed to #MPC to replace Martin Weale. Osborne says he has a “wealth of experience and his time has come”

1.54pm BST

Citi veteran Michael Saunders to replace @bankofengland Martin Weale from end July, Saunders strong on UK impact of global financial crisis

1.51pm BST

Here’s Citi’s profile of Saunders:

1.44pm BST

Citigroup economist Michael Saunders is set to replace Martin Weale on the Bank of England’s monetary policy committee, according to MNI.

1.43pm BST

Empire State Manufacturing Survey, April 2016: Business activity expanded; April index 9.6 https://t.co/bg44TB8sw9 pic.twitter.com/PjL47Vs6hN

1.41pm BST

Upbeat signs from the US economy, with the April Empire manufacturing survey from the New York Federal Reserve showing the business conditions index rising to its highest level in more than a year.

The index came in at 9.6, up from 0.6 in March and better than the forecast 2.2. The employment index dipped slightly from 1.98 to 1.92 but the new orders index rose from 9.57 to 11.14. The Fed said:

The April 2016 Empire State Manufacturing Survey indicates that business activity expanded for New York manufacturers. The headline general business conditions climbed nine points to 9.6, its highest level in more than a year. The new orders and shipments indexes registered an increase in both orders and shipments, and inventories were slightly lower than last month. The prices paid index climbed sixteen points to 19.2, pointing to a pickup in input price increases, while the prices received index rose above zero, a sign that selling prices increased. Employment levels and the average workweek were little changed from March. The six-month outlook continued to improve.

1.19pm BST

The UK treasury will publish its analysis on Britain’s EU membership by 22 April, with the select committee quizzing chancellor George Osborne on 28 April.

The committee will take evidence from the leave campaign a few days earlier, on 20 April. Committee chair Andrew Tyrie said in a statement:

The chancellor will be questioned on the Treasury’s own analysis of the UK’s membership of the EU, and the alternatives to it. He has undertaken to publish this by Friday 22 April.

12.36pm BST

Greece will be on the agenda when German chancellor Angela Merkel meets US president Obama on Sunday, according to newspaper Kathimerini:

Greece is expected to be among the topics on the agenda of talks on Sunday when US President Barack Obama is to meet with German Chancellor Angela Merkel in Hanover.

Obama is traveling to Germany to join Merkel for the launch of the Hanover Messe, a major global trade fair for industrial technology.

12.19pm BST

It’s exactly one year since the European Central Bank’s press conference was disrupted by a campaigner throwing glitter at Mario Draghi.

Jo Witt’s call to “End ECB dick-tatorship” made headlines around the world, after she was hauled out of the room by security.

Remarkable scenes at today’s ECB press conference: http://t.co/XB6i3QSCd4 pic.twitter.com/sCy08at1bq

We can try to change our economy. If the ECB was a democratically elected institution we could use it far more for the better.

How to train your Draghi pic.twitter.com/HGG5lDvHeh

12.07pm BST

Brent crude is also falling ahead of Sunday’s OPEC meeting, down 1.7% at $43.09 per barrel.

Joshua Mahoney of IG says nervousness is gripping the City:

A tangible sense of apprehension has swept across global markets today, with traders unwilling to hold positions into the weekend given the clear risk of events in Doha on Sunday.

Once more money is beginning to flock into safe haven assets such as gold and the yen, at the expense of the week’s best performers.

11.47am BST

City economists are extremely worried that China has embarked on a dangerous new credit bubble, after lending almost doubled in March.

Paul Donovan, UBS global economist: China’s ok for now this year and next. Then the credit bubble will burst. @CNBCWEX

#China has responded to the credit boom with….another credit boom. Strongest new financing quarter on record. pic.twitter.com/oHovvy6fL2

China’s growth stabilization came at expense of fresh credit surge. Outstanding credit now about 215% of GDP (3/3) pic.twitter.com/O4hMWIVkei

SocGen’s Yao on China boomlet. “old-styled credit-backed investment-driven recovery, uncanny resemblance to $4 trillion stimulus 2009”. Yes

10.56am BST

The oil price is dipping this morning as hopes of a breakthrough deal between oil producers this weekend fade.

OPEC producers are due to gather in Doha on Sunday, to discuss whether to freeze output at January’s levels.

Iran confirms OPEC governor to represent nation at Doha talks, not oil minister – BBG

#Iran confirms oil minister Zanganeh won’t attend Doha meet. Iran delegation to be led by Opec governor Kazempour https://t.co/ivpdCNOFzq

#Oil producers head for Doha counting $315bn cost of slump. https://t.co/Hq4psB5WUc pic.twitter.com/F6n7RNy5rH

Confusion reigns supreme and it’s unclear whether we will see oil producers agree to limit production. Swing producer Saudi Arabia is key, but it’s made it clear it will only act if Iran joins the party.

In the wild west of oil, no one wants to put down their gun first.

10.07am BST

The FTSE 100 index is ending the week on a low note.

It’s down by 22 point, or 0.35%, now, led by housebuilders, with China’s slowing growth rate also weighing on the City.

Related: FTSE falters on China and UK construction, with housebuilders sliding

9.57am BST

Meanwhile in the UK, new housebuilding has jumped at its fastest rate ever.

The Office for National Statistics has reported that new homebuilding has jumped by 6.8% in the three months to February.

UK construction output grew 1.5%q/q in February, despite a big drop in factory & warehouse construction. pic.twitter.com/ENCQMlRmtx

Both measures offer the user something different; the Markit PMI is the more timely estimate, but our slower release of data enables us to provide a more comprehensive coverage of the sector.

9.17am BST

Concern is growing over China’s debt levels after the amount of new credit surged last month.

Chinese banks extended 1,370 billion yuan of new loans (£150bn) in March — almost doubling Februarys’s 726.6 billion yuan.

It has taken considerable monetary and fiscal policy loosening to stabilise economic growth at this level and this effort has distracted from the reform agenda that is fundamental to long-term economic sustainability.

Levels of debt within the Chinese economy are too high and we are concerned that the authorities are not moving quickly enough to address the issue.

Looking further ahead, we are very sceptical that the government’s targeted 6.5% “floor” for annual economic growth over the next five years will prove attainable and the risk of a sharp economic slowdown, or hard-landing, will persist.”

“This can’t continue. The key is efficiency of credit use because we know that some of the credit is used to keep these zombie companies alive.”

#China’s credit-driven growth model in one chart! Corporate credit growth outpaced #GDP growth every single year. pic.twitter.com/mvwudZ79Nl

8.42am BST

Rating agency Moody’s is worried that China’s stimulus efforts are storing up long-term problems:

Moody’s on China GDP: shows Beijing’s ability to stimulate economy, support for near term growth may further increase long term imbalances.

Moody’s on China: sign of stimulus propping up growth- rapid growth in fixed asset investment (13.8% in real terms) nearly twice fast as GDP

8.35am BST

Today’s growth figures suggest that the recent splurge in Chinese government spending is working.

Anna Stupnytska, Global Economist at Fidelity International, shows how investment by state-controlled companies has soared by nearly a fifth:

Crazy #China data 2: state-directed investment +23%yoy. Highest since 2009. Huge stimulus supporting activity pic.twitter.com/9nNWgL2SSj

8.27am BST

European shares have edged lower at the start of trading:

8.17am BST

China’s official news agency, Xinhua, is sticking to the party line today.

It has tweeted several graphs, arguing that the country’s economy is in good health:

To examine the health of China’s economy in Q1, four simple graphs to check: pic.twitter.com/UAQObAiYhX

8.12am BST

Julian Evans-Pritchard of Capital Economics reckons China’s true growth rate is lower than the official estimate or 6.7%.

He’s hopeful, though, that its economy is stabilising.

“As always, the GDP figures will be met with some scepticism. For our part we do think that China’s economy is expanding slower than the official figures suggest – our China Activity Proxy (CAP) points to growth of 4.1% y/y during the first two months of the year.

More positively though, our CAP looks to have at least stabilised last quarter, suggesting that policy easing has helped to avert a deeper downturn.

All the results are above market expectations, it shows the rebalancing of the economy is proceeding to plan. If anything, the figures are surprisingly high, so one wonders about the sustainability of the growth rate for future months. Hopefully we’ll see other economies around the world focus on lifting their own growth rates.”

“Sound development” is official line as #China economy grows 6.7% in Q1, while a 7 year low, it is consistent with a Soft Landing.

7.55am BST

Asian markets have fallen following the news that China’s annual growth rate has fallen to 6.7% in the last three months.

The Shanghai Composite index has dropped almost 0.5%, while Japan’s Topix is down 0.75%.

7.45am BST

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

If only everything in life was as reliable as China’s GDP.

#China GDP Growth long term chart #economics @MarkYusko @Mick_Peel @PaulGambles2 @AlastairWinter @WorthWray pic.twitter.com/nI4ImR1tng

#BREAKING China Retail Sales rose 10.5% (beats estimates of 10.4%)

#BREAKING China Factory Output rose 6.8% (beats estimates of 5.9%) – highest since June last year

“Data from the investment-industry nexus show that the tried and tested stimulus measures of recent months have stirred up the physical part of the economy, especially towards the end of [the first quarter], while consumption remained relatively robust.”

The data confounded some expectations that improved economic performance in February and March would offset the sharp slowdown seen during January.

Related: China quarterly GDP growth slows but signs of stability emerge

Continue reading…

Bank’s new MPC member: a dovish hawk with a City pedigree

Michael Saunders believes that even a referendum vote to quit the EU would not alter his view that interest rates are on an upward path

Michael Saunders has a reputation as a hawk, who in recent years believed the economy to be in rude health and in need of higher interest rates to suppress inflationary pressures.

Last year he argued that the Bank of England’s outlook for growth and inflation was overly gloomy and interest rate rises would arrive sooner than the monetary policy committee (MPC) forecast. The year before he said much the same.

Related: Bank of England appoints Michael Saunders to MPC

Continue reading…

Bank of England appoints Michael Saunders to MPC

Citigroup economist will replace Martin Weale on the monetary policy committee

Michael Saunders, an economist at the investment bank Citigroup, has been appointed to the Bank of England’s interest rate setting committee.

Saunders, a respected commentator on economics after more than 25 years at Citigroup, will replace Martin Weale whose term on the monetary policy committee (MPC) ends in August. Weale joined the nine-strong committee in 2010 having previously headed the National Institute of Economic and Social Research.

Michael Saunders appointed as external member of Monetary Policy Committee@bankofengland https://t.co/y6pdT07D1W pic.twitter.com/FaVCTgwWRg

Pleased to appoint Michael Saunders to Bank’s MPC – an economist with a wealth of experience on UK + global economy https://t.co/5IElFQ1xiB

Bank of England welcomes the appointment of Michael Saunders to the Monetary Policy Committee https://t.co/aA8hl2nWvn

Continue reading…

A British bridge to a divided Europe

Britain has much to fear from an acrimonious divorce, as it will inevitably be swept into its turbulent wake

The European Union has never been very popular in Britain. It joined late, and its voters will be asked on 23 June whether they want to leave early. The referendum’s outcome will not be legally binding on the government; but it is inconceivable that Britain will stay if the public’s verdict is to quit.

Over the years, the focus of the British debate about Europe has shifted. In the 1960s and 1970s, the question was whether Britain could afford not to join what was then the European Economic Community. The fear was that the UK would be shut out of the world’s fastest-growing market, and that its partnership with the US would be at risk as well: The western alliance would consist of two pillars, and Europe, not a shrunken Britain, would be one of them.

Related: Will Obama’s Brexit intervention make a difference? | Simon Jenkins

Continue reading…

UK housebuilding booms but construction sector flags

Private housebuilding rose to its highest level since records began in 2010

Housebuilding in Britain picked up to a record high in February but the rest of the construction sector struggled amid signs that uncertainty over the EU referendum and public spending cuts are denting activity, according to official figures.

The Office for National Statistics said private housebuilding rose 3.9% from January, the fastest growth for 10 months and taking it to the highest level since records began in 2010.

Continue reading…

UK and European allies plan to deal ‘hammer blow’ to tax evasion

George Osborne agrees to cooperate with France, Germany, Spain and Italy on exposing shell firms and overseas trusts

Britain and its European allies have announced new rules designed to be a “hammer blow” against tax evasion in direct response to the Panama Papers leak that exposed how the world’s richest and most powerful people hide their wealth from tax authorities.

George Osborne announced on Thursday, in partnership with his counterparts from France, Germany, Spain and Italy, regulations that will lead to the automatic sharing of information about the true owners of complex shell companies and overseas trusts.

Continue reading…

Big rise in UK firms struggling financially, warns insolvency expert

Begbies Traynor says number of firms in trouble rose by 20%, with concerns Brexit vote could tip companies over the edge

The number of British manufacturers who are struggling financially has risen by 20%, with food and drinks companies hardest hit – despite the weak pound making UK exports cheaper abroad.

Data from the insolvency firm Begbies Traynor showed that 21,061 UK manufacturers, many of which rely heavily on exporting, ended the first quarter of this year in a state of significant financial distress – 20% more than a year ago.

Continue reading…